-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FgiC45hqj4h3HrzofZ8NFwxiGzSIm2NJhzszpk/sKLV2UMHtb9DzA/6E5ZZi4tM2 zAKwCzlEogVYE1NnWu71LA== 0000802851-99-000004.txt : 19990217 0000802851-99-000004.hdr.sgml : 19990217 ACCESSION NUMBER: 0000802851-99-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990216 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LOGIC DEVICES INC CENTRAL INDEX KEY: 0000802851 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 942893789 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-17187 FILM NUMBER: 99543000 BUSINESS ADDRESS: STREET 1: 1320 ORLEANS DR CITY: SUNNYVALE STATE: CA ZIP: 94086 BUSINESS PHONE: 4085425400 MAIL ADDRESS: STREET 1: 1320 ORLEANS DRIVE CITY: SUNNYVALE STATE: CA ZIP: 94089 10-Q 1 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, 1998 Commission File Number 0-17187 Logic Devices Incorporated California 94-2893789 1320 Orleans Drive, Sunnyvale, California 94089 (408) 542-5400 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 February 12, 1999, 6,632,388 shares of Common Stock, without par value, were outstanding. Logic Devices Incorporated INDEX Page Number Part I. Financial Information Item 1. Financial Statements Balance Sheets as of December 31, 1998 and 3 September 30, 1998 Statements of Income for the three months ended 4 December 30, 1998 and 1997 Statements of Cash Flows for the three months 5 ended December 31, 1998 and 1997 Notes to Financial Statements 6 Item 2. Management's Discussion and Analysis of 8 Financial Condition and Results of Operations Part II. Other Information Item 6. Exhibits and Reports on Form 8-K 11 Signatures 12 Exhibit 11 13 Exhibit 27 14 Part I - FINANCIAL INFORMATION Item 1. Financial Statements Logic Devices Incorporated Balance Sheets
December 31, September 30, 1998 1998 (unaudited) Assets Current assets: Cash and cash equivalents $ 18,300 $ 142,900 Accounts receivable, net of allowance 3,460,400 4,553,400 Inventories 12,227,400 12,535,600 Prepaid expenses 430,500 372,100 Income taxes receivable 90,000 90,000 Total current assets 16,226,600 17,694,000 Equipment and leasehold improvements, net 4,490,100 4,935,500 Other assets 941,500 969,400 $ 21,658,200 $ 23,598,900 Liabilities and Shareholders' Equity Current liabilities: Bank borrowings 4,250,000 5,350,000 Current portion of long-term debt obligations 445,600 562,400 Accounts payable 1,005,000 1,585,400 Accrued expenses 477,700 565,700 Total current liabilities 6,178,300 8,063,500 Long-term debt obligations, less current portion 329,900 392,100 Total liabilities 6,508,200 8,455,600 Shareholders' equity: Common stock 18,091,900 18,091,900 Common stock subscribed (307,500) (307,500) Retained earnings (2,634,400) (2,641,100) Total shareholders' equity 15,150,000 15,143,300 $ 21,658,200 $ 23,598,900
Logic Devices Incorporated Statements of Income Three months ended December 31, 1998 and 1997 (unaudited)
1998 1997 Net sales $ 3,070,900 $ 3,512,100 Cost of sales 1,680,300 2,203,100 Gross margin 1,390,600 1,309,000 Operating expenses: Research and development 369,100 257,900 Selling, general and administrative 884,000 894,400 Operating expenses 1,253,100 1,152,300 Income (loss) from operations 137,500 156,700 Other expense (income), net 130,000 233,700 Income (loss) before taxes 7,500 (77,000) Income taxes 800 (85,000) Net income (loss) $ 6,700 $ 8,000 Net income (loss) per common share $ 0.00 $ 0.00 Weighted average common share equivalents outstanding 6,632,388 6,121,750
Logic Devices Incorporated Statements of Cash Flows Three months ended December 31, 1998 and 1997 (unaudited)
1998 1997 Cash flows from operating activities: Net income (loss) $ 6,700 $ 8,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 464,000 524,900 Change in operating assets and liabilities: Accounts receivable, net 1,093,000 (1,125,000) Inventories 308,200 353,600 Prepaid expenses and other assets(58,400) 618,500 Income taxes receivable - (522,000) Deferred income taxes - 299,000 Accounts payable (580,400) 704,500 Accrued expenses (88,000) 145,300 Net cash provided by (used in) operating activities 1,145,100 1,006,800 Cash flows from investing activities: Capital expenditures (18,600) (853,900) Decrease (increase) in other assets 27,900 (737,700) Net cash provided by (used in) investing activities 9,300 (1,591,600) Cash flows from financing activities: Bank borrowing, net (1,100,000) 250,000 Repayment of long-term obligations(179,000) 57,000 Net cash provided by (used in) financing activities (1,279,000) 307,000 Net (decrease) in cash (124,600) (277,800) Cash and cash equivalents at beginning of period $ 142,900 $ 365,700 Cash and cash equivalents at end of period $ 18,300 $ 87,900
Logic Devices Incorporated Notes to Financial Statements December 31, 1998 and September 30, 1998 (unaudited) (A) Basis of Presentation The accompanying unaudited interim financial statements reflect all adjustments which are, in the opinion of management, necessary to present fairly the financial position, results of operations and cash flows for the periods indicated. The accompanying unaudited interim 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, in conformity with generally accepted accounting principles. The Company had filed audited financial statements which include all information and footnotes necessary for such a presentation of the financial position, results of operations and cash flows for the years ended September 30, 1998 and December 31, 1997, with the Securities and Exchange Commission. It is suggested that the accompanying unaudited interim financial statements be read in conjunction with the aforementioned audited financial statements. The unaudited interim financial statements contain all normal and recurring entries. The results of operations for the interim period ended December 31, 1998 are not necessarily indicative of the results to be expected for the full year. (B) Inventories A summary of inventories follows: December 31, September 31, 1998 1998 Raw materials $ 2,406,300 $ 2,599,900 Work-in-process 6,697,600 5,373,600 Finished goods 3,123,500 4,562,100 $12,227,400 $12,535,600
