10-K405/A 1 ka.txt AMENDMENT NO. 1 TO FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C. 20549 FORM 10-K/A (AMENDMENT NO. 1) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended September 30, 2001 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from ____ to ____ COMMISSION FILE NUMBER 0-17187 LOGIC DEVICES INCORPORATED ----------------------------------------------------- (Exact name of registrant as specified in its charter) CALIFORNIA 94-2893789 --------------------------- --------------------------- (State of Incorporation) (I.R.S. Employer Identification No.) 1320 ORLEANS 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 Title of Class Name of each exchange on which registered -------------- ----------------------------------------- NONE NONE Securities registered pursuant to Section 12(g) for the Act COMMON STOCK, WITHOUT PAR VALUE ------------------------------------------------- (Title of Class) 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. [ X ] The aggregate market value of voting stock held by non-affiliates of the registrant on December 19, 2001 was approximately $20,387,900. On that date, there were 6,841,888 shares of Common Stock issued and outstanding. Documents Incorporated By Reference: Part III incorporates certain information by reference to the registrant's definitive Proxy Statement to the registrant's annual meeting of shareholders to be held March 12, 2002. Items 8 through 14 and the Exhibits of the Annual Report on Form 10-K for the fiscal year ended September 30, 2001 of LOGIC Devices Incorporated (the "Company" or the "registrant"), previously filed with the Securities and Exchange Commission, is hereby amended and restated in its entirety as follows: ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULES CONSOLIDATED FINANCIAL STATEMENTS: Page ---------------------------------- ---- Independent Auditors' Report.................................................20 Report of Independent Certified Public Accountants...........................21 Consolidated Balance Sheets, September 30, 2001 and October 1, 2000..........22 Consolidated Statements of Operations, fiscal years ended September 30, 2001, October 1, 2000, and October 3, 1999..................23 Consolidated Statements of Shareholders' Equity, fiscal years ended September 30, 2001, October 1, 2000, and October 3, 1999............24 Consolidated Statements of Cash Flows, fiscal years ended September 30, 2001, October 1, 2000, and October 3, 1999..................25 Summary of Accounting Policies...............................................26 Notes to Consolidated Financial Statements...................................30 Quarterly Financial Data (unaudited), fiscal years ended September 30, 2001and October 1, 2000.....................................38 CONSOLIDATED FINANCIAL STATEMENT SCHEDULE: ------------------------------------------ Schedule II - Valuation and Qualifying Accounts..............................40 19 INDEPENDENT AUDITORS' REPORT To the Board of Directors LOGIC Devices Incorporated Sunnyvale, California We have audited the accompanying consolidated balance sheet of LOGIC Devices Incorporated as of September 30, 2001, and the related consolidated statements of operations, shareholders' equity, and cash flows for the fiscal year then ended. We have also audited the 2001 information included in Schedule II - Valuation and Qualifying Accounts (the Schedule). These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. The consolidated financial statements of LOGIC Devices Incorporated for the fiscal years ended October 1, 2000 and October 3, 1999, and the 2000 and 1999 information included in Schedule II, were audited by other auditors, whose report dated November 7, 2000, expressed an unqualified opinion on those statements. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. 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 provides a reasonable basis for our opinion. In our opinion, the 2001 consolidated financial statements referred to above present fairly, in all material respects, the financial position of LOGIC Devices Incorporated as of September 30, 2001, and the results of its operations and its cash flows for the fiscal year then ended in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the 2001 information set forth therein. /s/ Hood and Strong LLP ----------------------------- Hood and Strong LLP Menlo Park, California November 12, 2001 20 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors and Shareholders LOGIC Devices Incorporated Sunnyvale, California We have audited the accompanying consolidated balance sheet of LOGIC Devices Incorporated as of October 1, 2000, and the related consolidated statements of operations, shareholders' equity, and cash flows for the years ended October 1, 2000 and October 3, 1999. We have also audited Schedule II - Valuation and Qualifying Accounts (the Schedule) as of and for the years ended October 1, 2000 and October 3, 1999. These financial statements and the Schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and the Schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and Schedule are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and Schedule. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and Schedule. We believe our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of LOGIC Devices Incorporated at October 1, 2000, and the results of their operations and their cash flows for the years ended October 1, 2000 and October 3, 1999, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Schedule presents fairly, in all material respects, the information set forth therein. /s/ BDO Seidman, LLP --------------------------- BDO Seidman, LLP San Francisco, California November 7, 2000 21 LOGIC DEVICES INCORPORATED CONSOLIDATED BALANCE SHEETS
