SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB/A2
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-10696
LogiMetrics, Inc.
(Exact name of small business issuer in its charter)
Delaware 112171701
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
50 Orville Drive, Bohemia, New York 11716
(Address of principal executive offices) (Zip Code)
Issuer's telephone number:(516) 784-4110
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant Section 12 (g) of the Act:
Common Stock, par value $.01 per share
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 [ ] No [X]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will 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-KSB or any
amendment to this Form 10-KSB [ ]
State issuer's revenues for its most recent fiscal year: $11,374,182
As of December 31, 1997, the aggregate market value of voting stock held by
non-affiliates of the Registrant was $2,111,000 as computed by reference to the
closing bid price of the stock ($0.44) multiplied by the number of shares of
voting stock outstanding on December 31, 1997 held by non-affiliates.
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock as of the latest practicable date.
Class of Common Stock Outstanding at December 31, 1997
Common Stock, par value 25,648,984 shares
$.01 per share
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
<PAGE>
LOGIMETRICS, INC.
FORM 10-KSB/A2
YEAR ENDED JUNE 30, 1997
INDEX
PART II
Item 6. Management's Discussion and Analysis or Plan of Operation........ 3
Item 7. Consolidated Financial Statements................................ 7
<PAGE>
PART II
Item 6. Management's Discussion and Analysis or Plan of Operation
Results of Operations
Overview
On April 25, 1997, a wholly owned subsidiary of the Company merged into mmTech,
in a transaction accounted for as a pooling of interests. Accordingly, the
consolidated financial statements have been restated to include the accounts of
mmTech for all periods presented. Unless otherwise indicated, all references to
the Company in the Management's Discussions and Analysis of Financial Condition
and Results of Operations include mmTech and all references to LogiMetrics mean
the Company excluding mmTech.
Fiscal Year Ended June 30, 1997 Compared to Fiscal Year Ended June 30, 1996
Net Revenues. For the fiscal year ended June 30, 1997, net revenues increased by
$2.5 million, or 28.1%, to $11.4 million from $8.9 million for the fiscal year
ended June 30, 1996, due to increased sales of transmitting equipment to CT&T
and its licensees for use in the LMDS market. The increase in LMDS equipment
sales reflects the Company's emphasis on more profitable commercial
applications. Net revenues from the sale of TWTAs and other high-power
amplifiers in the Company's traditional markets were approximately the same as
for the prior year.
Gross Profit. For the fiscal year ended June 30, 1997, gross profit increased by
$3.8 million to $2.8 million, from a negative $1.0 million for the fiscal year
ended June 30, 1996. As a percentage of net revenues, gross profit increased to
24.7% for the 1997 fiscal year from a negative 10.7% for the 1996 fiscal year.
The improvement in gross profit was attributable to increased sales of LMDS
equipment, which typically have higher margins than the Company's other
products. In addition, gross profit for the 1996 fiscal year was adversely
affected as a result of a write-off of approximately $448,000 of slow moving and
obsolete inventory and a write-down of approximately $960,000 of inventory to
lower of cost or market. During the quarter ended March 31, 1996, the Company
stopped selling equipment used in certain defense-related applications and
shifted its sales efforts toward commercial applications. The write-off resulted
primarily from the Company's determination that, as a result of this shift,
certain defense-related inventory would have no realizable value. As a result,
the Company determined that the value of certain inventory items relating
primarily to defense-related products and components should be written off. The
inventory write-down resulted from decreases in market costs of raw materials
held in the Company's inventory.
Selling, General and Administrative. For the fiscal year ended June 30, 1997,
selling, general and administrative expenses increased by $309,000, or 9.6%, to
$3.5 million from $3.2 million for the fiscal year ended June 30, 1996. As a
percentage of net revenues, selling, general and administrative expenses
decreased to 30.9% in the 1997 fiscal year from 36.2% in the 1996 fiscal year.
Selling, general and administrative expenses primarily increased as a result of
an increase of professional fees of $311,000 due primarily to fees incurred in
connection with the mmTech merger. The decrease in selling, general and
administrative expenses as a percentage of net revenues was primarily
attributable to the spreading of expenses over a higher revenue base and actions
taken by management to conserve cash and rationalize the Company's operations.
Research and Development. For the fiscal year ended June 30, 1997, research and
development expense increased by $19,000, or 3.0%, to $648,000 from $629,000 for
the fiscal year ended June 30, 1996. Research and development expenses for the
fiscal year ended June 30, 1997 related to both new product development as well
as enhancements of the Company's existing LMDS product line.
Interest Expense. For the fiscal year ended June 30, 1997, interest expense
increased by $308,000, or 67.6%, to $764,000 from $456,000 for the fiscal year
ended June 30, 1996. Interest expense increased primarily as a result of
increased borrowings used to finance the Company's working capital needs, as
well as an increase in the average rate of interest resulting from the failure
of the Company to comply with certain registration covenants contained in
certain of the Company's debt instruments.
Income Taxes. In the fiscal year ended June 30, 1997, the Company had an income
tax expense of $380,000, compared to an income tax benefit of $299,000 for the
fiscal year ended June 30, 1996. LogiMetrics and mmTech currently file separate
federal and state tax returns. The tax expense recorded in 1997 relates to
pre-tax income generated by mmTech.
<PAGE>
Financial Condition, Liquidity and Capital Resources
As of June 30, 1997, the Company had cash and cash equivalents of $368,000. As
of such date, the Company had total current assets of $6.7 million and total
current liabilities of $9.7 million.
Net cash provided by operating activities was $212,000 for the 1997 fiscal year,
compared to cash used for operating activities of $2.1 million in fiscal 1996.
Net cash provided by operating activities during fiscal 1997 resulted primarily
from a significant increase in accounts payable and accrued expenses as the
Company sought to defer payments to suppliers to conserve cash, offset in part
by a higher level of inventory, and the Company's net loss of $2.5 million. Net
cash used in operating activities during fiscal 1996 resulted primarily from the
Company's net loss of $4.9 million, offset in part by an increase in cash
resulting from payments received under certain long-term contracts, an increase
in accounts payable and accrued expenses and a decrease in accounts receivable
as the Company continued its efforts to conserve cash.
Net cash used for investing activities was $159,000 for the 1997 fiscal year,
and $139,000 for the 1996 fiscal year. Net cash used for investing activities in
each fiscal year resulted from the purchase of equipment to support the
Company's operations.
Net cash provided by financing activities was $46,000 for the 1997 fiscal year
and $2.2 million for the 1996 fiscal year. Net cash provided by financing
activities during fiscal 1997 resulted primarily from the proceeds of certain
debt and warrant issuances by the Company, offset in part by the repayment of
certain outstanding indebtedness. Net cash provided by financing activities
during fiscal 1996 resulted primarily from increased borrowings, offset in part
by the repayment of certain outstanding indebtedness.
The Company's capital expenditures during fiscal 1997 aggregated $159,000. Such
expenditures consisted primarily of the acquisition of equipment needed to
support the Company's operations. The Company anticipates that capital
expenditures during fiscal 1998 will increase, in part as a result of the
Company's intent to modernize its management information systems as funding is
available. The Company expects to finance such capital expenditures out of its
working capital.
During the fiscal years ended June 30, 1997 and June 30, 1996, the Company
raised approximately $3.0 million from the private sales of convertible
debentures, convertible preferred stock and warrants to fund a portion of its
cash flow needs. In addition, the Company has attempted to address its liquidity
needs through, among other things, headcount reductions and negotiations of
credit terms with its suppliers. However, to date, the Company has continued to
record losses and has failed to generate sufficient cash flow to fund its
working capital requirements. To the extent that the Company is unable to meet
its working capital requirements by generating positive cash flow from
operations, the Company intends to continue to fund a portion of its working
capital requirements through the sale of its securities. See "Right to Designate
Directors; Changes in Control." There can be no assurance that the Company can
continue to finance its operations through the sale of securities or as to the
terms of any such sales that may occur in the future. If the Company is unable
to attain profitable operations and to generate sufficient cash flow or to
obtain sufficient financing to fund its operations, the Company may not be able
to achieve its growth objectives, may have to curtail its marketing, development
or operations, and may be unable to continue as a going concern.
The Company is a party to a Restated and Amended Term Loan Note, dated as of
April 25, 1997, and a Sixth Restated and Amended Revolving Credit Note, dated as
of April 25, 1997, pursuant to which North Fork Bank (the "Bank") has provided
the Company with a $640,000 term loan (the "Term Loan") which matures December
31, 1998 and a revolving credit facility (the "Revolver") which, by its terms,
matures on April 30, 1998, pursuant to which, the Company is entitled to draw up
to $2,200,000 assuming sufficient eligible inventory and accounts receivable
(the Term Loan and the Revolver are referred to herein collectively as the
"Facility"). At June 30, 1997, the Company had approximately $874,000 available
under the Revolver. The Term Loan and the Revolver bear interest at the rate of
2% per annum in excess of the Bank's prime rate. At June 30, 1997, the Bank's
prime rate was 8.5%. As a result of the Company's losses during fiscal 1997, as
of June 30, 1997, the Company was in violation of a covenant contained in the
Facility that the Company report net income of at least $1.00 for each fiscal
quarter beginning with the quarter ended June 30, 1997 (the "Net Income
Covenant"). Additionally, as of October 28, 1997, the Company was in violation
of a covenant contained in the Facility which required the Company to deliver
audited financial statements for the fiscal year ended June 30, 1997, and as of
November 14, 1997, the Company was in violation of a covenant contained in the
Facility requiring the Company to deliver to the Bank financial statements for
the fiscal quarter ended September 30, 1997 (these covenants are collectively
referred to herein as the "Reporting Requirement Covenants"). The Bank has
waived the Net Income Covenant default in respect of the fiscal quarters ended
June 30, 1997 and September 30, 1997. The Bank has also waived the Reporting
Requirement Covenants defaults until February 28, 1998.
