-----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, VJc/4g8CskUcFFuRC1bZRDveblfJD+9SpMMtUvXdZS6meKz24HfrxIkqEDKUQMKV CrnXNBBc3NQU97aKkcF8Qw== 0000891618-97-004574.txt : 19971113 0000891618-97-004574.hdr.sgml : 19971113 ACCESSION NUMBER: 0000891618-97-004574 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971113 SROS: NASD 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: 97715261 BUSINESS ADDRESS: STREET 1: 1320 ORLEANS DR CITY: SUNNYVALE STATE: CA ZIP: 94089 BUSINESS PHONE: 4087373300 MAIL ADDRESS: STREET 1: 628 EAST EVELYN AVE CITY: SUNNYVALE STATE: CA ZIP: 94086 10-Q 1 FORM 10-Q FOR PERIOD ENDED SEPTEMBER 30, 1997 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 SEPTEMBER 30, 1997 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 No.) 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 November 7, 1997, 6,121,750 shares of Common Stock, without par value, were outstanding. ================================================================================ 1 of 18 pages 2 LOGIC DEVICES INCORPORATED INDEX
Page Number ----------- Part I. Financial Information Item 1. Financial Statements Consolidated Balance Sheets as of September 30, 1997 3 and December 31, 1996 Consolidated Statements of Income for the three 4 months ended September 30, 1997 and 1996 Consolidated Statements of Income for the nine 5 months ended September 30, 1997 and 1996 Consolidated Statements of Cash Flows for the 6 nine months ended September 30, 1997 and 1996 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of 9 Financial Condition and Results of Operations Part II. Other Information Item 6. Exhibits and Reports on Form 8-K 14 ------- -------------------------------- Signatures 15 Exhibit 11 16 Exhibit 27 18
2 of 18 pages 3 PART I - FINANCIAL INFORMATION Item 1. Financial Statements. LOGIC DEVICES INCORPORATED CONSOLIDATED BALANCE SHEETS
September 30, December 31, 1997 1996 ------------- ------------ (unaudited) ASSETS Current assets: Cash and cash equivalents $ 365,700 $ 670,900 Accounts receivable, net of allowance 5,656,800 4,368,300 Inventories 12,752,700 13,928,900 Prepaid expenses 1,030,500 922,600 Income tax receivable -- 789,800 Deferred income taxes 920,900 920,900 ------------ ------------ Total current assets 20,726,600 21,601,400 Equipment and leasehold improvements, net 4,781,000 4,204,300 Other assets 820,600 694,300 ------------ ------------ $ 26,328,200 $ 26,500,000 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Bank borrowings 3,275,000 2,000,000 Current portion of long-term obligations 561,900 561,900 Accounts payable 306,900 1,074,600 Accrued expenses 301,000 531,800 Income taxes payable -- -- ------------ ------------ Total current liabilities 4,444,800 4,168,300 Long-term obligations 744,900 786,600 Deferred income taxes 419,500 419,500 ------------ ------------ Total liabilities 5,609,200 5,374,400 Shareholders' equity: Common stock 17,341,900 17,341,900 Shareholder receivables (307,500) (307,500) Retained earnings 3,684,600 4,091,200 ------------ ------------ Total shareholders' equity 20,719,000 21,125,600 ------------ ------------ $ 26,328,200 $ 26,500,000 ============ ============
3 of 18 pages 4 LOGIC DEVICES INCORPORATED CONSOLIDATED STATEMENTS OF INCOME Three months ended September 30, 1997 and 1996 (unaudited)
1997 1996 ----------- ----------- Net revenues $ 3,181,900 $ 3,389,700 Cost of sales 1,935,400 1,847,600 ----------- ----------- Gross margin 1,246,500 1,542,100 Operating expenses: Research and development 391,300 436,300 Selling, general and administrative 790,300 949,400 ----------- ----------- Operating expenses 1,181,600 1,385,700 ----------- ----------- Income from operations 64,900 156,400 Other income (expense), net (61,100) 4,700 ----------- ----------- Income before taxes 3,800 161,100 Income taxes 1,300 65,800 ----------- ----------- Net income $ 2,500 $ 95,300 =========== =========== Net income per common share $ 0.00 $ 0.02 =========== =========== Weighted average common share equivalents 6,438,750 6,221,750 outstanding
4 of 18 pages 5 LOGIC DEVICES INCORPORATED CONSOLIDATED STATEMENTS OF INCOME Nine Months ended September 30, 1997 and 1996 (unaudited)