Logic Devices Incorporated Notes to Financial Statements December 31, 1998 and September 30, 1998 (unaudited) (C) Financing On June 1, 1998, the Company renewed its $6,000,000 revolving line of credit with Sanwa Bank (the "Bank") extending the maturity to May 31, 1999. The line of credit bears interest at the Bank's prime rate plus 1.00%. The line of credit requires the Company to maintain a minimum tangible net worth of $20,000,000, a maximum ratio of debt to tangible net worth of not more than 0.50 to 1.00, a minimum current ratio of not less than 2.00 to 1.00, a minimum quick ratio of not less than 1.20 to 1.00 at September 30, 1998 and increasing to 1.35 to 1.00 at December 31, 1998 and thereafter, a profitability on a quarterly basis. As of September 30, 1998 and December 31, 1998, the Company was not in compliance with certain covenants under the borrowings. The Company has not obtained waivers as to these covenants from the Bank for September 30, 1998 and for December 31, 1998. The line of credit facility is secured by all of the assets of the Company. As of December 31, 1998, $1,500,000 was available under the line of credit facility. The Company has received a proposal from the Bank to amend the terms of its revolving line of credit facility. Under the proposal, the maximum borrowing amount would be reduced to $4,500,000, which is the current amount outstanding under the facility. In addition, the maximum borrowing amount would be reduced at future dates prior to maturity. These reduced maximum amounts would require the Company to repay principal amounts under the line of credit, and the Company does not currently expect to have sufficient funds from operations to make these repayments. Additional financing which may be necessary to make such repayments has not been identified as of the date of this report. The proposed amendments to the facility would also increase the rate of interest and change and add financial and operating covenants, which would be more stringent than those existing under the current line of credit. The Company is discussing the proposal with the Bank, but if the Company and the Bank are unable to reach an agreement as to the proposal, there can be no assurance that the Bank would not declare an event of default under the existing line of credit or renew the line of credit when it matures. Even if the Company agrees to the proposal, there can be no assurance that the Company would be able to comply with the amended terms or that the Bank would agree to waive any such noncompliance. Under the terms of its line of credit facility, the Company is precluded from paying any cash dividends without the consent of the lender even if the Company is in compliance with all of the financial covenants but is allowed to pay stock dividends whether or not there was any other covenant violation. Regardless of any such restrictions in its bank loan agreements, the Company does not intend to pay cash dividends in the near future and anticipates reinvesting its cash flow back into operations. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Results of Operations Revenues Net revenues were $3,070,900 for the three months ended December 31, 1998, a decrease of 13% from $3,512,100 for the three months ended December 31, 1997. This decrease in revenues was a result of the Company's decision to discontinue many of its more mature products at the end of the prior quarter as part of a comprehensive restructuring of its business activities. Increasing revenues on newer products did not fully offset the lost revenues on these older products during the reporting quarter. Expenses Cost of revenues decreased 24%, from $2,203,100 in the three months ended December 31, 1997 to $1,680,300 in the three months ended December 31, 1998. Gross profit increased by 7%, from $1,309,000 in 1997 to $1,390,600 in 1998. This increase in gross margin was the result of the Company's shift to higher margin proprietary products which are replacing its legacy second source products. As a percentage of net revenues, gross profit margin increased from 38% in the three months ended December 31, 1997 to 46% in the three months ended December 31, 1998. Research and development expense increased during the period from $257,900 (8% of net revenues) in the 1997 period to $369,100 (12% of net revenues) in the 1998 period. The Company is continuing its new product development. The Company plans to continue its substantial investments in new product research and development throughout 1999. Selling, general and administrative expense decreased from $894,400 (26% of net revenues) in the 1997 period to $884,000 (29% of net revenues) in the 1998 period. Although expenses remained constant, the Company is in the process of restructuring its sales activities by replacing its prior channel management efforts with technical sales and marketing support activities. The Company had income from operations for the 1998 period of $137,500 and $156,700 for the 1997 period due to the above mentioned factors. The Company incurred $130,000 in 1998 and $223,700 in 1997 of other expense, which consisted of interest expense. As a result of the foregoing, the Company reported net income of $6,700 in the 1998 period and $8,000 in the 1997 period. Liquidity and Capital Resources Cash Flows For the three months ended