UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Fiscal Year Ended September 30, 2008
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Transition Period ______ to ______
Commission File Number
0-17187
LOGIC DEVICES INCORPORATED
(Exact name of registrant as specified in its charter)
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California |
94-2893789 |
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(State of Incorporation |
(I.R.S. Employer Identification No,) |
1375 Geneva Drive, Sunnyvale, CA 94089
(Address of principal executive offices, including Zip Code)
(408) 542-5400
(Registrant’s telephone number, including Area Code)
Securities registered pursuant to Section 12(b) of the Act : NONE
Securities registered pursuant to Section 12(g) of the Act: Common Stock, no par value
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file report pursuant to Section 13 or Section 15(d) of the Act.
Yes [ ] No [X]
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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer [ ] |
Accelerated filer [ ]
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Non-accelerated filer [X] (Do not check if a smaller reporting company |
Smaller reporting company [ ] |
Indicate by check whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
The aggregate market value of the voting and non-voting common stock held by non-affiliates computed by reference to the closing price of the common stock as of March 31, 2008, the last day of the registrant’s most recently completed second quarter was $5,055,500.
As of December 18, 2008, the Registrant had 6,814,438 shares of its common stock issued and outstanding.
LOGIC DEVICES INCORPORATED
ANNUAL REPORT ON FORM 10-K
INDEX
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PART I |
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Item 1. |
2 |
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Item 1A. |
6 |
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Item 1B. |
10 |
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Item 2. |
10 |
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Item 3. |
10 |
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Item 4. |
10 |
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PART II |
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Item 5.
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11 |
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Item 6. |
12 |
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Item 7. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
12 |
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Item 7A. |
18 |
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Item 8. |
19 |
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Item 9. |
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure |
36 |
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Item 9A. |
36 |
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Item 9B. |
37 |
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PART III |
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Item 10. |
37 |
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Item 11. |
37 |
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Item 12. |
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
37 |
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Item 13. |
Certain Relationships and Related Transactions, and Director Independence |
37 |
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Item 14. |
37 |
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PART IV |
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Item 15. |
37 |
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39 |
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CAUTIONARY STATEMENT
This Annual Report on Form 10-K contains forward-looking statements which include, but are not limited to, statements concerning projected revenues, expenses, gross margin, net income, market acceptance of our products, the competitive nature of and anticipated growth in our markets, our ability to achieve further product integration, the status of evolving technologies and their growth potential, the timing and acceptance of new product introductions, the adoption of future industry standards, our production capacity, our ability to migrate to smaller process geometries, and the need for additional capital. These forward-looking statements are based on our current expectations, estimates, and projections about our industry, management’s beliefs, and certain assumptions made by it. Words such as “anticipates, appears, expects, intends, plans, believes, seeks, estimates, may, will,” and variations of these words or similar expressions are intended to identify forward-looking statements. In addition, any statements that refer to expectations, projections, or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties, and assumptions that are difficult to predict. Therefore, actual results could differ materially and adversely from those results expressed in any forward-looking statements, as a result of various factors, some of which are listed under the section, “Item 1A - Risk Factors,” of this Annual Report on Form 10-K. We undertake no obligation to revise or update publicly any forward-looking statements for any reason.
PART I
General Development of the Business
LOGIC Devices Incorporated, an ISO 9001:2000 registered company, develops and markets high-performance, low power digital integrated circuits an integrated modules that perform high-density storage and signal/image processing functions. Our products enable high definition video display, transport, editing, composition, and special effects. We also provide solutions for digital filtering in television broadcast stations and image enhancement in medical diagnostic scanning and imaging equipment.
Our products are used in the broadcast, medical imaging, military, industrial, embedded, telecommunications, and consumer electronics markets. Our products address main-system (core) memory, bulk storage, multi-port arrays, and digital signal processing (DSP) requirements that involve high-performance arithmetic computation. We focus on developing proprietary, silicon IP, and integrated modular, standard catalog products to address specific functional application needs or performance levels that are not otherwise commercially available. We seek to provide related groups of circuits that original equipment manufacturers (OEMs) incorporate into high-performance electronic systems.
We rely on third-party silicon foundries to process silicon wafers, each wafer having up to several hundred integrated circuits of a given LOGIC design, from which finished products are then assembled. Our strategy is to avoid the substantial investment in capital equipment required to establish a wafer fabrication facility, by outsourcing wafer processing to third-party foundry specialists to take advantage of their expertise. See "Business – Background." We currently have two primary wafer suppliers. We continue to explore additional foundry relationships to reduce our dependence on any single wafer foundry.
We market our products worldwide through a combination of a direct sales, one domestic distributor, and 21 international distributors and/or representatives. In fiscal 2008, approximately 31 percent of net revenues were from distributors. We adjust our sales structure to address appropriate market requirements. We include the following as some of our customers: Texas Instruments, BAE Systems, Harmonic, GE Medical, Northrup Grumman, Qualcomm, and Raytheon. Fiscal 2008 net revenues derived from foreign sales approximate 30 percent.
LOGIC Devices was incorporated under the laws of the State of California in April 1983. Our headquarters are located at 1375 Geneva Dr ive, Sunnyvale, California 94089, and our telephone number is 408-542-5400.
Available Information
Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 are available free of charge on our website, www.logicdevices.com, as soon as reasonably practicable after we electronically file such material with or furnish such material to the Securities and Exchange Commission.
Background
Continuing advances in fabricating semiconductors are driving a global revolution in electronics. With these ongoing advances, the ability to economically compute, communicate, and control seems to be limited only by the creativity required to implement ever more complex electronic systems. It is increasingly common to implement entire electronic systems on a single small sliver of silicon. The challenges to the industry have increasingly turned toward innovative product definition, timely product development, technical customer support, and heavy capital investments in advanced semiconductor wafer fabrication facilities. The rapid advances in chip fabrication technology have resulted in a specialization of skills within the industry. In addition to the specialization of materials processing skills required to fabricate semiconductor wafers, the industry increasingly requires and values system architecture development, interoperability standards, signal processing algorithms, and circuit design expertise as essential skills for developing financially successful products. Many opportunities have thus emerged for semiconductor companies that focus on product definition, advanced design techniques, and technical application support, and that rely on third parties for wafer fabrication. We focus our resources on defining and developing high-performance integrated circuit components and integrated multi-chip modular products to growing markets, which require demanding computational throughput.
The semiconductor industry is intensely competitive, highly cyclical, and characterized by rapid technological change, product obsolescence, wide fluctuations in both demand and capacity, and steep price erosion. These factors can obsolete processes and products currently utilized or produced by us. In such cases, we are required to develop products utilizing new processes and to either integrate such products into our existing foundry processes, or seek new foundry sources.
Markets and Product Development Strategies
We have historically derived a significant portion of our revenues from sales to television broadcast equipment manufacturers and to defense contractors providing systems that perform computationally intensive image processing. Our products were among the first to provide economical, high-speed, yet low power, computational solutions for common image manipulation and storage problems encountered in implementing these systems. Applications of our products also overlap into medical diagnostic imaging equipment, digital cinema systems, and in-flight entertainment systems. We jointly defined with our customers, a family of digital image filtering applications that address the filtering requirements of HDTV studio production systems. Sales of these systems lagged market forecasts as a result of repeated delays in the conversion to HDTV. As a result, the magnitude of our sales of these products was affected. Sales that we had expected to generate over a five-year period have extended at a slower rate for over a ten-year period.
As a result of our work on high-speed, low power image processing circuits that are very computationally demanding, we have developed expertise in circuit design and implementation that is not readily available to many OEMs, and within the semiconductor industry, only available within some of the very largest companies which, due to their size, are compelled to pursue very large markets. Our capabilities and size provide opportunities to service technically-demanding industrial and military markets that are not serviced by those larger companies.
In addition to, as well as a result of our work on high-performance, low power silicon developments for the markets, applications, and platforms we serve, we have introduced a product family enabling us to provide advanced, multi-chip, integrated modular products. This product packaging medium facilitates the integration of LOGIC silicon IP as well as silicon IP from other semiconductor manufacturers providing high-density, wide-word memory arrays, sub-systems, and systems in packages.
The same advances in semiconductor technology that have enabled the advancements in high definition broadcast video production and distribution have driven a rapid increase in the ability to transmit vast amounts of data. Communications in all forms with increasing portability and bandwidth are proliferating worldwide. Much of this new communication capability will be utilized to transport video streams. We believe that many opportunities exist to utilize our capabilities in low power, high speed computation and storage to address the requirements of these communications and video systems. The convergence of communications and ubiquitous image processing is an opportunity that is well suited to our capabilities and far exceeds our abilities to address completely.
We seek to identify additional markets that require the application our silicon design and multi-chip packaging expertise; that are stable, long-lived markets that are not extremely cost-sensitive; that offer potential for substantial revenue growth; and that are not served by larger competitors with substantially more resources. Currently the semiconductor industry is challenged by several factors. First, the cost of developing high complexity products is escalating nearly as fast as the capability of the technology itself is increasing. Second, the disciplines required to develop complex, systems-on-chips (SOCs) requires a rapidly increasing breadth of technical skills. Consumer-related products are experiencing ever shrinking life cycles as new products are quickly supplanted by even newer products.
Wafer Fabrication Technology
LOGIC Devices is a fabless manufacturer. We rely upon third-party foundry suppliers to produce processed wafers from mask patterns designed by us. Through these wafer suppliers, we have access to advanced high-speed, high-density complimentary metal oxide semiconductor (CMOS) process technology, without the significant investment in capital equipment and facilities required to establish a wafer fabrication factory. Coupled with our structured custom design methodology and experience with high-speed circuit design, this CMOS technology has allowed us to produce products that offer high computational speeds, high reliability, high levels of circuit integration (complexity), and low power consumption.
We are primarily dependent upon two wafer suppliers and do not have a guarantee of minimum supplies. Therefore, there can be no assurance that such relationships will continue to be on terms satisfactory to us. The inability to obtain adequate quantities of processed wafers could limit our revenues. As a result of this risk, we carry a large inventory of unassembled wafers that can be packaged into a variety of carrier styles to support customer requirements.
Production, Assembly, and Test
Our production operations consist of functional and parametric testing, hot and cold testing, final inspection, quality inspection, and shipment. As is customary in the industry, high-volume assembly subcontractors assemble our devices. Thereafter, the assembled devices are returned to us for final testing and shipment to customers. We continue to test materials and products at various stages in the manufacturing process, utilizing automated test equipment.
We have historically maintained, and expect to continue to maintain, high levels of inventory for newer products. For some product types, we must purchase all of our anticipated inventory needs for the life of the product (often ten or more years) in a short period of time. Our high inventory levels heighten the risk of inventory obsolescence and write-offs.
Marketing, Sales, and Customers
We market our products worldwide to a broad range of customers through our own direct sales force, one domestic electronics distributor, and 21 international electronics distributors and/or representatives. We concentrate our direct marketing efforts on high-performance segments of the broadcast, medical imaging, industrial, embedded telecommunications and consumer markets, in applications where high speed is critical. Among our OEM customers are Texas Instruments, BAE Systems, Harmonic, GE Medical, Northrup Grumman, Qualcomm, and Raytheon.
Distributors purchase our products for resale, generally to a broad base of small- to medium-sized customers. As is customary in the industry, our distributors receive certain price protection and limited stock rotation rights. However, our distributors are required to simultaneously order an amount equal to or greater than any rotation items returned. During fiscal 2008, 2007, and 2006, sales through distributors accounted for approximately 31%, 27%, and 38% of net revenues, respectively.
