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 30, 2001
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 February 12, 2002, 6,849,638
shares of Common Stock, without par value, were issued and outstanding.
Page 1 of 14
LOGIC DEVICES INCORPORATED
INDEX
Page
Number
------
Part I. - Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of December 30, 2001
and September 30, 2001 3
Consolidated Statements of Operations for the fiscal quarter
ended December 30, 2001 and December 31, 2000 4
Consolidated Statements of Cash Flows for fiscal quarter
ended December 30, 2001 and December 31, 2000 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures about Market Risk 11
Part II. - Other Information 12
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
Page 2 of 14
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
LOGIC DEVICES INCORPORATED
CONSOLIDATED BALANCE SHEETS
December 30, September 30,
2001 2001
----------------- ------------------
(unaudited)
ASSETS
------
Current assets:
Cash and cash equivalents $ 202,900 $ 217,500
Accounts receivable, net of allowance 4,048,300 3,352,200
Inventories 11,098,400 11,695,700
Prepaid expenses 258,400 192,600
----------------- ------------------
Total current assets 15,608,000 15,458,000
Property and equipment, net 1,378,500 1,592,000
Other assets 172,900 181,000
----------------- ------------------
$ 17,159,400 $ 17,231,000
================= ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Bank borrowings $ 500,000 $ -
Accounts payable 289,200 268,100
Accrued payroll and vacation 103,300 190,900
Accrued commissions 46,000 54,600
Accrued insurance 80,100 -
Other accrued expenses 2,900 5,500
Current portion, capital lease obligations 25,300 54,700
Income taxes payable 1,000 1,900
----------------- ------------------
Total current liabilities 1,047,800 575,700
Capital lease obligations, net of current portion - 2,900
----------------- ------------------
Total liabilities 1,047,800 578,600
----------------- ------------------
Shareholders' equity:
Common stock 18,536,100 18,522,700
Additional paid-in capital 19,000 19,000
Accumulated deficit (2,443,500) (1,889,300)
----------------- ------------------
Total shareholders' equity 16,111,600 16,652,400
----------------- ------------------
$ 17,159,400 $ 17,231,000
================= ==================
Page 3 of 14
LOGIC DEVICES INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
For the fiscal quarter ended
--------------------------------------------
December 30, December 31,
2001 2000
----------------- ------------------
Net revenues $ 1,771,200 $ 3,058,000
Cost of revenues 1,330,100 2,045,000
----------------- ------------------
Gross margin 441,100 1,013,000
----------------- ------------------
Operating expenses:
Research and development 567,800 367,300
Selling, general and administrative 432,700 540,800
----------------- ------------------
Total operating expenses 1,000,500 908,100
----------------- ------------------
(Loss) income from operations (559,400) 104,900
Other income (expense), net 5,200 (6,900)
----------------- ------------------
(Loss) income before income taxes (554,200) 98,100
Income tax provision - 800
----------------- ------------------
Net (loss) income $ (554,200) $ 97,300
================= ==================
Basic and diluted (loss) earnings per common share $ (0.08) $ 0.01
================= ==================
Basic weighted average common shares outstanding 6,843,471 6,841,888
================= ==================
Diluted weighted average common shares outstanding 7,036,968 6,841,888
================= ==================
Page 4 of 14
LOGIC DEVICES INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
For the fiscal quarter ended
--------------------------------------------
December 30, December 31,
2001 2000
----------------- -----------------
Cash flows from operating activities:
Net (loss) income $ (554,200) $ 97,300
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities:
Depreciation and amortization 241,400 314,400
Allowance for doubtful accounts - 77,000
Gain on disposal of capital equipment (10,500) -
Change in operating assets and liabilities:
Accounts receivable (696,100) (631,300)
Inventories 597,300 (71,300)
Prepaid expenses (65,800) (343,100)
Accounts payable 21,100 752,800
Accrued payroll and vacation (87,600) (27,200)
Accrued commissions (8,600) (75,300)
Other accrued expenses 77,500 8,800
Income taxes payable (900) (900)
----------------- -----------------
Net cash (used in) provided by operating activities (486,400) 101,200
----------------- -----------------
Cash flows from investing activities:
Capital expenditures (20,200) (28,600)
Decrease in other assets 400 1,300
----------------- -----------------
Net cash used in investing activities (19,800) (27,300)
----------------- -----------------
Cash flows from financing activities:
Proceeds from exercise of common stock options 13,400 -
Proceeds from bank borrowing 500,000 -
Repayment of capital lease obligations (21,800) (49,400)
----------------- -----------------
Net cash provided by (used in) financing activities 491,600 (49,400)
----------------- -----------------
Net (decrease) increase in cash and cash equivalents (14,600) 24,500
Cash and cash equivalents, beginning of period 217,500 753,300
----------------- -----------------
Cash and cash equivalents, end of period $ 202,900 $ 777,800
================= =================
Page 5 of 14
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 years ended September 30, 2001 and October 1, 2000,
with the Securities and Exchange Commission. It is suggested that the
accompanying unaudited interim consolidated financial statements be read
in conjunction with the aforementioned audited consolidated financial
statements. The unaudited interim consolidated financial statements
contain all normal and recurring entries. The results of operations for
the interim period ended December 30, 2001 are not necessarily indicative
of the results to be expected for the full year.
