UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 [Fee Required]
For the Fiscal Year ended December 31, 1996
Commission file number 0-17187
LOGIC DEVICES INCORPORATED
(Exact name of registrant as
specified in its charter)
California 94-2893789
(State of Incorporation) (I.R.S. Employer
Identification No.)
1320 Orleans Drive Sunnyvale, CA 94086
(Address of principal executive offices,
including Zip Code)
(408) 542-5400
(Registrant's telephone number,
including Area Code)
Securities registered pursuant to Section 12(b) of the Act
Title of Class Name of each exchange on which registered
NONE NONE
Securities registered pursuant to Section 12(g) of the Act
Common Stock, without par value
(Title of Class)
-----------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports) and (2) has been subject
to such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of the
registrant on March 31, 1997 was approximately $14,730,461. On that date,
there were 6,121,750 shares of Common Stock issued and outstanding.
Documents Incorporated By Reference: Proxy Statement for the 1997 Annual
Meeting of Shareholders.
Page of 44
Exhibit List Appears at Page 41
<PAGE>
PART I
ITEM 1. BUSINESS
General Development of the Business
Logic Devices Incorporated (the "Company") develops and markets
high-performance digital integrated circuits. The Company's circuits
address applications which require high computational speeds,
high-reliability, high levels of circuit integration (complexity), and low
power consumption. The Company's circuits are incorporated into products
manufactured by OEMs and utilized in high-speed electronic computational
applications in digital signal processing, video image processing, and
telecommunication. The Company's product strategy is to develop and
market industry standard circuits which offer superior performance, as
well as proprietary circuits to meet specific customer needs.
The Company currently offers products in two areas: (1) DSP (digital
signal processing) circuits consisting of high-performance arithmetic
computational functions (multipliers, arithmetic- logic units "ALUs",
special math functions applicable to digital signal processing
computations, and programmable DSP multiple processors units) ; and (2)
high-speed SRAMs (static random access memories) including FIFO (first
in/first out) memories. As of December 31, 1996, the Company offered 45
products which are sold to a diverse customer base. With the multiplicity
of packaging and performance options, the 45 basic products result in
nearly 600 catalog items.
The Company's products are designed to replace existing industry
standard integrated circuits while offering superior performance, lower
power consumption, and reduced cost. Proprietary catalog products are
developed by the Company to address specific functional application needs
or performance levels that are not otherwise commercially available. The
Company seeks to provide related groups of circuits that OEMs purchase for
incorporation into high-performance electronic systems.
The Company relies on third party silicon foundries to process silicon
wafers, each wafer having up to several hundred integrated circuits of a
given Company design, from which finished products are then assembled.
The Company's strategy is to outsource wafer processing to third party
foundries in order to avoid the substantial investment in capital
equipment required to establish a wafer fabrication facility. See
"Business -- Background." The Company works closely with the foundries in
order to take advantage of their processing capabilities and continues to
explore and develop additional foundry relationships in order to minimize
its dependence on any single relationship.
The Company markets its products worldwide through its own direct
sales force, a network of 34 national and international independent sales
representatives, and 21 international and domestic distributors. In 1996,
approximately 48% of the Company's net revenues were derived from OEMs,
while sales through foreign and domestic distributors accounted for
approximately 52% of net revenues. Among the Company's OEM customers are
Loral Systems Inc., Honeywell, ADC Telecommunications, Solectron
Corporation, Boston Technology, General Dynamics Corporation, Litton
Applied Technology, Acuson Corporation, DSC Communications Corporation,
Hewlett Packard, Advanced Technology Laboratories, Inc. and Scitex Video
Systems. Approximately 80% of the Company's net revenues have
historically been derived from the United States and approximately 20%
have been derived from foreign sales.
The Company was incorporated under the laws of the State of California
in April 1983. The Company's principal offices are located at 1320
Orleans Drive, Sunnyvale, California 94089, and its telephone number is
(408) 542-5400.
<PAGE>
Background
The semiconductor industry continues to evolve rapid increases in
system complexity and performance. In recent years, the challenges to the
industry have been innovative product definition, timely product
development, customer application support, and the heavy capital
investment required to establish semiconductor fabrication facilities.
Advances in chip fabrication technology have resulted in the
specialization of skills within the semiconductor industry between system
and circuit design expertise, and semiconductor processing skills.
Selected opportunities have emerged for semiconductor companies which
focus on product definition, advanced design techniques, customer service,
and utilization of third parties for wafer fabrication. The Company has
focused its product strategy on the development of high-performance
integrated circuits based on CMOS (Complementary Metal Oxide
Semiconductor) process technology for selected markets and applications.
The semiconductor industry is intensely competitive and is
characterized by rapid technological change, product obsolescence,
fluctuations in both demand and capacity, and price erosion. These
factors can obsolete processes and products currently utilized or produced
by the Company. In such cases, the Company is required to develop
products utilizing new processes and to either integrate such products
into its existing foundry relationships or establish new foundry sources.
Product Development and Production Strategy
The Company utilizes several strategies that it believes, in
combination, are unique in the industry:
1. Wafer Foundry Strategy - To minimize the amount of capital which
the Company must employ and to allow the Company to specialize on its
strengths in product definition, design, and development, the Company
seeks to establish relationships with wafer foundry suppliers rather than
build and operate capital intensive, technologically demanding wafer
fabrication facilities.
2. One Upmanship Product Strategy - To enhance the Company's
probability of successfully introducing new products, a significant
percentage of the Company's product development is directed toward
implementation of higher performance, lower power consumption and lower
cost versions of established industry standard products. This focus tends
to ensure that at least some minimal level of market and financial success
will be quickly realized which could not otherwise be guaranteed when a
company attempts to pioneer a revolutionary new product or market area.
Conversely, an increasing percentage of the Company's product development
is targeted towards unique products which offer larger potential returns
but require more time to develop market acceptance.
3. Structured Custom Design Methodology - The Company's design
approach offers the benefits of full custom circuit design including small
chip size, high speed operation, and low operating power consumption,
coupled with the short product development cycle and reduced costs
associated with semicustom design approaches. With this methodology the
Company has developed leadership performance products with a smaller R&D
budget than others within the industry.
4. Development of Synergistic Families of Products - The Company
attempts to develop synergistic families of products that can be sold and
utilized together to address the requirements of targeted end-market
applications. This increases the productivity of the Company's sales
efforts and maximizes the leverage of the Company's technical expertise.
5. Niche Markets - The Company focuses on product and market areas
that are not well served by strong established competitors and has sought
to become the dominant supplier in high performance DSP and high precision
digital video processing applications.
6. Product Mix - The Company seeks to balance the mix of products
produced to include products that: a) generate substantial profit margins;
or b) generate unit volumes to a level sufficient to feed a sales network
with high volume sales opportunities, to absorb fixed overhead costs over
a large enough quantity of units to support first class manufacturing
resources, and to position the Company as a valued foundry customer by
generating a reasonable and steady volume of wafer requirements.
7. Employee Development - The Company prefers to internally develop
and train key personnel in sales and marketing, engineering and
manufacturing as opposed to hiring outside experts. This strategy allows
the Company to mold the critical skill contributors within the Company to
fit the unique environment, strengths, and limitations of the Company's
position as it evolves.
8. Financial Commitments - The Company employs a conservative
financial perspective when committing to any single new product or
internal resource. The Company does not intentionally undertake a
direction or activity that encompasses a bet-the-Company risk.
Products
The Company offers industry standard and proprietary catalog circuits.
The Company's standard catalog products are designed to replace existing
industry standard products by providing superior performance, lower power
consumption, and reduced cost. Proprietary catalog products are developed
by the Company to address specific requirements not otherwise commercially
available in the marketplace.
The Company's products address applications which require high
computational speeds, high levels of function circuit integration, low
power consumption, and high reliability. The Company's products are
utilized in high-speed industrial computing and DSP applications in
computers, broadcast and medical video image processing, and
telecommunications systems. The Company's circuits are incorporated by
OEMs into products which are then sold to end users. Examples of the
types of products which utilize the Company's circuits include the
following: 1) In the long-distance telephone market, an OEM incorporates
a Company produced circuit into a telecommunications product produced by
the OEM and sold to long distance carriers. This product removes the echo
otherwise experienced in long distance telephone calls. 2) In the video
image processing market, the Company's circuits are utilized in products
that create video special effects for the television broadcast industry.
3) In the medical market, ultrasound and x-ray medical images are enhanced
using the Company's circuits. 4) In the military market, the Company
supplies arithmetic components used in night vision and tactical missile
guidance control systems.
A tabular presentation of these products is as follows:
Markets: Products: Applications: Customers:
Telecommunications Custom Products
Video Functions
Programmable DSP Echo Cancellation
Trunkline Multiplexing
Digital Filters
Tone Decoding DSC Communications,
SDX, Intellicall Inc.,
Estek.
Broadcast Video
Transmission Video Functions Special Effects Generation
Film Editing
Time Base Correctors
Character Generators Scitex, ADC, Data
Translation, Pinnacle,
Quantel, Snell &
Wilcox, GVC
Instrumentation Math Functions Spectrum Analyzers
Waveform Generators
Emulators
Assembly/Inspection
Equipment Acumen, KLA, Tencor,
Tektronics
Medical Imaging Math Functions Ultrasound
Magnetic Resonance Acuson, ATL
Siemans
Military SRAM
Math Functions Radar/Sonar
Missile Guidance
Secure Communications General Dymamics,
Hughes, ITT Litton,
Loral, Martin
Marietta, McDonnell
Douglas, TI, Northrop
Digital Signal Processing Applications
Digital Signal Processing ("DSP") involves converting light, sound,
and other natural occurring analog waveforms into a stream of digital
values which may be processed, manipulated, exchanged, or sorted by
electronic systems. DSP provides many advantages, including: i) the
ability to process and manipulate digital data with consistency and
precision; ii) the ability to store and recall information; and iii) the
ability to extract information content and compress the amount of data
which must be stored, processed, or transmitted. Manipulation of the
video images and speech requires signal processing at rates and precision
that are not practical with analog technology or general purpose (non-DSP)
processors. DSP is an important technology for future generations of many
emerging product technologies.
During 1995, the Company acquired the assets of the former STAR
Semiconductor Corporation. As a result of this acquisition the Company
has added the STAR programmable digital signal processor to its product
line. The STAR processor is particularly suited to various
telecommunications applications.
Arithmetic Computational Functions. The Company offers a broad line
of high speed computational functions ranging from high performance
arithmetic building blocks to more highly integrated and specialized
functions. The Company's building block products are configured in a
myriad of ways by DSP system designers to implement very high
computational throughput mathematical functions that perform common DSP
algorithms. The Company's more highly integrated function specific
compute engines implement the most commonly required video image
processing functions into cost effective single chip solutions. These
products integrate multiple instances of the Company's building block
arithmetic functions, as well as significant blocks of the Company's
static memory technology to provide otherwise unachievable performance and
cost benefits.
