**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**Washington,D.C. 20549**

** **

**FORM 10-K**

** **

**[X] Annual Report Pursuantto Section 13 or 15(d) of the Securities Exchange Act of 1934**

For the Fiscal Year EndedSeptember 30, 2004

or

[  ] **TransitionReport Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934**

For the Transition Period_____ to _____

 

Commission file number

**0-17187**

 

# LOGIC DEVICES INCORPORATED

(Exact name of registrant  as specified in its charter)

 
**California**

**94-2893789**

(State of  Incorporation)

(I.R.S. Employer  Identification No.)
 395 West Java Drive,  Sunnyvale, CA 94089
(Address of principal executive offices, including Zip Code)

 

**(408) 542-5400**

(Registrant's telephone  number, including Area Code)

 

Securities registeredpursuant to Section 12(b) of the Act

 

Title of Class

Name of each exchange on  which registered
NONENONE
 

Securities registeredpursuant to Section 12(g) of the Act

 
Common Stock, without par value
(Title of Class)

 

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

Yes   X      No         

 

Indicateby check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not be contained, to the bestof registrant's knowledge, in definitive proxy or information statementsincorporated by reference in Part III of this Form 10-K or any amendment tothis Form 10-K. [     ] CHECK IFAPPLICABLE

 

Indicate by check mark whether the registrant is anaccelerated filer (as defined in Exchange Act Rule 12b-2).

Yes           No   X   

 

Theapproximate aggregate market value of the registrant's common stock held bynon-affiliates as of March 31, 2004 (the last business day of the registrant'smost recently completed second quarter) was $7.9 million, based on the closingprice for the common stock on the Nasdaq National Market on such date. Theforegoing calculation excludes shares of common stock held by each executiveofficer and director and by each person who owns 5% or more of the outstandingcommon stock, in that such persons may be deemed affiliates. This determinationof affiliate status is not necessarily a conclusive determination for otherpurposes.

 

Asof December 20, 2004, the Registrant had 6,743,188 shares of its common stock issuedand outstanding.

 

DocumentsIncorporated by Reference: Parts of the Proxy Statement for registrant's 2005Annual Meeting of Shareholders are incorporated by reference in Items 10, 11,and 12 of Part III of this Annual Report on Form 10-K.
**CAUTIONARY STATEMENT**
 

This Annual Report on Form 10-K containsforward-looking statements which include, but are not limited to, statementsconcerning projected revenues, expenses, gross margin, net income, marketacceptance of the products of Logic Devices Incorporated (the Company), thecompetitive nature of and anticipated growth in the Company's markets, theCompany's ability to achieve further product integration, the status ofevolving technologies and their growth potential, the timing and acceptance ofnew product introductions, the adoption of future industry standards, theCompany's production capacity, its ability to migrate to smaller processgeometries, and the need for additional capital. These forward-lookingstatements are based on the Company's current expectations, estimates, andprojections about its industry, management's beliefs, and certain assumptionsmade by it. Words such as "anticipates, appears, expects, intends, plans,believes, seeks, estimates, may, will," and variations of these words or similarexpressions are intended to identify forward-looking statements. In addition,any statements that refer to expectations, projections, or othercharacterizations of future events or circumstances, including any underlyingassumptions, are forward-looking statements. These statements are notguarantees of future performance and are subject to risks, uncertainties, andassumptions that are difficult to predict. Therefore, the Company's actualresults could differ materially and adversely from those results expressed inany forward-looking statements, as a result of various factors, some of whichare listed under the section, "Factors Affecting Future Results," at the end ofItem 1 of this Annual Report on Form 10-K. The Company undertakes no obligationto revise or update publicly any forward-looking statements for any reason.

 

 

**PART I**
 ITEM 1.    BUSINESS
** **
General Development of the Business
 

LOGICDevices Incorporated (the Company) develops and markets high-performancedigital integrated circuits that address the requirements of original equipmentmanufacturers (OEMs) to provide high-speed electronic computation and storagein digital signal processing (DSP), video image processing, andtelecommunications applications. The Company's product strategy is to developand market proprietary circuits that offer superior performance to meetspecific application requirements.

 

OnDecember 15, 2003, the Company elected to change its calendar business year toa fiscal year ending September 30. Previously, the Company's fiscal years werecomprised of 52 weeks of seven days, each beginning on Monday and ending onSunday, with fiscal 2003 ending September 28, 2003 and fiscal 2002 endingSeptember 29, 2002. Previously, the Company's fiscal quarters were comprised ofexactly 13 weeks and, therefore, its fiscal years consisted of only 364 days.

 

Asa result of this change, the Company's fiscal years will be comprised of 365days or, in leap years such as 2004, 366 days with each fiscal quarter endingat the end of a calendar quarter. The Company's 2004 fiscal year endedSeptember 30, 2004 rather than September 26, 2004. The additional four dayswere included in the Company's first quarter for fiscal 2004, which endedDecember 31, 2003.

