-----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, T+kiFr+FC37g96byqLAwWwEfW77C6039ilnYwtGhqnRmTpIqvqukL9WQn2Ub0tvX 09tGQmAr7GJgXiHE4Y4Fdg== 0001093114-00-000002.txt : 20000202 0001093114-00-000002.hdr.sgml : 20000202 ACCESSION NUMBER: 0001093114-00-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000102 FILED AS OF DATE: 20000120 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: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-17187 FILM NUMBER: 510520 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 FORM 10-Q FOR QUARTERLY PERIOD ENDED 1/2/2000 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 JANUARY 2, 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 20, 2000, 6,650,488 shares of Common Stock, without par value, were issued and outstanding. Page 1 of 16 LOGIC DEVICES INCORPORATED
INDEX Page Number ------ Part I. - Financial Information Item 1. Financial Statements Consolidated Balance Sheets as of January 2, 2000 and October 3, 1999 3 Consolidated Statements of Income for the three months ended January 2, 2000 and December 31, 1998 4 Consolidated Statements of Cash Flows for the three months ended January 2, 2000 and December 31, 1998 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 12 Part II. - Other Information 13 Item 6. Exhibits and Reports on Form 8-K 13 Signatures 14 Exhibit 27 16
Page 2 of 16 PART I - FINANCIAL INFORMATION Item 1. Financial Statements
LOGIC DEVICES INCORPORATED CONSOLIDATED BALANCE SHEETS January 2, October 3, 2000 1999 ----------------- ------------------ (unaudited) ASSETS Current assets: Cash and cash equivalents $ 976,500 $ 237,700 Accounts receivable, net of allowance 3,141,700 4,813,400 Inventories 12,052,000 11,838,300 Prepaid expenses and other assets 204,200 178,900 Income taxes receivable - 68,000 ----------------- ------------------ Total current assets 16,374,400 17,136,300 Property and equipment, net 3,490,400 3,702,000 Other assets 426,000 502,400 ----------------- ------------------ $ 20,290,800 $ 21,340,700 ================= ================== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Bank borrowings $ 2,667,300 $ 3,490,000 Accounts payable 665,000 718,200 Accrued expenses 413,800 388,700 Notes payable, related party - 250,000 Income taxes payable 21,800 - Current portion, capital lease obligations 213,000 218,300 ----------------- ------------------ Total current liabilities 3,980,900 5,065,200 Capital lease obligations, net of current portion 128,900 182,600 ----------------- ------------------ Total liabilities 4,109,800 5,247,800 ----------------- ------------------ Shareholders' equity: Common stock 18,133,400 18,133,400 Accumulated deficit (1,952,400) (2,040,500) ----------------- ------------------ Total shareholders' equity 16,181,000 16,092,900 ----------------- ------------------ $ 20,290,800 $ 21,340,700 ================= ===================
Page 3 of 16
LOGIC DEVICES INCORPORATED CONSOLIDATED STATEMENTS OF INCOME Three months ended January 2, 2000 and December 31, 1998 (unaudited) 2000 1998 ----------------- ------------------ Net revenues $ 3,009,800 $ 3,070,900 Cost of revenues 1,453,000 1,680,300 ----------------- ------------------ Gross margin 1,556,800 1,390,600 ----------------- ------------------ Operating expenses: Research and development 428,900 369,100 Selling, general and administrative 962,200 884,000 ----------------- ------------------ Total operating expenses 1,391,100 1,253,100 ----------------- ------------------ Income from operations 165,700 137,500 Other expense, net 76,900 130,000 ----------------- ------------------ Income before income taxes 88,800 7,500 Income tax provision 800 800 ----------------- ------------------ Net income $ 88,000 $ 6,700 ================= ================== Basic and diluted income per common share $ 0.01 $ 0.00 ================= ================== Weighted average common shares outstanding $ 6,650,488 $ 6,632,388 ================= ==================
Page 4 of 16
LOGIC DEVICES INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS Three months ended January 2, 2000 and December 31, 1998 (unaudited) 2000 1998 ----------------- ----------------- Cash flows from operating activities: Net income $ 88,000 $ 6,700 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 379,000 464,000 Change in operating assets and liabilities: Accounts receivable, net 1,671,700 1,093,000 Inventories (213,700) 308,200 Prepaid expenses and other assets (25,300) (58,400) Income taxes receivable 68,000 - Accounts payable (53,200) (580,400) Accrued expenses 25,100 (88,000) Income taxes payable 21,800 - ----------------- ----------------- Net cash provided by operating activities 1,961,400 1,145,100 ----------------- ----------------- Cash flows from investing activities: Capital expenditures (122,800) (18,600) Decrease in other assets 31,900 27,900 ----------------- ----------------- Net cash (used in) provided by investing activities (90,900) 9,300 ----------------- ----------------- Cash flows from financing activities: Bank borrowing, net (822,700) (1,100,000) Repayment of capital lease obligations (59,000) (179,000) Repayment of notes payable, related party (250,000) - ----------------- ----------------- Net cash used in financing activities (1,131,700) (1,279,000) ----------------- ----------------- Net increase (decrease) in cash and cash equivalents 738,800 (124,600) Cash and cash equivalents, beginning of period 237,700 142,900 ----------------- ----------------- Cash and cash equivalents, end of period $ 976,500 $ 18,300 ================= =================