In addition to the Facility, at June 30, 1997 the Company had issued and
outstanding $1,500,000 of its 12% Convertible Senior Subordinated Debentures due
<PAGE>
December 31, 1998 (which were subsequently exchanged for the Amended and
Restated Class B 13% Senior Subordinated Debentures due July 29, 1999, the
"Class B Debentures"), which contain financial covenants identical to those
contained in the Facility. Accordingly, as of June 30, 1997, the Company was in
default in respect of the Net Income Covenant contained in the Class B
Debentures to the same extent as under the Facility. Additionally, as of October
28, 1997 and November 14, 1997, the Company was in default of the Reporting
Requirement Covenants to the same extent as under the Facility. The holder of
the Class B Debentures has waived the Net Income Covenant default in respect of
the fiscal quarters ended June 30, 1997, September 30, 1997 and December 31,
1997, and has waived the Reporting Requirement Covenants defaults until February
28, 1998. Pursuant to the terms of the Class B Debentures, the Company was
required to file a registration statement covering, among other things, the
resale of the shares of Common Stock issuable upon the conversion of Class B
Debentures on or prior to October 27, 1997 and to have the registration
statement declared effective by the Securities and Exchange Commission (the
"SEC") on or prior to January 25, 1998. The Company has not yet filed the
registration statement. As a result, effective October 28, 1997 the interest
rate on the Class B Debentures was increased by 1-1/2% per annum pursuant to
their terms. Unless the Company complies with its registration obligations, the
interest rate on the Class B Debentures will continue to increase (subject to a
maximum interest rate of 17% per annum). The holder of the Class B Debentures
has the right to declare all amounts thereunder due and payable if the
registration statement is not declared effective by the SEC on or prior to April
25, 1998. The holder of the Class B Debentures has waived until February 28,
1998 any default arising as a result of the Company's failure to file the
required registration statement.
In the event that the Company is unable to comply with the terms of the
indebtedness described above and does not obtain waivers of any defaults that
might occur as a result thereof, the Bank and the holders of the Senior
Subordinated Indebtedness would have the right to declare the amounts due
thereunder due and owing. In the event of such acceleration, the Company would
be required to obtain additional financing to repay the amounts owed to the Bank
and the holders of the Senior Subordinated Indebtedness or to take other actions
to protect its business and assets.
At December 31, 1997, CT&T was indebted to the Company in the amount of
approximately $3.4 million, representing amounts due and owing as a result of
equipment purchased by CT&T, approximately $3.1 million of which was more than
60 days past due at such date. The Company has been engaged in discussions with
CT&T pursuant to which, among other things, the Company has sought payment of
all amounts past due from CT&T. In connection with those discussions, CT&T has
alleged that it is entitled to certain credits or offsets against amounts it
owes to the Company. The Company believes the objections to payment raised by
CT&T in its discussions with the Company are without merit.
In December 1997, CVNY entered into a letter agreement with the Company pursuant
to which CVNY agreed to pay on behalf of CT&T approximately $3.0 million of the
amounts owed by CT&T. Under the terms of the letter agreement, CVNY paid
$350,000 to the Company, and delivered to the Company a secured promissory note
in the principal amount of approximately $2.6 million (the "CVNY Note"). As of
December 28, 1997, CVNY had paid approximately $50,000 pursuant to the CVNY
Note. On December 31, 1997, the Company sold the CVNY Note for approximately
$2.4 million.
There can be no assurance that the Company will receive payment of the remaining
amounts owed to it by CT&T or as to the timing of any such payments that are
ultimately made. The Company may be required to institute litigation against
CT&T for the payment of the amounts owed. Any such litigation is likely to
result in the incurrence of significant expenses by the Company and may continue
for an extended period of time. In addition, there can be no assurance that the
Company will prevail in any such litigation or that any amount awarded to the
Company in such litigation will ultimately be collectible. Further, there can be
no assurance that CT&T would continue to purchase equipment from the Company if
such litigation were instituted.
Net Operating Loss Carry Forward
LogiMetrics and mmTech currently file separate federal and state income tax
returns. As of June 30, 1997, LogiMetrics had net operating loss carry forwards
of approximately $6.1 million available to be used to offset future income. Such
loss carry-forwards expire between 2011 and 2012.
Inflation
Inflation was not a material factor in either the sales or the operating
expenses of the Company during the periods presented herein.
Recent Pronouncements of the Financial Accounting Standards Board
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
128") which establishes standards for computing and presenting earnings per
share. SFAS 128 replaces the presentation of primary earnings per share and
fully diluted earnings per share with basic earnings per share and diluted
earnings per share, respectively. Basic earnings per share excludes dilution and
is computed by dividing income available to common stockholders by the weighted
<PAGE>
average number of common shares outstanding for the period. Diluted earnings per
share is computed similarly to fully diluted earnings per share. The standard is
effective for financial statements for periods ending after December 15, 1997,
with earlier application not permitted.
Because the Company incurred losses in both of the fiscal years ended June 30,
1997 and 1996, the reported losses per share would not have been affected by
using this new standard.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information,"
which requires disclosure of reportable operating segments and will be effective
for financial statements issued for fiscal years beginning after December 31,
1997. The Company will be reviewing this pronouncement to determine its
applicability to the Company, if any.
Forward-Looking Statements
This Annual Report on Form 10-KSB contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Such statements include,
but are not limited to, the anticipated development and growth of the markets
for the Company's products, the anticipated growth in the demand for the
Company's products, the Company's opportunities to increase sales through, among
other things, the development of new markets for the Company's products, the
development of new products, the probability of the Company's success in the
sale of its products in current or future markets, the potential effect of
government regulations, the Company's liquidity and capital requirements and the
Company's need for additional working capital. Although the Company believes
that the expectations reflected in such forward-looking statements are based on
reasonable assumptions, there can be no assurance that its expectations will be
realized. Forward-looking statements involve known and unknown risks that may
cause the Company's actual results for future periods to differ materially from
management's expectations. Future events and actual results, financial and
otherwise, could differ materially from those set forth in or contemplated by
the forward-looking statements contained herein. Factors that could cause
results to differ materially from the Company's expectations include, but are
not limited to, the following: general economic and political conditions, as
well as conditions in the markets for the Company's products; the Company's
history of losses, cash constraints and ability to continue as a going concern;
the recent shift in the Company's business focus; the Company's dependence on
and the effects of government regulation; the Company's dependence on the LMDS
market and uncertainties relating to the size and timing of any such market that
ultimately develops; the Company's dependence on large orders and the effects of
customer concentrations; the Company's relationship with CT&T and the resulting
limitations on the Company's ability to sell certain of its products to third
parties; the Company's dependence on the sale of securities to meet its working
capital needs; the Company's dependence on future product development and market
acceptance of the Company's products, particularly in the LMDS market; the
Company's limited proprietary technology; possible fluctuations in quarterly
results; the effects of competition; risks related to international business
operations; the Company's dependence on independent sales representatives; and
the Company's dependence on a limited number of suppliers. Other factors may be
described from time to time in the Company's other filings with the SEC, news
releases and other communications.
<PAGE>
LOGIMETRICS, INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Item 7. Consolidated Financial Statements
Page
Opinions of Independent Certified Public Accountants 8, 9
Balance Sheet - June 30, 1997 10
Statements of Operations 11
Years ended June 30, 1997 and 1996
Statements of Stockholders' Equity (Deficiency) 12, 13
Years ended June 30, 1997 and 1996
Statements of Cash Flows 14
Years ended June 30, 1997 and 1996
Notes to Financial Statements 15-29
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders LogiMetrics, Inc. and Subsidiaries
Bohemia, New York
We have audited the accompanying consolidated balance sheet of LogiMetrics, Inc.
and Subsidiaries (the "Company") as of June 30, 1997 and the related
consolidated statements of operations, stockholders' equity (deficiency) and
cash flows for each of the two years in the period then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit. We did not audit the statements of income, accumulated deficit and
cash flows of mmTech, Inc., a wholly-owned subsidiary, for the year ended
October 31, 1996, which statements reflect total revenues constituting 43% of
consolidated total revenues for the year ended June 30, 1996. Those financial
statements were audited by other auditors whose report has been furnished to us,
and our opinion, insofar as it relates to the amounts included for mmTech, Inc.
is based solely on the report of such auditors.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free from material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, such
consolidated financial statements present fairly, in all material respects, the
financial position of the Company as of June 30, 1997, and the results of their
operations and their cash flows for each of the two years in the period ended
June 30, 1997 in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company's losses from operations, its
deficiency in working capital and the stockholders' capital deficiency raise
substantial doubt about its ability to continue as a going concern. Management's
plans concerning these matters are also described in Note 2. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Jericho, New York
January 5, 1998
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholder of
mmTech, Inc.
We have audited the statements of income, accumulated deficit, and cash flows of
mmTech, Inc. for the year ended October 31, 1996. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
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 financial statements referred to in the first paragraph
present fairly, in all material respects, the results of operations and cash
flows of mmTech, Inc. for the year ended October 31, 1996 in conformity with
generally accepted accounting principles.
/s/ Reydel, Perier & Neral
REYDEL, PERIER & NERAL, PA
Wall, New Jersey
February 7, 1997
<PAGE>
LOGIMETRICS, INC.
CONSOLIDATED BALANCE SHEET
June 30, 1997
ASSETS
Current Assets
Cash (Note 8).................................................. $368,327
Accounts receivable, less allowance
for doubtful accounts of $150,000........................... 2,156,464
Costs and estimated earnings in excess of
billings on uncompleted contracts (Note 4).................. 785,013
Inventories (Note 5)........................................... 3,349,036
Prepaid expenses and other current assets...................... 89,512
Total current assets....................................... 6,748,352
Equipment and fixtures (net) (Note 7) ...................... 620,243
Deferred financing costs...................................... 216,462
Other assets.................................................. 38,443
TOTAL ASSETS.............................................. $7,623,500
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities
Accounts payable and other accrued expenses................. $4,975,804
Advance payments............................................ 1,125,907
Income taxes payable........................................ 416,564
Current portion of long-term debt (Note 8).................. 3,193,018
Total current liabilities................................. 9,711,293
Long term debt................................................. 1,594,314
TOTAL LIABILITIES......................................... 11,305,607
Commitments (Note 12)
Stockholders' deficiency (Notes 8 and 10)
Preferred Stock:
Series A, stated value $50,000 per share;
authorized, 200 shares; issued and
outstanding, 30 shares................................... 990,564
Warrants (Note 10)......................................... 1,023,234
Common Stock:
Par Value $.01; authorized,
100,000,000 shares; issued and
outstanding, 22,391,434 shares........................... 223,914
Additional paid-in capital.................................. 1,353,214
Deficit..................................................... (7,110,083)
Stock subscriptions receivable (Note 10) ................... (162,950)
TOTAL STOCKHOLDERS' DEFICIENCY........................... (3,682,107)
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIENCY............................... $7,623,500
See Notes to Consolidated Financial Statements
<PAGE>
<TABLE>
<CAPTION>
LOGIMETRICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED JUNE 30,
1997 1996
Restated (Note 3)
<S> <C> <C>
Net Revenues..................................... $11,374,182 $8,879,544
Cost and expenses:
Cost of revenues (Note 4)........................ 8,563,694 9,831,316
Selling, general and
administrative expenses.......................... 3,520,094 3,211,232
Research and development......................... 647,919 628,967
Loss from operations............................. (1,357,525) (4,791,971)
Interest expense................................. 763,801 455,741
Loss before income taxes......................... (2,121,326) (5,247,712)
(Benefit) provision for
income taxes (Note 9)............................ 380,000 (299,000)
Net loss......................................... (2,501,326) (4,948,712)
Preferred stock dividends........................ 234,164 57,205
Net loss attributable
to common shareholders........................... $(2,735,490) $(5,005,917)
Loss per common
share (Note 11).................................. $(0.12) $(0.23)
Weighted average number of common
shares and equivalents outstanding (Note 10)..... 22,282,361 22,202,754
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LOGIMETRICS, INC.