September 30, October 1, 2001 2000 ------------------------------------------------------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 217,500 $ 753,300 Accounts receivable, net of allowance for doubtful accounts of $20,000 (Notes 9 and 10) 3,352,200 1,648,800 Inventories (Notes 1 and 10) 11,695,700 12,182,300 Prepaid expenses and other current assets 192,600 235,300 --------------- ---------------- Total current assets 15,458,000 14,819,700 Property and equipment, net (Notes 2 and 11) 1,592,000 2,423,700 Other assets (Note 4) 181,000 345,100 --------------- ---------------- $ 17,231,000 $ 17,588,500 =============== ================ LIABILITIES AND SHAREHOLDERS' EQUITY: Current liabilities: Accounts payable $ 268,100 $ 192,000 Accrued payroll and vacation 190,900 153,500 Accrued commissions 54,600 115,300 Other accrued expenses 5,500 44,600 Capital lease obligations, current portion (Notes 2, 7, and 11) 54,700 194,200 Income taxes payable (Note 6) 1,900 5,200 --------------- ---------------- Total current liabilities 575,700 704,800 Capital lease obligations, less current portion (Notes 2, 7, and 11) 2,900 38,300 --------------- ---------------- Total liabilities 578,600 743,100 --------------- ---------------- Commitments and contingencies (Note 7) Shareholders' equity (Notes 3 and 8): Preferred stock, no par value; 1,000,000 shares authorized; 5,000 designated as Series A; 0 shares issued and outstanding - - Common stock, no par value; 10,000,000 shares authorized; 6,841,888 shares issued and outstanding 18,522,700 18,522,700 Additional paid-in capital 19,000 - Accumulated deficit (1,889,300) (1,677,300) --------------- ---------------- Total shareholders' equity 16,652,400 16,845,400 --------------- ---------------- $ 17,231,000 $ 17,588,500 =============== ================
See accompanying summary of accounting policies and notes to consolidated financial statements. 22 LOGIC DEVICES INCORPORATED CONSOLIDATED STATEMENTS OF OPERATIONS
Fiscal Years Ended: ------------------------------------------------------------ September 30, October 1, October 3, 2001 2000 1999 ------------------------------------------------------------------------------------------------------------------- Net revenues (Note 9) $ 10,007,300 $ 11,785,900 $ 12,921,600 Cost of revenues 6,167,300 7,278,800 8,126,200 ---------------- ---------------- ---------------- Gross profit 3,840,000 4,507,100 4,795,400 ---------------- ---------------- ---------------- Operating expenses: Research and development 1,926,100 1,660,600 1,367,400 Selling, general, and administrative 2,091,400 2,076,200 2,276,600 ---------------- ---------------- ---------------- Total operating expenses 4,017,500 3,736,800 3,644,000 ---------------- ---------------- ---------------- (Loss) income from operations (177,500) 770,300 1,151,400 ---------------- ---------------- ---------------- Other (income) expense: Interest expense 54,700 314,100 571,600 Interest income (10,100) (8,100) (400) Other income (20,500) (47,900) (40,400) ---------------- ---------------- ---------------- Total other expense 24,100 258,100 530,800 ---------------- ---------------- ---------------- (Loss) income before provision for income taxes (201,600) 512,200 620,600 (Provision) benefit for income taxes (Note 6) (10,400) 10,200 (20,000) ---------------- ---------------- ---------------- Net (loss) income $ (212,000) $ 522,400 $ 600,600 ================ ================ ================ Basic and diluted (loss) income per share $ (0.03) $ 0.08 $ 0.09 ================ ================ ================ Basic weighted average common shares outstanding 6,841,888 6,771,826 6,635,427 ================ ================ ================ Diluted weighted average common shares outstanding 6,841,888 6,892,610 6,635,427 ================ ================ ================
See accompanying summary of accounting policies and notes to consolidated financial statements. 23 LOGIC DEVICES INCORPORATED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Common Stock Common Additional ----------------------------- Stock Paid-in (Accumulated) Shares Amount Subscribed Capital Deficit) Total --------------------------------------------------------------------------------------------------------------------------------- Balances, September 30, 1998 6,632,388 $ 18,091,900 $ (307,500) $ - $ (2,800,300) $ 14,984,100 Issuance of common stock on exercise of stock options (Note 8) 18,100 41,500 - - - 41,500 Proceeds from common stock Subscribed (Note 3) - - 307,500 - - 307,500 Net income - - - - 600,600 600,600 ------------- ------------- ------------ ------------ -------------- ------------- Balances, October 3, 1999 6,650,488 18,133,400 - - (2,199,700) 15,933,700 Issuance of common stock on exercise of stock options (Note 8) 91,400 242,400 - - - 242,400 Issuance of common stock on exercise of warrants (Note 8) 100,000 146,900 - - - 146,900 Net income - - - - 522,400 522,400 ------------- ------------- ------------ ------------ -------------- ------------- Balances, October 1, 2000 6,841,888 18,522,700 - - (1,677,300) 16,845,400 Issuance of common stock options to nonemployees - - - 19,000 - 19,000 Net loss - - - - (212,000) (212,000) -------------- ------------- ------------ ------------ -------------- ------------- Balances, September 30, 2001 6,841,888 $ 18,522,700 $ - $ 19,000 $ (1,889,300) $ 16,652,400 ============= ============= ============ ============ ============== =============