1997 1996 ----------- ----------- Net revenues $ 9,006,400 $10,494,700 Cost of sales 5,730,000 5,622,300 ----------- ----------- Gross margin 3,276,400 4,872,400 Operating expenses: Research and development 1,147,700 1,231,100 Selling, general and administrative 2,613,100 2,970,500 ----------- ----------- Operating expenses 3,760,800 4,201,600 ----------- ----------- Income from operations (484,400) 670,800 Other income (expense), net (188,900) 73,300 ----------- ----------- Income before taxes (673,300) 744,100 Income taxes (266,700) 294,300 ----------- ----------- Net income $ (406,600) $ 449,800 =========== =========== Net income per common share $ (0.06) $ 0.07 =========== =========== Weighted average common share equivalents 6,366,416 6,221,750 outstanding
5 of 18 pages 6 LOGIC DEVICES INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS Nine months ended September 30, 1997 and 1996 (unaudited)
1997 1996 ----------- ----------- Cash flows from operating activities: Net income $ (406,600) $ 449,800 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 996,500 766,600 Change in operating assets and liabilities: Accounts receivable, net (1,288,500) 638,500 Inventories 1,176,200 (3,625,100) Prepaid expenses (107,900) (314,400) Accounts payable (767,700) (150,900) Accrued expenses (230,800) 54,200 Income taxes payable 789,800 (819,000) ----------- ----------- Net cash (used in) provided by operating 161,000 (3,000,300) activities Cash flows from investing activities: Capital expenditures (1,344,600) (1,139,500) Net increase in other assets (354,900) (105,000) ----------- ----------- Net cash (used in) investing activities (1,699,500) (1,244,500) Cash flows from financing activities: Bank borrowing, net 1,275,000 1,000,000 Repayment of notes payable and long-term debt (41,700) (82,900) Proceeds from exercise of warrants -- 258,900 Proceeds from exercise of employee stock options -- 8,100 ----------- ----------- Net cash provided by 1,233,300 1,184,100 ----------- ----------- financing activities Net (decrease) increase in cash and cash equivalents (305,200) (3,060,700) Cash and cash equivalents at beginning of period $ 670,900 $ 4,378,500 ----------- ----------- Cash and cash equivalents at end of period $ 365,700 $ 1,317,800 =========== ===========
6 of 18 pages 7 LOGIC DEVICES INCORPORATED Notes to Consolidated Financial Statements September 30, 1997 and December 31, 1996 (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 has 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 December 31, 1996 and 1995, 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 September 30, 1997 are not necessarily indicative of the results to be expected for the full year. (B) Inventories A summary of inventories follows:
September 30, December 31, 1997 1996 ------------- ------------ Raw materials $ 3,228,700 $ 3,165,400 Work-in-process 5,707,000 6,744,900 Finished goods 3,817,000 4,018,600 ------------- ------------ $ 12,752,700 $ 13,928,900 ============ ============
Based on forecasted 1998 sales levels, the Company has on hand inventories aggregating approximately twelve months of sales. 7 of 18 pages 8 LOGIC DEVICES INCORPORATED Notes to Consolidated Financial Statements September 30, 1997 and December 31, 1996 (unaudited) (C) Debt Financing On June 16, 1997, the Company renewed its $6,000,000 revolving line of credit with Sanwa Bank extending the maturity to May 31, 1998. The line of credit bears interest at the bank's reference rate (8.50% at September 30, 1997). The line of credit is secured by the assets of the Company and requires the Company to maintain a minimum tangible net worth of $19,000,000, 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 1.00 to 1.00 increasing to 1.35 to 1.00 at September 30, 1997 and increasing again to 1.50 to 1.00 at December 31, 1997 and thereafter, and profitability of at least $1.00 for each fiscal quarter. As of September 30, 1997 the Company was in compliance with all covenants. As of September 30, 1997, the Company had $2,725,000 available under the revolving line of credit. 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. 