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
MARCH 31, 2002
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 May 14, 2002, 6,852,888
shares of Common Stock, without par value, were issued and outstanding.
Page 1 of 15
LOGIC DEVICES INCORPORATED
INDEX
Page
Number
------
Part I. - Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 2002 and September 30, 2001 3
Consolidated Statements of Operations for the fiscal quarter ended
March 31, 2002 and April 1, 2001 4
Consolidated Statements of Operations for the six fiscal months ended
March 31, 2002 and April 1, 2001 5
Consolidated Statements of Cash Flows for six fiscal months ended
March 31, 2002 and April 1, 2001 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk 11
Part II. - Other Information 12
Item 1. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
Page 2 of 15
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
LOGIC DEVICES INCORPORATED
CONSOLIDATED BALANCE SHEETS
March 31, September 30,
2002 2001
----------------- ------------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 194,700 $ 217,500
Accounts receivable, net of allowance 4,167,000 3,352,200
Inventories 10,559,000 11,695,700
Prepaid expenses 293,100 192,600
----------------- ------------------
Total current assets 15,213,800 15,458,000
Property and equipment, net 1,207,500 1,592,000
Other assets 165,200 181,000
----------------- ------------------
$ 16,586,500 $ 17,231,000
================= ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank borrowings $ 750,000 $ -
Accounts payable 266,900 268,100
Accrued payroll and vacation 170,100 190,900
Accrued commissions 54,800 54,600
Accrued insurance 51,600 -
Other accrued expenses 1,700 5,500
Current portion, capital lease obligations 16,300 54,700
Income taxes payable - 1,900
----------------- ------------------
Total current liabilities 1,311,400 575,700
Capital lease obligations, net of current portion - 2,900
----------------- ------------------
Total liabilities 1,311,400 578,600
----------------- ------------------
Shareholders' equity:
Common stock 18,539,900 18,522,700
Additional paid-in capital 19,000 19,000
Accumulated deficit (3,283,800) (1,889,300)
----------------- ------------------
Total shareholders' equity 15,275,100 16,652,400
----------------- ------------------
$ 16,586,500 $ 17,231,000
================= ==================
Page 3 of 15
LOGIC DEVICES INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Fiscal quarter ended
--------------------------------------------
March 31, April 1,
2002 2001
----------------- ------------------
Net revenues $ 1,120,300 $ 2,539,600
Cost of revenues 915,300 1,528,600
----------------- ------------------
Gross margin 205,000 1,011,000
----------------- ------------------
Operating expenses:
Research and development 459,200 447,000
Selling, general and administrative 557,400 540,800
----------------- ------------------
Total operating expenses 1,016,600 987,800
----------------- ------------------
(Loss) income from operations (811,600) 23,200
Other expense, net 22,200 1,700
----------------- ------------------
(Loss) income before income taxes (833,800) 21,500
Income tax provision 6,500 9,600
----------------- ------------------
Net (loss) income $ (840,300) $ 11,900
================= ==================
Basic and diluted (loss) earnings per common share $ (0.12) $ -
================= ==================
Basic weighted average common shares outstanding 6,851,138 6,841,888
================= ==================
Diluted weighted average common shares outstanding 6,853,517 6,841,888
================= ==================
Page 4 of 15
LOGIC DEVICES INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Six fiscal months ended
--------------------------------------------
March 31, April 1,
2002 2001
----------------- ------------------
Net revenues $ 2,891,500 $ 5,597,600
Cost of revenues 2,245,400 3,573,600
----------------- ------------------
Gross margin 646,100 2,024,000
----------------- ------------------
Operating expenses:
Research and development 1,027,000 814,300
Selling, general and administrative 990,100 1,081,600
----------------- ------------------
Total operating expenses 2,017,100 1,895,900
----------------- ------------------
(Loss) income from operations (1,371,000) 128,100
Other expense, net 17,000 8,600
----------------- ------------------
(Loss) income before income taxes (1,388,000) 119,500
Income tax provision 6,500 10,400
----------------- ------------------
Net (loss) income $ (1,394,500) $ 109,100
================= ==================
Basic and diluted (loss) earnings per common share $ (0.20) $ 0.02
================= ==================
Basic weighted average common shares outstanding 6,844,930 6,841,888
================= ==================
Diluted weighted average common shares outstanding 6,847,309 6,841,888
================= ==================
Page 5 of 15
LOGIC DEVICES INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Six fiscal months ended
----------------------------------------------
March 31, April 1,
2002 2001
------------------ -----------------
Cash flows from operating activities:
Net (loss) income $ (1,394,500) $ 109,100
Adjustments to reconcile net (loss) income to net cash
used in operating activities:
Depreciation and amortization 426,900 616,700