See accompanying summary of accounting policies and notes to consolidated financial statements. 24 LOGIC DEVICES INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Years Ended: ----------------------------------------------------------- September 30, October 1, October 3, 2001 2000 1999 --------------------------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net (loss) income $ (212,000) $ 522,400 $ 600,600 Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: Depreciation and amortization 1,181,200 1,357,200 1,842,000 Loss (gain) on disposal of capital equipment 3,600 (48,000) - Allowance for doubtful accounts - (233,500) 84,000 Issuance of common stock options for services 19,000 - - Changes in assets and liabilities: Accounts receivable (1,703,400) 3,398,100 (344,000) Inventories 486,600 (344,000) 697,300 Prepaid expenses and other current assets 42,700 4,100 193,200 Income taxes receivable - 68,000 22,000 Accounts payable 76,100 (638,400) (891,600) Accrued payroll and vacation 37,400 (52,400) (14,000) Accrued commissions (60,700) 75,300 - Other accrued expenses (39,100) (26,000) (138,600) Income taxes payable (3,300) 5,200 - ---------------- --------------- --------------- Net cash (used in) provided by operating activities (171,900) 4,088,000 2,050,900 ---------------- --------------- --------------- Cash flows from investing activities: Capital expenditures (163,200) (247,800) (430,200) Proceeds from sale of capital equipment - 158,100 - Other assets 9,000 49,500 288,700 ---------------- --------------- --------------- Net cash used in investing activities (154,200) (40,200) (141,500) ---------------- --------------- --------------- Cash flows from financing activities: Proceeds from issuance of common stock - 389,300 41,500 Receipt of common stock subscription receivable - - 307,500 Proceeds from bank borrowings 500,000 - 693,300 Repayments of bank borrowings (500,000) (3,490,000) (2,553,300) Proceeds from notes payable, related party - - 250,000 Payment of notes payable, related party - (250,000) - Payments of capital lease obligations (209,700) (181,500) (553,600) ---------------- --------------- --------------- Net cash used in financing activities (209,700) (3,532,200) (1,814,600) ---------------- --------------- --------------- Net (decrease) increase in cash and cash equivalents (535,800) 515,600 94,800 Cash and cash equivalents, beginning of period 753,300 237,700 142,900 ---------------- --------------- --------------- Cash and cash equivalents, end of period $ 217,500 $ 753,300 $ 237,700 ================ =============== ===============
See accompanying summary of accounting policies and notes to consolidated financial statements. 25 LOGIC DEVICES INCORPORATED SUMMARY OF ACCOUNTING POLICIES The Company LOGIC Devices Incorporated (the Company) develops and markets high-performance integrated circuits. The Company's products include high-speed digital signal processing chips that are used in digital communications, broadcast and medical imaging processing applications, instrumentation, and smart weapons systems. Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, LOGIC Devices International, a foreign sales corporation. All significant intercompany accounts and transactions have been eliminated in consolidation. Change in Fiscal Year Effective September 16, 1999, the Company adopted a fiscal year consisting of 52 weeks of seven days, ending on Sundays. As a result of this change, the Company's 2001, 2000, and 1999 fiscal years ended on September 30, October 1, and October 3, respectively. Reclassifications Certain items were reclassified in the consolidated financial statements for fiscal 2000 and 1999 to conform to the basis used in the consolidated financial statements for fiscal 2001. 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. Cash and Cash Equivalents The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. Accounts Receivable The Company establishes a general allowance for doubtful accounts based on collectibility. Inventories Inventories are stated at the lower of cost (first-in, first-out) or market (Notes 1 and 10). 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. 26 LOGIC DEVICES INCORPORATED SUMMARY OF ACCOUNTING POLICIES Costs in Excess of Fair Value of Net Assets Acquired The Company amortizes costs in excess of the fair value of identifiable net assets acquired on a straight-line basis, over ten years. Capitalized Software Costs Internal test computer software development costs are capitalized as incurred during the application development stage, as defined by SOP 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. The capitalized software costs are amortized on a straight-line basis over the shorter of the related expected product life cycle or five years. 