High-Speed Static Random Access Memories
SRAMs are used for the high-speed storage and retrieval of data in
electronic systems. SRAMs enable faster storage and retrieve information
than DRAMs (dynamic random access memories). While SRAMs are more
convenient to utilize than DRAMs, they also are more costly (for a given
number of bits stored) due to greater internal circuit complexity.
Because a computer may read from or write to its memory several times to
complete a single software instruction, high-performance systems are
sensitive to memory performance as a critical factor in determining
overall system performance.
Data stored in a typical computer is segmented into a hierarchy of
memory types to maximize performance consistent with reasonable cost
constraints. Low-cost but relatively slow DRAMs are used in "main memory"
to store large amounts of data very economically. Faster but more costly
SRAMs serve as "cache memory" to store limited amounts of the data most
frequently required by the computer as it executes its programs. SRAMs
are produced in a wide variety of capacities (densities) and organizations
(number of bits available in a single memory access), which collectively
result in a large product matrix. This resulting product differentiation
creates opportunities for higher pricing and somewhat longer product life
cycles than DRAMs. However, as high performance processors have driven
the demand for SRAMs, the market has become increasingly competitive.
The Company's current SRAM products, with densities ranging from 16K
bits to 1024K (K = 1024 or one megabit) bits, generally are targeted
toward high-speed applications which are experiencing high rates of growth
in unit demand due to sharply increasing usage of cache memory in
conjunction with 32-bit microprocessors.
FIFO Memory Products
FIFO (First-In/First-Out) memory products are frequently utilized at
the input and output of DSP systems to handle any mismatches between which
input data is available or output data is expected relative to the rate of
which signals can be digitally processed. FIFOs incorporate many elements
of the Company's memory design expertise and are synergistic to the
Company's DSP customer base.
Products In Development
The Company has historically experienced a close correlation between
its success in introducing new products and increases in revenues. As a
result, the Company is committed to a high level of product design and
development activity. During 1996, the Company committed in excess of
$2.5 million to purchase design automation tools and to expand its product
development group in order to accelerate the rate of new product
development. During 1997, the Company is focusing its product development
efforts on two target areas: (1) DSP circuits that address the broadcast,
studio, and production quality audio and video image processing
requirements, and (2) products utilizing the Company's SRAM technology.
The Company must also investing heavily in the re-tooling of its existing
product families to develop additional wafer fabrication sources.
With the benefit of on-going customer input resulting from its current
video image processing products, the Company has a number of new DSP
product opportunities which it will undertake to develop in 1997. These
products generally would be utilized in conjunction with the Company's
current DSP products to further facilitate high precision signal
processing. At current resource levels the Company does not expect to be
able to complete all of the new product opportunities which it has
identified. The level of product development expenditures will be
dependent on the Company's success in meeting its financial objectives.
The Company is increasingly developing more specialized memory
products, as well as implementing certain memory functions that work
with, and compliment, certain of the Company's DSP computational
functions.
Wafer Fabrication Technology
The Company relies on third party silicon foundries to produce
processed wafers from mask patterns designed by the Company. Through its
wafer suppliers, the Company has access to advanced high-speed,
high-density CMOS process technology, without the significant investment
in capital equipment and facilities required to establish a wafer
fabrication facility. Products developed in 1997 will utilize process
technology with effective channel lengths under 0.5 micron. Coupled with
the Company's design methodology and experience in high-speed circuit
design, this technology has allowed the Company to create products that
offer high computational speeds, high reliability, high levels of circuit
integration (complexity) and low power consumption.
The Company currently is dependent on two silicon foundry sources.
Wafers are processed to pre-agreed specifications to produce integrated
circuits designed by the Company. There can be no assurance that such
relationships will continue to be on terms satisfactory to the Company.
Except for its relationship with Zentrum Mikroelektronik Dresden GmbH
(ZMD), the Company's foundry sources do not guarantee minimum supplies.
During 1995 the Company's revenues were limited by its inability to obtain
adequate quantities of processed wafers. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations --
Overview."
Production, Assembly and Test
The Company's production operations consist of quality inspection,
functional and parametric wafer testing, package marking, hot and cold
testing, final inspection, and shipment. During 1996, the Company
committed in excess of $2.5 million to purchase new test and package
handling equipment to enable it to produce the advance products which it
is now developing. As is customary in the industry, the Company's
commercial grade plastic package devices are wafer tested and then shipped
to high-volume assembly subcontractors in the Far East for assembly.
Thereafter, the assembled devices are returned to the Company for final
testing and shipment to customers. The Company continues to test raw
material through finished product at various stages in the manufacturing
process utilizing automated test equipment capable of volume production.
Marketing, Sales and Customers
The Company markets its products worldwide to a broad range of
customers through its own sales efforts, a network of 34 national and
international independent sales representatives, and 20 electronics
distributors. The Company concentrates its direct marketing efforts on
the high-performance segments of the telecommunication, military,
industrial, and computer markets in applications where high-speed and low
power consumption are critical. Among the Company's OEM customers are
Loral Systems Inc., Honeywell, ADC Telecommunications, Solectron
Corporation, Boston Technology, General Dynamics Corporation, Litton
Applied Technology, Acuson Corporation, DSC Communications Corporation,
Hewlett Packard, Advanced Technology Laboratories, Inc. and Scitex Video
Systems.
The Company coordinates sales from its Sunnyvale, California facility.
The Company also maintains regional sales offices in Somersville, New
Jersey and Tampa-St. Petersburg, Florida as well as a field applications
support offices in Newton, Connecticut to serve the East Coast and San
Diego, California to serve the West Coast. The Company also has a sales
office in Warminster, England to support the Company's European sales
activities. The Company's sales managers direct the activities of the
independent sales representative firms and focus on major target accounts.
Sales representatives obtain orders on an agency basis and the Company
ships directly to its customers. Sales representatives receive
commissions on sales within their territories. Distributors purchase the
Company's products for resale generally to a broad base of small to
medium-size customers. North America is serviced by five regional and
national distributors. As is customary in the industry, domestic
distributors are entitled to certain price rebates and limited stock
rotation rights, for which the Company has made a provision in its
consolidated financial statements. During 1996 and 1995, sales through
both international and domestic distributors accounted for approximately
52% and 55% of net sales, respectively, while direct sales to OEMs
accounted for approximately 48% and 45%, respectively, of net sales.
In 1996, no one customer accounted for more than 10% of net revenues.
In 1995, three customers each accounted for 10% or more of net revenues:
All American Semiconductor, Inc. accounted for 13%, Bell Microelectronics,
Inc. accounted for 13%, and Milgray Electronics, Inc. accounted for 10% of
net revenues.
International sales are conducted by sales representatives and
distributors located in Japan, Canada, United Kingdom, Germany, France,
Italy, Netherlands, Sweden, Finland, Hong Kong, Israel, Korea, Taiwan, and
Singapore. During 1996, 1995, and 1994, the Company's export sales were
approximately 27%, 20%, and 18%, respectively, of net sales. See Note 11
in "Notes to the Financial Statements" contained in Item 8 below. The
Company's international sales are billed in United States dollars and
therefore settlements are not directly subject to currency exchange
fluctuations. However, changes in the relative value of the dollar may
create pricing pressures for the Company's products. Although the
Company's international sales are subject to certain export restrictions,
including the Export Administration Amendments Act of 1985 and the
regulations promulgated thereunder, the Company has not experienced any
material difficulties because of these restrictions.
The Company's domestic distributors generally market products
competitive with the Company's products. The Company's independent sales
representatives and foreign distributors also may represent competitors of
the Company.
The Company warrants its products against defects in materials and
workmanship for a period of 12 months from the date of shipment. Warranty
expenses to date have been nominal.
Backlog
As of December 31, 1996, the Company's backlog was approximately
$1,565,900 and was approximately $8,356,800 as of December 31, 1995. The
Company includes in its backlog all released purchase orders shippable
within the following 18 months, including orders from distributors. The
Company's backlog, although useful for scheduling production, does not
represent actual sales and the backlog at any particular time should not
be used as a measure of future sales or revenues. In accordance with
accepted industry practice, orders in the backlog are subject to
cancellation without penalty at the option of the purchaser at any time
prior to shipment and to changes in delivery schedules and do not reflect
price adjustments that may be passed on to distributors and credits for
returned products. The Company produces certain catalog products that may
be shipped from inventory within a short time after receipt of a purchase
order. The Company's business for its catalog products, like the
businesses of many companies in the semiconductor industry, is
characterized by short-term orders and shipment schedules rather than by
volume purchase contracts.
Research and Development
The Company's engineering staff is involved in the design of both
systems and integrated circuits. During 1996, the Company sharply
increased its product development team and committed to the acquisition of
software design automation tolls in order to increase the rate of new
product development. In 1996, the Company's development efforts were
focused on the development of new digital processing circuits that address
video image processing applications as well as enhancement or extension of
existing products, especially design of new integrated circuit layouts
required for compatibility with new silicon wafer sources. Product design
efforts are supplemented by computer- design and simulation equipment.
The Company also has an experienced test engineering group which works
closely with the designers to develop production test software. Research
and development expenditures were 12% of sales in 1996 and historically
have been approximately 10% of net sales. See "Selected Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" and "Consolidated Statements of Income" contained in Items
6, 7 and 8, respectively.
Competition
The semiconductor industry is intensely competitive and characterized
by rapid technological change and rates of product obsolescence, price
erosion, periodic shortage of materials, variations in manufacturing
yields and efficiencies, and increasing foreign competition. The industry
includes many major domestic and international companies which have
substantially greater financial, technical, manufacturing, and marketing
resources than the Company. In addition, there are many emerging
companies which are attempting to obtain a share of the existing market.
The Company faces competition from other manufacturers of high-performance
integrated circuits, many of which have advanced technological
capabilities, are currently increasing their participation in the
high-performance CMOS market and have internal wafer production
capabilities. The ability of the Company to compete in this rapidly
evolving environment depends on elements both within and outside the
control of the Company. These elements include: the Company's ability to
develop new products in a timely manner; the cost effectiveness of its
manufacturing; the successful introduction to and acceptance by customers
of new products; the speed at which customers incorporate the Company's
products into their systems; the continued access to advanced
semiconductor foundries; the number and capabilities of its competitors as
well as general economic conditions.
In the area of high-performance DSP circuits, the Company competes
with Texas Instruments, Lucent Technology, Raytheon, Analog Devices and
Harris among others. In the area of high-performance static random access
memories (SRAMs), the Company competes with, among others, Integrated
Device Technology, Cypress Semiconductor, UMC, Micron Technology, Hitachi,
NEC, Fujitsu, Motorola, Toshiba, and Winbond.
