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

December 31, 2009

 

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 January 28, 2010, 6,814,438 shares of Common Stock, without par value, were issued and outstanding.

 

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LOGIC Devices Incorporated

 

INDEX

 

				Page
				Number
Part I. Financial Information
	Item 1. Financial Statements
		Condensed Balance Sheets as of December 31, 2009 and September 30, 2009		3
		Condensed Statements of Operations for the quarters ended December 31, 2009 and 2008		4
		Condensed Statements of Cash Flows for the quarters ended December 31, 2009 and 2008		5
		Notes to Condensed Financial Statements		6
	Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			8
	Item 3. Quantitative and Qualitative Disclosures about Market Risk			9
	Item 4. Controls and Procedures			10
Part II. Other Information
	Item 1. Legal Proceedings			10
	Item 1A. Risk Factors			10
	Item 6. Exhibits			10
Signatures				11

 

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Part I – Financial Information

 

Item 1.  Financial Statements

 

Condensed Balance Sheets

 

				December 31,		September 30,
				2009		2009
				(unaudited)
ASSETS
Current assets:
	Cash and cash equivalents			$ 1,402,800		$ 1,238,400
	Accounts receivable			489,900		359,300
	Inventories			854,800		1,077,700
	Prepaid expenses and other current assets			79,000		69,700
			Total current assets	2,826,500		2,745,100
Property and equipment, net				882,100		816,400
Other assets, net				22,100		22,100
				$ 3,730,700		$ 3,583,600
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
	Accounts payable			$ 198,700		$ 81,200
	Accrued payroll and vacation			115,100		122,900
	Accrued commissions			–		20,100
	Other accrued expenses			20,500		55,500
			Total current liabilities	334,300		279,700
Deferred rent				44,800		42,700
			Total liabilities	379,100		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;
		6,814,438  shares issued and outstanding		18,543,200		18,543,200
	Additional paid-in capital			168,900		162,100
	Accumulated deficit			(15,360,500)		(15,444,100)
			Total shareholders' equity	3,351,600		3,261,200
				$ 3,730,700		$ 3,583,600
			See accompanying Notes to Condensed Financial Statements.

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Condensed Statements of Operations

 

(unaudited)

 

				For the quarters ended December 31,
				2009		2008
Net revenues				$ 1,102,200		$ 445,400
Cost of revenues				434,100		413,800
			Gross margin	668,100		31,600
Operating expenses:
	Research and development			271,600		301,100
	Selling, general and administrative			318,600		358,200
		Total operating expenses		590,200		659,300
			Operating income (loss)	77,900		(627,700)
Other income and expense, net
	Interest income			100		8,500
	Interest expense			–		(1,700)
	Other income			5,600		–
		Other income and expense, net		5,700		6,800
			Income (loss) before provision for income taxes	83,600		(620,900)
Provision for income taxes				–		–
			Net income (loss)	$ 83,600		$ (620,900)
Basic earnings (loss) per common share				$ 0.01		$ (0.09)
Basic weighted average common shares outstanding				6,814,438		6,814,438
Diluted earnings (loss) per common share				$ 0.01		$ (0.09)
Diluted weighted average common shares outstanding				6,869,737		6,814,438
			See accompanying Notes to Condensed Financial Statements.

 

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Condensed Statements of Cash Flows

 

(unaudited)

 

					For the quarters ended December 31,
					2009		2008
Cash flows from operating activities:
	Net income (loss)				$ 83,600		$ (620,900)
	Adjustments to reconcile net income (loss) to net cash provided by
		(used in) operating activities:
		Depreciation			80,600		79,900
		Write-down of inventory			–		250,200
		Deferred rent			2,100		4,200
		Stock-based compensation			6,800		–
		Changes in current assets and liabilities:
			Accounts receivable		(130,600)		281,900
			Inventories		222,900		(102,500)
			Prepaid expenses and other current assets		(9,300)		(46,300)
			Accounts payable		117,500		(62,000)
			Accrued payroll and vacation		(7,800)		(24,400)
			Accrued commissions		(20,100)		(600)
			Other accrued expenses		(35,000)		9,800
				Net cash provided by (used in) operating activities	310,700		(230,700)
Cash flows from investing activities:
	Sales of available-for-sale securities				–		50,000
	Capital expenditures				(146,300)		(31,500)
				Net cash (used in) provided by investing activities	(146,300)		18,500
Cash flows from financing activities:
	Proceeds from bank borrowings				–		975,000
	Repayment of bank borrowings				–		(51,600)
				Net cash provided by financing activities	–		923,400
Net increase in cash and cash equivalents					164,400		711,200
Cash and cash equivalents, beginning					1,238,400		312,400
Cash and cash equivalents, ending					$ 1,402,800		$ 1,023,600
				See accompanying Notes to Condensed Financial Statements.

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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 December 31, 2009 are not necessarily indicative of the results to be expected for the full fiscal year to end September 30, 2010.