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY (DEFICIENCY)
Par Value
Class A Class B Additional Stock Retained Stockholders'
Common Common Preferred Paid-in Subscriptions Earnings Equity
Stock Stock Stock Capital Warrants Receivable (Deficit) (Deficit)
<S> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1995
as previously reported $261,060 $25,000 - $1,949,209 - $(177,950) $601,395 $2,658,714
Common stock issued
pursuant to merger
(Note 3).............. 1,924,780 - - (1,923,780) - - (216,400) (215,400)
--------- ------- ---- ----------- ----- --------- -------- ----------
Balance, June 30, 1995
as restated (Note 3).. 2,185,840 25,000 - 25,429 - (177,950) 384,995 2,443,314
--------- ------ ---- ----------- ----- --------- -------- ----------
Receipt of stock
subscription payments. - - - - - 13,750 - 13,750
Issuance of Warrants
Series A.............. - - - - 11,285 - - 11,285
Series B.............. - - - - 28,215 28,215
Series C.............. - - - - 457,628 457,628
Series D.............. - 509,436 509,436
Series E.............. - 10,000 10,000
Series F.............. - 6,670 6,670
Preferred Stock issuance 990,564 - 990,564
Conversion of Class B
Common Stock to Class
A Common Stock........ 25,000 (25,000) - - - - - -
Change in par value per
share from
$.10 to $.01.......... (1,989,756) - - 1,989,756 - - - -
Exercise of Series D
Warrants.............. 943 - - - - - - 943
Expenditures relating to
Preferred Stock
offering and
registration
statement............. - - - (370,602) - - - (370,602)
Net loss.............. - - - - - - (4,948,712) (4,948,712)
Preferred Stock dividends - (57,205) (57,205)
--------- -----------
Balance, June 30, 1996 222,027 - 990,564 1,587,378 1,023,234 (164,200) (4,563,717) (904,714)
------- ---- ------- --------- --------- --------- ----------- -----------
Receipt of stock
subscription payments 1,250 1,250
Exercise of Series D Warrants 1,887 1,887
Net loss.............. - - - - - - (2,501,326) (2,501,326)
Change in year end of pooled
company............... (45,040) (45,040)
Preferred Stock dividends - - - (234,164) - - - (234,164)
------- ---- -------- ----------- ---------- --------- ----------- ------------
Balance, June 30, 1997 $223,914 $- $990,564 $1,353,214 $1,023,234 $(162,950) $(7,110,083) $(3,682,107)
======== ==== ======== ========== ========== ========== ============ ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LOGIMETRICS, INC.
LOGIMETRICS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY) (Continued)
Class A Class B Preferred
Common Stock Common Stock Stock
Shares Outstanding
<S> <C> <C>
Balance at June 30, 1995
As previously reported.................................. 2,610,614 250,000 -
Common Stock issued pursuant
to the merger (Note 3).................................. 19,247,800 - -
Balance, June 30, 1995
As restated (Note 3).................................... 21,858,414 250,000 -
Issuance of Preferred Stock............................... - - 30
Conversion of Class B
Common Stock to Class A................................. 250,000 (250,000) -
Exercise of Series D
Warrant................................................. 94,340 - -
Balance at June 30, 1996.................................. 22,202,754 - 30
Exercise of Series D Warrants............................. 188,680 - -
Balance, June 30, 1997.................................... 22,391,434 - 30
========== ==== ====
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
<TABLE>
<CAPTION>
LOGIMETRICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended June 30,
1997 1996
Restated (Note 3)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss.......................................................... $(2,501,326) $(4,948,712)
------------ -----------
Adjustments to reconcile net loss to net cash
provided by (used for) operating activities:
Depreciation and amortization............................ 462,861 198,662
Allowance for doubtful accounts.......................... 75,000 70,500
Deferred income tax (benefit)............................ - (299,000)
Increase (decrease) in cash from:
Accounts receivable................................. 443,865 428,080
Costs and estimated earnings in excess of
billings on uncompleted account contracts....... 216,750 2,357,220
Inventories......................................... (929,883) (963,956)
Prepaid expenses and other current assets........... 134,485 (124,195)
Accounts payable and accrued expenses............... 1,870,188 657,427
Other assets........................................ 440,282 564,726
--------- -----------
Total adjustments............................... 2,713,548 2,889,464
--------- -----------
Net cash provided by (used for) operating activities..... 212,222 (2,059,248)
------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment and fixtures............................... (159,301) (139,325)
--------- ---------
Net cash used for investing activities................... (159,301) (139,325)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds of debt issuance - net................................... 291,003 568,602
Proceeds of warrant issuance...................................... - 1,023,234
Proceeds of preferred stock issuance.............................. - 1,129,398
Repayment of loans from stockholders.............................. (5,972) (86,032)
Proceeds from exercise of warrants................................ 1,887 943
Decrease in stock subscriptions receivable........................ 1,250 13,750
Repayment of debt................................................. (242,010) (429,191)
--------- ----------
Net cash provided by financing activities................ 46,158 2,220,704
------- ---------
NET INCREASE IN CASH.............................................. 99,079 22,131
CASH and CASH EQUIVALENTS, beginning of period.................... 269,248 230,991
------- -------
CASH and CASH EQUIVALENTS, end of period.......................... $368,327 $253,122
======== ========
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
LOGIMETRICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1997 AND 1996
1. Description of Business and Summary of Significant Accounting Policies
(a) Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
LogiMetrics, Inc. ("LogiMetrics") and its wholly owned subsidiaries, mmTech,
Inc. ("mmTech") and LogiMetrics FSC, Inc. (collectively, the "Company"). All
intercompany balances and transactions have been eliminated. The consolidated
financial statements of the Company have been prepared to give retroactive
effect to the business combination with mmTech (Note 3) which occurred on April
25, 1997 and has been accounted for as a pooling of interests.
(b) Revenue Recognition
Revenues related to standard manufactured products are recognized when such
products are shipped. The Company reports revenues from the sale of customized
manufactured products related to long-term contracts on the
percentage-of-completion method for financial reporting purposes. Revenues under
these contracts are recognized based on the proportion of contract costs
incurred to total estimated contract costs. Contract costs include all direct
material and labor costs and those indirect costs related to contract
performance, such as indirect labor, supplies, tools, repairs, and depreciation
costs. Selling, general, and administrative costs are charged to expense as
incurred. Provisions for estimated losses on uncompleted contracts are made in
the period in which such losses are determined. The net sales value of partially
completed contracts in excess of billings is included in current assets.
(c) Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
(d) Equipment and Fixtures
Equipment and fixtures are recorded at cost and include equipment under capital
leases. Depreciation and amortization are provided by the straight-line method
over an estimated useful life of five or ten years and in the case of leasehold
improvements, the remaining lease term.
(e) Income Taxes
The Company accounts for income taxes pursuant to Statement of Financial
Accounting Standards ("SFAS") No. 109 "Accounting for Income Taxes." Under this
method, deferred tax assets are determined based on differences between the
financial reporting and tax bases of assets and liabilities, and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse.
(f) Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and 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.
<PAGE>
LOGIMETRICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(g) Long-Lived Assets
Effective July 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" ("Statement 121"). Statement 121
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles, and goodwill related to those assets to be
held and used for long-lived assets and certain identifiable intangibles to be
disposed of. Statement 121 requires the review of long-lived assets and certain
identifiable intangibles whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The adoption of
Statement 121 did not have a material effect on the consolidated financial
statements of the Company.
(h) Fair Value of Financial Instruments
At June 30, 1997, the carrying amount of the Company's financial instruments,
including cash, accounts receivable, accounts payable, accrued liabilities, and
notes payable, approximated fair value because of their short-term maturities.
Long-term borrowings bear interest at variable rates, which approximate market.
(i) Deferred Financing Costs
Deferred financing costs are amortized on a straight-line basis over the lives
of the related obligations.
(j) Research and Development Costs
The Company expenses all research and development costs as incurred. The Company
incurred research and development expenses of approximately $648,000 and
$629,000 for the fiscal years ended June 30, 1997 and 1996, respectively.
(k) Reclassifications
Certain amounts in the 1996 financial statements have been reclassified to
conform with 1997 presentation.
2. Financial Condition and Liquidity
On March 7, 1996, LogiMetrics completed a private placement of senior debentures
and warrants (see Note 8) and a private placement of preferred stock and
warrants (see Note 10(a)). On July 29, 1997, the Company completed a private
placement of convertible debentures and warrants (see Note 16). In conjunction
with the March 7, 1996 and July 29, 1997 transactions, the Company restructured
certain of its debt (the "First Debt Restructuring" and the "Second Debt
Restructuring," respectively). Additionally, on March 7, 1996, new management
was brought in to change the focus of the Company's operations. The primary
objective of this change in focus was to redirect LogiMetrics' focus toward the
higher value-added, broad band wireless communications market. Consistent with
this focus, on April 25, 1997, a subsidiary of LogiMetrics merged into mmTech, a
manufacturer of broad band wireless communications equipment. (The merger is
further discussed in note 3.) As a result of the change in focus, the merger and
other operating inefficiencies preceding the change in control, operations for
the fiscal years ended June 30, 1997 and 1996, have been significantly impacted.
As shown in the financial statements, during the years ended June 30, 1997 and
1996 the Company incurred net losses of $2,501,326 and $4,948,712, respectively,
and, at June 30, 1997, the Company's current liabilities exceeded its current
assets by $2,962,941, while its total liabilities exceeded its total assets by
$3,682,107. The net losses have caused the Company to be in default with respect
to certain covenants contained in the Company's debt instruments. While the
Company has currently obtained waivers covering such defaults (such defaults and
related waivers are more fully discussed in note 8), there can be no assurance
that the holders of such debt will agree to new waivers, if necessary, once the
original waivers expire.
The Company has not paid any dividends on its Series A 12% Cumulative
Convertible Redeemable Preferred Stock, par value $0.01 per share (the
"Preferred Stock"), which have accumulated in the amount of approximately
$380,000 through December 31, 1997. Additionally, as of December 31, 1997, the
Company is past due in payments to vendors in an amount of approximately
$1,800,000.
Recognizing the need for additional resources to fund the Company's anticipated
operating shortfalls, management has entered into discussions with investment
bankers and other consultants to assist with identifying and pursuing additional
funding sources. In relation to these efforts, during the years ended June 30,
<PAGE>
1997 and 1996, the Company raised approximately $3.0 million from the private
sale of convertible debentures, convertible preferred stock and warrants.