In fiscal 2008, 2007, and 2006, no distributors generated more than 10% of net revenues; however, Benchmark Electronics (manufacturer for Texas Instruments) comprised 26%, 43% and 23% of net revenues in fiscal 2008, 2007, and 2006, respectively. In addition, BAE Systems comprised 19% and 12% of net revenues in fiscal 2008 and 2006, respectively.
Our distributors are not exclusive and they may also market products competitive with our products. We warrant our products against defects in materials and workmanship for a period of 12 months from the date of shipment. Warranty expenses to date have been nominal.
International sales are conducted by sales representatives and distributors located throughout Europe and Asia. During fiscal 2008, 2007, and 2006, our export sales were approximately 30%, 33%, and 40% of net revenues, respectively (see Note 7 in "Notes to Financial Statements" contained in Item 8). Our international sales are billed in United States dollars, and therefore, settlements are not directly subject to currency exchange fluctuations. However, changes in the relative value of the dollar may create pricing pressures for our products. Although our international sales are subject to certain export restrictions, including the Export Administration Amendments Act of 1985 and the regulations promulgated thereunder, we have not experienced any material difficulties resulting from these restrictions to date.
Backlog
As of December 2, 2008 and 2007, our backlog was approximately$357,200 and $147,000, respectively. This backlog includes all released purchase orders shippable within the following 12 months, including orders from distributors. Our backlog, although useful for scheduling production, does not represent actual sales and should not be used as a measure of future sales or revenues at any particular time. In accordance with accepted industry practice, all orders on the backlog that are not "last-time buys" of obsolete products are subject to cancellation without penalty at the option of the purchaser at any time prior to shipment. In addition, the backlog does not reflect changes in delivery schedules and price adjustments that may be passed on to distributors and credits for returned products. We produce catalog products that may be shipped from inventory within a short time after receipt of a purchase order. The business for our catalog products, like the businesses of other companies in the semiconductor industry, is characterized by short-term orders and shipment schedules rather than by volume purchase contracts. Our shipments are generally concentrated toward the end of the third month of each quarter, making it difficult to predict our revenues and results of operations for any fiscal period. For these reasons, our backlog as of any particular date is not representative of actual sales for any succeeding period and we believe that our backlog is not a good indicator of future revenues.
Research and Development
As we have not introduced sufficient new silicon IP products in the past few years, we view all new product development as the most important factor affecting revenue growth; therefore, we continue our commitment to research and development of silicon IP. In addition, we bolster our position with the addition of our multi-chip packaged products, facilitating the integration of our silicon IP with the silicon IP of others to provide packaged solutions to our current and prospective expansion customers. Research and development expenditures were 47%, 38%, 21% of net revenues in fiscal 2008, 2007, and 2006, respectively. However, the fiscal 2007 figure includes a write-off of $400,200 of capitalized software development costs. These percentages are also affected by the declining revenues. See "Selected Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations," and "Statements of Operations," contained in Items 6, 7, and 8, respectively.
Competition
The semiconductor industry is intensely competitive and characterized by rapid technological change and rates of product obsolescence, price erosion, periodic shortage of materials, variations in manufacturing yields and efficiencies, and increasing foreign competition. The industry includes many major domestic and international companies that have substantially greater financial, technical, manufacturing, and marketing resources than LOGIC. We face competition from other manufacturers of high-performance integrated circuits, many of which have advanced technological capabilities and internal wafer production capabilities. Our ability to compete in this rapidly evolving environment depends on elements both in and outside our control. These elements include our ability to develop new products in a timely manner, the cost effectiveness of our manufacturing, the acceptance of new products by customers, the speed at which customers incorporate our products into their systems, the continued access to advanced semiconductor foundries, the number and capabilities of our competitors, and general economic conditions.
Patents and Copyrights
Because of the rapidly changing technology in the semiconductor industry, we rely primarily upon our design know-how, rather than patents and copyrights, to develop and maintain our competitive position. We attempt to protect our trade secrets and other proprietary information through confidentiality agreements with employees, consultants, suppliers, and customers, but there can be no assurance that those measures will be adequate to protect our interests.
We are of the opinion that patent and maskwork protection is of less significance in our business than other factors, such as the experience and innovative skill of our personnel and the abilities of our management. There can be no assurance that others will not develop or patent technology similar to our technology, or copy or otherwise duplicate our products. We own five patents awarded by the United States Patent and Trademark Office.
Since others have obtained patents covering various semiconductor designs and processes, certain of our present or future designs or processes may be claimed to infringe upon the patents of third parties. We have previously received, and may in the future receive, claims that one or more aspects or uses of our products infringe on patent or other intellectual property rights of third parties. See Item 3 – “Legal Proceedings.” We do not believe that we infringe upon any known patents at this time. If any such infringements exist or arise in the future, we may be liable for damages and may, like many companies in the semiconductor industry, find it necessary or desirable to obtain licenses relating to one or more of our current or future products. Based on industry practice, we expect that any necessary licenses or rights under patents could be obtained on conditions that would not have a material adverse effect. There can be no assurance, however, that licenses could, in fact, be obtained on commercially reasonable terms, or at all, or that litigation would not occur. Our inability to obtain such licenses on economically reasonable terms or the occurrence of litigation could adversely affect us.
Employees
As of September 30, 2008, we had 15 full-time employees. We have been careful to retain employees that are important to maintain our ongoing development efforts. Our ability to attract and retain qualified personnel is an important factor in our continued success. None of our employees are represented by a collective bargaining agreement, and we have never experienced any work stoppage. We believe that our employee relations are good.
Regulations
Federal, state, and local regulations impose various environmental controls on the discharge of chemicals and gases in connection with the wafer manufacturing process. Since we rely on third party manufacturers and our activities do not involve utilization of hazardous substances generally associated with semiconductor processing, we believe such regulations are unlikely to have a material affect on our business or operations.
Set forth below are some of the risks and uncertainties that, if they were to occur, could materially adversely affect our business or that could cause our actual results to differ materially from the results contemplated by the forward-looking statements contained in this report and other public statements we make.
We have a history of losses and our future operating results could be harmed due to semiconductor industry business cycles.
We have sustained substantial net losses during the past five fiscal years, other than fiscal 2006. These net losses are attributable principally to delays in the television broadcast industry’s transition to high definition digital broadcasting from current analog standards, a downturn in the semiconductor industry, and lack of new product introductions. Many factors will affect our ability to become profitable or sustain profitability, such as continued demand for our products by our customers, lack of price erosion, efficiency of our manufacturing subcontractors, continued product innovation and design wins, and our continued ability to manage operating expenses.
We produce and sell semiconductors and our operations are therefore impacted by the repeated and severe business cycles that have historically been experienced by the semiconductor industry. Our financial performance has been negatively impacted by significant downturns in the semiconductor industry as a result of:
- general reductions in inventory levels by customers;
- excess production capacity;
- the cyclical nature of the demand for products of semiconductor customers; and
- accelerated declines in average product selling prices.
When these or other conditions in the industry occur, our operating results could be adversely impacted.
We are a small company with very limited resources compared to our current and potential competitors and we may not be able to compete effectively in our highly competitive industry.
The semiconductor industry is highly competitive and many of our direct and indirect competitors and potential competitors have substantially greater financial, technological, manufacturing, and sales resources. If we are unable to compete successfully in this environment, our operating results could be harmed.
The current level of competition is high and may increase as our market expands. We compete directly with companies that have developed similar products. We also compete indirectly with numerous semiconductor companies that offer products and solutions based on alternative technologies. These direct and indirect competitors are established multinational semiconductor companies, as well as emerging companies. In addition, we may experience additional competition from foreign companies in the future.
We depend on a limited number of customers for a majority of our sales and our sales orders are typically concentrated in the last month of every quarter, making our financial results particularly susceptible to the loss of a key customer and making sales in a quarter difficult to predict.
We anticipate that the concentration of our sales among relatively few customers will continue in the future. We do not have long-term purchase commitments from any of our customers. Therefore, these customers could cease purchasing our products with limited notice and with no penalty.
Our dependence on a small number of customers increases the risks associated with the potential loss of customers resulting from business combinations or consolidations. If a customer were acquired or combined with another company, the resulting company could cancel purchase orders as part of the integration process.
In addition, we ship more products during the third month of each quarter than in the first two months of the quarter. Moreover, shipments in the third month are generally higher toward the end of the month. Our sales are therefore concentrated in the latter part of each quarter, making it difficult to predict our revenues and results of operations for any fiscal quarter or other fiscal period.
We depend on third parties to fabricate silicon wafers and to assemble and test our products, which exposes us to a risk of production disruption or uncontrolled price changes.
We do not manufacture silicon wafers. We rely upon two wafer suppliers, each of which is the sole source for certain of our products, and two assembly/test subcontractors. These suppliers do not have a contractual obligation or commitment to supply such wafers or services in the future. If the suppliers are unable or unwilling to supply wafers or services, our operating results could be harmed. We may not be able to find sufficient suppliers at a reasonable price or at all if such disruptions occur. As a result of our reliance on third parties, we face significant risks, including:
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reduced control over delivery schedules and quality;
- longer lead times;
- the potential lack of adequate capacity during periods of excess industry demand;
- difficulties selecting and integrating new subcontractors;
- limited warranties on products supplied to us;
- potential increases in prices due to capacity shortages; and
- potential misappropriation of our intellectual property.
If we fail to deliver our products on time or if the costs of our products increase, then our profitability and customer relationships could be harmed.
Our international operations subject us to risks not present in solely domestic operations.
Our primary silicon wafer supplier and assembly subcontractors are located outside the United States. Financial difficulties, government actions or restrictions, prolonged work stoppages, or any other difficulties experienced by our suppliers could harm future operating results.
We also have many overseas customers. Our export sales are affected by unique risks frequently associated with foreign economics, including:
- governmental controls and trade restrictions;
- export license requirements and restrictions on the export of technology;
- changes in local economic conditions;
- political instability;
- changes in tax rates, tariffs, or freight rates;
- interruptions in air traffic; and
- difficulties in staffing and managing foreign sales offices.
Significant changes in the economic climate in the foreign countries from which we derive our export sales could harm future operating results.
The complex nature of semiconductors makes us highly susceptible to manufacturing problems and these problems could have a negative impact on future operating results.
Making semiconductors is a highly complex and precise process, requiring production in a tightly controlled, clean environment. Even minute imperfections in its materials, difficulties in the wafer fabrication process, defects in the masks used to print circuits on a wafer or other factors can cause a substantial percentage of wafers to be rejected or numerous chips on each wafer to be nonfunctional. We may experience problems in achieving an acceptable quality and yield rate in the manufacture of wafers. The interruption of wafer fabrication or the failure to achieve acceptable yields could harm future operating results. We may also experience manufacturing problems in our assembly and test operations, and in the introduction of new packaging materials.
We depend on third parties to deliver our products.
We rely on independent carriers and freight haulers to transport our products between manufacturing locations and to deliver products to our customers. Any transport or delivery problems because of their errors, or because of unforeseen interruptions, such as strikes, political instability, terrorism, natural disasters and accidents, could harm future operating results.
Earthquakes, other natural disasters, and power shortages may damage our business.
Our California facility and some of our suppliers are located near earthquake faults that have experienced major earthquakes in the past. In the event of a major earthquake or other natural disaster near our facility or a sustained loss of power at our facility, our operations could be harmed. Similarly, a major earthquake or other natural disaster near one or more of our suppliers could disrupt the operations of these suppliers, which could limit the supply of our products and harm our business.