Patents and Copyrights
Because of the rapidly changing technology in the semiconductor
industry, the Company relies primarily upon its design know-how and
continued access to advanced CMOS process technology, rather than patents
and copyrights, to develop and maintain its competitive position. The
Company attempts to protect its trade secrets and other proprietary
information through confidentiality agreements with employees,
consultants, suppliers, and customers, but there can be no assurance that
those measures will be adequate to protect the Company's interests. The
Company is of the opinion that patent maskwork protection is of less
significance in the Company's business than factors such as the experience
and innovative skill of its personnel and the abilities of its management.
There can be no assurance that others will not develop or patent
technology similar to the Company's technology or copy or otherwise
duplicate the Company's products. The Company owns five patents awarded
by the United States Patent Office.
Since others have obtained patents covering various semiconductor
designs and processes, certain of the Company's present or future designs
or processes may be claimed to infringe the patents of third parties. The
Company has previously received and may in the future receive claims that
one or more aspects or uses of the Company's products infringe on patent
or other intellectual property rights of third parties. Presently, there
are no such claims pending against the Company. The Company does not
believe that it infringes any known patents at this time. If any such
infringements exist or arise in the future, the Company may be liable for
damages and may, like many companies in the semiconductor industry, find
it necessary or desirable to obtain licenses relating to one or more of
its current or future products. The Company expects, based on industry
practice, that any necessary licenses or rights under patents could be
obtained on conditions that would not have a material adverse effect on
the Company. There can be no assurance, however, that licenses could in
fact be obtained on commercially reasonable terms, or at all, or that
litigation would not occur. The Company's inability to obtain such
licenses or the occurrence of litigation could adversely affect the
Company.
Employees
As of December 31, 1996, the Company had 58 full-time employees: 5 in
administration, 9 in research and development, 3 in quality assurance, 27
in production/test and 14 in marketing and sales. In addition, from time
to time, the Company uses consultants and part-time employees. The
Company's ability to attract and retain qualified personnel is an
important factor in its continued success. None of the Company's
employees are represented by a collective bargaining agreement,
and the Company has never experienced any work stoppage. The Company
believes that its employee relations are good.
Regulation
Federal, state, and local regulations impose various environmental
controls on the discharge of chemicals and gases in connection with the
wafer manufacturing process. Since the Company relies on third party
manufacturers and its activities do not involve utilization of hazardous
substances generally associated with semiconductor processing, the Company
believes such regulations do not have a material affect on its business or
operations.
ITEM 2. PROPERTIES
The Company's executive offices, as well as its manufacturing and
principal research and design facilities, are located in approximately
21,600 square feet of space in Sunnyvale, California pursuant to a lease
expiring on December 15, 2002. The Company maintains additional sales or
field application support offices located in the metropolitan area of
Newton, Connecticut, Somersville, New Jersey, Tampa-St. Petersburg,
Florida, San Diego, California, and Warminster, England. The Company
currently leases these sales and field application support offices on a
month-to-month basis. The Company believes that its facilities will be
adequate to meet its reasonably foreseeable needs and, if necessary, that
alternative facilities will be available to it on acceptable terms so as
to meet its requirements.
ITEM 3. LEGAL PROCEEDINGS
Insurance Litigation
The Company tendered the defense of a wrongful termination action
brought by several former employees (which action was settled in 1994 with
formal settlement documents completed in early 1996) to several of its
insurance carriers, only one of which provided a partial defense.
Accordingly, to recover defense fees incurred in defending the wrongful
termination action, on September 21, 1992, the Company filed a Complaint
for Breach of Contract, Bad Faith Insurance Practices, and Declaratory
Relief against those insurance carriers which did not provide defense.
[Logic Devices, Inc. v. St. Paul Fire and Marine Ins. Co., Centennial
Insurance Co., Fireman's Fund Ins. Co., case number 724849.] St. Paul
Fire and Marine Insurance Co. has agreed to a mediation and arbitration
procedure in connection with this action. The Company's Complaint is
pending against the remaining insurance carriers.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the last quarter of fiscal 1996.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
The Company's Common Stock is traded under the symbol "LOGC" on the
Nasdaq National Market System. The following table sets forth for the
period indicated, the high and low closing prices for the Company's
Common Stock as reported by Nasdaq:
1995 High Low
First Quarter $ 4 3/4 $ 2 1/16
Second Quarter $13 1/2 $ 3 9/16
Third Quarter $15 $ 9 3/4
Fourth Quarter $10 3/4 $ 7 5/16
1996
First Quarter $ 7 7/8 $ 4 7/8
Second Quarter $ 6 1/4 $ 4
Third Quarter $ 4 5/8 $ 3 1/4
Fourth Quarter $ 3 3/4 $ 2 1/16
Holders
As of March 31, 1997, there were approximately 3,500 holders of the
Common Stock.
Dividends
The Company has not paid any dividends on its Common Stock and does not
anticipate that it will do so in the foreseeable future. The Company
has entered into bank credit agreements which preclude the payment of
dividends without the prior consent of the parties to such agreements.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources - Financing".
Regardless of any such restrictions in its bank credit agreement, the
present policy of the Company is to retain earnings to provide funds for
the expansion of its business.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data of the Company set forth below for
the years ended December 31, 1996, 1995, 1994, 1993 and 1992 has been
derived from the Company's audited consolidated financial statements.
This data should be read in conjunction with the consolidated financial
statements, related notes and other financial information included
elsewhere in this report.
(Dollars in thousands, except per share amounts)
Year ended December 31,
1996 1995 1994 1993 1992
Net revenues . . . . . $12,525 $16,611 $13,492 $12,817 $12,255
Net income . . . . . . 122 1,384 708 277 85
Net income per
common share . . . . . 0.02 0.26 0.15 0.06 0.02
Weighted average
common shares
outstanding (thousands) 6,041 5,420 4,841 4,862 4,741
Working capital . . . . 17,433 17,940 7,217 6,731 6,439
Equipment and leasehold
improvements (net) . . . 4,204 2,410 2,163 2,371 2,049
Total assets. . . . . . 25,600 23,366 14,925 13,741 13,030
Long-term debt . . . . . 1,205 391 1,228 1,996 2,277
Shareholders' equity . . 21,126 20,711 8,810 7,902 7,300
Research and
development expenses . . 1,450 1,451 1,338 1,285 1,234
Number of employees . . 58 49 44 49 61
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
The Company derives its revenues primarily from the sale of
semiconductor products falling into two main groups: DSP circuits and
SRAM circuits. The revenue and gross margin contributed by each of the 45
products making up these groups are subject to: (i) availability of such
product from the wafer foundry producing it, (ii) market demand for the
product, (iii) average selling price for the product and (iv) costs of
production. The Company's net revenues, gross margin, operating income
and net income can depend upon the success of one or a small number of its
products in any given accounting period. The Company believes that in the
future its net revenues and operating results may change from period to
period depending upon the success of new product introductions, the timing
of large orders, and other cyclical factors affecting the semiconductor
industry in general. The Company has derived revenues from technology
licensing fees, but does not expect such fees to be a significant portion
of revenues in the future.
The Company believes that relationships with silicon wafer suppliers
can provide it with reliable sources of wafers while sparing the Company
the substantial investment in capital equipment required to establish a
wafer fabrication facility. During 1992 and 1995, the Company was unable
to receive adequate supplies of processed wafers conforming to the
Company's quality standards from its then foundry suppliers, and
accordingly, the Company's business and relationships with its customers
were adversely affected. See "Business -- Background." In 1996, the
Company had an abundant supply of wafer material from its suppliers as
world wide Fab capacity became more readily available. The Company took
advantage of this capacity by purchasing some last run material on several
of its products utilizing older process technologies as the Company
re-tooled these products to newer process technologies to enhance
performance and reduce product costs. The Company works closely with the
foundries in order to take advantage of their processing capabilities and
continues to explore and develop additional foundry relationships in order
to minimize its dependence on any single relationship. See "Business --
Wafer Fabrication Technology."
The Company's in-house production capabilities consist of wafer
testing, package marking, hot and cold testing, assembled product testing,
final inspection, and quality/reliability screening. These production
activities are included as cost components in the Company's cost of sales.
The Company began subcontracting all its assembly operations in 1993 as a
means for further cost savings and more efficient operations.
The Company historically has maintained high levels of inventory in
recognition of the economics of having relatively small lot-runs of its
products processed by third-party suppliers and in order to protect
against disruptions in supplies. The Company believes that it presently
maintains a level of inventory appropriate to its business. It is the
Company's policy to provide reserves for any product material that is over
one year old with no back-log or sales activity, and to book reserves for
future obsolescence.
The Company expects to continue to make substantial commitments to
research and development of new products and to improve existing products.
The Company introduced 2 new products in 1996. In addition to the 45
catalog products currently offered, the Company began the development of
additional products which are expected to be introduced in 1997.
The following table sets forth for the periods indicated the
percentage of net revenues (rounded to the nearest whole percent)
represented by certain items of the Company's Consolidated Statements of
Income:
Year Ended December 31,
1996 1995 1994 96/95 95/94
Net revenues 100% 100% 100% (25)% 23%
Cost of revenues 56% 56% 56% (25)% 23%
Gross margin 44% 44% 44% (25)% 23%
Operating expenses:
Research and development 12% 9% 10% -% 8%
Selling, general and
administrative 30% 21% 24% 4% 9%
Total operating expenses 42% 30% 34% 5% 9%
Income from operations 2% 14% 10% (90)% 75%
Interest expense, net -% 2% 3% (84)% (30)%
Income before income
taxes 2% 12% 7% (90)% 109%
Income taxes 1% 4% 2% (89)% 142%
Net income 1% 8% 5% (91)% 96%
Results of Operations
Year Ended December 31, 1996 compared to the Year ended December 31, 1995
Net revenues for the year ended December 31, 1996 were $12,524,900, a
25% decrease over the $16,611,100 in the year ended December 31, 1995.
The decrease was due entirely to sales of the Company's SRAM products
which decreased substantially over the former period. The market price
for SRAMs fell nearly 80 percent in a matter of months during the first
half of 1996. SRAMs which accounted for 45 percent of revenues in 1995,
accounted for only 14 percent of revenues in 1996. The short fall was due
to both price deterioration and order cancellation from many of our first
tier customers. The Company directed its SRAM sales activity towards the
high reliability military and industrial segments where superior
performance and reliability command more favorable pricing. The Company's
DSP product line experienced a 20% growth rate from 1995 to 1996. This
growth in revenue from the Company's DSP product was not enough to
overcome the weakness in the SRAM market.
Cost of revenues decreased from $9,259,200 in the year ended December
31, 1995 to $7,008,900 in the year ended December 31, 1996. Gross profit
decreased from $7,351,900 in 1995 to $5,516,000 due to the decrease in net
revenues. Gross profit margin as a percentage of sales remained constant
at 44% for 1995 and in 1996. The decrease in gross profit dollars was due
to the decrease in revenues for 1996. The Company experienced a higher
gross profit margin on revenue from product sales in 1996 (as explained
above), however, this was offset by higher inventory write downs for the
1996 period.