December 31, 1998, the Company had after-tax cash earnings (defined as net income plus non-cash depreciation charges) of $470,700 versus $532,900 for the 1997 period. Although the Company has historically relied on after-tax earnings as the Company's primary source of financing for working capital needs and for capital expenditures, the Company used bank borrowings during much of the 1998 fiscal year. In the current reporting quarter, the Company generated substantial cash from operations which allowed it to reduce its bank borrowings. During the 1998 period, after-tax cash earnings of $470,700 plus decreases in cash of $124,600, accounts receivable of $1,093,000, inventory of $308,200, accounts payable of $580,400 and accrued expenses of $88,000, funded an increase in prepaid expenses of $58,400 and the decrease in the bank line by $1,100,000. This resulted in total net cash provided by operations of $1,145,100. The Company invested $18,600 in capital expenditures during the period. The Company has an income tax receivable of $90,000, which the Company expects to receive in the third quarter of 1999. During the 1997 period, after-tax cash earnings of $532,900 plus a decrease in cash of $277,800 were offset by increases in accounts receivable of $1,125,000, inventory of $353,600 other assets of $737,700 and accounts payable of $704,500. This resulted in net cash provided by operations of $1,006,800. The Company invested $1,591,600 in capital expenditures and other assets and increased net indebtedness by $307,000. 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 turn over 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 shifting its product offerings to higher margin proprietary products and reducing the total number of products which it offers. As this transition progresses, 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. The Company has been actively reducing inventory levels over the past several quarters. 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 80% of the quarterly revenues are 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. This, combined with the fact that the Company's distributor customers (which make up 66 to 52% of the Company revenues in 1998 and 1997, respectively), generally 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. This has been consistent over prior periods. The Company is reducing its dependence on distributors to accelerate accounts receivable collections. Although current levels of inventory and accounts receivable impact the Company's liquidity, the Company believes that these items are a cost of doing business given the Company's fabless operation. The Company is in the process of restructuring its sales channels to reduce the levels of accounts receivable and inventory which it must carry. Financing On June 1, 1998, the Company renewed its $6,000,000 revolving line of credit with Sanwa Bank (the "Bank") extending the maturity to May 31, 1999. The line of credit bears interest at the Bank's prime rate plus 1.00%. The line of credit requires the Company to maintain a minimum tangible net worth of $20,000,000, a maximum ratio of debt to tangible net worth of not more than 0.50 to 1.00, a minimum current ratio of not less than 2.00 to 1.00, a minimum quick ratio of not less than 1.20 to 1.00 at September 30, 1998 and increasing to 1.35 to 1.00 at December 31, 1998 and thereafter, and profitability on a quarterly basis. As of September 30, 1998 and December 31, 1998, the Company was not in compliance with certain covenants under the borrowings. The Company has not obtained waivers as to these covenants from the Bank for September 30, 1998 and for December 31, 1998. The line of credit facility is secured by all of the assets of the Company. As of December 31, 1998, $1,500,000 was available under the line of credit facility. The Company has received a proposal from the Bank to amend the terms of its revolving line of credit facility. Under the proposal, the maximum borrowing amount would be reduced to $4,500,000, which is the current amount outstanding under the facility. In addition, the maximum borrowing amount would be reduced at future dates prior to maturity. These reduced maximum amounts would require the Company to repay principal amounts under the line of credit, and the Company does not currently expect to have sufficient funds from operations to make these repayments. Additional financing which may be necessary to make such repayments has not been identified as of the date of this report. The proposed amendments to the facility would also increase the rate of interest and change and add financial and operating covenants, which would be more stringent than those existing under the current line of credit. The Company is discussing the proposal with the Bank, but if the Company and the Bank are unable to reach an agreement as to the proposal, there can be no assurance that the Bank would not declare an event of default under the existing line of credit or renew the line of credit when it matures. Even if the Company agrees to the proposal, there can be no assurance that the Company would be able to comply with the amended terms or that the Bank would agree to waive any such noncompliance. Under the terms of its line of credit facility, the Company is precluded from paying any cash dividends without the consent of the lender even if the Company is in compliance with all of the financial covenants but is allowed to pay stock dividends whether or not there was any other covenant violation. Regardless of any such restrictions in its bank loan agreements, the Company does not intend to pay cash dividends in the near future and anticipates reinvesting its cash flow back into