Page 5 of 16 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 3, 1999 and the nine months ended September 30, 1998, 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 January 2, 2000 are not necessarily indicative of the results to be expected for the full year. (B) INVENTORIES A summary of inventories follows: January 2, October 3, 2000 1999 ----------------- ------------------ Raw materials $ 3,883,500 $ 3,618,800 Work-in-process 5,612,500 4,908,800 Finished goods 2,556,000 3,310,700 ----------------- ------------------ $ 12,052,000 $ 11,838,300 ================= ================== Based on forecasted fiscal year 2000 sales levels, the Company has on hand inventories aggregating approximately twelve months of sales. Page 6 of 16 LOGIC DEVICES INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (C) FINANCING On July 27, 1999, the Company obtained two new lines of credit from Silicon Valley Bank, with an aggregate availability of up to $4,000,000. A domestic line of credit bears interest at the bank's prime rate (8.50% at January 2, 2000) plus 0.50%, which is 50 basis points less than the rate borne under the Company's previous facility. The line of credit requires the Company to maintain a minimum quick ratio of not less than 1.00 to 1.00 and profitability, on a quarterly basis. Borrowings under the domestic line are subject to the limits of eligible domestic accounts receivable and are secured by all of the assets of the Company. The second line of credit bears interest at the bank's prime rate plus 0.25%, and is secured by certain of the Company's inventory, accounts receivable, and related proceeds, and is guaranteed in part by a federal agency. This facility has other terms similar to the Company's first line of credit facility. Both credit facilities mature July 26, 2000. On January 2, 2000, the Company had an aggregate of $2,667,300 outstanding under these facilities. Under the terms of its line of credit facilities, 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 and anticipates reinvesting its cash flow in operations. Page 7 of 16 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 3, 1999 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 of $3,009,800, for the three months ended January 2, 2000, remained consistent with the net revenues of $3,070,900, for the three months ended December 31, 1998, with a slight decrease of 2%. Expenses Cost of revenues decreased 13% from $1,680,300 in the three months ended December 31, 1998 to $1,453,000 in the three months ended January 2, 2000. Gross profit increased by 12%, from $1,390,600 in the fiscal 1999 period to $1,556,800 in the fiscal 2000 period. As a percentage of net revenues, gross profit margin increased from 45% in the three months ended December 31, 1998 to 52% in the three months ended January 2, 2000. This improvement was the result of more sales of higher profit margin proprietary products. Research and development expense increased from $369,100 (12% of net revenues) in the fiscal 1999 period to $428,900 (14% of net revenues) in the fiscal 2000 period. The Company is continuing its efforts to develop new products. In fiscal 1998 and 1999, the Company invested heavily in new product development. The Company plans to continue its substantial investments in new product research and development throughout fiscal 2000. Selling, general and administrative expense increased from $884,000 (29% of net revenues) in the fiscal 1999 period to $962,200 (32% of net revenues) in the fiscal 2000 period. The Company had income from operations for the fiscal 2000 period of $165,800 versus income of $137,500 in fiscal 1999, due to the higher gross profit margin. Page 8 of 16 For the 2000 period, the Company incurred $76,900 in other expense, consisting mainly of interest expense, versus other expense of $130,000 in the fiscal 1999 period. The decrease is mainly because the Company's existing line of credit facilities have lower interest rates and the principal balance under the current facilities is lower than the interest rate and the principal balance under the Company's previous credit facility. As a result of the foregoing, the Company enjoyed net income of $88,000 in the fiscal 2000 period versus net income of $6,700 in the fiscal 1999 period. Liquidity and Capital Resources Cash Flows For the three months ended January 2, 2000, the Company had after-tax cash earnings (defined as net income plus non-cash depreciation charges) of $467,000, consistent with the fiscal 1999 period after-tax cash earnings of $470,700. In the current three-month period, the Company generated substantial cash from operations, which allowed it to reduce its bank borrowings and other debt. 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 decreases 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. During the fiscal 1999 period, after-tax cash earnings of $470,700 plus decreases in cash and cash equivalents of $124,600, accounts receivable of $1,093,000 and inventories of $308,200 funded increases in prepaid expenses of $58,400 and decreases in accounts payable of $580,400 and accrued expenses of $88,000. This resulted in total net cash provided by operations of $1,145,100. The Company also used these funds to reduce its bank debt by $1,100,000 and to repay capital lease obligations of $179,000. 