We maintain high levels of inventory that decrease our liquidity and substantially increase the risk of write-offs.
We have historically maintained and expect to continue to maintain high levels of inventory of processed silicon wafers, packaging materials, and finished goods. For some product types, we must purchase all of our anticipated inventory needs for the life of the product in a short period of time. We commit capital to maintain these high inventory levels, which prevents us from using that capital for other purposes, such as research and development, and requires us to utilize more capital than might otherwise be required. Our high inventory levels also heighten the risk of inventory obsolescence and write-offs. Further, we may forecast demand incorrectly and produce insufficient inventory, resulting in supply shortages.
We currently have no bank credit facility and must rely solely upon existing cash reserves and funds from existing operations to finance future operations.
We rely upon cash reserves and available-for-sale securities to fund our operations. If these resources should be insufficient, we would be forced to obtain additional funding through debt or equity financing. If we are able to obtain debt financing, which is not assured, the terms of such financing are unknown, since we do not presently have a credit facility, and may be unfavorable to us. Similarly, there can be no assurance that we would be able to sell capital stock on favorable terms or at all and any such sales may adversely affect our existing shareholders.
Since May 2006, we have had approximately $1 million of auction rate securities (ARS) classified as a short-term investment in available-for-sale securities, which paid a monthly average of $3,500 of dividends and interest. Historically, these securities were considered cash alternatives that were risk averse and highly liquid. Beginning in February 2008, the auctions began to fail and through June 2008 no secondary market has developed. Accordingly, ARS are no longer considered cash alternatives and currently lack liquidity. While there is no current market for the ARS, the underlying issuers must continue to pay the interest and dividends when due. On October 16, 2008, we elected to accept an offer from UBS Financial Services Inc. (UBS) for ARS Rights to sell our ARS to UBS at par value at any time during a two-year period, beginning January 2, 2009. In addition, on November 10, 2008, we obtained a no net-cost line of credit from UBS Bank USA for the par value of our ARS. We drew down the entire $975,000 available balance on November 21, 2008. This loan is considered no net-cost as the interest charged is the lesser of the LIBOR rate plus an established percentage rate or the interest and/or dividends earned on our ARS. Therefore, our interest paid can be no more than the interest and/or dividends we earn on the ARS. When we exercise the ARS Rights, we will pay back the no net-cost loan and the line will be closed.
Our operating success depends upon our ability to develop new products and access new technologies.
The semiconductor industry is a dynamic environment marked by rapid product obsolescence. Our future success depends on our ability to introduce new or improved products that meet critical customer needs, while achieving acceptable profit margins. If we fail to introduce these new products in a timely manner or these products fail to achieve market acceptance, operating results would be harmed. The introduction of new products in a dynamic market environment presents significant business challenges. Product development commitments and expenditures must be made well in advance of product sales, while the success of new products depends on accurate forecasts of long-term market demand and future technology developments.
Future revenue growth is dependent on market acceptance of new products and the continued market acceptance of existing products. The success of these products is dependent on a variety of specific technical factors, including:
- successful product definition;
- timely and efficient completion of product design;
- timely design into customers' future products and maintenance of close working relationships with customers;
- timely and efficient access to wafer manufacturing and assembly processes; and
- product performance, quality and reliability.
If, due to these or other factors, new products do not achieve market acceptance, our operating results would be harmed. Furthermore, to develop new products and maintain the competitiveness of existing products, we need to migrate to more advanced wafer manufacturing processes that use larger wafer sizes and smaller geometries.
The loss of key personnel or failure to hire and retain additional qualified personnel could impair our ability to develop and market our products.
Our future success greatly depends on the ability to attract and retain highly qualified technical and management personnel. As a small company, we are particularly dependent on a relatively small group of employees. Competition for skilled technical and management employees is intense in the semiconductor industry. As a result, we may be unable to retain our existing key technical and management employees, or attract additional qualified personnel, which could harm operating results. We do not have employment agreements with any of our employees.
Our failure to protect our proprietary rights, or the costs of protecting these rights, may harm our ability to compete.
We own several patents but rely primarily on our design know-how and continued access to advanced wafer process technology to develop and maintain our competitive position. We attempt to protect our trade secrets and other proprietary information through confidentiality agreements with employees, consultants, suppliers and customers. However, competitors may develop, patent or gain access to similar know-how and technology, or reverse engineer our products. Our inability to adequately protect these proprietary rights could result in our competitors offering similar products, potentially causing us to lose a competitive advantage and leading to decreased revenue. We may not obtain an adequate remedy in the event our confidentiality agreements are breached or any remedy if our trade secrets are independently developed by others. Despite our efforts to protect our proprietary rights, existing intellectual property laws afford only limited protection, especially under the laws of some foreign countries. Litigation may be necessary in the future to enforce our intellectual property rights, to protect our trade secrets or to determine the validity and scope of the proprietary rights of others. This litigation could result in substantial costs and diversion of resources.
We could be harmed by litigation involving patents and other intellectual property rights.
As a general matter, the semiconductor and related industries are characterized by substantial litigation regarding patent and other intellectual property rights. We have been and in the future may be accused of infringing the intellectual property rights of third parties. Furthermore, we may have certain indemnification obligations to customers with respect to the infringement of third-party intellectual property rights by our products. Infringement claims by third parties or claims for indemnification by customers or end-users of our products resulting from infringement claims may be asserted in the future and such assertions, if proven to be true, may harm our business.
Any litigation relating to the intellectual property rights of third parties, whether or not determined in our favor or settled by us, could be costly and could divert the efforts and attention of management and engineering personnel. In the event of any adverse ruling in any such litigation, we could be required to pay substantial damages, cease the manufacturing, use and sale of infringing products, discontinue the use of certain processes or obtain a license under the intellectual property rights of the third party claiming infringement. A license might not be available on reasonable terms, if at all.
The price of our common stock may continue to be volatile and our trading volume may continue to be relatively low.
The market price of our common stock has fluctuated significantly to date. In the future, the market price of the common stock could be subject to significant fluctuations due to general market conditions and in response to quarter-to-quarter variations in:
- our anticipated or actual operating results;
- announcements or introductions of new products;
- technological innovations or setbacks by us or our competitors;
- conditions in the semiconductor markets;
- the commencement of litigation; and
- general economic and market conditions.
Item 1B. UNRESOLVED STAFF COMMENTS
This items is not applicable as we are not an accelerated filer as defined in Exchange Act Rule 12b-2.
Our executive offices, as well as our inventories and research and development facilities, are located in approximately 17,200 square feet, in Sunnyvale, California, with a lease expiring August 31, 2014. We believe our facilities will be adequate to meet our reasonably foreseeable needs and, if necessary, alternative facilities will be available on acceptable terms, so as to meet our requirements.
From time to time, we receive demands from various parties asserting patent or other claims in the ordinary course of business. These demands are often not based on any specific knowledge of our products or operations. Because of the uncertainties inherent in litigation, the outcome of any such claim, including simply the cost of a successful defense against such a claim, could have a material adverse impact on us.
Item 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of our security holders during the last quarter of fiscal 2008.
PART II
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our Common Stock trades under the ticker symbol, LOGC, on The Nasdaq Capital Market. The following tables sets forth, for the period indicated, the high and low closing sales prices for our Common Stock, as reported by Nasdaq during the following calendar quarters:
|
Calendar Year |
High |
Low |
|
|
|
|
|
2006 |
|
|
|
Fourth quarter |
$3.02 |
$2.12 |
|
|
|
|
|
2007 |
|
|
|
$2.77 |
$1.85 |
|
|
Second quarter |
$2.34 |
$1.76 |
|
Third quarter |
$3.18 |
$1.92 |
|
Fourth quarter |
$2.07 |
$1.03 |
|
|
|
|
|
2008 |
|
|
|
First quarter |
$2.50 |
$1.00 |
|
Second quarter |
$1.18 |
$0.88 |
|
Third quarter |
$1.52 |
$0.90 |
Holders
As of December 18, 2008, there were approximately 1,500 holders of record of our Common Stock.
Dividends
We have not paid any dividends on our Common Stock since our incorporation.
Performance Graph
The following graph, which is furnished rather than filed, compares the five-year cumulative total return on our Common Stock to the total returns on the S&P 500 Index and the NASDAQ Electronic Components Stock Index. This comparison assumes, in each case, that $100 was invested on or about September 30, 2003 and all dividends were reinvested. Our fiscal year ends on September 30 each year.
* $100 invested on 09/30/03 in stock or index – including reinvestment of dividends.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table sets forth the position of our equity compensation plans as of September 30, 2008:
|
Plan Category |
|
Number of securities to be issued upon exercise of outstanding options, warrants, and rights |
|
Weighted-average exercise price of outstanding options, warrants, and rights |
|
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column a) |
|
|
|
|
|
|
|
|
|
Equity compensation plans approved by |
|
|
|
|
|
|
|
security holders |
|
337,500 |
|
$1.595 |
|
1,015,000 |
|
|
|
|
|
|
|
|
|
Equity compensation plans not approved |
|
|
|
|
|
|
|
by security holders |
|
– |
|
|
|
– |
|
Total |
|
337,500 |
|
$1.595 |
|
1,015,000 |
Item 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data for our last five fiscal years. This information is derived from our audited financial statements, unless otherwise stated. This data should be read in conjunction with the financial statements, related notes, and other financial information included elsewhere in this report.
|
(In thousands, except per share amounts) |
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended: |
|
||
|
|
|
September 30, |
September 30, |
September 30, |
September 30, |
September 28, |
|
|
|
2008 |
2007 |
2006 |
2005 |
2004 |
|
|
|
|
|
|
|
|
|
Net revenues |
$3,352 |
$4,686 |
$4,641 |
$3,509 |
$4,415 |
|
|
|
|
|
|
|
|
|
|
Research and development |
$1,563 |
$1,812 |
$982 |
$730 |
$1,364 |
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
$(3,965) |
$(1,488) |
$129 |
$(1,363) |
$(1,472) |
|
|
|
|
|
|
|
|
|
|
Basic (loss) earnings per |
|
|
|
|
|
|
|
|
common share |
$(0.58) |
$(0.22) |
$0.02 |
$(0.20) |
$(0.22) |
|
|
|
|
|
|
|
|
|
Basic weighted-average |
|
|
|
|
|
|
|
|
common shares outstanding |
6,814 |
6,797 |
6,754 |
6,750 |
6,715 |
|
|
|
|
|
|
|
|
|
Working capital |
$3,162 |
$6,957 |
$7,897 |
$7,589 |
$9,583 |
|
|
|
|
|
|
|
|
|
|
Inventory |
$1,425 |
$4,389 |
$5,240 |
$5,626 |
$7,079 |
|
|
|
|
|
|
|
|
|
|
Total assets |
$4,376 |
$8,263 |
$9,717 |
$9,547 |
$10,836 |
|
|
|
|
|
|
|
|
|
|
Shareholders' equity |
$4,035 |
$8,016 |
$9,397 |
$9,238 |
$10,590 |
|
Item 7. 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. These statements are not guarantees of future performance and involve a number of risks and uncertainties, including those identified in “Item 1A – Risk Factors” of this Annual Report on Form 10-K. We undertake no obligation to revise or update these forward-looking statements to reflect events or circumstances after the date of this report.
Overview
LOGIC Devices Incorporated develops and markets high-speed digital integrated circuits that perform high-density storage and signal/image processing functions. Our products enable high definition video display, transport, editing, composition, and special effects. We also provide solutions for digital filtering in television broadcast stations and image enhancement in medical diagnostic scanning and imaging equipment.
