UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly Period Ended

June 30, 2010

 

Commission File Number

0-17187

 

LOGIC Devices Incorporated

(Exact name of registrant as specified in its charter)

 

California	94-2893789
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

 

1375 Geneva Drive, Sunnyvale, California 94089

(Address of principal executive offices)

(Zip Code)

 

(408) 542-5400

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes   X     No       

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act (Check One):

Large Accelerated Filer          Accelerated Filer          Non-Accelerated Filer  X 

 

Indicate by check whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes            No    X   

 

Indicate the number of shares outstanding of the issuer’s classes of common stock, as of the latest practicable date. On July 30, 2010, 6,819,438 shares of Common Stock, without par value, were issued and outstanding.

 

LOGIC Devices Incorporated

 

INDEX

 

				Page
				Number
Part I. Financial Information
	Item 1. Financial Statements
		Condensed Balance Sheets as of June 30, 2010 and September 30, 2009		3
		Condensed Statements of Operations for the quarters ended June 30, 2010 and 2009		4
		Condensed Statements of Operations for the nine months ended June 30, 2010 and 2009		5
		Condensed Statements of Cash Flows for the nine months ended June 30, 2010 and 2009		6
		Notes to Condensed Financial Statements		7
	Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			9
	Item 3. Quantitative and Qualitative Disclosures about Market Risk			11
	Item 4. Controls and Procedures			11
Part II. Other Information
	Item 1. Legal Proceedings			11
	Item 1A. Risk Factors			11
	Item 6. Exhibits			11
Signatures				12

 

Part I – Financial Information

 

Item 1.  Financial Statements

 

Condensed Balance Sheets

 

				June 30,		September 30,
				2010		2009
				(unaudited)
ASSETS
Current assets:
	Cash and cash equivalents			$ 650,400		$ 1,238,400
	Accounts receivable			215,100		359,300
	Inventories			826,300		1,077,700
	Prepaid expenses and other current assets			61,100		69,700
			Total current assets	1,752,900		2,745,100
Property and equipment, net				852,400		816,400
Capitalized software, net				257,600		–
Other assets, net				22,100		22,100
				$ 2,885,000		$ 3,583,600
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
	Accounts payable			$ 124,300		$ 81,200
	Accrued payroll and vacation			117,500		122,900
	Accrued commissions			16,700		20,100
	Other accrued expenses			6,900		55,500
			Total current liabilities	265,400		279,700
Deferred rent				49,100		42,700
			Total liabilities	314,500		322,400
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;
		6,819,438 and 6,814,438  shares issued and outstanding, respectively		18,546,200		18,543,200
	Additional paid-in capital			208,000		162,100
	Accumulated deficit			(16,183,700)		(15,444,100)
			Total shareholders' equity	2,570,500		3,261,200
				$ 2,885,000		$ 3,583,600
			See accompanying Notes to Condensed Financial Statements.

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Condensed Statements of Operations

 

(unaudited)

 

				For the quarters ended June 30,
				2010		2009
Net revenues				$ 272,100		$ 803,300
Cost of revenues				233,400		167,500
			Gross margin	38,700		635,800
Operating expenses:
	Research and development			172,300		279,100
	Selling, general and administrative			270,600		326,000
		Total operating expenses		442,900		605,100
			Operating (loss) income	(404,200)		30,700
Provision for income taxes				600		–
			Net (loss) income	$ (404,800)		$ 30,700
Basic (loss) income per common share				$ (0.06)		$ –
Basic weighted average common shares outstanding				6,817,771		6,814,438
Diluted (loss) income per common share				$ (0.06)		$ –
Diluted weighted average common shares outstanding				6,817,771		6,820,760
			See accompanying Notes to Condensed Financial Statements.

 

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Condensed Statements of Operations

 

(unaudited)

 

				For the nine months ended June 30,
				2010		2009
Net revenues				$ 1,927,500		$ 1,804,400
Cost of revenues				910,900		859,300
			Gross margin	1,016,600		945,100
Operating expenses:
	Research and development			814,200		888,600
	Selling, general and administrative			944,800		1,070,900
		Total operating expenses		1,759,000		1,959,500
			Operating loss	(742,400)		(1,014,400)
Other income and expense, net
	Interest income			100		10,300
	Interest expense			–		(1,900)
	Other income (expense)			5,600		(4,100)
		Other income and expense, net		5,700		4,300
			Loss before provision for income taxes	(736,700)		(1,010,100)
Provision for income taxes				2,900		900
			Net loss	$ (739,600)		$ (1,011,000)
Basic and diluted loss per common share				$ (0.11)		$ (0.15)
Basic and diluted weighted average common shares outstanding				6,815,549		6,814,438
			See accompanying Notes to Condensed Financial Statements.