Through December 31, 1997 the Company raised approximately an additional $3.4
million through the private issuance of convertible debentures and warrants; and
on December 31, 1997, the Company sold approximately $2.6 million of notes
receivable for approximately $2.4 million in cash (refer to note 16 for further
information). While management expects that the continuing efforts of the
investment bankers and other consultants will result in the identification of
new financing sources, no assurance can be given that the Company will be
successful in raising capital.
Based upon the above information, the Company's financial statements for the
year ended June 30, 1997 have been prepared on a going concern basis which
contemplates the realization of assets and the settlement of liabilities and
commitments in the normal course of business. The Company's continuation as a
going concern is dependent upon its ability to generate sufficient cash flow to
meet its obligations on a timely basis, to comply with the terms and covenants
of its financial agreements, to obtain additional financing or refinancing as
may be required, and ultimately to attain successful operations. If the Company
is unable to generate sufficient cash flows from operations or other sources,
the Company may not be able to achieve its growth objectives, may have to
curtail its marketing, development or operations, and may be unable to continue
as a going concern.
3. Acquisition
On April 25, 1997, a wholly owned subsidiary of LogiMetrics merged into mmTech,
pursuant to which LogiMetrics issued 19,247,800 shares of its common stock, par
value $0.01 per share (the "Common Stock"), to Mr. Charles S. Brand, the sole
stockholder of mmTech. mmTech is primarily engaged in the design, development,
manufacturing and sale of telecommunications equipment used in Local Multipoint
Distribution Service ("LMDS") systems that deliver wireless video, telephone and
data signals. The acquisition has been accounted for as a pooling of interests
and, accordingly, the consolidated financial statements have been restated to
include the accounts of mmTech for all periods presented. The accompanying
consolidated financial statements for the year ended June 30, 1997 include the
operations of mmTech on a common fiscal year. The accompanying consolidated
financial statements for the year ended June 30, 1996 include the operations of
mmTech for the fiscal year ended October 31, 1996. Accordingly, as a result of
conforming fiscal years, mmTech's net income of $45,040 for the period July 1,
1996 through October 31, 1996 is included twice in the accompanying consolidated
statements of operations for the fiscal years ended June 30, 1997 and 1996, and
has been included as an adjustment to consolidated accumulated deficit.
Additionally, revenues of approximately $963,000 and expenses of approximately
$918,000 for the period from July 1, 1996 through October 31, 1996 are included
twice in the accompanying Consolidated Statements of Operations for the fiscal
years ended June 30, 1997 and 1996. Included in the operating results of the
Company for the year ended June 30, 1997 are approximately $3,600,000 and
$5,822,000 of revenues of mmTech and LogiMetrics, respectively, and
approximately $400,000 of net income of mmTech prior to the date of acquisition
and approximately $2,735,000 of net loss of LogiMetrics prior to the date of
acquisition. Because the acquisition was accounted for as a pooling of
interests, acquisition expenses of $135,000 have been charged against results of
operations in the year ended June 30, 1997.
The following is a reconciliation of certain restated amounts with amounts
previously reported for 1996:
Revenues:
As previously reported............................................. $5,038,193
Effect of mmTech pooling of interests.............................. 3,841,351
---------
As restated........................................................ $8,879,544
---------
Net income (loss):
As previously reported............................................ $(5,196,067)
Effect of mmTech pooling of interests............................. 190,150
----------
As restated....................................................... $(5,005,917)
-----------
Net income (loss) per share: Primary:
As previously reported............................................ $(1.82)
Effect of mmTech pooling of interests............................. 1.59
-----
As restated....................................................... $(0.23)
------
<PAGE>
4. Costs and Estimated Earnings in Excess of Billings on Uncompleted Contracts
Costs and estimated earnings in excess of billings on uncompleted contracts
consist of the following at June 30, 1997:
Costs and estimated earnings...................................... $1,235,707
Less:
Estimated loss upon completion........................... (293,094)
Progress billings........................................ (157,600)
---------
$ 785,013
===========
The Company bills its customers based upon terms specified in individual
contracts. All costs and estimated earnings in excess of billings on uncompleted
contracts as of June 30, 1997 are expected to be collected within one year.
5. Inventories
Inventory consists of the following at June 30, 1997:
Raw material and components................... $1,573,727
Work-in-progress.............................. 1,211,598
Finished goods................................ 563,711
---------
$3,349,036
==========
6. Supplementary Information - Statement of Cash Flows
Cash paid during the period for:
Year ended June 30,
1997 1996
Interest............................ $359,214 $331,356
Income taxes........................ $ -0- $ 9,931
Non-cash investing and financing activities during the period for:
Year ended June 30,
1997 1996
Machinery and equipment
purchased under capital lease....$117,685 $107,686
<PAGE>
7. Equipment and Fixtures
Equipment and fixtures, at cost, are summarized as follows at June 30, 1997:
Machinery and equipment............ $2,434,271
Furniture and fixtures............. 141,115
Leasehold improvements............. 179,562
2,754,948
Less: accumulated depreciation and amortization. (2,134,705)
-----------
$620,243
===========
8. Long-Term Debt
Long-term debt consists of the following at June 30, 1997:
Notes payable to Bank................................ $2,375,961
Senior debentures.................................... 1,500,000
Less: Discount at issuance....................... (457,628)
Plus: Amortization of discount................... 214,515
Subordinated debentures.............................. 300,000
Notes payable - officer (Note 15).................... 623,086
Notes payable - other................................ 45,000
Capital lease obligations............................ 186,398
4,787,332
Less: current portion................................ (3,193,018)
-----------
1,594,314
===========
Subordinated Debentures and Series A and Series B Warrants
On July 14, 1995, the Company completed a private offering of 15 units of its
securities at a price of $20,800 per unit. Each unit consisted of one $20,000
12% Convertible Subordinated Debenture and one Common Stock Purchase Warrant,
Series A. Of the per unit price of $20,800, the Company allocated $20,000 to
each 12% Convertible Subordinated Debenture and $800 to each Common Stock
Purchase Warrant, Series A, based upon their estimated fair value at the date of
issuance. Each 12% Convertible Subordinated Debenture was priced at $20,000 (the
allocated value) and had a conversion ratio of $0.25 per share. For managing the
financing, Common Stock Purchase Warrants, Series B, to purchase 1,500,000
shares of Common Stock were sold to SFM Group, Ltd. ("SFM") at a price of $.02
per share, with an exercise price of $0.25 per share.
Subsequently, on March 7, 1996, in connection with the First Debt Restructuring,
all of the holders of the 12% Convertible Subordinated Debentures and Common
Stock Purchase Warrants, Series A, and Common Stock Purchase Warrants, Series B,
exchanged such debentures and warrants for Amended and Restated 12% Convertible
Subordinated Debentures (the "Subordinated Debentures") and Amended and Restated
Series A and Series B Warrants of like tenor (the "Series A Warrants" and
"Series B Warrants", respectively). Modifications reflected in the Subordinated
Debentures included: (i) an amendment to the "anti-dilutioN" clause contained in
the Subordinated Debentures to permit the issuance of the Series C Warrants (as
defined below), Series D Warrants (as defined in Note 10(a) below), Series E
Warrants (as defined in Note 10(c) below) and the options then awarded to a
former executive of the Company; (ii) permitting the Senior Debentures (as
defined below) to be secured by a second lien on the assets of the Company;
(iii) revisions to the financial covenants to conform to those contained in the
Facility (as defined below) and (iv) the payment of interest on the Subordinated
Debentures to be made quarterly instead of annually. (Refer to Note 10c for a
further discussion of the Series A Warrants and Series B Warrants, including the
method and significant assumptions used to value the Series A Warrants and the
Series B Warrants.) (Refer to discussions of Senior Debentures and Series C
Warrants below for more information regarding the First Debt Restructuring and
the Second Debt Restructuring.)
<PAGE>
At June 30, 1997, accrued interest on the Subordinated Debentures totaled
approximately $79,000. The principal was payable in one balloon payment on July
14, 1997. On that date, in accordance with their terms, the Subordinated
Debentures were converted into an aggregate of 1,200,000 shares of Common Stock.
All accrued interest on the Subordinated Debentures was paid on August 29, 1997.
North Fork Bank Credit Facilities
The Company is a party to a Restated and Amended Term Loan Note, dated as of
April 25, 1997, and a Sixth Restated and Amended Revolving Credit Note, dated as
of April 25, 1997, pursuant to which North Fork Bank (the "Bank") has provided
the Company with a $640,000 term loan (the "Term Loan") which matures December
31, 1998 and a revolving credit facility (the "Revolver") which matures April
30, 1998, pursuant to which the Company is entitled to draw up to $2,200,000
assuming sufficient eligible inventory and accounts receivable (the Term Loan
and the Revolver are referred to herein collectively as the "Facility"). The
Term Loan and the Revolver bear interest at the rate of 2% per annum in excess
of the Bank's prime rate. At June 30, 1997, the Bank's prime rate was 8.5%. As a
result of the Company's losses during fiscal 1997, as of June 30, 1997, the
Company was in violation of a covenant contained in the Facility that the
Company report net income of at least $1.00 for each fiscal quarter beginning
with the quarter ended June 30, 1997 (the "Net Income Covenant"). Additionally,
as of October 28, 1997, the Company was in violation of a covenant contained in
the Facility which required the Company to deliver audited financial statements
for the fiscal year ended June 30, 1997, and as of November 14, 1997, the
Company was in violation of a covenant contained in the Facility requiring the
Company to deliver to the Bank financial statements for the fiscal quarter ended
September 30, 1997 (these covenants are collectively referred to herein as the
"Reporting Requirement Covenants"). The Bank has waived the Net Income Covenant
default in respect of the fiscal quarters ended June 30, 1997 and September 30,
1997. The Bank has also waived the Reporting Requirement Covenants defaults
until February 28, 1998.
Senior Debentures and Series C Warrants
In connection with the First Debt Restructuring, the Company and Cerberus
Partners, L.P. ("Cerberus") entered into a Unit Purchase Agreement, dated March
7, 1996 (the "Unit Purchase Agreement"), pursuant to which the Company issued to
Cerberus 30 Units (the "Units"), each Unit consisting of $50,000 in aggregate
principal amount of the Company's 12% Senior Subordinated Convertible Debentures
due December 31, 1998 (the "Senior Debentures") and a Common Stock Purchase
Warrant Series C (the "Series C Warrants") to purchase 84,746 shares of Common
Stock for $.01 per share at any time prior to March 7, 2003. The Company
allocated $1,042,372 of the $1,500,000 in proceeds to the Senior Debentures and
$457,628 to the Series C Warrants, based upon their estimated fair market value
at the date of issuance. Each Senior Debenture has a stated value of $50,000
(the face amount) and has a conversion ratio of $0.59 per share. On July 29,
1997, in connection with the Second Debt Restructuring, the Senior Debentures
were exchanged for the Amended and Restated Class B 13% Convertible Senior
Subordinated Pay-in-Kind Debentures due July 29, 1999 (the "Class B
Debentures"). (Refer to Note 10(c) for a further discussion of the Series C
Warrants, including the method and significant assumptions used to value the
Series C Warrants.)