(B) INVENTORIES
A summary of inventories follows:
December 30, September 30,
2001 2001
----------------- ------------------
Raw materials $ 1,537,800 $ 1,544,800
Work-in-process 6,187,100 6,801,900
Finished goods 3,373,500 3,349,000
----------------- ------------------
$ 11,098,400 $ 11,695,700
================= ==================
Based on forecasted fiscal year 2002 sales levels, the Company has on
hand inventories aggregating approximately fifteen months of sales.
Page 6 of 14
LOGIC DEVICES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(C) FINANCING
On July 31, 2001, the Company renewed its line of credit with Comerica
Bank - California, with an availability of up to $2,000,000. The line of
credit bears interest at the bank's prime rate (4.75% at December 30,
2001) plus 0.25%, matures on July 31, 2002, is secured by all of the
Company's assets, and is guaranteed, in part, by a federal agency. The
line of credit requires the Company to maintain a quarterly minimum quick
ratio of 1.1/1.0, a quarterly debt to tangible net worth of no more than
0.6/1.0, a quarterly tangible net worth of at least $16.5 million plus
50% of the quarter's net profit, and annual profitability. On December
30, 2001, the Company had an outstanding balance of $500,000 and was in
compliance with the quarterly covenants, except the tangible net worth
requirement, for which it has not received a waiver.
Under the terms of its line of credit, the Company is precluded from
paying any dividends without the consent of the parties to such
agreements, even if the Company is in compliance with all of the
financial covenants. Regardless of any such restrictions in its bank loan
agreements, the Company does not intend to pay cash dividends in the near
future.
Page 7 of 14
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 September 30, 2001 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 decreased 42% from $3,058,000, for the fiscal quarter
ended December 31, 2000, to $1,771,200, for the fiscal quarter ended December
30, 2001, which is the Company's first fiscal quarter of 2002. This decrease was
the result of the unfortunate events of September 11, 2001 and the general
downturn in the industry and economy.
Expenses
Cost of revenues also decreased 35% from $2,045,000 in the fiscal
quarter ended December 31, 2000 to $1,330,100 in the fiscal quarter ended
December 30, 2001. Consistent with the changes in revenues and cost of revenues,
the gross profit decreased by 56%. As a percentage of net revenues, the gross
profit margin decreased by eight percent, due to the revenues being down and
some overhead costs being fixed.
Research and development expense increased 55% from $367,300 (12% of
net revenues) in the fiscal 2001 period to $567,800 (32% of net revenues) in the
fiscal 2002 period. However, if revenues had remained consistent, the expense
would have been approximately 20% of revenues, which is the Company's target.
The Company believes the only way to consistently grow revenues will be through
new product development. Therefore, while it continues to attempt to control and
lower administrative costs, it is increasing its research and development
expenses.
Selling, general and administrative expense decreased 20% from $540,800
(18% of net revenues) in the fiscal 2001 period to $432,700 (24% of net
revenues) in the fiscal 2002 period.
Page 8 of 14
The Company had a loss from operations for the fiscal 2002 period of
$554,200 versus income of $104,900 in fiscal 2001, due to the decrease in
revenues, the increase in research and development, and unavoidable fixed
administrative costs.
For the fiscal 2002 period, the Company had other income of $5,200
versus other expense of $6,800 in the fiscal 2001 period, consisting mainly of
interest income and a gain on the disposal of capital equipment.
As a result of the foregoing, the Company had a net loss of $554,200
for the fiscal 2002 period versus a net income of $97,300 in the fiscal 2001
period.
Liquidity and Capital Resources
Cash Flows
During the fiscal quarter ended December 30, 2001, the Company used net
cash in operations of $486,400, as the result of its net loss of $554,200 for
the fiscal quarter. While the downturn in the industry and economy continues to
result in many customers paying 14 to 30 days past due, the Company attempts to
maintain its payment terms with vendors. Therefore, while accounts receivable
increased by approximately $696,100, accounts payable increased only slightly by
$21,100. The Company was also fortunate to use a large amount of existing
inventory to ship the quarter's sales, resulting in a decrease of $597,300 in
inventory. During the quarter, the Company drew down $500,000 on its line of
credit while reducing capital lease obligations by $21,800 and purchasing
$20,200 in capital equipment. The Company also received $13,400 from the
exercise of stock options by two employees.
During the fiscal quarter ended December 31, 2000, the Company had
$101,200 of net cash provided by operations, resulting from net income of
$97,300. During the quarter, the Company had an increase in accounts payable of
$752,800, largely due to the purchase of large quantities of silicon wafers into
inventory. The Company also prepaid approximately $220,000 for additional
wafers. The Company also paid $28,600 for capital equipment and $49,400 to
reduce capital lease obligations.
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 is continuing its shift to higher value proprietary
products, while reducing the total number of products that it offers. As this
transition continues, the Company expects to improve its sales to inventory
ratio.