Research and development expenses were $1,450,100 in the year ended
December 31, 1996 versus $1,450,600 in the year ended December 31, 1995.
Research and development expenses as a percentage of net revenues
increased from 9% in 1995 to 12% in 1996. Research and development
expenses were essentially the same for the 1996 and 1995 periods as a
result of fewer new product development tooling charges for the period
offset by substantial investments in R&D personnel and design software
which will increase the new product development during 1997. Although the
new personnel and software were employed in 1996, the full year effect of
their costs along with new product tooling costs will increase R&D
expenditures substantially during 1997.
Selling, general and administrative expenses increased 7% from
$3,572,200 in the year ended December 31, 1995 to $3,827,000 in the year
ended December 31, 1996. The increase was largely due to higher Sales
and Marketing expenses associated with increased sales personnel and the
opening of new sales offices in late 1995 and in 1996 and a decrease in
the overall revenues of the Company. The Company incurred additional
marketing expenses in an effort to identify new potential markets and
products for future development. The Company incurred some nonrecurring
costs associated with the move of its corporate headquarters in the fourth
quarter of 1996. As a percentage of net revenues, selling, general and
administrative expenses increased from 21% in 1995 to 30% in 1996.
In the year ended December 31, 1996, operating income decreased 90% to
$238,900 from $2,329,100 in the year ended December 31, 1995, due to the
above-mentioned factors. As a percentage of net revenues, operating
income decreased from 14% in the 1995 period to 2% in the 1996 period.
Interest expense decreased from $339,700 in 1995 to $94,500 in 1996 as
the Company's borrowing decreased from 1995 to 1996. This was offset by
interest income of $102,300 in 1995 and $72,200 in 1996.
As a result of the foregoing, net income decreased from $1,383,800 in
the year ended December 31, 1995 to $122,300 in the year ended December
31, 1996.
Year Ended December 31, 1995 compared to the Year ended December 31, 1994
Net revenues for the year ended December 31, 1995 were $16,611,100, a
23% increase over the $13,492,300 in the year ended December 31, 1994.
The increase was due to the increased demand for and availability of the
Company's products during 1995. Sales of the Company's SRAM products
increased substantially over the former period, as the Company was able to
support a portion of the heavy demand for the Company's SRAM product
experienced mid-1995 with a limited amount of wafer material.
Cost of revenues increased from $7,543,600 in the year ended December
31, 1994 to $9,259,200 in the year ended December 31, 1995. Gross profit
increased from $5,948,700 in 1994 to $7,351,900 in 1995 due to the
increase in net revenues. Gross profit margin as a percentage of sales
was 44% for both 1994 and 1995.
Research and development expenses were $1,450,600 in the year ended
December 31, 1995 versus $1,337,900 in the year ended December 31, 1994,
an increase of 8%. This growth was due to new product development
efforts. Research and development expenses as a percentage of net
revenues decreased from 10% in 1994 to 9% in 1995.
Selling, general and administrative expenses increased 9% from
$3,280,900 in the year ended December 31, 1994 to $3,572,200 in the year
ended December 31, 1995. The increase was due to higher Sales and
Marketing expenses incurred during the period to support the growth in
revenues. Sales commissions paid to the Company's salesmen and
independent sales representatives plus expenses associated with increased
Marketing promotion efforts constituted the majority of the expense
increase. As a percentage of net revenues, selling, general and
administrative expenses decreased from 24% in 1994 to 21% in 1995.
In the year ended December 31, 1995, operating income increased 75% to
$2,329,100 from $1,329,900 in the year ended December 31, 1994, due to the
above-mentioned factors. As a percentage of net revenues, operating
income increased from 10% in the 1994 period to 14% in the 1995 period.
Interest expense remained constant between the two periods, at
$338,600 in 1994 and $339,700 in 1995. Interest income increased from
$800 in the 1994 period to $102,300 in the 1995 as a result of interest
earned on cash investment.
As a result of the foregoing, net income increased from $707,800 in
the year ended December 31, 1994 to $1,383,800 in the year ended December
31, 1995.
Liquidity and Capital Resources
For the three years ended December 31, 1996 the Company's after-tax
cash earnings (net income plus non-cash items) significantly exceeded its
net income, due to significant non-cash charges for depreciation,
amortization, and ESOP compensation expense. Such after-tax cash earnings
($1,595,200 in 1996, $2,020,900 in 1995, and $1,963,500 in 1994) have
served as a primary source of financing for the Company's working capital
needs and for capital expenditures during these years.
During 1996, the Company's after-tax cash earnings (net income of
$122,300 plus non-cash items of $1,472,900) along with cash provided from
accounts receivables of $1,191,500, was more than offset by increases in
inventories of $5,632,900 (increases in inventories was funded by
after-tax cash earnings, cash provided from receivable and cash on hand).
These items along with net other cash flows items from operations used a
total of $4,060,700 in net cash from operating activities. Capital
equipment expenditures and increases to other assets used $1,517,500 in
cash. Bank borrowing provided $2,000,000 in cash, exercise of warrants
and stock option provided $292,500 in cash and repayment of long-term
capital lease obligation used $421,900 in cash. Net of such amounts
resulted in a decrease in cash and cash equivalents of $3,707,600 for the
1996 period.
During 1995, the Company's after-tax cash earnings provided funding
for increases of $1,214,400 in inventories, $1,856,400 of accounts
receivable and $199,800 in net other resulting in net cash used by
operations of $1,249,700. Capital equipment expenditures and increases to
other assets used $911,700 net in cash. The Company completed three
private placements of securities during the period which provided
$9,665,200 in net cash. Repayment of bank notes (including a term loan in
the principal amount of $800,000 which had been used previously to repay
certain debt to shareholders) used $3,889,700 net in cash. The Company
was also provided with cash flow from the exercise of certain warrants and
employee stock options which provided $542,100 in cash flow for the
period.
During 1994, after-tax cash earnings of $1,963,500 supplemented by an
increase in accounts payable and other operating assets and liabilities of
$593,500 funded increases of $1,509,400 in inventories and $402,500 of
accounts receivable and resulted in net cash provided by operations of
$645,100. Such amount plus a net increase in indebtedness of $166,500 and
an increase of $116,700 from the sales of common stock financed capital
expenditures and increases in other assets of $900,400.
The Company believes that its after-tax cash earnings, combined with
cash on hand, reduction in levels of inventories, and financing available
under its existing line of credit will be sufficient to support its
working capital and capital expenditure requirements for at least the next
twelve months.
Working Capital
The Company's investment in inventories and accounts receivable has
been significant and will continue to be significant in the future. Over
prior periods, the Company, as a nature of its business, has maintained
these levels of inventories and accounts receivable.
The Company relies on third party suppliers for raw materials and as a
result maintains substantial inventory levels to protect against
disruption in supplies. The Company has historically maintained inventory
turn over of approximately 225 days to 360 days, since 1990. The low
point in inventory levels came in 1992 and 1993 when the Company had
supply disruptions from one of its major suppliers.
The Company looks at its inventories in relationship to its sales
which have ranged from 140 days to 325 days within the periods between
1996 and 1990. This inventory to sales ratio is a more stable measure of
inventory levels, versus the traditional inventory turnover measure
because, at the times when the Company is experiencing supply disruptions,
and therefore lower inventory levels, the Company is also experiencing
increased costs of goods due to inefficiencies in its operations stemming
from sporadic deliveries which skews the numerator and denominator in
different directions for inventory turns calculations. The lowest days on
hand of inventory to sales has been experienced when the Company has had
supply disruptions as in 1992 and 1993.
The Company provides reserves for any product material that is over
one year old with no back-log or sales activity, and reserves for future
obsolescence. The Company also takes physical inventory write-downs for
obsolescence. For the year ended December 31, 1996, the Company took
physical inventory write-downs of approximately $1,783,900.
The Company's accounts receivable level has been consistently
correlated to the Company's previous quarter revenue level. Because of
the Company's customer scheduled backlog requirements, up to 80% of the
quarterly revenues are shipped in the last month of the quarter. This has
the effect of placing a large portion of the quarterly shipments reflected
in accounts receivable still not yet due per the Company's net 30 day
terms. This, combined with the fact that the Company's distributor
customers (which make up 52 to 55% of the Company revenues) generally pay
90 days and beyond, results in the accounts receivable balance at the end
of the quarterly period being at its highest point for the period. This
has been consistent over prior periods.
Although current levels of inventory and accounts receivable impact
the Company's liquidity, the Company believes that it is a cost of doing
business given the Company's fabless operation. The Company is in the
process of diversifying its supplier base to reduce the risk of supply
disruption. However, this will require a significant investment in
product development to tooling with new suppliers. The Company believes
that as it expands its customer base it will be able to even out the flow
of its shipments within its quarterly reporting periods.
Financing
On June 1, 1996, the Company renewed its $8,000,000 revolving line of
credit with Sanwa Bank extending the maturity to May 31, 1997. The line
of credit bears interest at the bank's prime rate (8.25% at December 31,
1996) plus 0.750%. The line of credit requires the Company to maintain a
minimum tangible net worth of $17,500,000, a maximum ratio of debt to
tangible net worth of not more than 0.50 to 1.00, a minimum current ratio
of not less than 2.00 to 1.00, a minimum quick ratio of not less than 1.50
to 1.00, and profitability on a year to date basis. As of December 31,
1996 the Company was not in compliance with certain covenants under the
borrowings, however, the Company obtained a waiver from the Bank. See
Note 6 of Notes to Consolidated Financial Statements. The line of credit
facility is secured by all of the assets of the Company. As of December
31, 1996, $6,000,000 was available under the line of credit facility.
Under the terms of its line of credit facility, the Company is
precluded from paying any cash dividends without the consent of the lender
even if the Company is in compliance with all of the financial covenants
but is allowed to pay stock dividends whether or not there was any other
covenant violation. Regardless of any such restrictions in its bank loan
agreements, the Company does not intend to pay cash dividends in the near
future and anticipates reinvesting its cash flow back into operations.
Warrants to purchase an aggregate of 150,000 shares of Common Stock
had been issued in connection with an extension of the Shareholder Loan
under a Loan Extension and Warrant Purchase Agreement entered into in
March 1991. Warrants to purchase 74,955 shares were exercised during the
year ended December 31, 1995 and warrants to purchase 75,045 were
exercised in February of 1996. The exercise price of the warrants was
$3.45 per share.