8 of 18 pages 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. LOGIC DEVICES INCORPORATED MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Revenues Net revenues decreased by 7%, from $3,389,700 for the three months ended September 30, 1996 to $3,181,900 for the three months ended September 30, 1997. The decrease in revenues for the period was the result of lower sales volumes for the Company's DSP products. Shipments of the Company's DSP products were down from the 1996 period as a result of a small backlog of orders in the 1997 period. Revenues generated from the Company's SRAM products increased during the 1997 period. Net revenues decreased by 17%, from $10,494,700 for the nine month period ended September 30, 1996 to $9,006,400 for the nine months ended September 30, 1997. The decrease in revenues for the nine month period was the result of lower sales volume for the Company's DSP products. Revenues from the Company's SRAM products have increased significantly in the 1997 period. The lower sales volume for the 1997 period has been the result of a lower backlog of orders for the period due to a very weak order rate experienced since the last half of 1996 and early 1997. Expenses Cost of sales increased 5% from $1,847,600 or 55% of net revenues for the three months ended September 30, 1996 to $1,935,400 or 61% of net revenues for the same period in 1997. Gross profit decreased 24%, from $1,542,100 in the former period to $1,246,500 in the latter period. The decrease in gross profit is the result of lower revenues for the period combined with higher cost of goods sold which included increases in inventory reserves. As a percentage of net revenues, gross profit decreased from 45% for the three months ended September 30, 1996 to 39% for the three months ended September 30, 1997. Cost of sales increased 2% from $5,622,300 or 54% of net revenues for the nine months ended September 30, 1996 to $5,730,000 or 64% of net revenues for the same period in 1997. Gross profit decreased 49% from $4,872,400 in the former period to $3,276,400 in the latter period. This was the result of the lower sales volume for the period combined with a lower profit margins experienced on the Company's SRAM products, and higher cost of goods sold which included increases in inventory reserves. 9 of 18 pages 10 Research and development ("R & D") expenses for the three months ended September 30, 1997, were $391,300, a decrease from $436,300 for the same period in 1996. For the nine month period, research and development expenses were $1,147,700 for 1997, decreasing from $1,231,100 for 1996. As a percentage of net revenues, R & D expenses were 12% for the three months ended September 30, 1997, compared to 13% for 1996. For the nine months ended September 30, 1997, R & D expenses as a percentage of net sales were 13% compared to 12% for 1996. In both the 1996 and 1997 periods the Company dramatically increased its product development efforts. In 1996, the Company invested heavily in new design tools, development software, and additional personnel to increase and accelerate new product development for 1997. The Company also invested new product tooling at foundry sources to increase the Company's product offerings and diversify foundry sources. Even though the Company had slightly more R&D costs in the first half of 1996 than 1997, the Company has increased its new product output in 1997. Where in 1996, R&D expenses largely consisted of costs associated with the setup and training of personnel on new design tools hardware and software, 1997 expenses have been cost associated with additional employees and product development. The Company intends to continue to make substantial investments in product R & D. Selling, general and administrative ("S,G & A") expenses were $790,300 for the three months ended September 30, 1997, a decrease from $949,400 for the same period in 1996. For the nine months ended September 30, 1997, S, G & A expenses were $2,613,100, decreasing from $2,970,500 for the same period in 1996. As a percentage of net sales, selling, general and administrative expenses were 25% for the three months ended September 30, 1997 compared to 28% in 1996. As a percentage of net sales, selling, general and administrative expenses were 29% for the nine months of 1997 compared to 28% in 1996. S,G & A expenses have decreased as a result of lower sales commission expense due to the lower sales volume and consolidated sales network. The Company has reduced the number of its commissioned outside sales representative organizations and now services