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. Income Taxes The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for 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 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 computed by dividing the net income (loss) attributable to common shares, by the weighted average number of common shares outstanding during each period. Diluted income (loss) per share is similar to basic income (loss) per share, except that the weighted average number of common shares outstanding is increased to reflect the dilutive effect of potential common shares, such as those issuable upon the exercise of stock options or warrants, contingent shares, and the conversion of preferred stock, as if they had been issued. For the fiscal years ended September 30, 2001, October 1, 2000, and October 3, 1999, there is no difference between basic and diluted income (loss) per share, as there were no dilutive stock options in fiscal 2001 and 1999, and the number of stock options with a dilutive effect was minimal in fiscal 2000. For fiscal 2001, 2000, and 1999, options to purchase 1,001,500, 754,800, and 1,061,400 shares of common stock were excluded from the computation of diluted income (loss) per share since their effect would be antidilutive. Fair Value of Financial Instruments The carrying amounts of cash and cash equivalents, accounts receivable, and accounts payable approximate fair value because of the short maturity of these items. The Company's bank borrowings approximate fair value because the interest rate fluctuates with changes in the prime rate. The Company's capital lease obligations approximate fair value, based on rates currently available from the bank for debt with similar terms and maturities. 27 LOGIC DEVICES INCORPORATED SUMMARY OF ACCOUNTING POLICIES 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, the Company uses undiscounted future cash flows without interest charges compared to the carrying value of the assets. Stock-based Compensation The Company has adopted the provisions of SFAS No. 123, Accounting for Stock-Based Compensation. Under this standard, companies are encouraged, but not required, to adopt the fair value method of accounting for employee stock-based transactions. Under the fair value method, compensation cost is measured at the grant date based on the fair value of the award and is recognized over the service period, which is usually the vesting period. Companies are permitted to continue to account for employee stock-based transactions under Accounting Principles Board (APB) No. 25, Accounting for Stock Issued to Employees, but are required to disclose pro forma net income (loss) and income (loss) per share as if the fair value method had been adopted. The Company has elected to continue to account for employee stock-based compensation under APB No. 25. 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 consolidated financial statements. Adoption of New Accounting Pronouncements In June 1999 and June 2000, the Financial Accounting Standards Board (FASB) issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities and SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities, an amendment of SFAS No. 133, respectively. SFAS No. 133 and No. 138 require companies to recognize all derivative contracts as either assets or liabilities in the balance sheet and to measure them at fair value. If certain conditions are met, a derivative may be specifically designated as a hedge, the objective of which is to match the timing of gain or loss recognition on the hedging derivative with the recognition of (i) the changes in the fair value of the hedged assets or liabilities that are attributable to the hedged risk or (ii) the earnings effect of the hedged forecasted transaction. For a derivative not designated as a hedging instrument, the gain and loss is recognized in income in the period of change. In June 2000, the FASB issued SFAS No. 137, Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133, which amends SFAS No. 133 to be effective, concurrently with SFAS No. 138, for all fiscal quarters of all fiscal years beginning after June 15, 2000. Historically, the Company has not entered into derivative contracts either to hedge existing risks or for speculative purposes. Accordingly, the adoption of the new standard did not have a material impact on the Company's financial position, results of operations, or cash flows. 28 LOGIC DEVICES INCORPORATED SUMMARY OF ACCOUNTING POLICIES In September 2000, the FASB issued SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. The statement provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities, and revises the accounting standards for securizations and transfers of financial assets and collateral. The adoption of SFAS No. 140 did not have a material impact on the Company's financial position, results of operations, or cash flows. In June 2001, the FASB issued SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires business combinations initiated after June 30, 2001 to be accounted for using the purchase method of accounting. It also specifies the types of acquired intangible assets that are required to be recognized and reported separately from goodwill. The Company does not anticipate any material impact from the adoption of this standard. SFAS No. 142 will require that goodwill and certain intangibles no longer be amortized, but instead be tested for impairment at least annually. SFAS No. 142 is effective for all fiscal years beginning after December 15, 2001, with early application permitted in certain circumstances. The Company plans early adoption of SFAS No. 142 during fiscal 2002, and does not expect any impairment of goodwill upon adoption. Goodwill amortization aggregated $30,700 in fiscal 2001, 2000, and 1999. In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations. The statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The statement is effective for all fiscal years beginning after June 15, 2002, with early application permitted. The Company does not expect the adoption of SFAS No. 143 to have a material impact on the Company's financial position, results of operations, or cash flows. In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. This statement supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of, and the accounting and reporting provisions of APB Opinion No. 30, Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for the disposal of a segment of a business. The statement is effective for all fiscal years beginning after December 15, 2001, with early application permitted. The Company does not expect the adoption of SFAS No. 144 to have a material impact on the Company's financial position, results of operations, or cash flows. 29 LOGIC DEVICES INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. INVENTORIES