During 1996 the Company extended loans to two non-employee director
warrant holders to purchase 120,000 shares of Common Stock at the warrant
exercise price of $2.5625. The notes mature July 1998 and accrue interest
at reference rate plus 2%. On February 15, 1995, the non- employee
directors of the Company were granted warrants to purchase an aggregate of
220,000 shares of Common Stock. The grants were ratified by shareholders
of the Company at the Company's 1996 annual meeting of shareholders held
June 13, 1996. The warrants have an exercise price of $2.5625 per share,
which was the last reported transaction price of the Common Stock on
February 15, 1995, and expire on February 15, 2000. Certain other
warrants to purchase an aggregate of 34,350 shares of Common Stock were
issued by the Company in connection with two of the private placements
which occurred in 1995. Under one transaction, the warrant gives the
holders the right to purchase from the Company up to 31,850 shares of
Common Stock at an exercise price equal to $12.625 per share (the last
reported transaction price on August 21, 1996). The warrant was
exercisable immediately upon its issuance and expires on August 21, 1998.
Under the other transaction, the warrants gives the holders the right to
purchase from the Company up to 2,500 shares of Common Stock at an
exercise price equal to $11.875 per share (the closing bid price on
September 14, 1996). These warrants were exercisable immediately upon
their issuance and expire on September 19, 1998. All of the warrants
granted in these transactions are transferable by the holders thereof in
accordance with applicable securities laws and the shares underlying these
warrants have been registered under the Securities Act of 1933, as
amended.
While the Company will continue to evaluate debt and equity financing
opportunities, it believes its financing arrangements and cash flow
generated from operations provide a sufficient base of liquidity for
funding operations and capital needs to support the Company's operations.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND CONSOLIDATED FINANCIAL
STATEMENT SCHEDULES
CONSOLIDATED FINANCIAL STATEMENTS: Page
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . 20
Consolidated Balance Sheets, December 31, 1996 and 1995. . . . . . . . 21
Consolidated Statements of Income, years ended
December 31, 1996, 1995 and 1994. . . . . . . . . . . . . . . . . . . . 22
Consolidated Statements of Shareholders' Equity,
years ended December 31, 1996, 1995 and 1994. . . . . . . . . . . . . . 23
Consolidated Statements of Cash Flows, years ended
December 31, 1996, 1995 and 1994 . . . . . . . . . . . . . . . . . . . 24
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . 25
Quarterly Financial Data (unaudited) years ended
December 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . 34
CONSOLIDATED FINANCIAL STATEMENT SCHEDULES:
Schedule II - Valuation and Qualifying Accounts . . . . . . . . . . . 39
Exhibit 11 - Computation of Earnings per Common Share. . . . . . . . . . 43
<PAGE>
MC
Meredith, Cardozo & Lanz LLP
Certified Public Accountants
Independent Auditors Report
To the Board of Directors and Shareholders
Logic Devices Incorporated
We have audited the consolidated financial statements of Logic Devices
Incorporated and subsidiaries as listed in the accompanying index. In
connection with our audits of the consolidated financial statements, we
also have audited the financial schedules as listed in the accompanying
index. These consolidated financial statements and financial statement
schedules are the responsibility of the Company s management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedules based on our audits.
We conducted our audits 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 audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Logic
Devices Incorporated and subsidiaries as of December 31, 1996 and 1995,
and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1996, in conformity with
generally accepted accounting principles. Also in our opinion, the
related financial statement schedules, when considered in relation to the
basic consolidated financial statements taken as a whole, present fairly,
in all material respects, the information set forth therein.
/s/ Meredith, Cardozo & Lanz LLP
San Jose, California
March 20, 1997
<PAGE>
LOGIC DEVICES INCORPORATED
Consolidated Balance Sheets
December 31, 1996 and 1995
Assets
(Note 6)
1996 1995
Current assets:
Cash and cash equivalents $ 670,900 $ 4,378,500
Accounts receivable, net of allowance
for doubtful accounts of
$403,700 and $119,500,
respectively (Note 12) 4,368,300 5,844,000
Inventories (Note 3) 13,928,900 8,296,000
Prepaid expenses and other assets (Note 9) 922,600 980,300
Income taxes receivable (Note 7) 789,800 --
Deferred income taxes (Note 7) 920,900 704,700
Total current assets 21,601,400 20,203,500
Property and equipment, net (Notes 4 and 8) 4,204,300 2,409,800
Other assets (Note 2) 694,300 752,700
$ 26,500,000 $ 23,366,000
Liabilities and Shareholders' Equity
Current liabilities:
Bank borrowings (Note 6) $ 2,000,000 $ --
Accounts payable 1,074,600 991,000
Accrued expenses 531,800 278,800
Current portion of obligations
under capital leases (Note 8) 561,900 175,200
Income taxes payable (Note 7) -- 819,000
Total current liabilities 4,168,300 2,264,000
Obligations under capital leases,
less current portion (Note 8) 786,600 166,200
Deferred income taxes (Note 7) 419,500 225,000
Shareholders' equity (Notes 5 and 10):
Preferred Stock, no par value; 1,000,000 shares
authorized; 5,000 designated as Series A;
0 shares issued and outstanding -- --
Common Stock, no par value; 10,000,000 shares
authorized; 6,121,750 and 5,916,705 shares
issued and outstanding, respectively 17,341,900 16,741,900
Common Stock subscribed (307,500) --
Retained earnings 4,091,200 3,968,900
Total shareholders' equity 21,125,600 20,710,800
Commitments and contingencies (Notes 5, 6, 8 and 9)
$ 26,500,000 $ 23,366,000
<PAGE>
LOGIC DEVICES INCORPORATED
Consolidated Statements of Income
Years ended December 31, 1996, 1995 and 1994
1996 1995 1994
Net revenues (Note 11) $ 12,524,900 $ 16,611,100 $ 13,492,300
Cost of revenues
(Notes 9 and 11) 7,008,900 9,259,200 7,543,600
Gross margin 5,516,000 7,351,900 5,948,700
Operating expenses:
Research and development 1,450,100 1,450,600 1,337,900
Selling, general and
administrative 3,827,000 3,572,200 3,280,900
Total operating expenses 5,277,100 5,022,800 4,618,800
Income from operations 238,900 2,329,100 1,329,900
Other (income) expense:
Interest expense 94,500 339,700 338,600
Interest income (72,200) (102,300) (800)
Other 14,300 (7,900) (11,500)
36,600 229,500 326,300
Income before income taxes 202,300 2,099,600 1,003,600
Income taxes (Note 7) 80,000 715,800 295,800
Net income $ 122,300 $ 1,383,800 $ 707,800
Earnings per share:
Net income per common share $ 0.02 $ 0.26 $ 0.15
Weighted average common
shares outstanding 6,041,483 5,419,672 4,841,373
<PAGE>
LOGIC DEVICES INCORPORATED
Consolidated Statements of Shareholders' Equity
Years ended December 31, 1996, 1995 and 1994
Guarantee
of
leveraged
Preferred Stock Common Stock Retained ESOP
Shares Amount Shares Amount Earnings Borrowing Total
Balances as
of December
31, 1993 154 $154,000 4,737,584 $ 5,954,500 $1,877,300 $(83,800) $7,902,000
Proceeds from
exercise of
Common stock
options -- -- 25,000 116,700 -- -- 116,700
ESOP compensation
expense -- -- -- -- -- 83,800 83,800
Net income -- -- -- -- 707,800 -- 707,800
Balances as
of December
31, 1994 154 154,000 4,762,584 6,071,200 2,585,100 -- 8,810,300
Proceeds from
exercise of
common stock
options -- -- 66,000 283,500 -- -- 283,500
Private stock
offerings, net
of issuance costs
of $416,300 -- -- 912,500 9,665,200 -- -- 9,665,200
Conversion of Series A
preferred stock
into common
stock (154) (154,000) 25,666 154,000 -- -- --
Purchase of assets
for stock
(Note 2) -- -- 75,000 309,400 -- -- 309,400
Conversion of stock
warrants
(Note 5) -- -- 74,955 258,600 -- -- 258,600
Net income -- -- -- -- 1,383,800 -- 1,383,800
Balances as
of December 31,
1995 -- -- 5,916,705 16,741,900 3,968,900 -- 20,710,800
Proceeds from
exercise of
common stock
options -- -- 10,000 33,600 -- -- 33,600
Conversion of
stock warrants
(Note 5) -- -- 195,045 566,400 -- (307,500) 258,900
Net income -- -- -- -- 122,300 -- 122,300
Balances as
of December
31, 1996 -- $ -- 6,121,750$17,341,900 $4,091,200 $(307,500)$21,125,600
<PAGE>
LOGIC DEVICES INCORPORATED
Consolidated Statements of Cash Flows
Years ended December 31, 1996, 1995 and 1994
(Note 13)
1996 1995 1994
Cash flows from operating activities:
Net income $ 122,300 $ 1,383,800 $ 707,800
Adjustments to reconcile net
income to net cash (used in)
provided by operating activities:
Depreciation and amortization 1,210,400 1,120,100 1,246,100
Allowance for doubtful accounts 284,200 70,000 (12,500)
ESOP expense -- -- 83,800
Deferred income taxes (21,700) (553,000) (61,700)
Changes in assets and liabilities:
Accounts receivable 1,191,500 (1,856,400) (402,500)
Inventories (5,632,900) (1,214,400) (1,509,400)
Prepaid expenses and other assets 57,700 (574,500) 166,900
Income taxes receivable (789,800) -- --
Accounts payable 83,600 (279,200) 226,600
Accrued expenses 253,000 (13,700) 48,600
Income taxes payable (819,000) 667,600 151,400
Net cash (used in) provided by
operating activities (4,060,700) (1,249,700) 645,100
Cash flows from investing activities:
Capital expenditures (1,344,400) (884,800) (711,900)
Other assets (173,100) (26,900) (188,500)
Net cash used in investing
activities (1,517,500) (911,700) (900,400)
Cash flows from financing activities:
Proceeds from bank borrowings 2,000,000 3,011,400 3,412,400
Repayments of bank borrowings -- (5,857,800) (2,466,300)
Proceeds from long-term debt obligations -- 800,000 --
Repayments of long-term debt obligations(421,900) (979,400) (579,600)
Repayments of obligations to shareholders -- (863,900) (200,000)
Sale of common stock 292,500 10,207,300 116,700
Net cash provided by financing
activities 1,870,600 6,317,600 283,200
Net (decrease) increase in cash
and cash equivalents (3,707,600) 4,156,200 27,900
Cash and cash equivalents at beginning
of year 4,378,500 222,300 194,400
Cash and cash equivalents at end
of year $ 670,900 $4,378,500 $ 222,300
<PAGE>
LOGIC DEVICES INCORPORATED
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
The Company
Logic Devices Incorporated (the Company) develops and markets
high-performance digital complementary metal oxide silicon (CMOS)
integrated circuits for applications which require high-operating speeds
and low-operating power.
Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of the Company and its wholly owned subsidiary. All significant
intercompany accounts and transactions have been eliminated.
Cash Equivalents
For purposes of the statements of cash flows, the Company considers
all highly liquid investments with original maturities of three months or
less to be cash equivalents.