Our products are used in the broadcast, medical, military and consumer electronics markets. Our products address storage and digital signal processing (DSP) requirements that involve high-performance arithmetic computation. We focus on developing proprietary catalog products to address specific functional application needs or performance levels that are not otherwise commercially available. We seek to provide related groups of circuits that original equipment manufacturers (OEMs) incorporate into high-performance electronic systems.
Liquidity and Capital Resources
Our operations used net cash of $386,300, despite a large net loss of $3,965,000 for fiscal 2008. Inventory write-downs totaling $2,059,700 and a write-off of property and equipment no longer in use totaling $129,900 increased our net loss but did not affect cash flows. Sales of existing inventories produced $904,700 of cash for operations, while timing of invoices resulted in an increase in accounts payable of $126,200. Prior to the collapse of the auction rate securities market, we liquidated $112,000 of our investment. Capital expenditures of $274,200 included mask tooling and production tooling for new products.
Despite having a net loss of $1,487,700 for fiscal 2007, our operations produced net cash of $272,600. During fiscal 2007, we wrote-off $555,600 of inventories, $400,200 of capitalized test software, and $142,600 of property and equipment no longer in use, all of which increased the net loss but did not affect cash flows from operations. During the year, we also increased our inventory valuation allowance by $402,700, while writing off $1,551,000 of inventories against this valuation allowance. We also continue to purchase additional available-for-sale securities as a means to increase the return on our cash and cash equivalents balances, with purchases of $554,900 in fiscal 2007. Capital expenditures of $391,100 included leasehold improvements for our new facilities into which we moved on September 1, 2007.
While producing a net income of $129,400 during fiscal 2006, our operations produced net cash of $977,700. During the year, we increased the inventory valuation allowance by $1,036,900 and wrote-off $200,000 of capitalized test software, both of which reduced net income but not cash flows. In addition, LOGIC collected $45,000 from a property tax refund and had increases in its accrued payroll and vacation and other accrued expenses totaling $81,200 due to the timing of these expenses. Capital expenditures of $196,700 for fiscal 2006 were substantially less than fiscal 2005, which totaled $540,700.
Working Capital
Our investment in inventories has been significant and will continue to be significant in the future. However, during the past few years, we have been able to reduce our levels of inventories as we shift from more competitive second source products to proprietary sole source products. We seek to further streamline our inventories as we continue to shift to sole source proprietary products.
We rely on third party suppliers for our raw materials, particularly our processed wafers, for which we currently rely primarily on two suppliers, and as a result, maintain substantial inventory levels to protect against disruption in supplies. We have periodically experienced disruptions in obtaining wafers. As we continue to shift towards higher margin proprietary products, we expect to be able to reduce inventory levels by streamlining our product offerings.
Periodically, we review inventory to determine recoverability of items on-hand using the lower-of-cost-or-market (LOCOM) and excess methods. We group and evaluate our products based on their underlying die or wafer type (our raw materials, silicon wafers, can generally be used to make multiple products), to determine the total quantity on-hand and average unit costs. Management uses judgment in comparing historical sales quantities to the quantity on-hand at the end of the fiscal year. If the quantity on-hand exceeds the sales quantities, we provide a valuation allowance for the potentially obsolete or slow-moving items. For the LOCOM analysis, we compare the average historical sales price to the average unit cost of inventories at the end of the fiscal year. If the average unit cost exceeds the average sales price, we provide a valuation allowance.
With continuing low revenue levels, management felt it necessary to also review our raw materials and work-in-process. Our products generally exhibit an active sales product life cycle of ten or more years. However, due to rapid changes in process technology, we are generally unable to obtain wafers for our products for as long a period as their life cycles. As a result, early in a product's life, we are often required to estimate the sales expectations for the entire life cycle and purchase materials upfront. On some occasions, our expectations become lower and we provide a reserve for potential excess materials. In fiscal 2008, we wrote down inventory against our inventory valuation allowance of $1,573,700 and additional inventory totaling $2,059,300. In fiscal 2007, we increased our inventory valuation allowance by $402,700 for potential excess materials, while writing down $1,551,000 of inventory against this previously established allowance. In addition, during fiscal 2007, we scrapped other inventory of $555,600. We believe our current inventory valuation provides a reasonable estimate of the recoverability of inventories at the end of fiscal 2008.
Although current levels of inventory impact our liquidity, we believe that this is a less costly alternative to owning a wafer fabrication facility or continuously redesigning our products to newer process technologies, which would divert limited engineering resources from new product development. We continue to evaluate alternative suppliers to diversify our risk of supply disruption. However, this requires a significant investment in product development to tool masks with new suppliers. Such efforts compete for our limited product development resources. We seek to achieve on-going reductions in inventory, although there can be no assurance we will be successful. In the event economic conditions remain slow, we may consider identifying additional portions of inventory to write-off at a future date.
Historically, due to customer order scheduling, up to 70% of our quarterly revenues were often shipped in the last month of the quarter, so a large portion of the shipments included in year-end accounts receivable were not yet due per our net 30-day terms. This results in year-end accounts receivable balances being at their highest point for the respective period.
Financing
On November 10, 2008, we obtained a no net-cost line of credit from UBS Bank USA for the $975,000 par value of our Auction Rate Securities (ARS). We drew down the entire $975,000 available balance on November 21, 2008 so we would have the cash readily available rather than held in the illiquid ARS at UBS Financial Services Inc. (UBS). This loan is considered no net-cost as the interest charged is the lesser of the LIBOR rate plus an established percentage rate or the interest and/or dividends earned on our ARS. Therefore, our interest paid can be no more than the interest and/or dividends we earn on the ARS. In addition, on October 16, 2008, we signed an agreement with UBS for ARS Rights to sell our ARS to UBS at par value within a two-year period beginning January 2, 2009. At the time we exercise these ARS Rights, we will pay back the no net-cost loan from UBS Bank USA and the line will be closed.
We believe the cost reductions we have undertaken in the past few years will allow us to use this cash, along with cash from future revenues, to fund current operations and future capital needs. However, we continue to evaluate our debt and equity financing opportunities.
Contractual Obligations
Our only contractual obligation is our facility operating lease. The following table summarizes the future fixed payments under this lease as of September 30, 2008. Payment timing may be subject to change.
|
|
|
|
Payments due by period: |
|
|
||
|
|
Total |
|
Within 1 year |
|
1-3 years |
|
After 3 years |
|
|
|
|
|
|
|
|
|
|
Building |
$1,442,500 |
|
$223,200 |
|
$719,200 |
|
$500,100 |
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Results of Operations
Comparison of Fiscal Years Ended September 30, 2008 and 2007
Net revenues for fiscal 2008 decreased 28 percent from $4,686,400 in fiscal 2007 to $3,352,100. This decrease was the result of the older products, including the digital cinema project, dropping off with no new product revenues replacing them during fiscal 2008.
Cost of revenues for fiscal 2008 increased 47 percent from $2,846,700 in fiscal 2007 to $4,196,600, mainly the result of write-downs of inventory totaling $2,059,300. Sales of products previously written down to zero were 27% of revenues in fiscal 2008 compared to 15% in fiscal 2007.
Research and development expenses decreased 14 percent from $1,811,800 in fiscal 2007 to $1,563,400 in fiscal 2008. This decrease is primarily the result of the one-time $400,200 write-off of capitalized test software done in fiscal 2007. During the last quarter of fiscal 2008, we made a few minor staffing cuts but believe the current team can complete the new products we currently have in development.
Selling, general, and administrative expenses decreased four percent from $1,546,400 in fiscal 2007 to $1,483,200. This decrease was mainly the result of general cost cutting in fiscal 2008 and the expensing of certain prepaids in fiscal 2007 that did not recur in fiscal 2008.
Interest income decreased 25 percent from $75,900 in fiscal 2007 to $56,700, primarily as a result of a smaller balance in available-for-sale securities and a lower cash balance in fiscal 2008. Other expense in fiscal 2008 consisted of the write-off of property and equipment no longer in use.
As a result of the decreased revenues and large write-down of inventory, we had a net loss of $3,965,000 in fiscal 2008, compared to a net loss of $1,487,700 in fiscal 2007.
Comparison of Fiscal Years Ended September 30, 2007 and 2006
Net revenues for fiscal 2007 increased one percent from $4,640,600 in fiscal 2006 to $4,686,400. This slight increase is the result of one customer increasing its order rate to an amount that offset decreases in older product sales.
Cost of revenues for fiscal 2007 increased 32 percent from $2,153,700 in fiscal 2006 to $2,846,700, mainly the result of write-offs of inventory totaling $555,600 and a decrease in sales of products previously written down to zero-value (15% in fiscal 2007 compared to 26% in fiscal 2006).
Research and development expenses increased 85 percent from $981,700 in fiscal 2006 to $1,811,800. While this increase includes the write-off of $400,200 of capitalized test software development costs, the remaining increase is the result of our continued commitment to expand our product development team, in both numbers and expertise. While the expenses, net of the write-off of capitalized test software development costs, are outside our goal of 20 to 25 percent of net revenues (30%), we believe we must continue at this current level as new product development is the key to our future growth and success. Future new product introductions will result in future revenue increases that will begin to offset these expenditures down to our goal level.
Selling, general, and administrative expenses increased nine percent from $1,421,900 in fiscal 2006 to $1,546,400. While we attempted to identify areas for cost-cutting during the fiscal year, the need for outside consultants and the expensing of certain prepaid expenses whose useful life had expired early in the normal course of business resulted in the total increase.
Interest income increased 101 percent from $37,800 in fiscal 2006 to $75,900. The increase is the result of more funds being invested in available-for-sales securities during fiscal 2007 and from the fact that the investments existed for the full fiscal year compared to only four months of fiscal 2006.
As a result of the foregoing, we had a net loss of $1,487,700 for fiscal 2007, compared to net income of $129,400 in fiscal 2006.
Critical Accounting Policies
Management's discussion and analysis of our financial condition and the results of operations are based upon the financial statements included in this report and the data used to prepare them. The financial statements have been prepared in accordance with the accounting principles generally accepted in the United States of America and we are required to make judgments, estimates, and assumptions in the course of such preparation. The Summary of Accounting Policies included with the financial statements describes the significant accounting policies and methods used in the preparation of the financial statements. On an ongoing basis, we reevaluate our judgments, estimates, and assumptions, including those related to revenue recognition, allowance for doubtful accounts, valuation of inventories, and valuation of long-lived assets. We base our judgments and estimates on historical experience, knowledge of current conditions, and our beliefs of what could occur in the future considering available information. Actual results may differ from these estimates under different assumptions or conditions. The following are the critical accounting policies we believe are affected by significant judgments, estimates, and assumptions used in the preparation of the financial statements.
Revenue Recognition
Revenue is generally recognized upon shipment of product. Sales to distributors are made pursuant to agreements that provide the distributors certain rights of return and price protection on unsold merchandise. Revenues from such sales are recognized upon shipment, with a provision for estimated returns and allowances recorded at that time, if applicable. While distributors are allowed to return items for stock rotation, they are required to place an order of equal or greater value at the same time. Therefore, no allowance for returns is recorded. Because we generally do not change the pricing of our products more than once a year, there have not been any pricing issues in the past several years; therefore, there is no allowance for price protection recorded.
Allowance for Doubtful Accounts
We establish a general allowance for doubtful accounts based on analyzing historical bad debts, specific customer creditworthiness, and current economic conditions. Historically, we have not experienced significant losses related to receivables.