Each Class B Debenture is convertible into 84,746 shares of Common Stock. The
Class B Debentures were senior in right of payment to the Company's Subordinated
Debentures, but are subordinate to the Company's Term Loan and Revolver. As a
result of the exchange of the Senior Debentures for the Class B Debentures, the
principal is payable on the Class B Debentures in one balloon payment due July
29, 1999. The terms of the Class B Debentures conform, in all material respects,
to the terms of the Class A Debentures defined and discussed in Note 16.
The Class B Debentures contain financial covenants identical to those contained
in the Facility. Accordingly, as of June 30, 1997, the Company was in default in
respect of the Net Income Covenant contained in the Class B Debentures to the
same extent as under the Facility. Additionally, as of October 28, 1997 and
November 14, 1997, the Company was in default of the Reporting Requirement
Covenants to the same extent as under the Facility. The holder of the Class B
Debentures has waived the Net Income Covenant default in respect of the fiscal
quarters ended June 30, 1997, September 30, 1997 and December 31, 1997, and has
waived the Reporting Requirement Covenants defaults until February 28, 1998.
Pursuant to the terms of the Class B Debentures, the Company is required to file
a registration statement covering, among other things, the resale of the shares
of Common Stock issuable upon the conversion of Class B Debentures on or prior
to October 27, 1997 and to have the registration statement declared effective by
the Securities and Exchange Commission (the "SEC") on or prior to January 25,
1998. The Company has not yet filed the registration statement. As a result,
effective October 28, 1997 the interest rate on the Class B Debentures was
increased by 1-1/2% per annum pursuant to their terms. Unless the Company
complies with its registration obligations, the interest rate on the Class B
Debentures will continue to increase (subject to a maximum interest rate of 17%
per annum). The holder of the Class B Debentures has the right to declare all
<PAGE>
amounts thereunder due and payable if the registration statement is not declared
effective by the SEC on or prior to April 25, 1998. The holder of the Class B
Debentures has waived until February 28, 1998 any default arising as a result of
the Company's failure to file the required registration statement.
Principal payments due on all long-term debt consist of the following:
Fiscal year ending June 30, 1998....................... $3,193,018
Fiscal year ending June 30, 1999....................... 1,568,231
Fiscal year ending June 30, 2000....................... 14,505
Thereafter............................................. 11,578
----------
$4,787,332
==========
9. Income Taxes
The provision for (benefit from) income taxes consists of the following:
<TABLE>
<CAPTION>
Year Ended June 30, 1997 Federal State Total
<S> <C> <C> <C>
Current............................... $272,000 $108,000 $380,000
Deferred.............................. (1,330,000) (307,000) (1,637,000)
Valuation Allowance................... 1,330,000 307,000 1,637,000
---------- -------- ----------
$272,000 $108,000 $380,000
========== ======== ==========
Year Ended June 30, 1996 Federal State Total
Current.............................. - - -
Deferred............................. $(1,476,000) - $(1,476,000)
Valuation Allowance.................. 1,177,000 - 1,177,000
----------- ----- ------------
$ (299,000) - $(299,000)
============ ===== ============
</TABLE>
The following is a summary of deferred tax assets as of June 30, 1997:
<TABLE>
<CAPTION>
Current Deferred Taxes:
<S> <C>
Costs in Excess of Deferred Revenue................................. $328,000
Inventory Reserves.................................................. 356,000
Accounts Receivable................................................. 63,000
Accrued Expenses.................................................... 70,000
-------
Total Current 817,000
-------
Non-Current Deferred Taxes:
Depreciation........................................................ 18,000
NOL Carry-forward................................................... 2,553,000
---------
Non-Current......................................................... 2,571,000
---------
Total Deferred Tax Assets.................................................... 3,388,000
Valuation Allowance.......................................................... (3,388,000)
-----------
Net Deferred Tax Assets...................................................... $ -
============
</TABLE>
<PAGE>
The valuation allowance is necessary based upon the Company's history of
operating losses and the expectation of future operating losses which will, more
likely than not, result in the Company's inability to utilize its deferred tax
assets.
As of June 30, 1997, the Company had net operating loss carry-forwards of
approximately $6.1 million available to be used to offset future income. Such
net operating loss carry-forwards will expire during the period from 2011 to
2012.
The Company's effective tax rate differs from the anticipated federal statutory
rate. A reconciliation of the federal statutory rate to the Company's effective
tax rate is as follows:
% of Pretax Earnings
Years Ended June 30,
1997 1996
Federal statutory tax rate.......................... (34.0)% (34.0)%
Permanent difference................................ 1.3 -
Net operating loss not producing
a current tax benefit............................... 32.7 28.3
Federal and state taxes
related to the earnings
of mmTech:
State............................. 3.4 -
Federal........................... 12.8 1.4
Utilization of net operating
loss carry-forward......................... - (1.4)
Other...................................... 1.7 -
Final provision................... 17.9% (5.7)%
===== =====
10. Stockholders' Deficiency
(a) Common and Preferred Stock
In August 1995, all 250,000 outstanding shares of Class B common stock were
converted to Common Stock.
In March 1996, the Company's Certificate of Incorporation was amended. Among
other things, the authorized common stock of the Company was increased from
7,000,000 shares of Class A common stock, par value $.10 per share, to
35,000,000 shares of Common Stock. The appellation "Class A" was eliminated from
the common stock, since there were no longer any shares of Class B common stock
outstanding. In addition, the Company's Certificate of Incorporation was amended
to authorize 200 shares of Preferred Stock.
In May 1997, the Company's Certificate of Incorporation was amended. Among other
things, the authorized Common Stock of the Company was increased from 35,000,000
shares of Common Stock to 100,000,000 shares of Common Stock. As of June 30,
1997, the Company had outstanding 22,391,434 shares of Common Stock and 30
shares of Preferred Stock. In addition, as of June 30, 1997, the Company had
20,312,980 shares of Common Stock reserved for issuance pursuant to stock
options, warrants and convertible securities outstanding as of that date. As of
December 31, 1997, the Company had outstanding 25,648,984 shares of Common Stock
and 28 shares of Preferred Stock. In addition, as of December 31, 1997, the
Company had 32,912,939 shares of Common Stock reserved for issuance pursuant to
stock options, warrants and convertible securities outstanding as of that date.
Preferred Stock and Series D Warrants
On March 7, 1996, the Company completed a private offering with respect to an
additional 30 units of its securities. Each unit was comprised of one share of
Preferred Stock and one Common Stock Purchase Warrant, Series D (the "Series D
Warrants"). Each share of Preferred Stock is convertible into 94,340 shares of
Common Stock. Each Series D Warrant entitles the holder thereof to purchase
<PAGE>
94,340 shares of Common Stock at $.01 per share at any time prior to March 7,
2003. Holders of Preferred Stock have no voting or preemptive rights. The
Company allocated $990,564 of the $1,500,000 in proceeds to the Preferred Stock
and $509,436 to the Series D Warrants, based upon their estimated fair market
value at the date of issuance. Each share of Preferred Stock has a stated value
of $50,000 and has a conversion ratio of $0.53 per share.
Dividends on the Preferred Stock are payable quarterly, beginning June 15, 1996.
With respect to all the dividend payments due at December 31, 1997, the Board of
Directors has elected to defer payment until the Company has sufficient cash for
that purpose. Pursuant to the terms of the Preferred Stock and the Series D
Warrants, the Company is required to effect the registration for resale of,
among other things, the shares of Common Stock issuable upon the conversion of
the Preferred Stock and the exercise of the Series D Warrants. The Company has
not yet effected such registration.
The accumulated amount of dividends due on the Preferred Stock as of December
31, 1997 is approximately $380,000. As a result of the Company's failure to
effect the registration rights of the holders of the Preferred Stock, the
dividend rate on the Preferred Stock increased to 17% per annum effective March
4, 1997. Until the Company complies with its registration obligations, the
dividend rate will remain at 17% per annum.
The Preferred Stock is redeemable, at the Company's option, upon the giving of
thirty days prior written notice, unless the price of the Company's Common Stock
fell below $5.00 per share during the 120-day period immediately preceding the
date of the notice. If redeemed by the Company, the Preferred Stock must be
redeemed at stated value plus all accrued and unpaid accumulated dividends.
(b) Stock Options
The Company applies APB Opinion No. 25 and related interpretations in accounting
for its stock option plans. Accordingly, no compensation cost has been
recognized for the fixed portion of its stock option plans. Had compensation
cost for the Company's fixed stock options been determined based on fair value
at the grant dates consistent with Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation to Employees" ("SFAS No.
123"), the Company's net loss attributable to common shareholders and net loss
per share would have increased to the pro forma amounts indicated below:
1997
As Pro
Reported Forma
Net loss attributable to
common shareholders............................... $(2,735,490) $(3,321,825)
Net loss per share................................ $(.12) $(.15)
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions used for grants. The weighted average fair value of options granted
during fiscal 1997 was $0.55 per share.
1997
Dividend yield.............................................. 0%
Expected volatility......................................... 100.0%
Risk-free interest rate..................................... 6.22%
Expected option lives, in years............................. 5
LogiMetrics, Inc. 1997 Stock Compensation Program
In May 1997, the Company adopted the LogiMetrics, Inc. 1997 Stock Compensation
Program (the "Stock Compensation Program") which authorizes the granting of
incentive stock options, non-qualified supplementary options, stock appreciation
rights, performance shares and stock bonus awards to employees and consultants
of the Company (the "Employee Plans"). The Stock Compensation Program also
authorizes automatic option grants to directors who are not otherwise employed
by the Company (the "Independent Director Plan"). A total of 4,000,000 shares of
Common Stock are reserved for issuance in connection with the Stock Compensation
<PAGE>
Program, of which up to 3,850,000 shares may be issued under the Employee Plans
and up to 150,000 shares may be issued under the Independent Director Plan.
In the event that an option or award granted under the Stock Compensation
Program expires, is terminated or forfeited or certain performance objectives
with respect thereto are not met prior to exercise or vesting, then the number
of shares of Common Stock covered thereby will again become eligible for grant
under the Stock Compensation Program.