Inventories
Inventories are stated at the lower of cost (first-in, first-out
method) or market.
Equipment and Leasehold Improvements
Equipment and leasehold improvements are stated at cost. Depreciation
on equipment is calculated on the straight-line method over the estimated
useful lives of the assets, generally three to seven years. Leasehold
improvements and assets held under capital leases are amortized on a
straight-line basis over the shorter of the lease term or the estimated
useful life of the asset. Certain tooling costs are capitalized by the
Company and amortized on a straight-line basis over the shorter of the
related product life cycle or five years.
Cost in Excess of Fair Value of Net Assets Acquired
Costs in excess of the fair value of net assets acquired is amortized
on a straight line basis, generally over 7 years.
Capitalized Software Costs
Internal test computer software development costs incurred subsequent
to the determination of its technical feasibility are capitalized and
amortized on a straight-line basis over the shorter of the related
expected product life cycle or five years. As of December 31, 1996 and
1995, such costs aggregated $1,903,700 and $1,812,500, respectively, and
are included in other assets in the consolidated financial statements net
of accumulated amortization of $1,708,700 and $1,519,200, respectively.
Revenue Recognition
Revenue is generally recognized upon shipment of product. Sales to
distributors are made pursuant to agreements which provide the
distributors certain rights of return and price protection on unsold
merchandise. Revenues from such sales are recognized upon shipment, with
a provision for estimated returns and allowances recorded at that time.
(continued)
<PAGE>
1. Summary of Significant Accounting Policies - continued
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109. Under SFAS No. 109,
deferred tax liabilities or assets at the end of each period are
determined using the tax rate expected to be in effect when taxes are
actually paid or recovered. Deferred income taxes as of December 31, 1996
and 1995, primarily result from certain expenses that are not currently
deductible for tax purposes.
Net Income Per Common Share
Net income per common share is computed using the weighted average
number of common and dilutive common equivalent shares outstanding for
each year. Common equivalent shares consist of convertible preferred
stock (in 1995 and 1994) and the dilutive effect, if any, of stock options
and warrants.
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.
Long-Lived Assets
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of, which requires that long-lived assets and certain
identifiable intangibles held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The new standard is
effective for fiscal years beginning after December 15, 1995. Adoption of
SFAS No. 121 did not have a material effect upon the Company s financial
condition or consolidated results of operations in 1996.
Stock-Based Incentive Program
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 123, Accounting
for Stock-Based Compensation, which encourages entities to recognize
compensation costs for stock-based employee compensation plans using the
fair value based method of accounting defined in SFAS No. 123, but allows
for the continued use of the intrinsic value based method of accounting
prescribed by Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees. The Company elected to
continue with the accounting prescribed by APB Opinion No. 25 and as such
is required to disclose pro forma net income and earnings per share as if
the fair value based method of accounting had been applied (Note 10).
Reclassification
Certain amounts in the 1995 and 1994 financial statements have been
reclassified to conform with the 1996 presentation.
(continued)
<PAGE>
2. Acquisition
On April 14, 1995, the Company acquired and accounted for as a
purchase, certain intellectual and intangible assets of STAR Semiconductor
Corporation. Total consideration for the acquisition was 75,000 shares of
the Company s common stock valued at $309,400, for which the entire amount
was assigned to costs in excess of fair value of the net assets acquired
and other intangible assets. As of December 31, 1996 and 1995, such costs
are included in other assets on the consolidated balance sheets net of
accumulated amortization of $ 267,400 and $ 309,400 , respectively. Pro
forma results of operations assuming that this acquisition had taken place
at the beginning of the respective periods have not been presented because
the effects of the acquisition were not significant.
3. Inventories
A summary of inventories follows:
1996 1995
Raw materials $ 3,165,400 $ 938,000
Work-in-process 6,744,900 3,912,600
Finished goods 4,018,600 3,445,400
$ 13,928,900 $ 8,296,000
Based on 1996 s sales of $12,524,900 at December 31, 1996, the Company
has in excess of one year s supply of inventory.
4. Property and Equipment
A summary of property and equipment follows:
1996 1995
Equipment $ 7,752,200 $ 5,729,000
Tooling costs 4,870,600 4,182,700
Leasehold improvements 225,200 162,800
12,848,000 10,074,500
Less accumulated depreciation
and amortization 8,643,700 7,664,700
$ 4,204,300 $ 2,409,800
Equipment under capital lease obligations aggregated $1,763,000 and
$1,043,400 in 1996 and 1995, with related accumulated amortization of
$622,000 and $741,100, respectively.
5. Related Party Transactions
Warrants
Between the years 1991 and 1993, the Company granted warrants to
purchase 150,000 shares of the Company s common stock to two groups of
family trusts (the Trusts) established for members of the families of two
of the Company s board of directors, for extension of the then outstanding
shareholder obligation. These warrants were exercisable at $3.45 per
share and expire in March, 1996 (Note 10). In 1995, warrants for 74,955
shares of common stock were converted for aggregate cash proceeds of
$258,600. In 1996, warrants for 75,045 shares of common stock were
converted for aggregate cash proceeds of $258,900.
(continued)
<PAGE>
5. Related Party Transactions - continued
In 1995, the Company granted 200,000 warrants to two non-employee
directors related to the Trusts referred to above and 20,000 warrants to
one non-employee director to purchase the Company s common stock. These
warrants are exercisable at $2.5625 per share and expire February 15, 2000
(Note 10). In 1996, 120,000 of the non-employee director warrants related
to the trust referred to above were exercised via the issuance of two
promissory notes maturing July 1998, and bearing interest at a reference
rate plus 2%. These notes are included in common stock subscribed in the
accompanying consolidated financial statements.
6. Debt Financing
Bank Borrowings
The Company has a $8,000,000 revolving line of credit with a bank
which expires on May 31, 1997, bears interest at the bank s prime rate
(8.250% at December 31, 1996), and is secured by the assets of the
Company. The line of credit requires the Company to maintain a minimum
tangible net worth, a maximum ratio of debt to tangible net worth, a
minimum current ratio, a minimum quick ratio, and profitability over a
specified interval of time. As of December 31, 1996, the Company was not
in compliance with certain covenants under the bank borrowings, however,
the Company has obtained a waiver from the bank. At December 31, 1996,
the Company had $6,000,000 available under the revolving line of credit.
In 1995, the Company used $3,697,000 from the proceeds of the private
stock offerings to retire the then outstanding obligations under the
revolving line of credit and term debt.
7. Income Taxes
Income tax expense for the years ended December 31, 1996, 1995 and
1994 comprise:
Current Deferred Total
1996:
Federal $ 86,200 $ (18,400) $ 67,800
State 15,500 (3,300) 12,200
$ 101,700 $ (21,700) $ 80,000
1995:
Federal $ 1,075,100 $ (468,800) $ 606,300
State 193,700 (84,200) 109,500
$ 1,268,800 $ (553,000) $ 715,800
1994:
Federal $ 302,900 $ (52,300) $ 250,600
State 54,600 (9,400) 45,200
$ 357,500 $ (61,700) $ 295,800
(continued)
<PAGE>
7. Income taxes - continued
Deferred income taxes result from timing differences in the
recognition of certain expenses and income items for tax and financial
reporting purposes as follows:
1996 1995 1994
Distributor sales $ (40,100) $ (5,700) $ 14,700
Capitalized inventory costs (81,700) (223,100) (19,700)
Reserve not currently deductible (120,800) (71,900) 120,500
Depreciation 264,400 (191,200) (83,200)
Capitalized software costs (43,500) (61,100) (94,000)
$ (21,700) $ (553,000) $ (61,700)
The following summarizes the difference between the income tax expense
and the amount computed by applying the Federal income tax rate of 34% in
1996, 1995 and 1994 to income before income taxes:
1996 1995 1994
Federal income tax at
statutory rate $ 68,800 $ 717,300 $ 341,200
Utilization of tax credits (13,200) (121,400) (107,000)
State income taxes, net
of federal tax benefit 12,400 129,500 61,600
Other, net 12,000 (9,600) --
$ 80,000 $ 715,800 $ 295,800
Deferred tax assets comprises the following:
1996 1995
Distributor sales $ 80,400 $ 40,300
Capitalized inventory costs 494,400 412,700
Reserve not currently deductible 428,700 307,900
Depreciation (487,500) (223,100)
Capitalized software costs (14,600) (58,100)
Net deferred tax asset $ 501,400 $ 479,700
(continued)
<PAGE>
8. Commitments
The Company leases its facilities and certain equipment under
operating leases. The facility lease requires the Company to pay certain
maintenance and operating expenses such as taxes, insurance, and
utilities. Rent expense related to these operating leases was $1,174,400,
$939,100, and $918,600, during 1996, 1995 and 1994, respectively.
A summary of the future minimum lease payments under capitalized
leases together with the present value of such minimum lease payments and
future minimum payments required under noncancelable operating leases with
terms in excess of one year follows:
Noncancelable
Years ending Capitalized operating
December 31, leases leases
1997 $ 696,800 $ 1,125,200
1998 566,900 1,109,000
1999 306,600 848,700
2000 -- 443,900
2001 -- 323,700
Thereafter -- 323,600
Future minimum lease payments 1,570,300 $ 4,174,100
Less amount representing interest
(9.5% to 15.8%) 221,600
Present value of future minimum
lease payments 1,348,700
Less current portion 561,900
$ 786,800
9. Product Development and Foundry Agreements
In order to secure a long-term volume source of wafer production, in
December 1995, the Company entered into a foundry capacity agreement (the
Agreement) with Zenitrum Mikroelektronik Dresden (ZMD), a German limited
liability company. Under the terms of the Agreement, the Company entered
into a non- cancelable purchase commitment for one year s production
capacity of certain of its products with ZMD, at predetermined prices.
The Agreement required a $792,000 pre-payment for the year s purchases,
which is included in prepaid expenses and other assets, and is renewable
annually upon satisfaction of various provisions. The Company extended
its foundry capacity agreement with ZMD through March, 1998.
10. Capital Stock
Preferred Stock
In June 1995, each share of the Series A Preferred Stock held by the
Trusts (Note 5), was converted into 166.67 shares of common stock. As of
December 31, 1996 and 1995, there were no shares of Series A Preferred
Stock outstanding.
(continued)
<PAGE>
10. Capital Stock - continued
Common Stock
During 1995, the Company issued a total of 912,500 shares of the
Company s common stock in private placement transactions exempt from
registration under the Securities Act, which generated net proceeds of
approximately $9,665,200. These proceeds were used to repay the then
outstanding bank debt of $3,697,000.
Also during 1995, the Company purchased certain assets of Star
Semiconductor Corporation for 75,000 shares of the Company s common stock
(Note 2).