---

Condensed Statements of Cash Flows

 

(unaudited)

 

					For the nine months ended June 30,
					2010		2009
Cash flows from operating activities:
	Net loss				$ (739,600)		$ (1,011,000)
	Adjustments to reconcile net loss to net cash used in operating activities:
		Depreciation			223,500		246,400
		Stock-based compensation			45,900		6,500
		Deferred rent			6,400		12,700
		Loss on disposal of capital equipment			–		49,400
		Write-down of inventories			–		250,200
		Changes in current assets and liabilities:
			Accounts receivable		144,200		109,200
			Inventories		251,400		(117,400)
			Prepaid expenses and other current assets		8,600		61,300
			Accounts payable		43,100		(107,400)
			Accrued payroll and vacation		(5,400)		(37,800)
			Accrued commissions		(3,400)		(2,400)
			Other accrued expenses		(48,600)		(5,100)
				Net cash used in operating activities	(73,900)		(545,400)
Cash flows from investing activities:
	Sales of available-for-sale securities				–		975,000
	Capital expenditures				(259,500)		(246,500)
	Capitalized software				(257,600)		–
				Net cash (used in) provided by investing activities	(517,100)		728,500
Cash flows from financing activities:
	Proceeds from exercise of employee stock options				3,000
	Proceeds from bank borrowings				–		975,000
	Repayment of bank borrowings				–		(975,000)
				Net cash provided by financing activities	3,000		–
Net change in cash and cash equivalents					(588,000)		183,100
Cash and cash equivalents, beginning					1,238,400		312,400
Cash and cash equivalents, ending					$ 650,400		$ 495,500
				See accompanying Notes to Condensed Financial Statements.

---

LOGIC Devices Incorporated

 

Notes to Condensed Financial Statements

 

(unaudited)

 

1.           Basis of Presentation

 

The accompanying unaudited interim financial statements reflect all adjustments that are, in the opinion of management, necessary to present fairly the financial position, results of operations, and cash flows of LOGIC Devices Incorporated (the Company) for the periods indicated.

 

The accompanying unaudited interim financial statements have been prepared in accordance with the instructions for Form 10-Q, and, therefore, do not include all information and footnotes necessary for a complete presentation of the financial position, results of operations, and cash flows for the Company, in conformity with accounting principles generally accepted in the United States of America. The Company has filed audited financial statements that include all information and footnotes necessary for such a presentation of the financial position, results of operations, and cash flows for the fiscal years ended September 30, 2009 and 2008, with the Securities and Exchange Commission. It is suggested that the accompanying unaudited interim financial statements be read in conjunction with the aforementioned audited financial statements. In the opinion of management, the unaudited interim financial statements reflect all adjustments (consisting of normal and recurring accruals) necessary to make the results of operations for the interim periods a fair statement of such operations. The results of operations for the interim period ended June 30, 2010 are not necessarily indicative of the results to be expected for the full fiscal year to end September 30, 2010.

 

Our cost reductions over the past few years have allowed us to generate enough cash from operations to fund current operations and future capital expenditures. As we have multiple new products being introduced, our capital requirements have increased substantially. Cash on-hand and cash from operations may not be sufficient to meet these increased demands. As such, we are reviewing our expected capital needs and are exploring multiple debt and equity financing opportunities.

 

2.           Inventories

 

A summary of inventories follows:

 

			June 30,		September 30,
			2010		2009
Raw materials			$ 54,000		$ 38,700
Work-in-process			89,100		194,800
Finished goods			683,200		844,200
			$ 826,300		$ 1,077,700

 

3.           Shareholders’ Equity

 

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. We granted 90,000 common stock options in the nine months ended June 30, 2010. There were no grants in the quarter ended June 30, 2010. There are 1,070,000 authorized shares available for future grants.

 

---

 

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 the nine months ended June 30, 2010 related to common stock option grants was $45,900 (fair value of $1.24 per share). Share-based compensation expense recognized for the nine months ended June 30, 2009 was $2,800 (fair value of $0.09 per share). There was no share-based compensation expense recognized in the quarters ended June 30, 2010 and 2009.