A summary of inventories follows: September 30, October 1, 2001 2000 ----------------- ----------------- Raw materials $ 1,544,800 $ 3,826,400 Work-in-process 6,801,900 5,573,900 Finished goods 3,349,000 2,782,000 ----------------- ----------------- $ 11,695,700 $ 12,182,300 ================= =================
2. PROPERTY AND EQUIPMENT
A summary of property and equipment follows: September 30, October 1, 2001 2000 ----------------- ----------------- Equipment $ 5,047,500 $ 4,838,200 Tooling costs 2,175,100 2,962,500 Leasehold improvements 69,300 225,200 ----------------- ----------------- 7,291,900 8,025,900 Less accumulated depreciation and amortization 5,699,900 5,602,200 ----------------- ----------------- $ 1,592,000 $ 2,423,700 ================= =================
Equipment under capital lease obligations aggregated $397,600 and $362,800 as of September 30, 2001 and October 1, 2000, with related accumulated amortization of $257,400 and $179,100, respectively. For fiscal 2001, 2000, and 1999, amortization expense for equipment under capital lease obligations was $76,500, $120,000, and $225,200, respectively. 3. RELATED PARTY TRANSACTIONS During fiscal 2001, the Company recognized $19,000 of expense related to the issuance of 67,000 stock options to related party consultants. During fiscal 1999, the Company received funds pursuant to two notes payable from principal shareholders aggregating $250,000. The notes bore interest at the Company's lender prime rate (8.25% at October 3, 1999) plus 2% and were paid in full during the fiscal year ended October 1, 2000. 30 LOGIC DEVICES INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In 1995, the Company granted 220,000 warrants to three non-employee directors to purchase the Company's common stock. In 1996, 120,000 of these warrants were exercised at the original exercise price of $2.5625 via the issuance of two promissory notes bearing interest at a reference rate plus 2%. These notes were included in common stock subscribed in the accompanying consolidated financial statements, and were repaid during fiscal 1999. The remaining warrants for 100,000 shares were exercised at $1.48675 on February 15, 2000. 4. OTHER ASSETS
A summary of other assets follows: September 30, October 1, 2001 2000 ----------------- ----------------- Capitalized software, net of accumulated amortization of $2,342,500 and $2,218,100, respectively $ - $ 124,400 Costs in excess of fair value of net assets acquired, net of accumulated amortization of $199,200 and $168,500, respectively 110,300 141,000 Deposits and other assets 70,700 79,700 ----------------- ----------------- $ 181,000 $ 345,100 ================= =================
In fiscal 2001, amortization expense for other assets totaled $155,100, and for both fiscal 2000 and 1999, amortization expense for other assets totaled $178,300. 5. BANK BORROWINGS The Company has a revolving line of credit up to $2,000,000, with a bank, which expires on July 31, 2002, bears interest at the bank's prime rate (6.0% at September 30, 2001) plus 0.25%, is secured by all the Company's assets, and is guaranteed, in part, by a federal agency. The line of credit requires the Company to maintain a quarterly minimum quick ratio of 1.1 to 1.0, maintain a quarterly debt-to-effective tangible net worth ratio of not more than 0.60 to 1.0, maintain a quarterly effective tangible net worth of at least $16.5 million plus 50 percent of the previous quarter's cumulative net earnings, and have positive net earnings as of the end of each fiscal year. Borrowings supported by export-related inventory are required to not exceed 70% of the total outstanding borrowings. Under the terms of its line of credit, the Company is precluded from paying any dividends without the consent of the parties to such agreements, even if the Company is in compliance with all of the financial covenants. As of September 30, 2001, the Company had a zero balance and was in compliance with its covenants, except the profitability requirement, for which it has not obtained a waiver. 31 LOGIC DEVICES INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6. BENEFIT (PROVISION) FOR INCOME TAXES The benefit (provision) for income taxes for fiscal 2001, 2000, and 1999, comprise:
Current Deferred Total 2001 ----------------- ----------------- ----------------- Federal $ - $ - $ - State (10,400) - (10,400) ----------------- ----------------- ----------------- $ (10,400) $ - $ (10,400) ================= ================= ================= Current Deferred Total 2000 ----------------- ----------------- ----------------- Federal $ 21,800 $ - $ 21,800 State (11,600) - (11,600) ----------------- ----------------- ----------------- $ 10,200 $ - $ 10,200 ================= ================= ================= Current Deferred Total 1999 ----------------- ----------------- ----------------- Federal $ (18,000) $ - $ (18,000) State (2,000) - (2,000) ----------------- ----------------- ----------------- $ (20,000) $ - $ (20,000) ================= ================= =================