Gain on disposal of capital equipment (10,500) -
Change in operating assets and liabilities:
Accounts receivable (814,800) (862,500)
Inventories 1,136,700 (672,500)
Prepaid expenses (100,500) (56,300)
Accounts payable (1,200) 165,200
Accrued payroll and vacation (20,800) 23,300
Accrued commissions 200 (75,300)
Accrued insurance 51,600 35,800
Other accrued expenses (3,800) (37,400)
Income taxes payable (1,900) (1,700)
------------------ -----------------
Net cash used in operating activities (732,600) (755,600)
------------------ -----------------
Cash flows from investing activities:
Capital expenditures (27,000) (121,500)
Decrease in other assets 300 1,300
------------------ -----------------
Net cash used in investing activities (26,700) (120,200)
------------------ -----------------
Cash flows from financing activities:
Proceeds from exercise of common stock options 17,200 -
Proceeds from bank borrowing 750,000 500,000
Repayment of capital lease obligations (30,700) (146,300)
------------------ -----------------
Net cash provided by financing activities 736,500 353,700
------------------ -----------------
Net decrease in cash and cash equivalents (22,800) (522,100)
Cash and cash equivalents, beginning of period 217,500 753,300
------------------ -----------------
Cash and cash equivalents, end of period $ 194,700 $ 231,200
================== =================
Page 6 of 15
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. Certain items were
reclassified in the consolidated financial statements for the quarter
ended April 1, 2001 to conform to the basis used in the audited
consolidated financial statements for the fiscal year ended September 30,
2001.
The accompanying unaudited interim consolidated financial statements have
been prepared in accordance with the instructions for Form 10-Q and,
therefore, do not include all information and footnotes necessary for a
complete presentation of the financial position, results of operations,
and cash flows for the Company, in conformity with accounting principles
generally accepted in the United States of America. The Company has filed
audited consolidated 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
March 31, 2002 are not necessarily indicative of the results to be
expected for the full year.
(B) INVENTORIES
A summary of inventories follows:
March 31, September 30,
2002 2001
----------------- ------------------
Raw materials $ 1,549,700 $ 1,544,800
Work-in-process 6,106,200 6,801,900
Finished goods 2,903,100 3,349,000
----------------- ------------------
$ 10,559,000 $ 11,695,700
================= ==================
Based on forecasted fiscal year 2002 sales levels, the Company has on
hand inventories aggregating approximately twenty-four months of sales.
Page 7 of 15
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 March 31, 2002)
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 $15.7 million plus
50% of the quarter's net profit and 100% of newly issued equity, and
annual profitability. On March 31, 2002, the Company had an outstanding
balance of $750,000 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 8 of 15
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 56% from $2,539,600, for the fiscal quarter
ended April 1, 2001, to $1,120,300, for the fiscal quarter ended March 31, 2002,
which is the Company's second fiscal quarter of 2002. This decrease resulted
from the continued downturn in the industry and economy.
Expenses
Cost of revenues decreased 40% from $1,528,600 in the fiscal quarter
ended April 1, 2001 to $915,300 in the fiscal quarter ended March 31, 2002. This
decrease was the result of the weaker sales. As a percentage of net revenues,
the gross profit margin decreased by 22% due to some overhead costs being fixed.
Research and development expense increased slightly (by 3%) from
$447,000 (18% of net revenues) in the fiscal 2001 period to $459,200 (41% of net
revenues) in the fiscal 2002 period. However, if revenues had remained
consistent with those of the fiscal 2001 period, the expense would have been
approximately 18% of revenues, which is near the Company's target of 20%. The
Company believes the only way to consistently grow future revenues will be
through new product development.
Selling, general and administrative expense increased slightly (by 3%)
from $540,800 (21% of net revenues) in the fiscal 2001 period to $557,400 (50%
of net revenues) in the fiscal 2002 period, due to the decrease in revenues.
Page 9 of 15
The Company had a loss from operations for the fiscal 2002 period of
$811,600 versus income of $23,200 in the fiscal 2001 period, due to the decrease
in revenues and unavoidable fixed administrative costs.
For the fiscal 2002 period, the Company had other expense of $22,200
versus other expense of $1,700 in the fiscal 2001 period, consisting mainly of
interest on bank borrowings.
As a result of the foregoing, the Company had a net loss of $840,300
for the fiscal 2002 period versus a net income of $11,900 in the fiscal 2001
period.
Liquidity and Capital Resources
Cash Flows
During the six fiscal months ended March 31, 2002, the Company used net
cash of $732,600 for operations as the result of a net loss of $1,394,500 during
the period. 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 $814,800, accounts payable decreased by $1,200.