 

4.           Earnings Per Share

 

Basic earnings per share is calculated by dividing net income by the weighted average common shares outstanding during the period. Diluted earnings 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 280,000 and 355,500 common stock options outstanding at June 30, 2010 and 2009, respectively. No options were considered in calculating the diluted loss per share for the quarter and nine months ended June 30, 2010, as their effect would have been antidilutive. As a result, for the quarter and nine months ended June 30, 2010, the Company’s basic and diluted loss per share are the same. The same is true for the nine months ended June 30, 2009. However, for the quarter ended June 30, 2009, the Company had 6,322 dilutive common share equivalents as the weighted average price of the Company’s common stock during the quarter was $0.53.

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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Reported financial results may not be indicative of the financial results of future periods. All non-historical information contained in the following discussion constitutes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Words such as “anticipates, appears, expects, intends, hopes, plans, believes, seeks, estimates, may, will,” and variations of these words or similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and involve a number of risks and uncertainties, including but not limited to operating results, new product introductions and sales, competitive conditions, customer demand, capital expenditures and resources, manufacturing capacity utilization, intellectual property claims and defense, and our ability to obtain access to capital markets, both debt and equity. Factors that could cause actual results to differ materially are included in, but not limited to, those identified in "Item 1A – Risk Factors" in the Annual Report on Form 10-K for our fiscal year ended September 30, 2009 and in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" in such Annual Report on Form 10-K and in this Quarterly Report on Form 10-Q. We undertake no obligation to publicly release the results of any revisions to these forward-looking statements that may reflect events or circumstances after the date of this report.

 

Results of Operations

 

Revenues

 

For the quarter ended June 30, 2010, our net revenues decreased by $531,200 (66%) compared to the same period of fiscal 2009. This decrease was the result of a significant decline in revenues from the digital cinema project in fiscal 2010. For the nine months ended June 30, 2010, our net revenues increased by $123,100 (7%) compared to the same period of fiscal 2009, primarily as a result of strong military program revenues in early fiscal 2010.

 

Expenses

 

Our cost of revenues for the quarter and nine months ended June 30, 2010 increased $65,900 (39%) and $51,600 (6%), respectively, compared to the same periods of fiscal 2009. For the quarter ended June 30, 2010, cost of revenues, in aggregate and as a percent of net revenues, increased despite the decrease in net revenues as we expensed certain fixed costs that would normally be allocated to inventory during high-volume assembly periods. As we transition from development to the production and sale of new products, these fixed costs will again be allocated to inventory.

 

Research and development (R&D) expenditures for the quarter and nine months ended June 30, 2010 decreased by $106,800 (38%) and $74,400 (8%), respectively, compared to the same periods of fiscal 2009. This decrease was the result of allocating portions of R&D expenditures to capitalized software for the development of test software for the new products. As the development of new products is a key to future growth, R&D expenses are expected to continue at significant levels.

 

Selling, general, and administrative expenditures for the quarter and nine months ended June 30, 2010 decreased by $55,400 (17%) and $126,100 (12%), respectively, compared to the same periods of fiscal 2009. This decrease was primarily the result of a reduction in sales consulting charges and patent fees in fiscal 2010.

 

During the quarter ended June 30, 2010 and 2009, there was no other income or expense. For the nine months ended June 30, 2010, we received other income from unclaimed property from the State of California aggregating $5,600, compared to other income, net, of $4,300 (interest income of $10,300 offset by the loss on disposal of capital equipment and interest expense) for the same period of fiscal 2009.

 

As a result of the decrease in net revenues for the quarter ended June 30, 2010, we had a net loss of $404,800 compared to a net income of $30,700 for the same quarter of fiscal 2009. However, for the nine months ended June 30, 2010, the increase in net revenues combined with decreases in operating expenses resulted in our net loss decreasing by $271,400 (27%) compared to the same period of fiscal 2009.

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Liquidity and Capital Resources

 

Cash Flows

 

While we had a net loss of $739,600 for the nine months ended June 30, 2010, our operations used net cash of only $73,900. Reductions of accounts receivable and inventory produced cash of $144,200 and $251,400, respectively, while we used cash of $48,600 to reduce accrued expenses. During the nine months ended June 30, 2010, we used cash of $259,500 for capital equipment purchases, mainly for the testing and production of new products, and $257,600 for capitalized test software development.