Page 9 of 14
The Company provides reserves for product material that is over one
year old, with no backlog or sales activity, and reserves for future
obsolescence. The Company also takes physical inventory write-downs for
obsolescence. While the Company has been actively attempting to reduce inventory
levels over the past several quarters, it made large purchases of wafers during
the quarter ended December 31, 2000, as the wafer fabricating capacity continues
to be tight. The Company felt it was necessary to take advantage of available
capacity from its primary supplier in order to prepare itself for future sales.
The Company's accounts receivable level has been consistently
correlated to the Company's previous quarter revenue level. Because of the
Company's customer scheduled backlog requirements, up to two-thirds of the
quarterly revenues may be shipped in the last month of the quarter. This has the
effect of placing a large portion of the quarterly shipments reflected in
accounts receivable not yet due per the Company's net 30 day terms. The Company
continues to work to accelerate collections and to work closely with customers
to spread their orders and shipments throughout the quarter, which would reduce
the ending accounts receivable balance.
Although current levels of inventory impact the Company's liquidity,
the Company believes that it is a cost of doing business given the Company's
fabless operation. The Company believes it made good progress in reducing
inventory levels during the first quarter of fiscal 2002, and plans to increase
its efforts to reduce inventory during the remaining fiscal quarters.
Financing
The Company has a $2,000,000 line of credit with Comerica
Bank-California, which bears interest at the bank's prime rate (4.75% at
December 30, 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 December 30, 2001, the
Company had an outstanding balance of $500,000 and was in compliance with the
quarterly covenants, except the tangible net worth requirement, for which it has
not received a waiver. This line of credit matures on July 31, 2002.
Under the terms of its line of credit, the Company is precluded from
paying any dividends without the consent of the parties to such agreements, even
if the Company is in compliance with all of the financial covenants. Regardless
of any such restrictions in its bank loan agreements, the Company does not
intend to pay cash dividends in the near future.
While the Company will continue to evaluate debt and equity financing
opportunities, it believes its financing arrangements and cash flow generated
from operations provide a sufficient base of liquidity for funding operations
and capital needs to support the Company's operations.
Page 10 of 14
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
The Company conducts all of its transactions, including those with
foreign suppliers and customers, in U.S. dollars. It is therefore not directly
subject to the risks of foreign currency fluctuations and does not hedge or
otherwise deal in currency instruments in an attempt to minimize such risks. Of
course, demand from foreign customers and the ability or willingness of foreign
suppliers to perform their obligations to the Company may be affected by the
relative change in value of such customer or supplier's domestic currency to the
value of the U.S. dollar. Furthermore, changes in the relative value of the U.S.
dollar may change the price of the Company's prices relative to the prices of
its foreign competitors. The Company also does not hold any market risk
sensitive instruments that are not considered cash under generally accepted
accounting principles. The Company's credit facilities bear interest at rates
determined from the prime rate of the Company's lender; therefore, changes in
interest rates affect the amount of interest that the Company is required to pay
thereunder.
Page 11 of 14
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. The Index to Exhibits appears at page 14 of this report.
b. No reports on Form 8-K have been filed during the fiscal quarter
for which this report is filed.
Page 12 of 14
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, 2002 By /s/ William J. Volz
------------------------ --------------------------
William J. Volz
President and Principal
Executive Officer
Date: February 12, 2002 By /s/ Kimiko Lauris
------------------------ --------------------------
Kimiko Lauris
Chief Financial Officer and
Principal Financial and
Accounting Officer
Page 13 of 14
INDEX TO EXHIBITS
Exhibit No. Description
----------- -----------
3.1 Articles of Incorporation, as amended. [3.1](1)
3.2 Bylaws, as amended. [3.2](1)
10.1 Real Estate lease regarding Registrant's Sunnyvale
facilities. [10.1](2)
10.2 LOGIC Devices Incorporated 1996 Stock Incentive Plan. [99.1](3)
10.3 LOGIC Devices Incorporated 1999 Director Stock Incentive
Plan. [10.1](4)
10.4 Registration Rights Agreement dated October 3, 1998 between
William J. Volz, BRT Partnership, and Registrant. [10.19](5)
----------
[ ] Exhibits so marked have been previously filed with the
Securities and Exchange Commission (SEC) as exhibits to the
filings shown below under the exhibit numbers indicated following
the respective document description and are incorporated herein by
reference.
(1) Registration Statement on Form S-18, as filed with the SEC on August
23, 1988 [Registration No. 33-23763-LA].
(2) Registration Statement of Form S-3, as filed with the SEC on November
21, 1996 [Registration No. 333-16591].
(3) Registration Statement on Form S-8, as filed with the SEC on August 17,
1997 [Registration No. 333-32819].
(4) Quarterly Report on Form 10-Q for the quarter ended June 30, 1999, as
filed with the SEC on August 14, 1999.
(5) Annual Report on Form 10-K for the transition period from January 1,
1998 to October 3, 1999, as filed with the SEC on January 13, 1999.
Page 14 of 14