Inventories
We write down our inventories for lower of cost or market reserves, aged inventory reserves, and obsolescence reserves. As a result of production requirements and constraints, we are often required to estimate the sales expectations for the entire life cycle of a product (which can be ten or more years) and purchase materials upfront. If actual product demand or selling prices are less favorable than estimated, additional inventory write-downs may be required in the future. Conversely, if demand increases for product types that have been fully reserved, future margins may be higher.
Long-Lived Assets
Long-lived assets, including property and equipment, goodwill, and other intangible assets, are assessed for possible impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable, or whenever management has committed to a plan to dispose of the assets. Such assets are carried at the lower of book value or fair value as estimated by management based on appraisals, current market value, and comparable sales value, as appropriate. Assets to be held and used affected by such impairment loss are depreciated or amortized at their new carrying amounts over the remaining estimated life; assets to be sold or otherwise disposed of are not subject to further depreciation or amortization. In determining whether an impairment exists, we use undiscounted future cash flows without interest charges compared to the carrying value of the assets.
Deferred Income Taxes
Income taxes are accounted for using the asset and liability method. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Future tax benefits are subject to a valuation allowance when we are unable to conclude that our deferred income tax assets will more likely than not be realized from the results of operations. We have recorded a valuation allowance to reflect the estimated amount of deferred income tax assets that may not be realized. The ultimate realization of deferred income tax assets is dependent upon generation of future taxable income during the periods in which those temporary differences become deductible. We consider projected future taxable income and tax planning strategies in making this assessment.
Based on the historical taxable income and projections for future taxable income over the periods in which the deferred tax assets become deductible, management believes it more likely than not that we will not realize benefits of these deductible differences as of September 30, 2008. Accordingly, we have established a valuation allowance against our net deferred income tax assets as of September 30, 2008.
Impact of New Financial Accounting Standards
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, which provides guidance for using fair value to measure assets and liabilities. The pronouncement clarifies (1) the extent to which companies measure assets and liabilities at fair value; (2) the information used to measure fair value; and (3) the effect that fair value measurements have on earnings. SFAS No. 157 will apply whenever another standard requires (or permits) assets or liabilities to be measured at fair value. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. We are currently evaluating the impact this statement will have on our financial statements, if any.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities Including an Amendment of FASB Statement No. 115. SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. This statement also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. We are currently evaluating the impact this statement will have on our financial statements, if any.
Item 7A. 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. 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.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements and Financial Statement Schedules
|
FINANCIAL STATEMENTS: |
Page |
|
|
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20 |
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21 |
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22 |
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Statements of Operations, fiscal years ended September 30, 2008, 2007, and 2006 |
23 |
|
Statement of Shareholders’ Equity, fiscal years ended September 30, 2008, 2007,and 2006 |
24 |
|
Statements of Cash Flows, fiscal years ended September 30, 2008, 2007, and 2006 |
25 |
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26 |
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30 |
|
|
Quarterly Financial Data (unaudited), fiscal years ended September 30, 2008 and 2007 |
36 |
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FINANCIAL STATEMENT SCHEDULE |
|
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38 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Shareholders and Board of Directors
LOGIC Devices Incorporated
Sunnyvale, California
We have audited the accompanying balance sheets of LOGIC Devices Incorporated (the "Company") as of September 30, 2008 and 2007 and the related statements of operations, shareholders' equity, and cash flows for each of the fiscal years then ended. Our audits also included the financial statement schedule of the Company listed in Item 15. These financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provided a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of LOGIC Devices Incorporated as of September 30, 2008 and 2007 and the results of their operations and their cash flows for each of the two fiscal years in the period ended September 30, 2008, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
We were not engaged to examine management’s assertion about the effectiveness of LOGIC Devices Incorporated’s internal control over financial reporting as of September 30, 2008 included in the accompanying Form 10-K and, accordingly, we do not express an opinion thereon.
/s/ Hein & Associates LLP
Irvine, California
December 17, 2008
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Shareholders
and Board of Directors
LOGIC Devices Incorporated
Sunnyvale, California
We have audited the accompanying LOGIC Devices Incorporated (the "Company") statements of operations, shareholders' equity, and cash flows for the fiscal year ended September 30, 2006. Our audit also included the financial statement schedule of the Company listed in Item 15 for the fiscal year ended September 30, 2006. These financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provided a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the results of its operations and cash flows of LOGIC Devices Incorporated for the fiscal year ended September 30, 2006, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
/s/ Perry-Smith LLP
Sacramento, California
November 29, 2006
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LOGIC Devices Incorporated |
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Balance Sheets |
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September 30, |
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September 30, |
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2008 |
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2007 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
$ |
312,400 |
|
$ |
884,000 |
||
|
|
Investment in available-for-sale securities |
944,400 |
|
1,061,900 |
||||
|
|
Accounts receivable |
658,200 |
|
681,300 |
||||
|
|
Inventories |
1,424,700 |
|
4,388,700 |
||||
|
|
Prepaid expenses and other current assets |
136,800 |
|
186,500 |
||||
|
|
|
|
Total current assets |
3,476,500 |
|
7,202,400 |
||
|
|
|
|
|
|
|
|
||
|
Property and equipment, net |
877,800 |
|
1,038,800 |
|||||
|
Other assets, net |
22,100 |
|
22,100 |
|||||
|
|
|
|
|
$ |
4,376,400 |
|
$ |
8,263,300 |
|
|
|
|
|
|
|
|
||
|
LIABILITIES AND SHAREHOLDERS' EQUITY |
|
|
|
|||||
|
|
|
|
|
|
|
|
||
|
Current liabilities: |
|
|
|
|||||
|
|
Accounts payable |
$ |
156,300 |
|
$ |
30,100 |
||
|
|
Accrued payroll, vacation and bonuses |
126,200 |
|
119,900 |
||||
|
|
Accrued commissions |
16,000 |
|
25,000 |
||||
|
|
Other accrued expenses |
16,000 |
|
70,500 |
||||
|
|
|
|
Total current liabilities |
314,500 |
|
245,500 |
||
|
|
|
|
|
|
|
|
||
|
Deferred rent |
26,500 |
|
2,100 |
|||||
|
|
|
|
Total liabilities |
341,000 |
|
247,600 |
||
|
|
|
|
|
|
|
|
||
|
Commitments and contingencies |
|
|
|
|||||
|
|
|
|
|
|
|
|
||
|
Shareholders' equity: |
|
|
|
|||||
|
|
Preferred stock, no par value; 1,000,000 shares authorized; |
|
|
|
||||
|
|
|
5,000 designated as Series A, 0 shares issued and outstanding |
- |
|
- |
|||
|
|
|
70,000 designated as Series B, 0 shares issued and outstanding |
- |
|
- |
|||
|
|
Common stock, no par value; 10,000,000 shares authorized; |
|
|
|
||||
|
|
|
6,814,438 and 6,812,938 shares issued and outstanding |
18,543,200 |
|
18,541,300 |
|||
|
|
Additional paid-in capital |
155,600 |
|
142,200 |
||||
|
|
Other comprehensive loss |
(30,600) |
|
- |
||||
|
|
Accumulated deficit |
(14,632,800) |
|
(10,667,800) |
||||
|
|
|
|
Total shareholders' equity |
4,035,400 |
|
8,015,700 |
||
|
|
|
|
|
$ |
4,376,400 |
|
$ |
8,263,300 |
|
|
|
|
|
|
|
|
||
|
|
|
|
See accompanying Summary of Accounting Policies and Notes to Financial Statements. |
|||||
|
|
|
|
|
|
|
LOGIC Devices Incorporated |
|||||
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
Statements of Operations |
|||||
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
For the fiscal years ended September 30, |
|||||||
|
|
|
|
|
2008 |
|
2007 |
|
2006 |
|||
|
|
|
|
|
|
|
|
|
|
|||
|
Net revenues |
$ |
3,352,100 |
|
$ |
4,686,400 |
|
$ |
4,640,600 |
|||
|
Cost of revenues |
4,196,600 |
|
2,846,700 |
|
2,153,700 |
||||||
|
|
|
|
Gross margin |
(844,500) |
|
1,839,700 |
|
2,486,900 |
|||
|
|
|
|
|
|
|
|
|
|
|||
|
Operating expenses: |
|
|
|
|
|
||||||
|
|
Research and development |
1,563,400 |
|
1,811,800 |
|
981,700 |
|||||
|
|
Selling, general and administrative |
1,483,200 |
|
1,546,400 |
|
1,421,900 |
|||||
|
|
|
Total operating expenses |
3,046,600 |
|
3,358,200 |
|
2,403,600 |
||||
|
|
|
|
Operating (loss) income |
(3,891,100) |
|
(1,518,500) |
|
83,300 |
|||
|
|
|
|
|
|
|
|
|
|
|||
|
Other expense (income), net: |
|
|
|
|
|
||||||
|
|
Interest income |
(56,700) |
|
(75,900) |
|
(37,800) |
|||||
|
|
Other expense (income), net |
129,800 |
|
(100) |
|
(9,100) |
|||||
|
|
|
Total other expense (income), net |
73,100 |
|
(76,000) |
|
(46,900) |
||||
|
|
|
|
(Loss) income before provision for income taxes |
(3,964,200) |
|
(1,442,500) |
|
130,200 |
|||
|
Provision for income taxes |
800 |
|
45,200 |
|
800 |
||||||
|
|
|
|
Net (loss) income |
$ |
(3,965,000) |
|
$ |
(1,487,700) |
|
$ |
129,400 |
|
Basic (loss) earnings per common share |
$ |
(0.58) |
|
$ |
(0.22) |
|
$ |
0.02 |
|||
|
Basic weighted average common shares outstanding |
6,814,313 |
|
6,797,480 |
|
6,754,021 |
||||||
|
Diluted (loss) earnings per common share |
$ |
(0.58) |
|
$ |
(0.22) |
|
$ |
0.02 |
|||
|
Diluted weighted average common shares outstanding |
6,814,313 |
|
6,797,480 |
|
6,794,789 |
||||||
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
See accompanying Summary of Accounting Policies and Notes to Financial Statements. |
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
LOGIC Devices Incorporated |
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
|
|
|
|
|
|
|
Statement of Shareholders' Equity |
|||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
|
Common Stock |
|
Additional Paid-In |
|
Other Comprehensive |
Accumulated |
|
|
||||||||||||
|
|
|
|
Shares |
|
Amount |
|
Capital |
|
Loss |
|
Deficit |
|
Total |
|||||||||
|
Balances, September 30, 2005 |
6,753,188 |
|
$ |
18,447,500 |
|
$ |
100,000 |
|
$ |
– |
|
$ |
(9,309,500) |
|
$ |
9,238,000 |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Grants of director common |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
|
stock options |
– |
|
– |
|
14,000 |
|
– |
|
– |
|
14,000 |
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Vested grants of employee |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
|
common stock options |
– |
|
– |
|
4,700 |
|
– |
|
– |
|
4,700 |
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Exercise of director |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
|
common stock options |
10,000 |
|
11,000 |
|
- |
|
– |
|
- |
|
11,000 |
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Net income |
– |
|
– |
|
– |
|
– |
|
129,400 |
|
129,400 |
|||||||||||
|
Balances, September 30, 2006 |
6,763,188 |
|
18,458,500 |
|
118,700 |
|
– |
|
(9,180,100) |
|
9,397,100 |
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Grants of director common |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
|
stock options |
– |
|
– |
|
18,800 |
|
– |
|
– |
|
18,800 |
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Vesting of employee |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
|
common stock options |
– |
|
– |
|
4,700 |
|
– |
|
– |
|
4,700 |
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Exercise of director |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
|
common stock options |
30,000 |
|