 

While the net loss for the nine months ended June 30, 2009 was $1,011,000, the net cash used for operations was only $545,400. During the first nine months of fiscal 2009, we wrote-off $250,200 of inventory, which increased the net loss but did not affect cash flows. Reductions of accounts receivable resulted in net cash inflows of $109,200 for operations. The liquidating of auction rate securities during January 2009 also resulted in an increase in net cash of $975,000, while the Company used $246,500 for the purchase of capital equipment to prepare for testing of new products.

 

Working Capital

 

Historically, due to order scheduling by our customers, up to 60% of our quarterly revenues are often shipped in the last month of the quarter, so a large portion of shipments included in our quarter-end accounts receivable are not yet due per our net 30 day terms. As a result, quarter-end accounts receivable balances are typically at their highest level for the respective period.

 

As a fabless semiconductor company with products having longer product life cycles, our investment in inventories has been, and will continue to be, significant. Although high levels of inventory impact liquidity, we believe these costs are less costly than owning a wafer fabrication facility. Over the past few years, we have attempted to streamline our product offerings, in turn reducing our inventory levels, and we will continue this effort in the upcoming periods. During fiscal 2009, we decreased our inventory by $347,000, including a write-down of $406,700. During the nine months ended June 30, 2010, we have decreased inventory by an additional $251,400 through sales of existing items.

 

Financing

 

Our cost reductions over the past few years have allowed us to generate enough cash from operations to fund current operations and future capital expenditures. As we have multiple new products being introduced, our capital requirements have increased substantially. Cash on-hand and cash from operations may not be sufficient to meet these increased demands. As such, we are reviewing our expected capital needs and are exploring multiple debt and equity financing opportunities.

 

Impact of New Financial Accounting Standards

 

In May 2009, the FASB issued authoritative guidance regarding Subsequent Events, which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or available to be issued. The Company evaluated subsequent events through the date of financial statement issuance.

 

In June 2009, the FASB issued the FASB Accounting Standards Codification. The Codification is the single source for all authoritative GAAP recognized by the FASB to be applied for financial statements issued for periods ending after September 15, 2009. The Company adopted the Codification standard on September 30, 2009. This statement did not change GAAP and did not have an effect on the Company’s financial position or results of operations.

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Item 3.  Quantitative and Qualitative Disclosures about Market Risk

 

We conduct all of our transactions, including those with foreign suppliers and customers, in U.S. dollars. We are therefore not directly subject to the risks of foreign currency fluctuations and do 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 us 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 our products relative to the prices of our foreign competitors.

 

Item 4.  Controls and Procedures

 

Based upon an evaluation as of June 30, 2010, our President and Chief Financial Officer concluded that our disclosure controls and procedures are effective. There have been no changes in our internal control over financial reporting that occurred during the quarter ended June 30, 2010 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

Part II – OTHER INFORMATION

 

Item 1.  Legal Proceedings

 

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 1A.  Risk Factors

 

There are no other material changes to the risk factors disclosed in our Form 10-K filed with SEC on December 15, 2009 for the fiscal year ended September 30, 2009.

 

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

 

Not applicable.

 

Item 3.  Defaults Upon Senior Securities

 

Not applicable.

 

Item 4.  Submission of Matters to a Vote of Security Holders

 

Not applicable.

 

Item 5.  Other Information

 

Not applicable.

 

Item 6.  Exhibits

 

The Index to Exhibits appears at Page 13 of this report on Form 10-Q.

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SIGNATURES

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

	LOGIC Devices Incorporated (Registrant)
Date: July 30, 2010	By:  /s/ William J. Volz     William J. Volz President and Chief Executive Officer (Principal Executive Officer)
Date: July 30, 2010	By:  /s/ Kimiko Milheim    Kimiko Milheim Chief Financial Officer (Principal Finance and Accounting Officer)

 

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INDEX TO EXHIBITS

 

 

Exhibit No.			Description
3.1			Articles of Incorporation, as amended in 1988. [3.1] (1)92
3.2			Bylaws, as amended and restated effective March 8, 2007. [3.2] (2)
10.1			Real Estate lease regarding Registrant's Sunnyvale, California facilities. [99.1] (3)
10.2			Amended and Restated LOGIC Devices Incorporated 1998 Director Stock Incentive Plan, as amended. (4)
10.3			LOGIC Devices Incorporated 2007 Employee Stock Incentive Plan. (4)
10.4			Registration Rights Agreement dated October 3, 1998 between William J. Volz, BRT Partnership, and Registrant. [10.19] (5)
31.1			Certification of Principal 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 Principal Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350.
[  ]			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)			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 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 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 from January 1, 1998 to September 30, 1998, as filed with the SEC on January 13, 1999.