those areas with the Company's direct sales force. The Company, however, has increased its sales and marketing efforts substantially. The Company intends to continue to expand these efforts in the future. Net operating income decreased to $64,900 or 2% of net revenues for the three months ended September 30, 1997 versus income of $156,400 or 5% of net revenues for the same period in 1996. For the nine month period ended September 30, 1997 the Company had a net operating loss of $484,400 or negative 5% of net revenues versus a net income of $670,800 or 6% of net revenues for the same period in 1996. For the three month period in 1996, the Company earned $4,700 in Other Income from interest on cash invested versus Other Expense of $61,100 in 1997 which consisted of interest expense on outstanding debt. For the nine month period in 1996, the Company earned $73,300 in Other Income from interest on cash invested versus Other Expense 10 of 18 pages 11 of $188,900 in 1997 which consisted largely of interest expense on outstanding debt. As a result of the foregoing, net income for the three months ended September 30, 1997 was $2,500 or compared to net income of $95,300 or 3% of net revenues for the same period in 1996. For the nine months ended September 30, 1997, there was a net loss of $406,600 or a negative 5% of net revenues compared to net income of $449,800 or 4% of net revenues for the same period in 1996. Liquidity and Capital Resources Cash Flows For the nine months ended September 30, 1997, the Company had after-tax cash earnings (net income/loss less non-cash depreciation and amortization charges) of $589,900 and $1,216,400 for the 1996 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 borrowing during the 1997 period. During the 1997 period, after-tax cash earnings of $589,900 and increases in bank borrowings of $1,275,000 and decreases in inventories of $1,176,200, funded increases in account receivables of $1,288,500, decreases in accounts payable of $767,700, and deceases in accrued and prepaid expenses of $230,800 which resulted in net cash provided by operations of $161,000 versus net cash used of $3,000,300 in 1996. The Company invested $1,699,500 in capital expenditures and other assets during the period consisting largely of capitalized product tooling and development assets. The Company received an income tax refund of $350,000 in the second quarter of 1997 and will receive an additional refund of $703,000 in the fourth quarter of 1997. For the first nine months of 1996, the Company used $3,000,300 in cash flow from operating activities. This use of cash was the result of increases in inventories of $3,625,100 and payment of income taxes due of $819,000, offset by after-tax cash earnings generated of $1,216,400 (net income plus depreciation and amortization) and cash of $638,500 provided from accounts receivables. The Company invested $1,244,500 in capital expenditures and other assets for research and development tools and new product tooling during the nine month period of 1996. The Company received proceeds of $267,000 from the exercise of certain warrants and employee stock options. The result was a net use of cash for the nine months of 1996 of $3,060,700. 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 levels of inventories and accounts receivable. 11 of 18 pages 12 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 360 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 looks at its inventories in relationship to its sales which have ranged from 140 days to 325 days within the periods between 1996 and 1990. This inventory to sales ratio is a more stable measure of inventory levels, versus the traditional inventory turnover measure because, at the times when the Company is experiencing supply disruptions, and therefore lower inventory levels, the Company is also experiencing increased costs of goods due to inefficiencies in its operations stemming from sporadic deliveries which skews the numerator and denominator in different directions for inventory turns calculations. The lowest days on hand of inventory to sales has been experienced when the Company has had supply disruptions as in 1992 and 1993. The Company provides reserves for any product material that is over one year old with no back-log or sales activity, and reserves for future obsolescence. The Company also takes physical inventory write-downs for obsolescence. 