47,400 |
|
– |
|
– |
|
– |
|
47,400 |
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Exercise of employee |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
|
common stock options |
19,750 |
|
35,400 |
|
– |
|
– |
|
– |
|
35,400 |
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Net loss |
– |
|
– |
|
– |
|
– |
|
(1,487,700) |
|
(1,487,700) |
|||||||||||
|
Balances, September 30, 2007 |
6,812,938 |
|
18,541,300 |
|
142,200 |
|
– |
|
(10,667,800) |
|
8,015,700 |
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Grants of director common |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
|
stock options |
– |
|
– |
|
8,700 |
|
– |
|
– |
|
8,700 |
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Vesting of employee |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
|
common stock options |
– |
|
– |
|
4,700 |
|
– |
|
– |
|
4,700 |
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Exercise of employee |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
|
common stock options |
1,500 |
|
1,900 |
|
– |
|
– |
|
– |
|
1,900 |
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Unrealized loss on available- |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
|
for-sale securities |
– |
|
– |
|
– |
|
(30,600) |
|
– |
|
(30,600) |
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Net loss |
– |
|
– |
|
– |
|
– |
|
(3,965,000) |
|
(3,965,000) |
|||||||||||
|
|
|
|
6,814,438 |
|
$ |
18,543,200 |
|
$ |
155,600 |
|
$ |
(30,600) |
|
$ |
(14,632,800) |
|
$ |
4,035,400 |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
See accompanying Summary of Accounting Policies and Notes to Financial Statements. |
||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
LOGIC Devices Incorporated |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
Statements of Cash Flows |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
For the fiscal years ended September 30, |
|||||||
|
|
|
|
|
|
|
2008 |
|
2007 |
|
2006 |
|||
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
Cash flows from operating activities: |
|
|
|
|
|
||||||||
|
|
Net (loss) income |
$ |
(3,965,000) |
|
$ |
(1,487,700) |
|
$ |
129,400 |
||||
|
|
Adjustments to reconcile net (loss) income to net cash |
|
|
|
|
|
|||||||
|
|
|
(used in) provided by operating activities: |
|
|
|
|
|
||||||
|
|
|
|
Depreciation |
305,200 |
|
307,800 |
|
256,000 |
|||||
|
|
|
|
Issuance of common stock options |
13,400 |
|
23,500 |
|
18,700 |
|||||
|
|
|
|
Write-down of inventory |
2,059,300 |
|
555,600 |
|
- |
|||||
|
|
|
|
Inventory valuation allowance adjustment |
- |
|
402,700 |
|
1,036,900 |
|||||
|
|
|
|
Loss on disposal of capital equipment |
129,900 |
|
145,200 |
|
3,500 |
|||||
|
|
|
|
Write-off of capitalized software development costs |
- |
|
400,200 |
|
200,000 |
|||||
|
|
|
|
Deferred rent |
24,400 |
|
(17,600) |
|
(14,100) |
|||||
|
|
|
|
Change in operating assets and liabilities: |
|
|
|
|
|
|||||
|
|
|
|
|
Accounts receivable |
23,100 |
|
149,600 |
|
(96,000) |
||||
|
|
|
|
|
Inventories |
904,700 |
|
(107,300) |
|
(650,200) |
||||
|
|
|
|
|
Prepaid expenses and other current assets |
49,700 |
|
(44,900) |
|
24,100 |
||||
|
|
|
|
|
Property tax refund receivable |
- |
|
- |
|
45,000 |
||||
|
|
|
|
|
Accounts payable |
126,200 |
|
(116,800) |
|
(60,100) |
||||
|
|
|
|
|
Accrued payroll and vacation |
6,300 |
|
20,200 |
|
38,200 |
||||
|
|
|
|
|
Accrued commissions |
(9,000) |
|
14,600 |
|
3,300 |
||||
|
|
|
|
|
Other accrued expenses |
(54,500) |
|
27,500 |
|
43,000 |
||||
|
|
|
|
|
|
Net cash (used in) provided by operating activities |
(386,300) |
|
272,600 |
|
977,700 |
|||
|
Cash flows from investing activities: |
|
|
|
|
|
||||||||
|
|
Purchases of available-for-sale securities |
(25,000) |
|
(554,900) |
|
(507,000) |
|||||||
|
|
Sales of available-for-sale securities |
112,000 |
|
- |
|
- |
|||||||
|
|
Capital expenditures |
(274,200) |
|
(391,100) |
|
(196,700) |
|||||||
|
|
Other assets |
- |
|
(3,500) |
|
(99,800) |
|||||||
|
|
|
|
|
|
Net cash used in investing activities |
(187,200) |
|
(949,500) |
|
(803,500) |
|||
|
Cash flows from financing activities: |
|
|
|
|
|
||||||||
|
|
Exercise of director stock options |
- |
|
47,400 |
|
11,000 |
|||||||
|
|
Exercise of employee stock options |
1,900 |
|
35,400 |
|
- |
|||||||
|
|
|
|
|
|
Net cash provided by financing activities |
1,900 |
|
82,800 |
|
11,000 |
|||
|
Net (decrease) increase in cash and cash equivalents |
(571,600) |
|
(594,100) |
|
185,200 |
||||||||
|
Cash and cash equivalents, beginning |
884,000 |
|
1,478,100 |
|
1,292,900 |
||||||||
|
Cash and cash equivalents, ending |
$ |
312,400 |
|
$ |
884,000 |
|
$ |
1,478,100 |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
See accompanying Summary of Accounting Policies and Notes to Financial Statements. |
||||||||
The Company and Nature of Business
LOGIC Devices Incorporated (the Company) develops and markets high-performance integrated circuits. The Company’s products include chips that are used in digital communications, broadcast and medical imaging processing applications, instrumentation, and smart weapons systems. The Company markets its products worldwide, such that 69 percent of the Company's net revenues in fiscal 2008 were derived from original equipment manufacturers, while sales through distributors accounted for approximately 31 percent of net revenues. Approximately 70 percent of the Company's fiscal 2008 net revenues were from domestic sales and approximately 30 percent from foreign sales.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, available-for-sale securities, accounts receivable, and accounts payable approximate fair value because of the short maturity of these items.
Cash, Cash Equivalents, and Investments in Available-for-Sale Securities
The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. Investments that do not meet the definition of cash equivalents are classified as available-for-sale in accordance with the provisions of Financial Accounting Standards Board ("FASB") Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities. The Company’s available-for-sale securities consist of auction rate municipal notes with expiration dates through 2028. The interest is settled and the rate is reset every seven days.
Accounts Receivable
The Company establishes a general allowance for doubtful accounts based on its analysis of historical bad debts, specific customer creditworthiness, and current economic conditions. Historically, the Company has not experienced significant losses related to receivables. At September 30, 2008 and 2007, the Company determined that no allowance for doubtful accounts was necessary.
Inventories
Inventories of raw materials, work-in-process, and finished goods are stated at the lower of cost (first-in, first-out) or market. Cost includes the purchase price of parts, assembly costs, and overhead.
Property and Equipment
Property and equipment are stated at cost. Depreciation on equipment is calculated on the straight-line method over the estimated useful lives of the assets, generally three to seven years. Leasehold improvements and assets held under capital lease are amortized on a straight-line basis over the shorter of the lease terms or the estimated lives of the assets. Certain tooling costs are capitalized by the Company and are amortized on a straight-line basis over the shorter of the related product life cycle or five years. Upon disposition, the cost and related accumulated depreciation or accumulated amortization is removed from the accounts and the resulting gain or loss is reflected in income for the period.
Revenue Recognition
Revenue is generally recognized upon shipment of product. Sales to distributors are made pursuant to agreements that provide the distributors certain rights of return and price protection on unsold merchandise. Revenues from such sales are recognized upon shipment, with a provision for estimated returns and allowances recorded at that time, if applicable. While distributors are allowed to return items for stock rotation, they are required to place an order of equal or greater value at the same time. As the Company historically does not have material returns, there is no allowance for returns recorded. Because the Company does not change its pricing of products more than once a year, there have not been any pricing issues in the past several years; therefore, there is no allowance for price protection recorded.
Research and Development Costs
Research and development costs are expensed to operations as incurred.
Income Taxes
Deferred income tax assets and liabilities are recognized based on the temporary differences between the financial statement and income tax basis of assets, liabilities, and net operating loss and tax credit carryforwards using enacted tax rates. Valuation allowances are established for deferred tax assets to the extent of the likelihood that the deferred tax assets may not be realized.
Income (Loss) Per Common Share
Basic income (loss) per share is calculated by dividing net income or loss by the weighted average common shares outstanding during the period. Diluted income (loss) per share reflects the net incremental shares that would be issued if dilutive outstanding stock options were exercised, using the treasury stock method. In the case of a net loss, no incremental shares would be issued because they are antidilutive. Stock options with exercise prices above the average market price during the period are also antidilutive.
There were 337,500 and 335,500 common stock options outstanding at September 30, 2008 and 2007, respectively. These options were not considered in calculating diluted net loss per common share as their effect would have been antidilutive. As a result, for fiscal 2008 and 2007, the Company’s basic and diluted net loss per common share are the same. For the fiscal year ended September 30, 2006, the Company had 40,767 dilutive shares as the weighted average market price for the Company’s common stock during the fiscal year was $1.447.
Long-lived Assets
Long-lived assets, including property and equipment and intangible assets, are assessed for possible impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable, or whenever management has committed to a plan to dispose of the assets. Such assets are carried at the lower of book value or fair value as estimated by management based on appraisals, current market value, and comparable sales value, as appropriate. Assets to be held and used affected by such impairment loss are depreciated or amortized at their new carrying amounts over the remaining estimated lives; assets to be sold or otherwise disposed of are not subject to further depreciation or amortization. In determining whether an impairment exists, the Company uses undiscounted future cash flows without interest charges compared to the carrying value of the assets.
Share-based Payments
The Company issues common stock options to its employees, certain consultants, and certain of its board members. Effective January 1, 2006, the Company adopted the provisions of FAS 123R, which requires the measurement of the cost of services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost is recognized over the period during which services are provided in exchange for the award, known as the requisite service period (usually the vesting period). We have made the transition to FAS 123R using the modified prospective method. Under the modified prospective method, FAS 123R is applied to new awards and to awards modified, repurchased, or cancelled after January 1, 2006. Additionally, compensation cost for the portion of awards for which the requisite service has not been rendered (such as unvested options) that are outstanding as of January 1, 2006 are being recognized over the period that the remaining requisite services are rendered. There were no unvested options as of January 1, 2006. Under this method of implementation, no restatement of prior periods has been made.
In calculating compensation related to stock option grants, the fair value of each stock option is estimated on the date of grant using the Black-Scholes option-pricing model and the following weighted average assumptions:
|
|
2008 |
|
2007 |
|
2006 |
|
|
|
|
|
|
|
|
Dividend yield |
None |
|
None |
|
None |
|
Expected volatility |
49.8% |
|
49.8% |
|
61.3% |
|
Risk-free interest rate |
2.2% |
|
4.5% |
|
4.9% |
|
Expected term (years) |
4.0 |
|
4.0 |
|
4.0 |
The computation of expected volatility used in the Black-Scholes option-pricing model is based on the historical volatility of our share price. The expected term is estimated based on a review of historical exercise behavior with respect to option grants.
Segment Reporting
The Company is organized in a single operating segment for purposes of making operating decisions and assessing performance. The president (the chief operating decision maker) evaluates performance, makes operating decisions, and allocates resources based on financial data consistent with the presentation in the accompanying financial statements.