The following summarizes the difference between the income tax (expense) benefit and the amount computed by applying the Federal income tax rate of 34% in fiscal 2001, 2000, and 1999, to income (loss) before taxes:
2001 2000 1999 ----------------- ----------------- ----------------- Federal income tax at statutory rate $ 68,500 $ (174,100) $ (211,000) Tax credit carryforwards - 34,700 362,300 State income taxes, net of federal tax benefit 11,500 (7,700) (36,200) Stock option and warrant exercises - 171,000 - Other, net (192,300) 50,000 132,600 Valuation allowance 101,900 (63,700) (267,700) ----------------- ----------------- ----------------- $ (10,400) $ 10,200 $ (20,000) ================= ================= =================
32 LOGIC DEVICES INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Deferred tax assets and liabilities comprise the following:
September 30, October 1, 2001 2000 ----------------- ----------------- Deferred tax assets Net operating loss carryforwards $ 1,226,800 $ 1,450,900 Reserves not currently deductible 1,088,200 1,085,000 Capitalized inventory costs 312,600 456,700 Tax credit carryforwards 457,800 397,000 Distributor sales reserves - 13,700 Other 42,200 39,700 ----------------- ----------------- Gross deferred tax assets 3,127,600 3,443,000 ----------------- ----------------- Deferred tax liabilities State tax benefit (290,000) (296,300) Depreciation (100,200) (254,100) Capitalized software costs - (53,300) ----------------- ----------------- Gross deferred tax liabilities (390,200) (603,700) ----------------- ----------------- Net deferred tax assets 2,737,400 2,839,300 Valuation allowance (2,737,400) (2,839,300) ----------------- ----------------- Net deferred taxes $ - $ - ================= =================
The valuation allowance was decreased $101,900 from fiscal 2000 to fiscal 2001. This was the result of a decrease of the net deferred tax assets, primarily net operating loss carryforwards (NOLs) and capitalized inventory costs. Because the Company 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, 2001, the Company has Federal and State NOLs totaling approximately $3,028,100 and $2,231,600, respectively, available to offset future taxable income. These NOLs expire at various times through 2021 and 2006, respectively. The Company also has Federal and State research and development credit carryforwards totaling approximately $79,300 and $83,800, respectively, expiring at various times through 2021. The Company has state manufacturing tax credit carryforwards totaling approximately $294,800, which expire at various times through 2011. 7. COMMITMENTS The Company leases its facilities and certain equipment under operating leases. The facility leases require the Company to pay certain maintenance and operating expenses, such as taxes, insurance, and utilities. Rent expense related to these operating leases was $816,700, $981,700, and $1,293,500, for fiscal 2001, 2000, and 1999, respectively. A summary of future minimum lease payments under capitalized leases, together with the present value of such minimum lease payments, and future minimum payments required under non-cancelable operating leases with terms in excess of one year, follows: 33 LOGIC DEVICES INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Capitalized Operating Leases Leases ----------------- ----------------- Fiscal years ended: September 29, 2002 $ 56,800 $ 589,400 September 28, 2003 3,000 273,200 September 27, 2004 - 193,300 September 26, 2005 - 80,600 Thereafter - - ----------------- ----------------- Future minimum lease payments 59,800 $ 1,136,500 ================= Less amounts representing interest (4.08% to 10.75%) 2,200 ----------------- Present value of future minimum lease payments 57,600 Less current portion 54,700 ----------------- $ 2,900 =================
Sublease receipts aggregating approximately $17,200 and $8,800 in the fiscal years ended September 29, 2002 and September 28, 2003, respectively, will reduce future operating lease commitments. 8. SHAREHOLDERS' EQUITY Stock Option Plan The Company issues common stock options to its employees, certain consultants, and certain of its board members. Options granted to its employees and consultants generally vest over four years and expire ten years from the date of grant. Options granted to board members generally vest immediately and expire five years from the date of grant. A summary of the status of the Company's stock option plan as of September 30, 2001, October 1, 2000, and October 3, 1999, and changes during the fiscal years then ended, is presented in the following table:
Options Outstanding ---------------------------------------------------------------------------------------- September 30, 2001 October 1, 2000 October 3, 1999 -------------------------- -------------------------- --------------------------- Wtd. Avg. Wtd. Avg. Wtd. Avg. Shares Ex. Price Shares Ex. Price Shares Ex. Price -------------------------- -------------------------- --------------------------- Beginning 754,800 $ 3.076 1,061,400 $ 3.087 818,000 $ 3.015 Granted 314,500 $ 1.835 115,000 $ 3.832 301,000 $ 3.216 Exercised - - (91,400) $ 2.653 (18,100) $ 2.290 Forfeited (67,800) $ 2.582 (330,200) $ 3.444 (39,500) $ 2.984 ----------- ----------- --------- Ending 1,001,500 $ 2.705 754,800 $ 3.076 1,061,400 $ 3.087 =========== ===== =========== ========= ========= ========= Exercisable at year-end: 784,200 656,900 754,200 =========== =========== ========= Weighted-average fair value of options granted during period $ 1.835 $ 3.832 $ 3.216 ========== ========= =========