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 still 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 52 to 55% of the Company revenues) 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. Although current levels of inventory and accounts receivable impact the Company's liquidity, the Company believes that it is a cost of doing business given the Company's fabless operation. The Company is in the process of diversifying its supplier base to reduce the risk of supply disruption. However, this will require a significant investment in product development to tooling with new suppliers. The Company believes that as it expands its customer base it will be able to even out the flow of its shipments within its quarterly reporting periods. Financing On June 16, 1997, the Company renewed its $6,000,000 revolving line of credit with Sanwa Bank extending the maturity to May 31, 1998. The line of credit bears interest at the bank's reference rate (8.50% at September 30, 1997). The line of credit is secured by the 12 of 18 pages 13 assets of the Company and requires the Company to maintain a minimum tangible net worth of $19,000,000, 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 1.00 to 1.00 increasing to 1.35 to 1.00 at September 30, 1997 and increasing again to 1.50 to 1.00 at December 31, 1997 and thereafter, and profitability of at least $1.00 for each fiscal quarter. As of September 30, 1997 the Company was in compliance with all covenants. As of September 30, 1997, the Company had $2,725,000 available under the revolving line of credit. 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. 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. 13 of 18 pages 14 PART II - OTHER INFORMATION LOGIC DEVICES INCORPORATED Item 6. Exhibits and Reports on Form 8-K. (a) (1) Exhibit 11 - Computation of Earnings Per Common Share (2) Exhibit 27 - Financial Data Schedule (b) No reports on Form 8-K have been filed during the quarter for which this report is filed. 14 of 18 pages 15 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: November 13, 1997 By /s/ WILLIAM J. VOLZ ---------------------------- ---------------------------------- William J. Volz President and Principal Executive Officer Date: November 13, 1997 By /s/ TODD J. ASHFORD ---------------------------- ---------------------------------- Todd J. Ashford Chief Financial Officer and Principal Financial and Accounting Officer 15 of 18 pages 16 INDEX TO EXHIBITS
Exhibit Number Description - ------- ----------- 11 Computation of Earnings Per Common Share 27 Financial Data Schedule
16 of 18 pages EX-11 2 COMPUTATION OF EARNINGS PER COMMON SHARE 1 EXHIBIT 11 LOGIC DEVICES INCORPORATED Computation of Earnings per Common Share (unaudited) Three months ended September 30, 1997 and 1996
1997 1996 ---------- ---------- Weighted average shares of common stock outstanding 6,121,750 6,121,750 Dilutive effect of common stock options and stock warrants 317,000 100,000 ---------- ---------- Weighted average common and common share equivalents 6,438,750 6,221,750 ========== ========== Net income $ 2,500 $ 95,300 ========== ========== Net income per common share equivalent $ .00 $ .02 ========== ==========
16 of 18 pages 2 EXHIBIT 11 LOGIC DEVICES INCORPORATED Computation of Earnings per Common Share (unaudited) Nine months ended September 30, 1997 and 1996
1997 1996 ----------- ----------- Weighted average shares of common stock outstanding 6,121,750 6,121,750 Dilutive effect of common stock options and stock warrants 244,666 100,000 ----------- ----------- Weighted average common and common share equivalents 6,366,416 6,221,750 =========== =========== Net income $ (406,600) $ 449,800 =========== =========== Net income per common share equivalent $ (0.06) $ .07 =========== ===========
17 of 18 pages EX-27 3 FINANCIAL DATA SCHEDULE
5 9-MOS DEC-31-1996 JAN-01-1997 SEP-30-1997 365,700 0 5,656,800 0 12,752,700 20,726,600 14,192,600 9,411,600 26,328,200 4,444,800 0 0 0 17,341,900 (307,500) 26,328,200 9,006,400 9,006,400 5,730,000 9,490,800 0 31,500 196,000 (673,300) (266,700) (406,600) 0 0 0 (406,600) (0.06) (0.06)
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