Stock Purchase Warrants
As of December 31, 1996, the following common stock warrants were
issued and outstanding:
Issued with Shares Subject Exercise Expiration
Respect to: To Warrant Price Date
Private Placement 31,850 $ 12.6250 August 21, 1998
Private Placement 2,500 $ 11.8750 September 19, 1998
Non-employee
Board of Directors
Compensation 100,000 $ 2.5625 February 15, 2000
Stock Option Plan
FASB Statement 123, Accounting for Stock-Based Compensation ,
requires the Company to provide pro forma information regarding net income
and earnings per share as if compensation cost for the Company s stock
option plans had been determined in accordance with the fair value based
method prescribed in FASB Statement 123. The Company estimates the fair
value of stock options at the grant date by using the Black- Scholes
option pricing-model with the following weighted average assumptions used
for grants in 1994, 1995, 1996, respectively: dividend yield of 0;
expected volatility of 42, 112, 129 percent; risk-free interest rates of
6.1, 6.4, 6.6 percent for the 1994 Plan options; and expected lives of 4
years for the all plan options.
Under the accounting provisions of FASB Statement 123, the Company s
net income and earnings per share would have been reduced to the pro forma
amounts indicated below:
1994 1995 1996
Net income:
As reported $ 707,800 $ 1,383,800 $ 122,300
Pro forma $ 705,500 $ 1,320,300 $ 39,200
Primary earnings per share:
As reported $ 0.15 $ 0.26 $ 0.02
Pro forma $ 0.15 $ 0.24 $ 0.01
(continued)
<PAGE>
10. Capital Stock - continued
A summary of the status of the Company s stock option plan as of
December 31, 1994, 1995, and 1996, and changes during the years ended on
those dates is presented below:
Options Outstanding
December 31, 1994 December 31, 1995 December 31, 1996
Weighted-Average Weighted-Average Weighted-Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
Outstanding
at
beginning
of year 78,000 $ 2.740 78,000 $ 2.778 97,000 $ 7.540
Granted 25,000 $ 2.750 85,000 $ 8.000 10,000 $ 6.000
Exercised (25,000) $ 1.625 (66,000) $ 7.000 (10,000) $ 1.625
Forfeited -- -- -- -- (3,500) $ 8.000
Outstanding at
end of year 78,000 $ 2.778 97,000 $ 7.540 93,500 $ 7.830
Options exercisable
at year-end 78,000 12,000 43,000
Weighted-average fair
value of options granted
during the year $ 2.750 $ 8.000 $ 6.000
The following table summarizes information about stock
options outstanding at December 31, 1996:
Options Outstanding Options Exercisable
Number Weighted-Average Number
Range of Outstanding Remaining Weighted-Average Exercisable Weighted-Aver
Exercise at Contractual Exercise at Exercise
Price 12/31/96 Life Price 12/31/96 Price
$4.25 2,000 3.75 Years $4.25 2,000 $4.25
$8.00 91,500 9 Years $8.00 41,000 $8.00
93,500 $7.92 43,000 $7.83
11. Major Customers, Suppliers and Export Sales
Major Customers
In 1996, two customers each accounted for approximately 10% of net
revenues. In 1995, two customers each accounted for approximately 13% of
net revenues, and one customer accounted for approximately 10% of net
revenues. In 1994, one customer accounted for approximately 17% of net
revenues.
(continued)
<PAGE>
11. Major Customers, Suppliers and Export Sales - continued
Major Suppliers
In 1996, two suppliers were in excess of 10% of the Company s total
purchases and aggregated approximately $ 4,094,600. There was no
outstanding accounts payable to these suppliers at December 31, 1996.
Export Sales
The Company had the following export sales:
1996 1995 1994
Western Europe $ 2,341,300 $ 1,831,400 $ 1,517,000
Far East 904,000 1,500,600 939,300
Other 99,600 108,800 22,200
$ 3,344,900 $ 3,440,800 $ 2,478,500
12. Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentration of credit risk consist principally of cash and cash
equivalents and trade receivables. The Company places its cash and cash
equivalents with high quality financial institutions and, by policy,
limits the amounts of credit exposure to any one financial institution.
A significant portion of the Company s accounts receivable are derived
from one major class of customer (distributors) with the remainder spread
across many other customers in various electronic industries. The Company
believes any risk of accounting loss is significantly reduced due to
provision being made at the date of the sale for returns and allowances,
diversity of its products, end-customers, geographic sales areas and
insurance on foreign distributor sales. The Company performs credit
evaluations of its customers financial condition whenever necessary. The
Company generally does not require cash collateral or other security to
support customer receivables.
13. Statements of Cash Flows
The Company paid $94,500, $339,700 and $338,600 for interest and
$1,794,300, $454,600 and $98,700 in income taxes in 1996, 1995 and 1994,
respectively.
Noncash investing activities for 1996 and 1995 consisted of the
acquisition of $1,429,000 and $240,200, respectively, of equipment under
capital leases.
In addition, as discussed in Note 2, noncash investing activities in
1995 included the issuance of 75,000 shares of the Company s common stock
for certain assets of STAR Semiconductor Corporation.
<PAGE>
Quarterly Financial Data (Unaudited)
The following is a summary of unaudited results of operations (dollars in
thousands except per share data) for the years ended December 31, 1996 and
1995.
1996 First Second Third Fourth
Quarter Quarter Quarter Quarter Total
Net revenues $ 3,609 $ 3,496 $ 3,390 $ 2,030 $ 12,525
Gross margin 1,634 1,696 1,542 643 5,516
Income from operations 329 186 156 (432) 239
Income before income taxes 369 214 161 (542) 202
Net income 221 134 95 (328) 122
Earnings per share 0.04 0.02 0.02 (0.06) 0.02
Weighted average shares 6,219 6,222 6,222 6,041 6,041
1995 First Second Third Fourth
Quarter Quarter Quarter Quarter Total
Net revenues $ 3,550 $ 4,408 $ 4,517 $ 4,136 $ 16,611
Gross margin 1,666 1,827 1,833 2,026 7,352
Income from operations 499 696 689 445 2,329
Income before income taxes 400 602 648 450 2,100
Net income 272 407 441 264 1,384
Earnings per share 0.06 0.08 0.08 0.05 0.26
Weighted average shares 4,913 5,294 5,667 5,420 5,420
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors and Executive Officers
The following is a list of the directors and executive officers of the
Company as of December 31, 1996, all of whom are elected annually:
Positions Held
Name Age With the Company
William J. Volz 49 President
Director
Todd J. Ashford 40 Chief Financial Officer
Secretary
William Jackson 49 Vice President/Manufacturing
Howard L. Farkas 72 Chairman of the Board
Burton W. Kanter 66 Director
Albert Morrison, Jr. 58 Director
Bruce B. Lusignan 46 Director
Mr. Volz is a founder of the Company. He has served as a director
since its inception and has been the President of the Company since
December 1987. Mr. Volz served as the Company's Vice President of
Engineering from 1983 to 1987. He was previously employed by Texas
Instruments, Inc., Mostek Corporation, and E-Systems, Inc.
Mr. Ashford joined the Company in 1984 as Director of Finance and
Administration. Since 1985, Mr. Ashford has served as the Company's Chief
Financial Officer. Mr. Ashford was previously employed by W.R. Grace &
Company, Inc.
Mr. Jackson joined the Company in 1990. Before joining the Company,
Mr. Jackson held various engineering and management positions at Advanced
Micro Devices ("AMD") and Monolithic Memories Inc. ("MMI"). Prior to AMD
and MMI, he was employed by Raytheon Corporation, Litronix Corporation,
and Western Electric. Mr. Jackson was appointed Vice President of
Manufacturing in 1992.
Mr. Farkas is Chairman of the Board of the Company and has been a
director since 1983. Mr. Farkas has been part owner of and a broker with
Farkas Group, Inc., a commercial real estate company, since 1981. He has
been a business advisor to Mr. S. A. Hellerstein, trustee of the Farkas
Trusts, and Mr. Hellerstein's predecessor since 1964. He serves as a
director of Synthetech, Inc., Power Cell, Inc. and Acquisition Industries,
Inc. Mr. Farkas is vice president of G.A.S. Corp., a privately held
corporation which serves as the corporate general partner of Gas
Acquisition Services Limited Partnership. On June 27, 1990, such limited
partnership sought protection under Chapter 11 of the federal bankruptcy
laws. On September 22, 1992, Mr. Farkas filed for personal protection
under Chapter 7 of the federal bankruptcy laws.
<PAGE>
Mr. Kanter has served as a director of the Company since 1983. He is
"of counsel" to the law firm of Neal Gerber & Eisenberg in Chicago. He
serves as a director of numerous companies, including the following public
companies: Walnut Financial Services, Inc., HealthCare COMPARE Corp.,
Scientific Measurement Systems, Inc., Channel America, Inc. and
PowerCell-Inc. He also is a member of the Board of Directors or the Board
of Trustees of: the Midwest Film Center of the Chicago Art Institute, the
Chicago International Film Festival and the Museum of Contemporary Art of
Chicago. He is also on the advisory board of the Wharton School of the
University of Pennsylvania Real Estate Center and the University of
Chicago Annual Tax Conference.
Mr. Morrison has served as a director since 1983 and has been
President of Morrison, Brown, Argiz & Company, P.C., a certified public
accounting firm in Miami, Florida, since 1969. Mr. Morrison is Vice
Chairman of the Dade County Industrial Development Authority, Treasurer of
the Board of Trustees of Florida International University and a member of
the Board of Directors of Chicago Holdings, Inc., Heico Corporation and a
Trustee of the Greater Miami Chamber of Commerce.
Dr. Lusignan was elected to the Board of Directors in 1996. Dr.
Lusignan is Director of the Communications Satellite Planning Center, a
research laboratory of Stanford University's Electrical Engineering
Department. Dr. Lusignan is Vice President of Engineering for Primary
Communication, Inc., a small telecommunications consulting firm and does
consulting work for Becker, Gurman, Lucas, Meyers and O'Brien (regulatory
law), Mendes and Mount (satellite insurance), the Intergovernmental Bureau
of Informatics, Cairo University, King Saud University, E.F. Johnson
Corporation, and the U.S. Congress Office of Technology Assessment.
Committees of the Board of Directors
The Board has an Audit Committee and a Compensation Committee.
Currently, the members of the Audit Committee are Howard L. Farkas, Burton
W. Kanter and Albert Morrison, Jr., and the members of the Compensation
Committee are Howard L. Farkas, William J. Volz and Burton W. Kanter.
The functions of the Audit Committee include reviewing the
independence of the Company's independent auditors, recommending to the
Board the engagement and discharge of independent auditors, reviewing with
the independent auditors the plan and results of auditing engagements,
reviewing the scope and adequacy of internal accounting controls and
directing and supervising special investigations. The Audit Committee
held one meeting during 1996.
The functions of the Compensation Committee include reviewing and
making recommendations to the Board with respect to the compensation of
officers and other employees of the Company and establishing employee
benefit programs. The Compensation Committee held one meeting during
1996.