Impact of New Financial Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, which provides guidance for using fair value to measure assets and liabilities. The pronouncement clarifies (1) the extent to which companies measure assets and liabilities at fair value; (2) the information used to measure fair value; and (3) the effect that fair value measurements have on earnings. SFAS No. 157 will apply whenever another standard requires (or permits) assets or liabilities to be measured at fair value. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. We are currently evaluating the impact this statement will have on our financial statements, if any.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities Including an Amendment of FASB Statement No. 115. SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. This statement also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. We are currently evaluating the impact this statement will have on our financial statements, if any.
A summary of inventories follows:
|
|
|
|
September 30, |
|
September 30, |
||
|
|
|
|
2008 |
|
2007 |
||
|
|
|
|
|
|
|
||
|
Raw materials |
$ |
156,500 |
|
$ |
636,700 |
||
|
Work-in-process |
149,400 |
|
889,000 |
||||
|
Finished goods |
1,118,800 |
|
2,863,000 |
||||
|
|
|
|
$ |
|
$ |
4,388,700 |
|
2. Property and Equipment
A summary of property and equipment follows:
|
|
|
|
September 30, |
|
September 30, |
||
|
|
|
|
2008 |
|
2007 |
||
|
|
|
|
|
|
|
||
|
Equipment |
$ |
3,299,400 |
|
$ |
3,247,100 |
||
|
Tooling costs |
549,600 |
|
483,700 |
||||
|
Leasehold improvements |
179,500 |
|
154,100 |
||||
|
|
|
|
4,028,500 |
|
3,884,900 |
||
|
Less accumulated depreciation |
3,150,700 |
|
2,846,100 |
||||
|
|
|
|
$ |
|
$ |
1,038,800 |
|
3. Provisions for Income Taxes
The provision for income taxes for fiscal 2007 includes a current state expense of $800, federal alternative minimum taxes of $37,100, and state alternative minimum taxes of $6,500. The provision for income taxes for fiscal 2008 and 2006 includes a current state expense of $800 only for each year.
The following summarizes the difference between the income tax expense and the amount computed by applying the Federal income tax rate of 34 percent in fiscal 2008, 2007,and 2006, to the income (loss) before taxes:
|
|
|
|
2008 |
|
2007 |
|
2006 |
|||
|
|
|
|
|
|
|
|
|
|||
|
Federal income tax expense (benefit) at statutory rate |
$ |
(1,347,800) |
|
$ |
(490,400) |
|
$ |
44,000 |
||
|
Tax credit carryforwards originated in current year |
(46,700) |
|
(41,000) |
|
(29,900) |
|||||
|
State tax expense (benefit), net of federal tax benefit |
(223,700) |
|
(85,700) |
|
7,000 |
|||||
|
Adjustment of prior year net operating loss |
|
|
|
|
|
|||||
|
|
carryforwards before valuation allowance |
(9,700) |
|
(28,200) |
|
(258,900) |
||||
|
Valuation allowance |
1,633,000 |
|
765,800 |
|
(38,400) |
|||||
|
Other, net |
(4,300) |
|
(75,300) |
|
277,000 |
|||||
|
|
|
|
$ |
800 |
|
$ |
45,200 |
|
$ |
800 |
Deferred tax assets and liabilities comprise the following:
|
|
|
|
September 30, |
|
September 30, |
||
|
|
|
|
2008 |
|
2007 |
||
|
|
|
|
|
|
|
||
|
Deferred tax assets: |
|
|
|
||||
|
|
Net operating loss carryforwards |
$ |
8,113,200 |
|
$ |
5,681,000 |
|
|
|
Reserves not currently deductible |
– |
|
673,900 |
|||
|
|
Tax credit carryforwards |
602,900 |
|
442,900 |
|||
|
|
Other |
– |
|
53,400 |
|||
|
|
|
Gross deferred tax assets |
8,716,100 |
|
6,851,200 |
||
|
|
|
|
|
|
|
||
|
Deferred tax liabilities: |
|
|
|
||||
|
|
State tax benefit |
(553,500) |
|
(396,900) |
|||
|
|
Depreciation |
(75,300) |
|
– |
|||
|
|
|
Net deferred tax assets |
8,087,300 |
|
6,454,300 |
||
|
Valuation allowance |
(8,087,300) |
|
(6,454,300) |
||||
|
Net deferred taxes |
$ |
– |
|
$ |
– |
||
The valuation allowance increased $1,633,000 from fiscal 2007 to fiscal 2008. This was the result of an increase in the net deferred tax assets, primarily net operating loss carryforwards (NOLs), partially offset by the decrease in reserves not currently deductible. Because the Company's management is unable to determine whether it is more likely than not that the net deferred tax assets will be realized, the Company continues to record a 100 percent valuation against the net deferred tax assets.
As of September 30, 2008, the Company has Federal and State NOLs totaling approximately $20,121,300 and $14,389,000 respectively, available to offset future taxable income. These NOLs expire at various times through 2027 and 2017, respectively. The Company also has Federal and State research and development credit carryforwards totaling approximately $230,700 and $82,500, respectively, expiring at various times through 2027. The Company has state manufacturing tax credit carryforwards totaling approximately $289,600, which expire at various times through 2011.
Utilization of the Company’s net operating loss and tax credit carryforwards may be subject to a substantial annual limitation due to ownership change limitations provided by the Internal Revenue Code and similar state provisions. Such an annual limitation could result in the expiration or elimination of the net operating loss and tax credit carryforwards before utilization.
4. Commitments and Contingencies
Leases
The Company leases its facilities under an operating lease, which requires the Company to pay certain maintenance and operating expenses, such as taxes, insurance, and utilities. During fiscal 2006, the Company also leased certain equipment under operating leases. Rent expense under the various leases was $239,300, $214,900, and $381,800 for fiscal 2008, 2007, and 2006, respectively.
A summary of future minimum payments required under non-cancelable operating leases with terms in excess of one year, follows:
|
|
|
|
|
|
Amount |
|
|
|
|
|
|
|
|
|
|
Fiscal years ending: |
|
|
|
|||
|
|
September 30, 2009 |
|
|
$ |
223,100 |
|
|
|
September 30, 2010 |
|
|
231,400 |
||
|
|
September 30, 2011 |
|
|
239,700 |
||
|
|
September 30, 2012 |
|
|
248,100 |
||
|
|
Thereafter |
|
|
500,200 |
||
|
|
|
|
|
|
$ |
1,442,500 |
Contingencies
The Company is subject to legal proceedings and claims that arise in the ordinary course of business. In the opinion of management, the amount of ultimate liability with respect to such actions will not materially affect the financial position or results of operations of the Company.
5. Share-Based Compensation
The Company issues options to purchase common stock to its employees, certain consultants, and certain of its board members. Options are generally granted with an exercise price equal to the closing market value of a common share at the date of grant, have five- to ten-year terms and typically vest over periods ranging from immediately to three years from the date of grant. There are 1,015,000 authorized shares remaining for granting of future options.
Per FAS 123R, the estimated fair value of equity-based awards, less expected forfeitures, is amortized over the awards’ vesting period on a straight-line basis. Share-based compensation expense recognized in the statements of operations for fiscal years ended September 30, 2008, 2007 and 2006 related to common stock options was $13,400 ($0.30 per share), $23,500 ($0.58 per share) and $18,700 ($0.00 per share), respectively. The Company did not record income tax benefits related to the equity-based compensation expense as deferred tax assets are fully offset by a valuation allowance. There was no significant impact from the implementation of FAS 123R on the cash flows from operations during fiscal 2008, 2007 and 2006.
A summary of nonvested shares at September 30, 2008 and changes during the fiscal year then ended follows:
|
|
|
Shares |
|
Weighted Average Grant Date Fair Value |
|
|
|
|
|
|
|
|
|
Nonvested shares at October 1, 2007 |
25,250 |
|
$ |
0.47 |
|
|
|
|
|
|
|
|
|
|
Granted |
45,000 |
|
$ |
0.28 |
|
|
Vested |
(50,875) |
|
$ |
0.30 |
|
|
Forfeited/Expired |
(16,500) |
|
$ |
0.47 |
|
Nonvested shares at September 30, 2008 |
2,875 |
|
$ |
0.47 |
|
As September 30, 2008, there was $4,800 of total unrecognized compensation cost related to nonvested options granted under the plans. That cost is expected to be recognized in one year. The total fair value of options vested during the fiscal year ended September 30, 2008 was $13,400. Cash received from exercises of common stock options during fiscal 2008 was $1,900.
A summary of changes in common stock options outstanding under the equity-based compensation plans for the fiscal years ended September 30, 2008 and 2007 follows:
|
|
|
Common Stock Options |
|
Weighted Average Exercise Price |
|
Weighted Average Remaining Contractual Term (Years) |
|
Aggregate Intrinsic Value |
||
|
|
|
|
|
|
|
|
|
|
||
|
Outstanding at September 30, 2006 |
465,500 |
|
$ |
1.509 |
|
3.56 |
|
$ |
551,000 |
|
|
|
|
|
|
|
|
|
|
|
||
|
|
Granted |
45,000 |
|
$ |
2.240 |
|
|
|
|
|
|
|
Exercised |
(49,750) |
|
$ |
1.663 |
|
|
|
$ |
82,800 |
|
|
Forfeited/Expired |
(125,250) |
|
$ |
1.157 |
|
|
|
|
|
|
Outstanding at September 30, 2007 |
335,500 |
|
$ |
1.405 |
|
4.23 |
|
$ |
249,400 |
|
|
|
|
|
|
|
|
|
|
|
||
|
|
Granted |
45,000 |
|
$ |
1.210 |
|
|
|
|
|
|
|
Exercised |
(1,500) |
|
$ |
1.270 |
|
|
|
$ |
1,900 |
|
|
Forfeited/Expired |
(41,500) |
|
$ |
2.087 |
|
|
|
|
|
|
Outstanding at September 30, 2008 |
337,500 |
|
$ |
1.595 |
|
2.57 |
|
$ |
– |
|
|
Exercisable at September 30, 2008 |
334,625 |
|
$ |
1.598 |
|
2.52 |
|
|
– |
|
|
Exercisable at September 30, 2007 |
310,250 |
|
$ |
1.741 |
|
3.85 |
|
$ |
128,900 |
|
The weighted average fair value of options granted during the fiscal year ended September 30, 2008 was $0.28.
6. Major Customers, Major Suppliers, and Export Sales
Major Customers and Suppliers
For fiscal 2008, two customers accounted for approximately 26 and 19 percent of net revenues, with accounts receivable of $188,600 and $76,900 as of September 30, 2008, respectively. For fiscal 2007, one customer accounted for approximately 43 percent of net revenues, with accounts receivable of $334,900 as of September 30, 2007. For fiscal 2006, two customers accounted for approximately 23 and 12 percent of net revenues, with accounts receivable of $59,900 and $359,400, respectively, as of September 30, 2006.
For fiscal 2008, three suppliers comprised 10 or more percent of the total inventory purchases (31, 29, and 14 percent). During fiscal 2007, one supplier comprised 62 percent of the total inventory purchases (no others comprised more than 10 percent). Five suppliers comprised 10 or more percent of the total inventory purchases in fiscal 2006 (42, 15, 15, 13, and 11 percent).