 

2.           Inventories

 

A summary of inventories follows:

 

			December 31,		September 30,
			2009		2009
Raw materials			$ 38,700		$ 38,700
Work-in-process			64,900		194,800
Finished goods			751,200		844,200
			$ 854,800		$ 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 45,000 common stock options in the quarter ended December 31, 2009. There are 1,000,000 authorized shares remaining for granting of future options.

 

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 quarter ended December 31, 2009 related to common stock option grants was $6,800 (fair value of $1.00 per share). There was no compensation expense related to common stock options in the quarter ended December 31, 2008 as no options were granted.

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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 becase they are antidilutive. Stock options with exercise prices above the average market price during the period are also antidilutive.

 

There were 394,500 and 337,500 common stock options outstanding at December 31, 2009 and 2008, respectively. For the quarter ended December 31, 2009, the Company had 55,299 dilutive common shares as the weighted average price of the Company’s common stock during the quarter was $1.39. No options were considered in calculating the diluted loss per share for the quarter ended December 31, 2008, as their effect would have been antidilutive. As a result, for the quarter ended December 31, 2008, the Company’s basic and diluted loss per share are the same.

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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, and intellectual property claims and defense. Factors that could cause actual results to differ materially are included in, but not limited to, those identified in "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 December 31, 2009, our net revenues increased by $656,800 (147%) compared to the same quarter of fiscal 2009. This increase was primarily the result of the revenues from the digital cinema project returning to expected run rates and the return of some periodic military program revenues.

 

Expenses

 

Our cost of revenues for the quarter ended December 31, 2009 increased $20,300 (5%) compared to the same quarter of fiscal 2009. Cost of revenues remained relatively constant year-to-year after reducing the cost of revenues in fiscal 2009 by its one-time inventory write-down of $250,200. There was no inventory write-down in the first quarter of fiscal 2010. In addition, items previously written down to zero-value made up 36% of the net revenues for fiscal 2010, compared to 20% of the net revenues for fiscal 2009.

 

Research and development (R&D) expenditures for the quarter ended December 31, 2009 decreased by $29,500 (10%) compared to the same quarter of fiscal 2009. This decrease was the result of a reduction in work weeks for some R&D employees. As the development of new products is key to future growth, R&D expenses are expected to continue at or slightly above the current level.

 

Selling, general, and administrative expenditures for the quarter ended December 31, 2009 decreased by $39,600 (11%) compared to the same quarter of fiscal 2009. This decrease was primarily the result of a reduction in sales consulting charges in fiscal 2010.

 

For the quarter ended December 31, 2009, the other income, net, decreased $1,100 (16%) from the same quarter of fiscal 2009. This decrease was primarily the result of interest income decreases ($8,500) being partially offset by other income from unclaimed property from the state of California ($5,600).

 

As a result of the increase in net revenues paired with the slight cost decreases, we had a net income of $83,600 for the quarter ended December 31, 2009, compared to a net loss of $620,900 for the same quarter of fiscal 2009.

 

Liquidity and Capital Resources

 

Cash Flows

 

While our net income for the quarter ended December 31, 2009 was $83,600, our net cash provided by operations was $310,700, primarily from the sale of existing inventory. During the quarter, we used $146,300 for capital expenditures, including mask tooling for new products.

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While the net loss for the quarter ended December 31, 2008 was $620,900, the net cash used for operations was only $230,700. During the first quarter of fiscal 2009, we wrote-off $250,200 of inventory, which increased the net loss but did not affect cash flows. Collections of accounts receivable resulted in net cash inflows of $281,900 for operations. In addition, the opening of a line of credit against our auction rate preferred securities resulted in a net cash inflow of $923,400 for the quarter ended December 31, 2008.

 

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 than normal 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 a less costly alternative to 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 quarter ended December 31, 2009, we have decreased inventory by an additional $222,900 through sales of existing items.

 

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 these ARS Rights were exercised, we planned to pay back the no net-cost loan from UBS Bank USA and the line would be closed. In December 2008, UBS liquidated $50,000 of our $975,000 of ARS, which we used to pay down the line of credit. In January 2009, the remaining $925,000 of ARS were liquidated and paid down against the line of credit.

 

We believe the cost reductions we have undertaken in the past few years will allow us to generate sufficient cash from future revenues, to fund current operations and future capital needs. However, we continue to evaluate our 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 January 28, 2010, 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 December 31, 2009, 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 December 31, 2009 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 12 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: January 28, 1010	By:  /s/ William J. Volz     William J. Volz President and Chief Executive Officer (Principal Executive Officer)
Date: January 28, 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.
10.3			LOGIC Devices Incorporated 2007 Employee Stock Incentive Plan.
10.4			Registration Rights Agreement dated October 3, 1998 between William J. Volz, BRT Partnership, and Registrant. [10.19] (4)
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)			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.