operations. Year 2000 Compliance The year 2000 creates the potential for date related data to cause computer processing errors or system shut- downs because computer-controlled systems have historically used two digits rather than four to define years. For example, computer programs that contain time data sensitive software may recognize a date using two digits of "00" as the year 1900 rather than the year 2000. The miscalculations and systems failures that may be caused by such date misrecognition could disrupt the operations of the Company. Since the risk relates to computer-controlled systems, the year 2000 issue affects computer software, computer hardware, and any other equipment with imbedded technology that involves date sensitive functions. The Company has determined to assess the scope of its Year 2000 problems, to remediate the problem, and to plan for the contingency of remediation failure separately for each of its internal computer software programs, its computer hardware, its machinery which includes imbedded computer technology, its suppliers and its products. The Company completed its assessment of all aspects of its operations other than it customers and suppliers prior to the beginning of the fiscal quarter ending December 31, 1998. As a result of its assessment, the Company has determined that none of its products have date sensitive functions and, accordingly, that no products will require modification or replacement. The Company is still in the process of determining the extent to which its customers and suppliers may be impacted by year 2000 computer processing problems. This assessment has been slower than the Company's other assessment efforts since it necessarily involves obtaining information from third parties, and the Company's suppliers are foreign operations which may have local customs or attitudes regarding disclosure which differ from those in the United States. Conversely, because the Company relies on third parties to manufacture its chips and assemble its products, the Company's production may be slowed or other of its operations may be adversely impacted by the Year 2000 problems of its suppliers. Although the Company has received assurances from certain of its suppliers, including the silicon foundaries supplying the Company with silicon wafers, that they are Year 2000 compliant, the Company plans to shortly require a written evaluation from each of its suppliers about their state of Year 2000 readiness. The Company does not believe it has any technological interfaces with customers that will be affected by the Year 2000 issue. The Company completed remediation of its computer hardware, internal computer software programs and equipment with imbedded technology in March 1998. Through December 31, 1998, the Company has spent approximately $50,000 modifying or replacing its internal computer software programs, its computer hardware, and machinery with embedded computer technology, primarily to upgrade software and to modify maintenance agreements. Since it believes remediation of such systems has been completed, the Company does not expect to expend any material amounts on such remediation in the future. However, if the Company has failed to properly assess any of the year 2000 problems or failed to fully remedy any identified year 2000 problems of its computer hardware, computer software programs, or machinery with embedded technology, the Company may be forced to spend more than anticipates on such remediation in the future. Until its assessment efforts are complete, the Company will not be able to reasonably estimate the future costs of eliminating problems caused by the Year 2000 problems of its suppliers, whether by investing in new technology or software to interface with these parties or finding alternative sources of supply. Beginning June 1, 1999, the Company expects to shift production away from suppliers that have not demonstrated Year 2000 compliance to the Company's satisfaction and to the Company's current suppliers that are Year 2000 compliant. If such current suppliers are unable to satisfy increased production burdens, the Company expects to engage new suppliers that are Year 2000 compliant. There can be no assurance that the Company will be able to shift additional production to any of its current suppliers or to new suppliers without additional costs or at all. Shifts to new suppliers typically require capital outlays and increased time requirements for production, either of which may adversely affect the results of operations of the Company. Part II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. (a) Exhibit 11 - Computation of Earnings Per Common Share. 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: February 12, 1999 By /s/ William J. Volz William J. Volz President and Principal Executive Officer Date: February 12, 1999 By /s/ Mary C. deRegt Mary C. deRegt Chief Financial Officer Principal Financial and Accounting Officer EXHIBIT 11 Logic Devices Incorporated Computation of Earnings per Common Share (unaudited) Three months ended December 31, 1998 and 1997 1998 1997 Weighted average shares of common stock outstanding 6,632,388 6,121,750 Dilutive effect of common stock options - - Dilutive effect of common stock warrants - - Weighted average common and common share equivalents 6,632,388 6,121,750 Net income (loss) $ 6,700 $ 8,000 Net income (loss) per common share equivalent $ 0.00 $ 0.00
EX-27 2
5 3-MOS SEP-30-1998 DEC-31-1998 18,300 0 3,629,900 169,500 12,227,400 16,226,600 16,211,100 11,721,000 21,658,200 6,178,300 0 0 0 18,091,900 (307,500) 21,658,200 3,070,900 3,070,900 1,680,300 884,000 0 0 130,000 7,500 800 6,700 0 0 0 6,700 0.00 0.00
-----END PRIVACY-ENHANCED MESSAGE-----