Export Sales
The following table summarizes export sales information:
|
|
|
2008 |
|
2007 |
|
2006 |
|||
|
|
|
|
|
|
|
|
|||
|
|
Western Europe |
$ |
524,500 |
|
$ |
1,132,700 |
|
$ |
1,170,200 |
|
|
Far East |
497,500 |
|
393,400 |
|
622,700 |
|||
|
|
Other |
– |
|
37,800 |
|
50,900 |
|||
|
|
|
$ |
1,022,000 |
|
$ |
1,563,900 |
|
$ |
1,843,800 |
In fiscal 2008, 2007 and 2006, no one country accounted for more than 10 percent of net revenues.
7. Use of Estimates and Concentrations of Credit Risks
The Company’s financial statements are prepared in accordance with accounting principles generally accepted in the United States of America, which require the use of management estimates. These estimates are impacted, in part, by the following risks and uncertainties:
Financial instruments, which potentially subject the Company to concentration of credit risk, consist principally of cash and cash equivalents and trade receivables. The Company places its cash and cash equivalents and available-for-sale securities with high quality financial institutions, and, by policy, limits the amounts of credit exposure to any one financial institution as much as practicable.
A significant portion of the Company’s accounts receivable have historically been derived from one major class of customer (distributors) with the remainder being spread across many other customers in various electronic industries. The Company believes any risk of accounting loss is significantly reduced due to the diversity of its products, end-customers, and geographic sales areas. The Company performs credit evaluations of its customers’ financial condition whenever necessary. The Company generally does not require cash collateral or other security to support customer receivables.
The Company currently is dependent on two suppliers as its wafer-processing sources. If this supply was to be interrupted or the terms were to become unfavorable to the Company, this could have a material adverse impact on the Company’s operations.
The Company produces inventory based on orders received and forecasted demand. The Company must order wafers and build inventory well in advance of product shipments. Due to the Company's reliance upon a limited number of suppliers, high levels of inventory are also maintained to protect against a disruption in supply. Because the Company’s markets are volatile and subject to rapid technology and price changes, there is a risk that the Company will forecast incorrectly and produce excess or insufficient inventories of particular products. This inventory risk is heightened because many of the Company’s customers place orders with short lead times. Demand will differ from forecasts and such differences may have a material effect on actual operations.
8. Statements of Cash Flows
There was no interest paid during fiscal 2008, 2007, and 2006. The Company paid $80,000 ($77,200 for estimated alternative minimum taxes) for income tax in fiscal 2007. In fiscal 2008 and 2006, the Company paid $800 each for income taxes. There were no non-cash investing and financing activities during fiscal 2008, 2007, and 2006.
9. 401(k) Savings Plan
The Company adopted a 401(k) Savings Plan (the Plan) in September 2005. Employees are able to make voluntary contributions and the Company has the discretion to make matching contributions. The Plan covers all employees meeting certain age and service requirements. The Company funds expenses incurred in connection with the Plan. The Company made no matching contributions in fiscal 2008 and 2007.
10. Subsequent Event
On November 10, 2008, we obtained a no net-cost line of credit from UBS Bank USA for the $975,000 par value of our Auction Rate Securities (ARS). We drew down the entire $975,000 available balance on November 21, 2008 so we would have the cash readily available rather than held in the illiquid ARS at UBS Financial Services Inc. (UBS). This loan is considered no net-cost as the interest charged is the lesser of the LIBOR rate plus an established percentage rate or the interest and/or dividends earned on our ARS. Therefore, our interest paid can be no more than the interest and/or dividends we earn on the ARS. In addition, on October 16, 2008, we signed an agreement with UBS for ARS Rights to sell our ARS to UBS at par value within a two-year period beginning January 2, 2009. At the time we exercise these ARS Rights, we will pay back the no net-cost loan from UBS Bank USA and the line will be closed.
Quarterly Financial Data (Unaudited)
The following is an unaudited summary of quarterly results of operations for the fiscal years ended September 30, 2008 and 2007 (in thousands, except per share data):
|
|
|
|
Fiscal Quarters Ended: |
|
|
|
Fiscal |
||
|
|
12/31/07 |
|
03/31/08 |
|
06/30/08 |
|
09/30/08 |
|
Year |
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
$ 869 |
|
$ 965 |
|
$ 729 |
|
$ 789 |
|
$ 3,352 |
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
$ 128 |
|
$ (50) |
|
$ (423) |
|
$ (499) |
|
$ (844) |
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
$ (649) |
|
$ (809) |
|
$ (1,128) |
|
$ (1,305) |
|
$ (3,891) |
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes |
$ (763) |
|
$ (791) |
|
$ (1,116) |
|
$ (1,294) |
|
$ (3,964) |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
$ (763) |
|
$ (791) |
|
$ (1,117) |
|
$ (1,294) |
|
$ (3,965) |
|
|
|
|
|
|
|
|
|
|
|
|
Basic loss per share |
$ (0.11) |
|
$ (0.12) |
|
$ (0.16) |
|
$ (0.19) |
|
$ (0.58) |
|
|
|
|
|
|
|
|
|
|
|
|
Basic wtd-avg common shares |
6,814 |
|
6,814 |
|
6,814 |
|
6,814 |
|
6,814 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Quarters Ended: |
|
|
|
Fiscal |
||
|
|
12/31/06 |
|
03/31/07 |
|
06/30/07 |
|
09/30/07 |
|
Year |
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
$ 1,362 |
|
$ 1,258 |
|
$ 1,107 |
|
$ 959 |
|
$ 4,686 |
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
$ 705 |
|
$ 778 |
|
$ (303) |
|
$ 659 |
|
$ 1,839 |
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
$ 35 |
|
$ 24 |
|
$ (1,447) |
|
$ (131) |
|
$ (1,519) |
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
$ 55 |
|
$ 42 |
|
$ (1,428) |
|
$ (111) |
|
$ (1,442) |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
$ 55 |
|
$ 41 |
|
$ (1,428) |
|
$ (155) |
|
$ (1,487) |
|
|
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per share |
$ 0.01 |
|
$ 0.01 |
|
$ (0.21) |
|
$ (0.03) |
|
$ (0.22) |
|
|
|
|
|
|
|
|
|
|
|
|
Basic wtd-avg common shares |
6,773 |
|
6,795 |
|
6,798 |
|
6,808 |
|
6,797 |
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
Item 9A. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule 13a15(e) and 15d-15(e) under the Securities Exchange Act of 1934) designed to ensure that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosures, and that such information is recorded, processed, summarized, and reporting within the time periods specified in Securities and Exchange Commission rules and forms. Our management evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Annual Report on Form 10-K. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of September 30, 2008.
(b) Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that:
- Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;
- Provide reasonable assurance that transactions as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company, and
- Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become ineffective because of changes in conditions and that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of September 30, 2008. In making this assessment, management used the criteria set forth in the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
As a result of its assessment of internal control over financial reporting, management has concluded that, as of September 30, 2008, the Company’s internal control over financial reporting was effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States.
This Annual Report on Form 10-K does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management’s report in this Annual Report.
(c) Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the fourth quarter of fiscal 2008 that has material affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Not applicable.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information required by this Item is incorporated by reference from our proxy statement for our 2009 Annual Meeting, expected to be filed with the SEC no later than January 28, 2009.
Item 11. EXECUTIVE COMPENSATION
Information required by this Item is incorporated by reference from our proxy statement for our 2009 Annual Meeting, expected to be filed with the SEC no later than January 28, 2009.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS.
Information required by this Item is incorporated by reference from our proxy statement for our 2009 Annual Meeting, expected to be filed with the SEC no later than January 28, 2009.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this Item is incorporated by reference from our proxy statement for our 2009 Annual Meeting, expected to be filed with the SEC no later than January 28, 2009.
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information required by this Item is incorporated by reference from our proxy statement for our 2009 Annual Meeting, expected to be filed with the SEC no later than January 28, 2009.
PART IV
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
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(A) |
The following documents are filed as part of this report:
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|
|
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(1) |
Our Financial Statements, Summary of Accounting Policies, and Notes to Financial Statements appear at pages 20 to 34 of this report; see Index to Financial Statements and Financial Statement Schedules at page 19 of this report.
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|
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(2) |
Our Financial Statement Schedule (Schedule II) appears on page 38.
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|
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(3) |
Our Index to Exhibits appears at page 40 of this report.
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Schedule II – Valuation and Qualifying Accounts
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Beginning Balance |
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Charged to expense |
|
Write-offs |
|
Ending Balance |
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Allowance for doubtful accounts |
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|||||
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There was no allowance for doubtful accounts needed in fiscal 2008, 2007, and 2006. |
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Inventory |
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|||||
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|
|
2008 |
$ |
1,573,700 |
|
$ |
– |
|
$ |
(1,573,700) |
|
$ |
– |
|
|
|
|
|
|
|
|
|
|
||||
|
|
2007 |
$ |
2,722,000 |
|
$ |
402,700 |
|
$ |
(1,551,000) |
|
$ |
1,573,700 |
|
|
|
|
|
|
|
|
|
|
||||
|
|
2006 |
$ |
1,685,100 |
|
$ |
1,036,900 |
|
$ |
– |
|
$ |
2,722,000 |
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
LOGIC DEVICES INCORPORATED
|
Dated: December 18, 2008 |
By: /s/ William J. Volz |
|
|
|
|
William J. Volz, President and Principal Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons in the capacities and on the dates indicated.
|
Signature |
|
Title |
|
Dated
|
|
/s/ William J. Volz William J. Volz |
|
President and Director (Principal Executive Officer)
|
|
December 18, 2008 |
|
/s/ Kimiko Milheim Kimiko Milheim |
|
Chief Financial Officer (Principal Financial and Accounting Officer)
|
|
December 18, 2008 |
|
/s/ Howard L. Farkas Howard L. Farkas
|
|
Chairman of the Board of Directors
|
|
December 18, 2008 |
|
/s/ Brian P. Cardozo Brian P. Cardozo
|
|
Director |
|
December 18, 2008 |
|
/s/ Steven R. Settles Steven R. Settles |
|
Director |
|
December 18, 2008 |
INDEX TO EXHIBITS
|
Exhibit No. |
|
Description |
|
|
|
|
|
3.1 |
|
Articles of Incorporation, as amended. [3.1] (1) |
|
3.2 |
|
Bylaws, as amended. [3.2] (2) |
|
10.1 |
|
Real estate lease regarding our Sunnyvale, CA facilities. [99.1] (3) |
|
10.2 |
|
Amended and Restated LOGIC Devices Incorporated 1998 Director Stock Incentive Plan, as amended. [10.2] (4) |
|
10.3 |
|
LOGIC Devices Incorporated 2007 Employee Stock Incentive Plan. [10.3] (4) |
|
10.4 |
|
Registration Rights Agreement dated October 3, 1998 between William J. Volz, BRT Partnership, and Registrant. [10.19] (5) |
|
23.1 |
|
Consent letter of Hein & Associates LLP. |
|
23.2 |
|
Consent letter of Perry-Smith LLP. |
|
31.1 |
|
Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14 and 15d-14. |
|
31.2 |
|
Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14 and 15d-14. |
|
32.1 |
|
Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350. |
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|
|
|
|
|
|
|
|
[ ] |
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Exhibits so marked have been previously filed with the Securities 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) |
|
Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2004, as filed with the SEC on January 26, 2005. |
|
(2) |
|
Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2007, as filed with the SEC on May 15, 2007. |
|
(3) |
|
Current Report on Form 8-K, as filed with the SEC on August 7, 2007. |
|
(4) |
|
Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2008, as filed with the SEC on May 6, 2008. |
|
(5) |
|
Annual Report on Form 10-K for the transition period January 1, 1998 to October 3, 1999, as filed with the SEC on January 13, 1999. |