A summary of the status of the Stock Compensation Program at June 30, 1997 is
presented below:
<TABLE>
Weighted
Weighted Average
Shares Average Remaining
Underlying Exercise Contractual
Options Price Life
<S> <C> <C> <C>
Outstanding at beginning of year - - -
Granted 2,798,800 .55 10 Years
Exercised - -
Forfeited - -
Outstanding at end of year 2,798,800 $.55
========= ====
Exercisable at end of year 1,442,935 $.55 10 Years
========= ====
</TABLE>
Other Stock Option Grants
In May 1996, the Board of Directors granted non-qualified stock options to an
officer of the Company to purchase 250,000 shares of Common Stock at an exercise
price of $.50 per share, exercisable at any time on or prior to March 7, 2003.
In March 1996, the Board of Directors granted non-qualified stock options to a
former officer to purchase 1,000,000 shares of Common Stock at exercise prices
ranging from $.40 per share to $3.40 per share. Subsequently, on September 14,
1996, in connection with a settlement agreement with the former officer, the
grant was reduced to a total of 225,000 shares of Common Stock at $.40 per
share.
The options are exercisable in accordance with the following vesting schedule:
Date Vested Exercise Price Number of Shares
March 7, 1996.......................... $.40 125,000
September 14, 1996..................... $.40 100,000
---- -------
Total 225,000
=======
In May 1994, the Board of Directors granted non-qualified stock options to two
officers to each purchase 300,000 shares of Common Stock at the fair market
value of $.10 per share. These options were exercisable in whole or in part at
any time until December 31, 1998. During the year ended June 30, 1995, each
officer exercised options for 100,000 shares of Common Stock. During the year
ended June 30, 1996, each officer agreed to terminate options for 100,000 shares
of Common Stock. At June 30, 1997, the balance of these exercisable options
equaled 100,000 shares of Common Stock for each of the two former officers.
<PAGE>
(c) Warrants
As of June 30, 1997, the Company had outstanding several series of warrants. The
fair value of each warrant was estimated on the date of issuance using the Black
Scholes option-pricing model. The significant assumptions used to value each
warrant and the resulting fair value are set forth below.
The Series A Warrants were issued in July 1995 in connection with the issuance
of the Subordinated Debentures and as of June 30, 1997 were exercisable for an
aggregate of 600,000 shares of Common Stock at an exercise price of $.25 per
share (subject to adjustment in certain circumstances). The Series A Warrants
expire on July 15, 2002. The significant assumptions used to value the Series A
Warrants included a risk free rate of 6.0%, an annualized variability of daily
return of 40.0% and a fair value of the Common Stock underlying the Series A
Warrants of $0.10. These assumptions resulted in an aggregate fair value of
$12,000 for the Series A Warrants.
The Series B Warrants were issued in July 1995 in connection with the issuance
of the Subordinated Debentures and as of June 30, 1997 were exercisable for an
aggregate of 1,500,000 shares of Common Stock at an exercise price of $.25 per
share (subject to adjustment in certain circumstances). The Series B Warrants
expire on July 15, 2002. The significant assumptions used to value the Series B
Warrants included a risk free rate of 6.0%, an annualized variability of daily
return of 40.0% and a fair value of the Common Stock underlying the Series B
Warrants of $0.10. These assumptions resulted in an aggregate fair value of
$30,000 for the Series B Warrants. The Company recorded compensation expense of
$30,000 upon the issuance of the Series B Warrants.
The Series C Warrants were issued in March 1996 in connection with the issuance
of the Senior Debentures and as of June 30, 1997 were exercisable for an
aggregate of 2,542,380 shares of Common Stock at an exercise price of $.01 per
share (subject to adjustment in certain circumstances). The Series C Warrants
expire on March 7, 2003. The significant assumptions used to value the Series C
Warrants included a risk free rate of 6.0%, an annualized variability of daily
return of 40.0% and a fair value of the Common Stock underlying the Series C
Warrants of $0.20. These assumptions resulted in an aggregate fair value of
$457,628 for the Series C Warrants.
The Series D Warrants were issued in March 1996 in connection with the issuance
of the Preferred Stock and as of June 30, 1997 were exercisable for an aggregate
of 2,547,180 shares of Common Stock at an exercise price of $.01 per share
(subject to adjustment in certain circumstances). The Series D Warrants expire
on March 7, 2003. The significant assumptions used to value the Series D
Warrants included a risk free rate of 6.0%, an annualized variability of daily
return of 40.0% and a fair value of the Common Stock underlying the Series D
Warrants of $0.20. These assumptions resulted in an aggregate fair value of
$509,436 for the Series D Warrants.
The Common Stock Purchase Warrants, Series E (the "Series E Warrants") were
issued in March 1996 in connection with a consulting agreement and as of June
30, 1997 were exercisable for an aggregate of 1,000,000 shares of Common Stock
at an exercise price of $.40 per share (subject to adjustment in certain
circumstances). The Series E Warrants expire on March 7, 2003. The significant
assumptions used to value the Series E Warrants included a risk free rate of
5.85%, an annualized variability of daily return of 40.0% and a fair value of
the Common Stock underlying the Series E Warrants of $0.10. These assumptions
resulted in an aggregate fair value of $10,000 for the Series E Warrants. The
Company recorded compensation expense of $10,000 upon the issuance of the Series
E Warrants.
The Common Stock Purchase Warrants, Series F (the "Series F Warrants") were
issued in May 1996 to certain directors, officers and other related parties as
compensation for services performed and as of June 30, 1997 were exercisable for
an aggregate of 667,040 shares of Common Stock at an exercise price of $.50 per
share (subject to adjustment in certain circumstances). The Series F Warrants
expire on March 7, 2003. . The significant assumptions used to value the Series
F Warrants included a risk free rate of 5.85%, an annualized variability of
daily return of 40.0% and a fair value of the Common Stock underlying the Series
F Warrants of $0.10. These assumptions resulted in an aggregate fair value of
$6,670 for the Series F Warrants. The Company recorded compensation expense of
$6,670 upon the issuance of the Series F Warrants.
The Series A Warrants, Series B Warrants, Series C Warrants, Series D Warrants,
Series E Warrants and Series F Warrants are referred to herein collectively as
the "Warrants." The Company used the Black-Scholes option pricing model in
establishing values for the Warrants. In accordance with SFAS No. 123, the
Series B Warrants, Series E Warrants and Series F Warrants, all of which were
issued in return for services received, have been accounted for based upon the
estimated fair value of the warrants issued. Pursuant to the terms of the
Warrants, the Company is required to effect the registration for resale of,
among other things, the shares of Common Stock issuable upon the exercise of the
<PAGE>
Warrants. The Company has not yet effected such registration. In the event that
the Company does not fulfill its registration obligations, holders of the
affected warrants may have legal recourse against the Company as a result of
such failure and may have the right to seek injunctive relief requiring the
Company to comply with such registration obligations.
(d) Stock Subscriptions Receivable
As of June 30, 1997, two former officers of the Company owed the Company
$106,350 and $56,600 for Common Stock purchased from the Company. By agreement,
such amounts are payable at the rate of $.25 per common share as shares are
sold. During the year ended June 30, 1997, $1,250 was paid to the Company by one
of the former officers.
(e) Registration Rights
Under the terms of the Class B Debentures, the Preferred Stock, the Warrants,
and the options granted to an officer of the Company, the Company was obligated
to effect the respective holders' registration rights within 90 days after
issuance. The Company has not yet complied with these obligations.
11. Loss Per Share
Loss per common share was computed by dividing the net loss by the weighted
average number of shares of Common Stock outstanding during each of the years
presented. The loss per share calculations for 1997 and 1996 do not give effect
to common stock equivalents because they would have an antidilutive effect.
12. Commitments
(a) Lease Agreements
The Company is obligated under several non-cancelable leases for office space
and equipment rentals. Annual minimum lease payments under non-cancelable
operating leases as of June 30, 1997 were as follows:
Fiscal year ending June 30, 1998................... $285,827
Fiscal year ending June 30, 1999................... 284,625
Fiscal year ending June 30, 2000................... 230,523
Thereafter......................................... 13,320
(b) Employment Agreements
In connection with the merger with mmTech in April 1997, the Company entered
into five-year employment agreements with two officers of the Company, which
provide for base compensation totaling $350,000, subject to periodic increases
at the discretion of the Company's Board of Directors. The agreements also
provide for certain life insurance and severance benefits.
13. Major Customers
One customer accounted for 54% and 41% of net revenues, for the years ended June
30, 1997 and 1996, respectively.
Sales to foreign customers by geographic location, as a percentage of net
revenues, were as follows:
Years ended June 30, 1997 1996
Asia................................. 16% 34%
Canada............................... 11 2
Europe............................... 9 5
36% 41%
== ==
14. Pension Plan
The Company had two separate defined contribution plans covering eligible
full-time employees as of June 30, 1997. Participation in each plan is voluntary
and participants may contribute up to 15% of their compensation, subject to
federal limitations. The Company, at its discretion, can make matching
contributions to the LogiMetrics, Inc. Employees 401(k) Savings Plan (the
"LogiMetrics Plan"). For the years ended June 30, 1997 and 1996, the Company has
made no matching contribution to the LogiMetrics Plan. The mmTech, Inc. 401(k)
Plan and Trust (the "mmTech Plan") provides for a Company match of 5% of
participant contributions, plus a discretionary amount based on profitability.
Discretionary Company contributions are vested ratably over a 6-year period.
Company contributions for the year ended June 30, 1997 totaled $2,823 under the
mmTech Plan. The Company made no discretionary contributions to the mmTech Plan
in the fiscal year ended June 30, 1997.
<PAGE>
15. Certain Relationships and Related Party Transactions
In July 1995, the Company sold to SFM Series B Warrants to purchase 1,500,000
shares of Common Stock, at a price of $.02 per share, with an exercise price of
$0.25 per share, in connection with obtaining financing for the Company. Alfred
Mendelsohn and Lawrence I. Schneider, former directors of the Company, were
principals in SFM. Mark B. Fisher, a director of the Company, was also a
principal in SFM.
In December 1995, the Company entered into a consulting agreement with two
companies, SFM and Phipps, Teman & Company, L.L.C. ("PTCO"), for services to be
rendered in obtaining additional financing for the Company. SFM and PTCO were
granted Series E Warrants to purchase a total of 1,000,000 shares of the
Company's Common Stock at $.50 per share any time prior to March 7, 2003. SFM
and PTCO also were subsequently paid fees of $87,500 and $216,377, respectively,
when the financing was provided in March 1996. Norman M. Phipps, a director of
the Company, and Wade Teman, a former officer of the Company, are principals in
PTCO.
In May 1996, a former director of the Company, Lawrence I. Schneider, was
elected Chairman of the Executive Committee for a five-year term. As
compensation, he was paid $100,000, in June 1996. Mr. Schneider resigned as a
director in November 1996.