Inventory decreased by $1,136,700, as the Company was able to primarily use
existing inventory to ship its sales during the six fiscal months. During the
six fiscal months, the Company drew down $750,000 on its line of credit, while
reducing capital lease obligations by $30,700 and purchasing $27,000 in capital
equipment. The Company also received $17,200 from the exercise of common stock
options by employees.
Even though it had net income of $109,100, the Company used net cash of
$755,600 for operations during the six fiscal months ended April 1, 2001. This
use of cash was the result of an increase in accounts receivable of $862,500 and
an increase in inventory of $672,500, consisting mainly of silicon wafers.
During this 2001 period, the Company drew down $500,000 on its line of credit,
while purchasing $121,500 of capital equipment and reducing capital lease
obligations by $146,300.
Working Capital
While the Company's accounts receivable balance typically represents
the prior quarter's sales, one customer on extended terms currently represents
nearly 90% of the total receivables balance. In addition, due to the downturn in
the economy, many of the Company's customers are paying 21 days beyond its
normal net 30-day terms. However, the Company currently believes all its
receivables are collectible.
As a nature of its business, the Company's investment in inventories
has been, and will continue to be, significant (at current sales levels, on-hand
inventories approximate 24 months of sales). However, the Company does not
anticipate the slump in the industry and economy to continue indefinitely, and
many of the Company's products have life cycles of at least five years. Although
current levels of inventory impact its liquidity, the Company believes that it
is a cost of doing business given the Company is a fabless operation (processed
wafers are purchased from outside suppliers).
Page 10 of 15
The Company has made good progress in reducing inventory levels during
the first two quarters of fiscal 2002, and plans to increase its efforts to
reduce inventory during the remaining fiscal quarters. The Company provides
reserves for future obsolescence and for product material that is over one year
old and has no backlog or sales activity. 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, when wafer
capacity was 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.
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 March
31, 2002) 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 $15.7 million plus 50% of the
quarter's profits and 100% of newly issued equity, and annual profitability. On
March 31, 2002, the Company had an outstanding balance of $750,000, but was not
in compliance with its 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 operating cash flow
provide a sufficient base of liquidity for funding operations and capital needs
to support the Company's operations.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
The Company conducts all of its transactions, including those with
foreign suppliers and customers, in U.S. dollars. It is therefore not directly
subject to the risks of foreign currency fluctuations and does not hedge or
otherwise deal in currency instruments in an attempt to minimize such risks. Of
course, demand from foreign customers and the ability or willingness of foreign
suppliers to perform their obligations to the Company may be affected by the
relative change in value of such customer or supplier's domestic currency to the
value of the U.S. dollar. Furthermore, changes in the relative value of the U.S.
dollar may change the price of the Company's prices relative to the prices of
its foreign competitors. The Company also does not hold any market risk
sensitive instruments that are not considered cash under accounting principles
generally accepted in the United States of America. The Company's credit
facilities bear interest at rates determined from the prime rate of the
Company's lender; therefore, changes in interest rates affect the amount of
interest that the Company is required to pay thereunder.
Page 11 of 15
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.
At 11:00 a.m. on March 12, 2002, the Company held its Annual Shareholders
Meeting at the Company's headquarters located at 1320 Orleans Drive, Sunnyvale,
California. The only item to be voted upon at the meeting was the election of
the Board of Directors. There were 6,290,600 shares present or represented by
proxy at the meeting, representing a quorum.
Shareholders are permitted to vote cumulatively in the election of directors,
which allows each shareholder to cast a number of votes equal to the number of
directors to be elected multiplied by the number of shares owned, and to
distribute such votes among the candidates in such proportion as such
shareholder may determine. In order to vote cumulatively, a shareholder must
give notice of this intention by proxy or at the meeting. One shareholder
elected to cumulate votes. The votes for each nominee are as set forth in the
following table:
Nominee Votes in Favor Votes Against Abstention
--------------------------- -------------- ------------- ------------
Howard L. Farkas 6,204,030 100 23,750
Fredric J. Harris 6,140,705 100 23,750
Joel S. Kanter 6,140,705 100 23,750
Albert Morrison Jr. 6,140,705 100 23,750
William J. Volz 6,203,205 100 23,750
Item 5. Other Information.
Not Applicable.
Page 12 of 15
Item 6. Exhibits and Reports on Form 8-K.
a. The Index to Exhibits appears at page 15 of this report.
b. No reports on Form 8-K have been filed during the fiscal quarter
for which this report is filed.
Page 13 of 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: May 14, 2002 By /s/ William J. Volz
------------------------ -----------------------
William J. Volz
President and Principal
Executive Officer
Date: May 14, 2002 By /s/ Kimiko Lauris
------------------------ -----------------------
Kimiko Lauris
Chief Financial Officer and
Principal Financial and
Accounting Officer
Page 14 of 15
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 15 of 15