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. Page 9 of 16 The Company is continuing its shift in product offerings to higher margin proprietary products and reducing the total number of products that it offers. As this transition continues, the Company expects to improve it 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 attempting to reduce 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 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. This, combined with the fact that the Company's distributor customers (which made up 25% and 66% of the Company revenues in the first three months of fiscal 2000 and 1999, 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 currently working to accelerate accounts receivable collections. 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 has begun to make progress in reducing accounts receivable levels during the current fiscal year. Financing The Company has two line of credit facilities from Silicon Valley Bank, with an aggregate availability of up to $4,000,000. A domestic line of credit bears interest at the bank's prime rate (8.50% at January 2, 2000) plus 0.50%. The line of credit requires the Company to maintain a minimum quick ratio of not less than 1.00 to 1.00 and profitability, on a quarterly basis. Borrowings under the domestic line are subject to the limits of eligible domestic accounts receivable and are secured by all of the assets of the Company. The second line of credit bears interest at the bank's prime rate plus 0.25%, and is secured by certain of the Company's inventory, accounts receivable, and related proceeds, and is guaranteed in part by a federal agency. This facility has other terms similar to the Company's first line of credit facility. Both credit facilities mature July 26, 2000. On January 2, 2000, the Company had an aggregate of $2,667,300 outstanding under these facilities. Under the terms of its line of credit facilities, 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 and anticipates reinvesting its cash flow in operations. Page 10 of 16 On February 24, 1999, the Company borrowed, in addition to its bank borrowings, an aggregate principal amount of $250,000 from The Holding Company and William J. Volz, President and a director of the Company. Burton W. Kanter, a director of the Company, is the President of The Holding Company, but has no beneficial interest therein, although certain members of Mr. Kanter's family do have beneficial interests through various trusts. These loans were repaid during the three months ended January 2, 2000. 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. Year 2000 Compliance The year 2000 creates the potential for date-related data to cause computer-processing errors or system shutdowns because computer-controlled systems have historically used two digits rather than four to define years. For example, computer programs that contain date-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 completed its internal assessment and remediation at an aggregate cost of approximately $50,000 prior to October 4, 1999, the beginning of the Company's fiscal year 2000. The Company also received written assurances from all of its critical suppliers, including the silicon foundry supplying the Company with silicon wafers, that they are Year 2000 compliant prior to October 4, 1999. Furthermore, the Company shifted production away from suppliers that could not demonstrate Year 2000 compliance to the Company's satisfaction. The Company does not expect to expend any material amount following October 4, 1999 in connection with Year 2000 compliance, and has not expended any additional amounts as of January 20, 2000. In addition, the Company is not aware of any adverse impact of the year 2000 on any of its customers or suppliers. However, until comfortably past January 1, 2000, the Company will not be able to confidently assess whether there have been any adverse effects on any of its customers or suppliers, or be able to determine whether and how the impact of any such effects can be eliminated or minimized, whether by investing in new technology or software to interface with these parties or by finding alternative sources of supply. Inasmuch as the Company began its fiscal year 2000 on October 4, 1999, many of its internal systems have already begun to operate on year 2000 dates. To date, there has been no incidence of Year 2000 errors or shutdowns. Page 11 of 16 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 12 of 16 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) Exhibit 27 - Financial Data Schedule, which can be found on page 16 of this report. (b) No reports on Form 8-K have been filed during the quarter for which this report is filed. Page 13 of 16 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 20, 2000 By /s/ William J. Volz ------------------------ --------------------------- William J. Volz President and Principal Executive Officer Date January 20, 2000 By /s/ Kimiko Lauris ------------------------ --------------------------- Kimiko Lauris Chief Financial Officer and Principal Financial and Accounting Officer Page 14 of 16 EXHIBIT INDEX Exhibit No. Description - ----------- ----------- 27 Financial Data Schedule Page 15 of 16 EX-27 2 FDS FOR 1ST QUARTER 10-Q
5 1 3-MOS OCT-1-2000 JAN-2-2000 976,500 0 3,395,200 253,500 12,052,000 16,374,400 11,254,200 7,763,800 20,290,800 3,980,900 0 18,133,400 0 0 0 20,290,800 3,009,800 3,009,800 1,453,000 2,844,100 0 0 76,900 88,800 800 88,000 0 0 0 88,000 0.01 0.01
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