UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(AMENDMENT NO. 1)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended
APRIL 1, 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 April 30, 2001, 6,841,888 shares of
common stock, without par value, were outstanding.
Items 1 and 2 of Part I of the Quarterly Report on Form 10-Q for the quarterly
period ended April 1, 2001 of LOGIC Devices Incorporated (the "Company" or the
"registrant"), previously filed with the Securities and Exchange Commission, are
hereby amended and restated in their entirety as follows:
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LOGIC DEVICES INCORPORATED
Notes to Consolidated Financial Statements
April 1, 2001 and October 1, 2000
(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. All adjustments in the quarter ended April 1, 2001 were
of a recurring nature, except the reversal of a December 31, 2000 accrual for
expected returns from a terminated distributor, as the returns were realized in
February 2001 (see Note D). Certain items were reclassified in the consolidated
financial statements for the quarter ended April 2, 2000 to conform to the basis
used in the audited consolidated financial statements for the fiscal year ended
October 1, 2000.
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 October 1, 2000 and
October 3, 1999, 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 April 1, 2001 are not necessarily indicative of the results to be expected
for the full year.
B. INVENTORY
A summary of inventories follows:
April 1, October 1
2001 2000
----------------- ------------------
Raw materials $ 5,059,100 $ 3,826,400
Work-in-process 4,364,700 5,573,900
Finished goods 3,431,000 2,782,000
----------------- ------------------
$ 12,854,800 $ 12,182,300
================= ==================
Based on forecasted sales levels for fiscal year 2001, the Company has on-hand
inventory aggregating approximately 12 months of sales.
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LOGIC DEVICES INCORPORATED
Notes to Consolidated Financial Statements
April 1, 2001 and October 1, 2000
(unaudited)
C. FINANCING
On July 27, 2000, the Company obtained a line of credit from Comerica Bank -
California, with an availability of up to $2,000,000. The line of credit bears
interest at prime (8.0% at April 1, 2001) plus 0.25%, matures on July 31, 2001,
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 April 1, 2001, the
Company had an outstanding balance of $500,000, and was in compliance with the
covenants.
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.
D. CONTINGENCIES
On July 28, 2000, the Company filed a Statement of Claim with the American
Arbitration Association in San Francisco, California, against All American
Semiconductor, Inc. ("All American") seeking a declaratory judgment that All
American had breached the inventory stocking requirements and payment terms of
the Exclusive Distributor Agreement between them (the "Agreement"). The Company
also sought to recover any money damages it suffered as a result of such
breaches. The Agreement appointed All American as the Company's exclusive
domestic distributor and required it to, among other things, maintain certain
levels of inventory. All American filed a response to the Statement of Claim and
a counterclaim against the Company and its president, William J. Volz. All
American alleged that the Company sold products in North America without using
All American as its distributor, and sought to recover money damages from such
sales. The Company filed an answer and affirmative defenses to the counterclaim
denying those allegations.
On October 6, 2000, the Company sent a termination notice, effective December
31, 2000, pursuant to the terms of the Agreement. As a result of this
termination and settlement of the claims on February 16, 2001, the Company
accepted returns totaling approximately $252,000 and repurchased approximately
$288,000 of product from All American.
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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 the
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 1, 2000 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
Similar to most companies in the technology sector, the Company
experienced a downturn in revenues during the quarter. Net revenues of
$2,539,600 for the three months ended April 1, 2001 decreased 8% from $2,768,800
for the three months ended April 2, 2000. This decrease in revenues for the
three-month period resulted from a return of approximately $252,000 from a
terminated distributor, the general downturn in the economy, the broad-based
inventory correction occurring within the industry, and a continued reduction of
revenue from discontinued products. The Company is continuing its shift in
product offerings to higher margin proprietary products and reducing the total
number of products that it offers.
Expenses
Cost of revenues decreased 14% from $1,533,800 for the three months
ended April 2, 2000, to $1,324,000 for the three months ended April 1, 2001. The
gross profit increased by 2%, from $1,235,000 in 2000 to $1,215,600 in 2001. As
a percentage of revenues, gross profit increased from 45% for the three month
ended April 2, 2000, to 48% for the three months ended April 1, 2001, due to the
continued shift towards higher margin proprietary products.
Research and development expense decreased from $453,700 (16% of net
revenues) in the 2000 period to $447,000 (18% of net revenues) in the 2001
period. The Company plans to continue its substantial investments in new product
research and development.
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Selling, general and administrative expense increased from $622,300
in the 2000 period to $745,400 in the 2001 period, due to extensive marketing of
new products and additional equipment rent expense.
Due to the aforementioned factors, the Company's income from
operations decreased from $159,000 for the 2000 period to $23,200 for the 2001
period.
During the 2001 period, the Company incurred $1,700 of other expense
compared to $65,600 of other expense for the 2000 period. This reduction is due
to lower bank borrowing and the receipt of other income during the 2001 period.
As a result of the foregoing, the Company earned net income of
$11,900 for the three months ended April 1, 2001, versus net income of $93,400
for the 2000 period.
Liquidity and Capital Resources
Cash Flows
For the six months ended April 1, 2001, the Company used net cash of
$755,600 in operations. This included an increase in inventories of $672,500
resulting from a return and repurchase from a terminated distributor. This
increase in inventories also resulted from the Company taking advantage of an
opportunity to stock up on wafers for its newer products while its fab could
provide capacity. Accounts receivable also increased by $862,500 due to the
general downturn in the industry causing many customers to pay in 45-60 days,
rather than the normal net 30-day terms. In addition to these operating
activities, the Company also invested $121,500 in capital expenditures and
reduced capital lease obligations by $146,300. To finance these operating and
investing activities, the Company drew $500,000 on its line of credit.
During the six months ended April 2, 2000, the Company had net cash
of $2,579,400 from operations. The Company's accounts receivable decreased by
$1,670,900 due to increased collections efforts and smoothing of sales over a
quarter. Net cash from operations was also provided by a decrease in inventory
of $125,900 and the receipt of income tax refunds aggregating approximately
$93,500. During the 2000 period, the Company reduced it accounts payable and
accrued expenses by an aggregate of $180,800, invested $190,800 in capital
expenditures, reduced bank borrowings and capital lease obligations by an
aggregate of $1,644,700, and repaid related party notes payable totaling
$250,000. These payments and reductions were partially financed by the net cash
from operations and from $365,400 received from the exercise of warrants and
stock options.
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.
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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.
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.
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 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.
While the return from the Company's terminated domestic distributor
resulted in an initial increase in inventories, the Company believes all
returned items are salable in the near future and expects no material adverse
impact. There was no accounts receivable impact, as the Company had previously
accrued a reserve for the return.
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 reduces 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 feels it has made good progress in reducing its
accounts receivable balance during the prior fiscal year, and plans to increase
its efforts to reduce inventory during the coming year.
Financing
The Company has a $2,000,000 line of credit with Comerica
Bank-California, which bears interest at the bank's prime rate (8.0% at April 1,
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 April 1, 2001, the Company was
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in compliance with these covenants and had a $500,000 outstanding balance. This
line of credit matures on July 31, 2001.
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
expect 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.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Amendment No. 1 to Form 10-Q to be signed on its
behalf by the undersigned, thereunto duly authorized.
LOGIC Devices Incorporated
(Registrant)
Date: June 6, 2001 By /s/ William J. Volz
--------------------------- -------------------------------
William J. Volz
President and Principal
Executive Officer
Date: June 6, 2001 By /s/ Kimiko Lauris
--------------------------- --------------------------------
Kimiko Lauris
Chief Financial Officer
and Principal Financial
and Accounting Officer
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