During the fiscal year ended June 30, 1996, the Company paid Orbitrex
International, Inc. ("Orbitrex"), whose President is Alfred Mendelsohn, a former
director of the Company, $71,000 for business development services provided to
the Company. Additionally, the Company granted Mr. Mendelsohn Series F Warrants
to purchase 100,000 shares of Common Stock at $.50 per share.
In June 1997, the Company entered into a consulting agreement with Orbitrex.
Under the consulting agreement, Orbitrex agreed to provide certain services in
connection with product development and international marketing opportunities.
Under the consulting agreement, Orbitrex is entitled to receive payments
aggregating $60,000, payable in monthly installments on or prior to April 30,
1998. In the consulting agreement, Orbitrex agreed to certain confidentiality,
non-competition and intellectual property covenants.
In July 1997, Mr. Phipps purchased 850,000 shares of Common Stock from the
Company for $467,500, or $0.55 per share. In connection with the purchase,
$8,500 was paid in cash from the proceeds of a one-time bonus paid to Mr. Phipps
and the remainder was paid in the form of a non-recourse secured promissory note
(the "Phipps Note") and recorded as a stock subscription receivable. The Phipps
Note does not bear interest, has no fixed maturity date, and is secured by a
pledge of the shares of Common Stock purchased by Mr. Phipps. The Phipps Note
will automatically be forgiven upon the occurrence of a "Change in Control
Event" (as defined in the Phipps Note). The Phipps Note will become due and
payable upon the occurrence of certain events, including a sale or other
disposition by Mr. Phipps of the shares of Common Stock or the termination of
Mr. Phipps' employment as a result of a "Termination for Cause" (as defined in
the Phipps Note). If Mr. Phipps' employment terminates, other than as a result
of a Termination for Cause or a "Without Cause Termination" (as defined in the
Phipps Note), the Phipps Note will become payable in 60 monthly installments.
The Company has agreed to make certain payments to Mr. Phipps in respect of
certain federal income tax consequences which may result from the terms of the
Phipps Note.
Prior to its acquisition by the Company, Mr. Brand, the Company's Chairman and
Chief Executive Officer, lent certain amounts to mmTech on an as-needed basis to
fund a portion of mmTech's working capital requirements. The maximum amount
advanced by Mr. Brand was $649,150, and $623,086 in such advances were
outstanding at June 30, 1997. Pursuant to an agreement between Mr. Brand and the
Company, the Company has agreed to pay interest on the unpaid advances (which
previously had been interest-free) at a rate of seven percent per annum. The
Company also agreed that, subject to its cash flow requirements, it would use
its best efforts to repay up to $300,000 of such advances on or before September
30, 1997 and that the remaining advances would be repaid at a rate of $50,000
per month, commencing in October 1997. As of December 31, 1997, the Company has
paid Mr. Brand $200,000 pursuant to the arrangements described above.
Mr. Brand owns 40% of the outstanding common stock of Advanced Control
Components, Inc. ("ACC"). ACC currently sublets space from the Company at its
Eatontown, New Jersey facility and pays to mmTech $33,312 in annual rent.
Employees from mmTech perform services for ACC and employees from ACC perform
services for mmTech from time to time. The company utilizing such services pays
to the company providing such services an amount equal to two times the base
hourly salary of the employees providing such services for the number of hours
involved. Pursuant to such arrangements, ACC paid to mmTech net amounts of
$230,686 during the fiscal year ended June 30, 1997 and $154,850 during the
fiscal year ended June 30, 1996.
Certain holders of the Company's securities, including directors, officers and
beneficial owners of more than 5% of the Common Stock are entitled to certain
registration rights with respect to securities of the Company held by them.
<PAGE>
16. Subsequent Events
In July 1997 the Company entered into a Purchase Agreement (the "Purchase
Agreement") with a group of institutional investors (the "Purchasers"),
including certain entities affiliated with Mark B. Fisher, a director of the
Company. Pursuant to the terms of the Purchase Agreement, the Company issued and
sold to the Purchasers $2,750,000 in aggregate principal amount of the Company's
Class A 13% Convertible Senior Subordinated Pay-in-Kind Debentures due July 29,
1999 (the "Class A Debentures"), Common Stock Purchase Warrants - Series G (the
"Series G Warrants") to purchase an aggregate of 7,350,000 shares of Common
Stock at an exercise price of $0.50 per share, Common Stock Purchase Warrants -
Series H (the "Series H Warrants") to purchase an aggregate of 1,100,000 shares
of Common Stock at an exercise price of $0.60 per share and Common Stock
Purchase Warrants - Series I (the "Series I Warrants") to purchase an aggregate
of 550,000 shares of Common Stock at an exercise price of $1.125 per share, for
a total purchase price of $3,352,500. The Company allocated $2,750,000 of the
$3,352,500 in proceeds to the Class A Debentures, $514,500 to the Series G
Warrants, $66,000 to the Series H Warrants and $22,000 to the Series I Warrants,
based upon their estimated fair market value at the date of issuance. Each Class
A Debenture has a stated value of $50,000 (the face amount) and has a conversion
ratio of $0.41666667 per share. Pursuant to the terms of the Purchase Agreement,
the Purchasers have the right, at any time prior to July 28, 1998, to purchase
an additional $833,333 in aggregate principal amount of the Class A Debentures,
Series G Warrants to purchase an aggregate of 2,000,000 shares of Common Stock,
Series H Warrants to purchase an aggregate of 333,333 shares of Common Stock and
Series I Warrants to purchase an aggregate of 166,667 shares of Common Stock for
a total purchase price of $1,000,000 (the "Purchase Option"). The Company used
the Black-Scholes option pricing model in establishing values for the Series G
Warrants, Series H Warrants, and Series I Warrants and the Purchase Option.
The Series G Warrants, Series H Warrants and Series I Warrants all expire on
July 29, 2004. The Purchase Option expires on July 28, 1998, which date may be
extended from time to time upon the mutual agreement of the Company and the
Purchasers. The significant assumptions used to value the Series G Warrants, the
Series H Warrants and the Series I Warrants issued pursuant to the Purchase
Agreement and to be issued pursuant to the Purchase Option (in the event the
Purchase Option is exercised) included a risk free rate of 6.3%, an annualized
variability of daily return of 40.0% and a fair value of the Common Stock
underlying each series of warrants of $0.24. These assumptions resulted in an
aggregate fair value of $514,500 for the Series G Warrants, $66,000 for the
Series H Warrants and $22,000 for the Series I Warrants.
In connection with the transactions contemplated by the Purchase Agreement, the
Purchasers, the Company and Charles S. Brand entered into a Stockholders
Agreement (the "Stockholders Agreement") pursuant to which, among other things,
Mr. Brand agreed to certain restrictions on his ability to sell his shares of
Common Stock. Pursuant to the terms of the Stockholders Agreement, the size of
the Board of Directors was increased to seven members and the Purchasers
received the right to appoint three directors. In the event that the Purchase
Option is exercised in full, the number of directors will be increased to eight,
and the Purchasers will have the right to appoint an additional director. At any
time that the Purchasers are entitled to appoint at least four directors, at
either the request of Mr. Brand or the Purchasers, the size of the Board will be
further increased by one and Mr. Brand and the Purchasers will have the right to
mutually select an independent director to fill the resulting vacancy. Further,
in the event that Cerberus (or any subsequent holder of the Class B Debentures)
exercises its right under the Unit Purchase Agreement to designate a member of
the Board of Directors, the number of directors will be increased by two, the
holder of the Class B Debentures will have the right to appoint one director and
Mr. Brand and the Purchasers will have the right to appoint an additional
independent director.
<PAGE>
Pursuant to the terms of the Stockholders Agreement, Mr. Brand has appointed
himself, Dr. Brand, Mr. Carreras and Mr. Phipps and the Purchasers have
appointed Messrs. Fisher, Garcia and Thompson as directors of the Company. To
facilitate the recomposition of the Board of Directors, Mr. Mendelsohn resigned
as a director of the Company effective upon the closing of the transactions
contemplated by the Purchase Agreement.
Under the terms of the Stockholders Agreement, the parties agreed to cause (i)
the Executive Committee of the Board of Directors to be comprised of two
directors designated by Mr. Brand and one director designated by the Purchasers,
(ii) the Audit Committee of the Board of Directors to be comprised of two
directors designated by Mr. Brand and two directors designated by the
Purchasers, and (iii) the Compensation Committee of the Board of Directors to be
comprised of two directors designated by Mr. Brand and two directors designated
by the Purchasers. In the event that the Purchase Option is exercised in full,
the Purchasers will have the right to designate a second director to serve on
the Executive Committee of the Board of Directors.
Pursuant to the terms of the Stockholders Agreement, an ad hoc committee of the
Board of Directors is to be formed to search for a permanent successor to Mr.
Brand as the Company's Chief Executive Officer. Mr. Brand has the right, in his
sole discretion, to approve any such successor. Under the terms of the
Stockholders Agreement, the successor Chief Executive Officer will be treated as
a director designated by Mr. Brand and will be entitled to serve as a member of
the Executive Committee of the Board of Directors (which will be further
increased in size to permit such appointment). As of December 31, 1997, the ad
hoc committee had not yet been formed.
Under the terms of the Stockholders Agreement, the holders of a majority of the
shares of Common Stock beneficially owned by the Purchasers have the right,
subject to certain limitations, to cause the Company to enter into a "Company
Sale". A Company Sale is defined to include (i) a sale of all or substantially
all of the assets of the Company (other than to certain affiliates), (ii) a
merger, consolidation, share exchange or other similar transaction in which the
holders of the Company's voting stock receive less than 50% of the voting power
of the surviving entity, (iii) a sale, disposition or issuance of shares of
voting stock of the Company in which a person or entity (other than a party to
the Stockholder Agreement or its affiliates) acquires 50% or more of the total
voting power of the Company, and (iv) the formation of certain partnerships,
joint ventures and other strategic alliances involving the sale or transfer of
all or substantially all of the assets of the Company to a third party.
The Stockholders Agreement terminates upon the earliest to occur of (i) the
written consent of the holders of a majority of the shares of Common Stock
beneficially owned by the Purchasers and the holders of a majority of the shares
of Common Stock then beneficially owned by Mr. Brand and certain transferees,
(ii) Mr. Brand and certain transferees, as a group, or the Purchasers, as a
group, becoming the beneficial owners of less than 10% of the outstanding Common
Stock (determined on a fully-diluted basis), or (iii) upon the consummation of a
Company Sale in accordance with the terms of the Stockholders Agreement.