34 LOGIC DEVICES INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table summarizes information about stock options outstanding as of September 30, 2001:
Options Outstanding Options Exercisable ----------------------------------------------- ------------------------------ Wtd. Avg. Range of Number Remaining Wtd. Avg. Number Wtd. Avg. Exercise Outstanding Contractual Exercise Exercisable Exercise Prices at 09/30/01 Life Price at 09/30/01 Price --------------------- ----------------------------------------------- ------------------------------ $0.000 - 2.000 281,500 9.1 years $1.787 45,500 $ 1.683 $2.001 - 4.000 668,000 6.9 years $2.825 631,900 $ 2.825 $4.001 - 6.000 40,000 8.5 years $5.563 40,000 $ 5.563 $6.001 - 8.000 12,000 4.3 years $8.000 12,000 $ 8.000 ---------------- ---------- 1,001,500 $2.705 784,200 $ 2.897 ================ ===== ========== ==========
The difference between the exercise price and the fair market value of the options issued on the dates of grant is accounted for as unearned compensation and amortized to expense over the related vesting period. The Company recognized $19,000 of expense in fiscal 2001, related to stock options granted to consultants. As discussed in the Summary of Accounting Policies, the Company follows APB No. 25 for measurement and recognition of employee stock-based transactions. Had the Company elected to adopt the measurement and recognition provisions of SFAS No. 123, the Company would have incurred an additional $97,000, $509,200, and $317,300 in related compensation expenses during the fiscal years ended September 30, 2001, October 1, 2000, and October 3, 1999, respectively. Under the provisions of SFAS No. 123, the pro forma net (loss) income and basic and diluted (loss) income per share for the fiscal years ended September 30, 2001, October 1, 2000, and October 3, 1999, follows:
2001 2000 1999 ----------------- ----------------- ----------------- Net (loss) income As reported $ (212,000) $ 522,400 $ 600,600 ================= ================= ================= Pro forma $ (299,000) $ 13,200 $ 283,300 ================= ================= ================= Basic and diluted earnings (loss) per share As reported $ (0.03) $ 0.08 $ 0.09 ================= ================ ================= Pro forma $ (0.04) $ 0.00 $ 0.04 ================= ================ =================
The pro forma information provided above was estimated at the date of grant, using the Black-Scholes option-pricing model, with the following weighted average assumptions:
2001 2000 1999 ----------------- ----------------- ----------------- Expected life (in years) 3.0 3.0 4.0 Risk-free interest rate 3.5% 6.0% 6.2% Volatility 90.4% 72.0% 91.0% Dividend yield 0.0 0.0 0.0
35 LOGIC DEVICES INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. Because the Company's options have characteristics significantly different from those of trading options, management believes that the existing pricing models do not necessarily provide a reliable single measure of the fair value of its options. 9. MAJOR CUSTOMERS, MAJOR SUPPLIERS AND EXPORT SALES Major Customers and Suppliers For fiscal 2001, one customer accounted for approximately 32% of net revenues, with accounts receivable of $2,654,900 as of September 30, 2001. For fiscal 2000, two customers accounted for approximately 31% and 10% of net revenues, one of which was the Company's exclusive domestic distributor, with accounts receivable of $615,200 and $209,800, respectively, as of October 1, 2000. For fiscal 1999, one customer accounted for approximately 35% of net revenues, with accounts receivable of $1,820,500 as of October 3, 1999. The Company had one supplier that comprised approximately 23% of its purchases in fiscal 2001, while no suppliers comprised 10% or more of purchases in fiscal 2000 and 1999. Export Sales The Company had the following export sales:
2001 2000 1999 ----------------- ----------------- ----------------- Western Europe $ 2,652,800 $ 3,520,500 $ 3,204,600 Far East 392,600 1,106,700 857,000 Other 180,500 19,000 96,400 ----------------- ----------------- ----------------- $ 3,225,900 $ 4,646,200 $ 4,158,000 ================= ================= =================
No one country comprised more than 10% of net revenues in fiscal 2001, 2000, and 1999. 10. USE OF ESTIMATES AND CONCENTRATION OF CREDIT RISKS The Company's consolidated 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 with high quality financial institutions, and, by policy, limits the amounts of credit exposure to any one financial institution. 36 LOGIC DEVICES INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A significant portion of the Company's accounts receivable has 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 (1) the provision being made at the date of sale for returns and allowances, and (2) 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 one supplier as its primary wafer-processing source. If this supply was to be interrupted or the pricing was 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. 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. 11. STATEMENTS OF CASH FLOWS The Company paid $54,700, $314,100, and $557,600 for interest in the fiscal years ended September 30, 2001, October 1, 2000, and October 3, 1999, respectively. The Company paid $15,900 and $3,800 for income taxes during fiscal 2001 and 2000, respectively. The Company did not make any income tax payments during fiscal 1999. Non-cash investing and financing activities for fiscal 2001 and 2000 consisted of the acquisition of $34,800 and $40,200 of equipment under capital leases, respectively, and the issuance of 67,000 stock options to consultants recorded at an amount of $19,000 for fiscal 2001. There were no non-cash investing and financing activities during fiscal 1999. 