The Board held five meetings during 1996. All members of the Board
attended each meeting during the year.
<PAGE>
Compliance with Section 16(a) of the Exchange Act
Based solely upon a review of Form 3 and 4 and amendments thereto
furnished to the Company pursuant to Rule 16a-3(e) during its most recent
fiscal year and Form 5 and amendments thereto furnished to the Company
with respect to its most recent fiscal year, the Company is not aware of
any directors, officer or beneficial owner of more than 10% of the shares
of the Company's Common Stock who failed to file on a timely basis, as
disclosed in the above Forms, reports required by Section 16(a) of the
Exchange Act during the most recent fiscal year or prior fiscal year
except that an SEP of Burton W. Kanter sold 2,500 shares of the Company's
Common Stock on May 25, 1995 which sale was not reported on Form 4 until
August of 1995.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item will be included in the Proxy
Statement and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item will be included in the Proxy
Statement and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item will be included in the Proxy
Statement and is incorporated herein by reference.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) The following documents are filed as part of this report:
(1) The Company's Consolidated Financial Statements and Notes to
Consolidated Financial Statements appear at pages 21 to 34 of this report;
see Index to Consolidated Financial Statements at page 19 of this report.
(2) Consolidated Financial Statement Schedules appear at page 40 of
this report; see Index to Consolidated Financial Statement Schedules at
page 19 of this report.
(3) The Index to Exhibits appears at page 41 of this report.
(b) Reports on Form 8-K: During the last quarter of fiscal 1996, the
Company filed no Current Report on Form 8-K.
<PAGE>
Schedule II - Valuation and Qualifying Accounts
Balance Charged to Charged Balance at
at Beginning costs and to Other end
Description of Period expenses Accounts Deductions of Period
1996
Allowances for:
Doubtful Accounts $ 119,500 $ 400,000 -- $ 115,800 $ 403,700
Inventory Reserve $ 575,000 $1,783,900 -- $1,783,900 $ 575,000
Sales Returns $ 100,500 $ 100,000 -- -- $ 200,500
1995
Allowances for:
Doubtful Accounts $ 49,500 $ 120,000 -- $ 50,000 $ 119,500
Inventory Reserve $ 478,500 $ 749,800 -- $ 653,300 $ 575,000
Sales Returns $ 100,500 $ 507,600 -- $ 507,600 $ 100,500
1994
Allowances for:
Doubtful Accounts $ 62,000 $ 90,000 -- $ 102,500 $ 49,500
Inventory Reserve $ 756,600 $ 872,500 -- $1,150,000 $ 478,500
Sales Returns $ 143,500 $ 274,200 -- $ 317,200 $ 100,500
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
LOGIC DEVICES INCORPORATED
Date: April 8, 1997 By: /s/ William J. Volz
William J. Volz, President and
Principal Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, this report has been signed below by the following persons in
the capacities and on the dates indicated.
Signature Title Date
/s/ William J. Volz President April 8, 1997
William J. Volz (Principal Executive Officer)
/s/ Todd J. Ashford Chief Financial Officer April 8, 1997
Todd J. Ashford (Principal Financial
and Accounting Officer)
/s/ Howard L. Farkas Chairman of the Board April 8, 1997
Howard L. Farkas of Directors
/s/ Burton W. Kanter Director April 8, 1997
Burton W. Kanter
/s/ Albert Morrison, Jr. Director April 8, 1997
Albert Morrison, Jr.
/s/ Bruce B. Lusignan Director April 8, 1997
Bruce B. Lusignan
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description
3.1 Articles of Incorporation, as amended [3.1] (1).
3.2 Bylaws, as amended. [3.2] (1).
4.1 Form of Warrant to purchase an aggregate of 2,500 shares of common
stock. [4.1] (15)
4.2 Form of Warrant to purchase an aggregate of 31,850 shares of common
stock. [10.2] (13)
10.1 Master Agreement dated August 11, 1988 between Registrant, Howard L.
Farkas, Burton W. Kanter, William Volz, Albert Morrison, Jr., as trustee
of the T.C. Family Trust, Burton W. Kanter, as trustee of the Logical
Trust, L.A. Hellerstein, as trustee, the Farkas Trusts, and Solomon A.
Weisgal as trustee of the Bea Ritch Trusts, with exhibits. [10.1] (1).
10.2 Logic Devices Incorporated Stock Purchase Plan. [10.2] (1).
10.3 Incentive Stock Agreement dated September 1, 1986 between Registrant
and certain employees and former employees of Registrant, including
William Volz, James McAllister, Todd Ashford and Jesse Huffman. [10.3]
(1).
10.4 Agreement of Lease dated May 4, 1989 between Registrant and the Koger
Company covering Registrant's facility in St. Petersburg, Florida. [10.7]
(5)
10.5 Sales Incentive Plan. [10.11] (1).
10.6 Logic Devices Incorporated incentive and non-qualified stock option
plan. [10.26] (6).
10.7 Stock option agreement between Todd J. Ashford and the Registrant,
dated May 15, 1990. [10.27] (7)
10.8 Stock option agreement between Tony Bell and the Registrant, dated
April 16, 1990. [10.28] (7)
10.9 SRAM Development Memorandum of Understanding between the Registrant
and OKI Electric Industry Co., Ltd. dated March 3, 1992. [10.32] (9) (17)
10.10 Form of Warrant to purchase an aggregate of 220,000 shares of
Common Stock. [10.23] (12)
10.11 Form of Registration Agreement regarding the Warrants referenced
in Exhibit 10.14. [10.24] (12)
10.12 Foundry Capacity Agreement between Zentrum Mikroelektronik
Dresden (ZMD) and Logic Devices Incorporated,
dated December 14, 1995. [10.27](12)(17)
10.13 Real Estate lease regarding Registrant's Sunnyvale facilities.
[10.1](16)
10.14 Assignment of Warrant to purchase an aggregate of 100,000 shares
of Common Stock. [10.1](14)
10.15 Secured Promissory Note between Howard Farkas and Registrant.
[10.4](14)
10.16 Secured Promissory Note between Albert Morrison, Jr. and
Registrant. [10.5](14)
11.1 Computation of Earnings per Common Share
23.1 Consent letter of Meredith Cardozo & Lanz LLP
26.1 Financial Data Schedule
___________________
[ ] Exhibits so marked have been previously filed with the
Securities and Exchange Commission as exhibits to the filings shown below
under the exhibit numbers indicated following the respective document
description and are incorporated herein by reference.
(l) Registration Statement on Form S-18 ("Registration Statement"), as
filed with the Securities and Exchange Commission ("SEC") on August 23,
1988.
(2) Amendment No. 1 to Registration Statement as filed with the SEC on
September 27, 1988.
(3) Amendment No. 2 to Registration Statement, as filed with the SEC on
October 7, 1988.
(4) Annual Report on Form 10-K for the fiscal year ended December 31,
1988, as filed with the SEC on April 14, 1989.
(5) Annual report on Form 10-K for the fiscal year ended December 31,
1989, as filed with the SEC on April 14, 1990.
(6) Proxy Statement relating to the Annual Meeting of Shareholders held
on June 12, 1990, as filed with the SEC on May 24, 1990.
(7) Annual Report on Form 10-K for the fiscal year ended December 31,
1990, as filed with the SEC on April 14, 1991.
(8) Annual Report on Form 10-K for the fiscal year ended December 31,
1991, as filed with the SEC on April 14, 1992.
(9) Annual Report on Form 10-K for the fiscal year ended December 31,
1992, as filed with the SEC on April 15, 1993.
(10) Annual Report on Form 10-K for the fiscal year ended December 31,
1993, as filed with the SEC on March 31, 1994.
(11) Annual Report on Form 10-K for the fiscal year ended December 31,
1994, as filed with the SEC on March 31,
1995.
<PAGE>
(12) Annual Report on Form 10-K for the fiscal year ended December 31,
1995, as filed with the SEC on April 12,
1996.
(13) Registration Statement on Form S-3 as filed with the SEC on August
31, 1995 [Registration No. 33-62299]
(14) Registration Statement on Form S-3 as filed with the SEC on November
21, 1996 [Registration No. 333-16591]
(15) Quarterly Report on Form 10-Q for the quarter ended September 30,
1995, as filed with the SEC on November
14, 1995.
(16) Quarterly Report on Form 10-Q for the quarter ended September 30,
1996, as filed with the SEC on November
14, 1996.
(17) Confidential treatment requested with respect to certain portions of
such agreements.
<PAGE>
EXHIBIT 11
Computation of Earnings per Common Share
1996 1995 1994
Weighted average shares outstanding
common stock 6,041,483 5,233,575 4,758,146
Common stock equivalent convertible
preferred stock -- -- 25,666
Dilutive effect of common stock options -- 13,743 28,035
Dilutive effect of common stock warrants -- 172,354 29,526
Weighted average common and
common share equivalents 6,041,483 5,419,672 4,841,373
Net income $ 122,300 $1,383,800 $ 707,800
Net income per common share equivalent $ 0.02 $ 0.26 $ 0.15
<PAGE>
EXHIBIT 23.1
MC
Meredith, Cardozo & Lanz LLP
Certified Public Accountants
Independent Auditors Consent
The Board of Directors
Logic Devices Incorporated
We consent to the use of our report included herein, dated March 20, 1996,
relating to the consolidated balance sheets of Logic Devices Incorporated
(the Company ) as of December 31, 1996 and 1995, and the related
consolidated statements of income, shareholders equity and cash flows and
related schedules for each of the years in the three-year period ended
December 31, 1996, to the incorporation by reference of such report into
the Registration Statement on Form S-3 filed by the Company with the
Securities and Exchange Commission ( SEC ) November 21, 1996 [Registration
No. 333-16591], into the Registration Statement on Form S-8 filed by the
Company with the SEC on September 28, 1993 [File No. 33- 69630], and into
the Registration Statement on Form S-8 filed by the Company with the SEC
on July 6, 1996 [Registration No. 33-60993].
/s/ Meredith, Cardozo & Lanz LLP
San Jose, California
March 20, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 670,900
<SECURITIES> 0
<RECEIVABLES> 4,368,900
<ALLOWANCES> 403,700
<INVENTORY> 13,928,900
<CURRENT-ASSETS> 21,601,400
<PP&E> 12,848,000
<DEPRECIATION> 8,643,700
<TOTAL-ASSETS> 26,500,000
<CURRENT-LIABILITIES> 4,168,300
<BONDS> 0
<COMMON> 17,341,900
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 26,500,000
<SALES> 12,524,900
<TOTAL-REVENUES> 12,524,900
<CGS> 7,008,900
<TOTAL-COSTS> 5,277,100
<OTHER-EXPENSES> 14,300
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 94,500
<INCOME-PRETAX> 202,300
<INCOME-TAX> 80,000
<INCOME-CONTINUING> 122,300
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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