MBF Capital Corporation ("MBF"), an entity controlled by Mark B. Fisher, a
director of the Company, paid $35,000 of the purchase price payable by it in
connection with its July 1997 purchase of the Class A Debentures, Series G
Warrants, Series H Warrants, and Series I Warrants in the form of a non-recourse
secured promissory note (the "MBF Note"). The MBF Note matures on July 29, 2000
and bears interest (compounded annually) at a rate of 6.07% per annum, which is
payable at maturity. The MBF Note is secured by a pledge of the Series G
Warrants purchased by MBF. The MBF Note will become immediately due and payable
upon the occurrence of certain events, including a sale or other disposition by
MBF of the Series G Warrants purchased by it or the consummation of a Company
Sale (as defined in the Stockholders Agreement).
On December 31, 1997, the Company sold without recourse approximately $2.6
million of notes receivable for approximately $2.4 million cash.
<PAGE>
17. Events Subsequent to Auditors' Report (unaudited)
Pursuant to the terms of a Stock Purchase Agreement, dated October 21, 1998 (the
"Stock Purchase Agreement"), Charles S. Brand sold 2,000,000 shares of Common
Stock to a group of institutional investors (the "Investors") for a cash
purchase price of $500,000, or $0.25 per share. The sale was made as a condition
to the transactions contemplated by a Purchase Agreement, dated October 21, 1998
(the "Purchase Agreement"), among the Company and the purchasers party thereto
(including the Investors). Pursuant to the Purchase Agreement, the Company
issued and sold approximately $2,700,000 in aggregate face amount of its Class C
13% Senior Subordinated Debentures due September 30, 1999 (the "Class C
Debentures") for an aggregate purchase price of $2,000,000. As required by the
Investors, Mr. Brand used the proceeds of the sale of Common Stock pursuant to
the Stock Purchase Agreement to acquire approximately $667,000 in face amount of
the Class C Debentures pursuant to the Purchase Agreement for a cash purchase
price of $500,000. The Class C Debentures are convertible upon the earlier of
January 31, 1999 and the occurrence of certain events into shares of Common
Stock at varying conversion prices set forth in the Class C Debentures. Pursuant
to the terms of a Second Amended and Restated Security Agreement, Intercreditor
Agreement, Waiver and Consent (the "Intercreditor Agreement"), the Class C
Debentures are secured by a security interest in all of the Company's assets
which ranks junior to the Facility described below and to the Class A Debentures
and Class B Debentures and senior to the Class C Debentures purchased by Mr.
Brand. Pursuant to the Intercreditor Agreement, each of the holders of the Class
A Debentures and the Class B Debentures consented to the issuance of the Bridge
Notes and the granting of the security interest described above.
On September 7, 1999, the Company sold an aggregate of $1,000,000 of its
Negotiable Secured Senior Subordinated Promissory Notes due March 7, 2000 (the
"Bridge Notes") to a group of institutional investors (the "Lenders") for an
aggregate cash purchase price of $1,000,000. The Bridge Notes bear interest at a
rate of 13% per annum. Pursuant to the terms of an amendment to the
Intercreditor Agreement, the Bridge Notes are secured by a security interest in
all of the Company's assets which ranks junior to the Facility described below
and senior to the Class A Debentures, the Class B Debentures and the Class C
Debentures. Pursuant to the Intercreditor Agreement, each of the holders of the
Class A Debentures, the Class B Debentures and the Class C Debentures consented
to the issuance of the Bridge Notes and the granting of the security interest
described above. As consideration for the purchase of the Bridge Notes, Mr.
Brand transferred to the Lenders an aggregate of 3,000,000 shares of Common
Stock owned by him.
From time to time subsequent to September 1, 1999, the Company has continued to
receive advances from certain of the Company's other investors. Such advances
have been made on the same terms and conditions as the Bridge Notes, but rank
senior to the Bridge Notes.
At June 30, 1997, the Company was a party to a Restated and Amended Term Loan
Note, dated as of April 25, 1997, and a Sixth Restated and Amended Revolving
Credit Note, dated as of April 25, 1997, pursuant to which North Fork Bank (the
"Bank") provided the Company with a $640,000 term loan (the "Term Loan") which
matured on December 31, 1998 and a revolving credit facility (the "Revolver")
which matured on April 30, 1998, pursuant to which the Company was entitled to
draw up to $2.2 million assuming sufficient eligible inventory and accounts
receivable (the Term Loan and the Revolver are referred to herein collectively
as the "Facility"). At June 30, 1997, $567,000 was outstanding under the Term
Loan and the Company had approximately $400,000 available under the Revolver.
The Term Loan and the Revolver bore interest at the rate of 2% per annum in
excess of the Bank's prime rate. At June 30, 1997, the Bank's prime rate was
8.5%. As a result of the Company's losses during fiscal 1997, as of June 30,
1997, the Company was in violation of a covenant contained in the Facility that
the Company report net income of at least $1.00 for each fiscal quarter
beginning with the quarter ended June 30, 1997 (the "Net Income Covenant").
Since June 30, 1997, the Company has been in default of the Net Income Covenant.
Additionally, since October 28, 1997, the Company has been in violation of a
covenant contained in the Facility requiring the Company to deliver to the Bank
certain financial and other information (the "Reporting Requirement Covenants").
As described below, the Bank has waived these defaults through December 31,
1999.
Subsequent to June 30, 1997, the Company and the Bank have, from time to time,
modified the terms of the Facility to, among other things, extend the maturity
date of the Revolver, reduce the amount available for borrowing thereunder and
to waive ongoing covenant defaults as described above. In addition, the Bank has
consented to the issuance of the Class A Debentures, the Class B Debentures, the
Class C Debentures and the Bridge Notes and to the granting of the security
interests contemplated thereunder.
In connection with a renewal and extension of the Revolver in October 1998, the
Company issued to the Bank Common Stock Purchase Warrants, Series J (the "Series
J Warrants") exercisable for an aggregate of 100,000 shares of Common Stock at
an exercise price of $0.55 per share (subject to adjustment in certain
circumstances). The Series J Warrants expired on July 1, 1999. The fair value of
the Series J Warrants was estimated using the Black Scholes option-pricing
model. The significant assumptions used to value the Series J Warrants included
a risk free rate of 4.07%, an annualized variability of daily return of 40.0%
and a fair value of the Common Stock underlying the Series J Warrants of $0.25.
These assumptions resulted in an aggregate fair value of $170 for the Series J
Warrants.
On December 31, 1998, the Term Loan was repaid in accordance with its terms.
As of September 1, 1999, the Company entered into a Reduced and Extended
Revolving Credit Note (the "Replacement Note") and a Reduced and Limited
Forebearance Agreement (the "Forebearance Agreement"). Pursuant to the terms of
the Replacement Note, the amount available for borrowing under the Revolver was
reduced to $1.93 million (the amount outstanding as of such date) and the
maturity date of the Revolver was extended to December 31, 1999. Under the terms
of the Forebearance Agreement, the Bank agreed to forebear, until December 31,
1999, from declaring any event of default or from exercising any remedies under
the Facility.
Since December 31, 1999, the Company has been negotiating with the Bank
regarding the extension of the terms of the Revolver and the Forebearance
Agreement. However, no assurance can be given that the Bank will grant such an
extension or as to the terms thereof. In the event that the Bank does not agree
to provide such an extension, the Bank would have the right to declare an event
of default under the Revolver and to exercise the remedies provided to it under
the Revolver as well as other remedies available to it.
At December 31, 1999, in addition to the Facility, the Company had issued and
outstanding $5.2 million of its Class A Debentures and $2.2 million of its Class
B Debentures (collectively, the "Senior Subordinated Indebtedness"), which
contain financial covenants identical to those contained in the Facility.
Accordingly, the Company has been in default under the Net Income Covenant and
the Reporting Requirement Covenants to the same extent as under the Facility.
The holders of the Senior Subordinated Indebtedness have agreed to extend the
terms of the Senior Subordinated Indebtedness to March 7, 2000 and have waived
the Net Income Covenant default and the Reporting Requirement Covenants until
maturity. Pursuant to the terms of the Class A Debentures and the Class B
Debentures, the Company was required to file a registration statement covering,
among other things, the resale of the shares of Common Stock issuable upon the
conversion of the Class A Debentures and the Class B Debentures on or prior to
October 27, 1997 and to have the registration statement declared effective by
the Securities and Exchange Commission (the "SEC") on or prior to January 25,
1998. Because the Company has failed to complete the required registration, the
interest rate on the Class A Debentures and the Class B Debentures has increased
to a maximum interest rate of 17% per annum. The holders of the Class A
Debentures and the Class B Debentures had the right to declare all amounts
thereunder due and payable if the registration statement was not declared
effective by the SEC on or prior to April 25, 1998. The holders of the Class A
Debentures and the Class B Debentures have waived their respective rights until
maturity to declare any default arising as a result of the Company's failure to
have the required registration statement declared effective by the SEC.
The Company had approximately $15.1 million of indebtedness outstanding at
December 31, 1999, a substantial portion of which is either now due and payable
or will become due and payable in calendar year 2000. Based on the Company's
existing working capital resources, the Company would not be able to repay all
of such indebtedness out of available working capital as it becomes due. In the
event that the holders of the Company's indebtedness do not agree to extend such
indebtedness or do not convert their debt into shares of Common Stock (to the
extent convertible), the Company will be required to obtain additional financing
to repay such indebtedness or to take other actions to protect its business and
assets.
<PAGE>
SIGNATURES
In accordance with Section 13 of the Securities Exchange Act of 1934, as
amended, the Company has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
LOGIMETRICS, INC.
Date: February 3, 2000 By: /s/ Norman M. Phipps
__________________________________
Norman M. Phipps
President and Chief Operating Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934, as
amended, this report on Form 10-KSB has been signed below by the following
persons on behalf of the Company and its capacities and on the dates indicated.
Date: February 3, 2000 By: /s/ Norman M. Phipps
_________________________________
Norman M. Phipps
President, Chief Operating Officer
and Director (Principal Executive
Officer)
Date: February 3, 2000 By: /s/ Charles S. Brand
________________________________
Charles S. Brand
Chairman of the Board,
Chief Technology Officer
and Director
Date: February 3, 2000 By: /s/ Frank A. Brand
_______________________________
Frank A. Brand, Director
Date: February 3, 2000 By: /s/Jean-Franqois Carreras
________________________________
Jean-Franqois Carreras, Director*
Date: February 3, 2000 By: /s/Mark B. Fisher
________________________________
Mark B. Fisher, Director
Date: February 3, 2000 By: ________________________________
Francisco A. Garcia, Director*
Date: February 3, 2000 By: ________________________________
Kenneth C. Thompson, Chief Executive
Officer and Director**
Date: February 3, 2000 By: /s/ Erik S. Kruger
_______________________________
Erik S. Kruger, Vice-President
Finance and Administration
(Principal Financial and Accounting
Officer)
* Mr. Garcia resigned, effective November 3, 1999.
** Mr. Thompson resigned, effective as of November 6, 1999.