12. 401(K) SAVINGS PLAN The Company has a 401(k) savings plan (the Plan), which was adopted on September 1, 2000. Employees may make voluntary contributions and the Company has the discretion to make matching contributions. The Plan covers all employees meeting certain age and service requirements, and who are not covered by collective bargaining agreements. The Company funds expenses incurred in connection with the Plan, on a current basis. The Company made no matching contributions during fiscal 2001, 2000, and 1999. 37 QUARTERLY FINANCIAL DATA (UNAUDITED) The following is a summary of unaudited results of operations (dollars in thousands, except per share data) for the fiscal years ended September 30, 2001 and October 1, 2000:
Fiscal Quarter Ended: ------------------------------------------------------------------ 12/31/00 04/01/01 07/01/01 09/30/01 Total ------------- ------------- ------------- ------------- --------------- Net revenues $ 3,058 $ 2,540 $ 2,490 $ 1,919 $ 10,007 Gross margin $ 1,218 $ 1,216 $ 1,331 $ 75 $ 3,840 Income (loss) from operations $ 105 $ 23 $ 22 $ (328) $ (178) Income (loss) before income taxes $ 98 $ 22 $ 14 $ (336) $ (202) Net income (loss) $ 97 $ 12 $ 14 $ (335) $ (212) Basic income (loss) per share $ 0.01 $ - $ - $ (0.04) $ (0.03) Weighted average common shares 6,842 6,842 6,842 6,842 6,842 Fiscal Quarter Ended: ------------------------------------------------------------------ 01/02/00 04/02/00 07/02/00 10/01/00 Total ------------- ------------- ------------- ------------- --------------- Net revenues $ 3,010 $ 2,769 $ 2,990 $ 3,017 $ 11,786 Gross margin $ 1,220 $ 1,235 $ 1,451 $ 601 $ 4,507 Income from operations $ 166 $ 159 $ 195 $ 250 $ 770 Income before income taxes $ 89 $ 93 $ 147 $ 183 $ 512 Net income $ 88 $ 93 $ 147 $ 194 $ 522 Basic income $ 0.01 $ 0.01 $ 0.02 $ 0.04 $ 0.08 per share Weighted average common shares 6,650 6,753 6,842 6,842 6,772
38 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this Item will be included in the Proxy Statement and is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information required by this Item will be included in the Proxy Statement and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item will be included in the Proxy Statement and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIP AND RELATED TRANSACTIONS The information required by this Item will be included in the Proxy Statement and is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this report: (1) The Company's Consolidated Financial Statements, Summary of Accounting Policies, and Notes to Consolidated Financial Statements appear at pages 20 to 38 of this report; see Index to Consolidated Financial Statements at page 19 of this report. (2) The Consolidated Financial Statement Schedule appears on page 40 of this report; see Index to Consolidated Financial Statements Schedule at page 19 of this report. (3) The Index to Exhibits appears at page 41 of this report. (b) Reports on Form 8-K: During the last quarter of fiscal 2001, the Company filed no current reports on Form 8-K. 39 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Balance Charged at to costs Balance beginning and at end of Description of period expenses Deductions period ----------- ------------- ------------ ---------- ------------ 2001 Allowance for: Doubtful accounts $ 20,000 $ - $ - $ 20,000 Inventory reserve $ 2,436,300 $ 65,500 $ (634,100) $ 1,867,700 Sales returns $ 32,000 $ (32,000) $ - $ - 2000 Allowance for: Doubtful accounts $ 253,500 $ - $ 233,500 $ 20,000 Inventory reserve $ 1,784,200 $ 652,100 $ - $ 2,436,300 Sales returns $ 50,000 $ - $ 18,000 $ 32,000 1999 Allowance for: Doubtful accounts $ 169,500 $ 84,000 $ - $ 253,500 Inventory reserve $ 590,000 $ 1,194,200 $ - $ 1,784,200 Sales returns $ 149,100 $ - $ 99,100 $ 50,000
40 INDEX TO EXHIBITS Exhibit No. Description ----------- ----------- 3.1 Articles of Incorporation, as amended. [3.1](1) 3.2 Bylaws, as amended. [3.2](1) 10.1 Real Estate lease regarding Registrant's Sunnyvale facilities. [10.1](2) 10.2 LOGIC Devices Incorporated 1996 Stock Incentive Plan. [99.1](3) 10.3 LOGIC Devices Incorporated 1999 Director Stock Incentive Plan. [10.1](4) 10.4 Registration Rights Agreement dated October 3, 1998 between William J.Volz, BRT Partnership, and Registrant. [10.19](5) 23.1 Consent letter of Hood & Strong LLP. 23.2 Consent letter of BDO Seidman, LLP. ---------- [ ] Exhibits so marked have been previously filed with the Securities and Exchange Commission (SEC) as exhibits to the filings shown below under the exhibit numbers indicated following the respective document description and are incorporated herein by reference. (1) Registration Statement on Form S-18, as filed with the SEC on August 23, 1988 [Registration No. 33-23763-LA]. (2) Registration Statement of Form S-3, as filed with the SEC on November 21, 1996 [Registration No. 333-16591]. (3) Registration Statement on Form S-8, as filed with the SEC on August 17, 1997 [Registration No. 333-32819]. (4) Quarterly Report on Form 10-Q for the quarter ended June 30, 1999, as filed with the SEC on August 14, 1999. (5) Annual Report on Form 10-K for the transition period from January 1, 1998 to October 3, 1999, as filed with the SEC on January 13, 1999. 41