 

TheCompany's products generally address DSP requirements involvinghigh-performance arithmetic computational and high-speed storage functions. TheCompany is focused on developing proprietary catalog products to addressspecific functional application needs or performance levels that are nototherwise commercially available. The Company seeks to provide related groupsof circuits that OEMs purchase for incorporation into high-performanceelectronic systems. As a result of the Company's focus on higher valueproducts, it has reduced the number of products it offers by over 80 percentover the past five years.

 

TheCompany relies on third-party silicon foundries to process silicon wafers, eachwafer having up to several hundred integrated circuits of a given Companydesign, from which finished products are then assembled. The Company's strategyis to avoid the substantial investment in capital equipment required toestablish a wafer fabrication facility, by outsourcing wafer processing tothird-party foundries and taking advantage of their expertise. See"Business - Background." The Company currently has two primary wafersuppliers and continues to explore additional foundry relationships to reduceits dependence on any single wafer foundry.

TheCompany markets its products worldwide through its own direct sales force, andthrough one domestic and 21 international distributors. In fiscal year 2004,approximately 34 percent of the Company's net revenues were derived from OEMs,while sales through foreign and domestic distributors accounted for approximately66 percent of net revenues. Among the Company's customers are GE Medical,Lockheed Martin, Qualcomm, Texas Instruments, Sony, Teradyne, andRaytheon. Approximately 48 percent of the Company's 2004 net revenues werederived from within the United  States and approximately 52 percent werederived from foreign sales.

 

TheCompany was incorporated under the laws of the State of California in April 1983. The Companyheadquarters are located at 395  West Java Drive, Sunnyvale, California94089.The Company's telephone number is (408) 542-5400.

 
Available Information
 

TheCompany makes available its annual report on Form 10-K, quarterly reports onForm 10-Q, current reports on Form 8-K, and amendments to those reports filedor furnished pursuant to Section 13(a) or Section 15(d) of the SecuritiesExchange Act of 1934 free of charge on its website, www.logicdevices.com, as soon asreasonably practicable after we electronically file such material with orfurnish such material to the Securities and Exchange Commission.

 
Background
 

Rapidadvances in fabricating silicon-based semiconductors are driving a globalrevolution in electronics. With these ongoing advances, the ability toeconomically compute, communicate, and control seems to be limited only by thecreativity required to implement ever more complex electronic systems. It isbecoming increasingly common to implement entire electronic systems on a singlesmall sliver of silicon. The challenges to the industry have increasinglyturned toward innovative product definition, timely product development,technical customer support, and heavy capital investments in advancedsemiconductor wafer fabrication facilities. The rapid advances in chipfabrication technology have resulted in a specialization of skills within theindustry. In addition to the specialization of materials processing skillsrequired to fabricate semiconductor wafers, the industry increasingly requiresand values system architecture development, interoperability standards, signalprocessing algorithms, and circuit design expertise as essential skills fordeveloping financially successful products. Opportunities have thus emerged forsemiconductor companies that focus on product definition, advanced designtechniques, and technical application support, and that rely on third partiesfor wafer fabrication. The Company focuses its resources on defining anddeveloping high-performance integrated circuit components for growing markets,which require demanding computational throughput.

 

Thesemiconductor industry is intensely competitive, highly cyclical, andcharacterized by rapid technological change, product obsolescence, widefluctuations in both demand and capacity, and steep price erosion. Thesefactors can obsolete processes and products currently utilized or produced bythe Company. In such cases, the Company is required to develop productsutilizing new processes and to either integrate such products into its existingfoundry processes, or seek new foundry sources.

 
Markets and Product Strategies
 

DSPis an important technology for many emerging product technologies. It involvesconverting light, sound, or other naturally occurring analog phenomena into astream of digital values that may then be processed, manipulated, exchanged, orsorted by electronic systems. DSP provides many advantages, including: theability to store and recall information; the ability to extract informationcontent and compress the amount of data that must be stored, processed, ortransmitted; and the ability to process and manipulate digital data withconsistency and precision. Manipulation of video images and speech requiressignal-processing rates and precision that are not yet practical with analogtechnology or with general-purpose (non-DSP) processors.

DSPis becoming commonplace in our lives, resulting from rapid advances insemiconductor process technology and increasing cost effectiveness.Consequently, very large and formidable companies have become interested inDSP, with a focus on high-volume applications. To avoid direct competition withthese larger companies, the Company attempts to identify products and marketniches that demand the greater performance that programmable DSP circuits canachieve, yet are small enough not to attract significant attention from thelarger chip manufacturers.

 

Beginningin November 1998, the Federal Communications Commission (FCC) directed thattelevision broadcasters begin a transition from analog broadcasts tohigh-definition digital television (HDTV), which offers clearer pictures andbetter sound, with all analog broadcasts scheduled to cease by 2006.Unfortunately, the broadcasters have resisted and remain behind the scheduledmandates. This slow transition adversely affected the Company's revenues in thepast few fiscal years.

 

InAugust 2002, the FCC issued an order to television manufacturers that requiresdigital tuners be incorporated into 50 percent of the television sets withscreens of 36 or more inches starting in 2004, in 50 percent of the sets withscreens of 25-35 inches starting in 2005, and in all sets with screens of 13inches or more by 2007. On October 29, 2003, the U.S. Court of Appeals for theD.C. Circuit upheld a FCC mandate that, by 2007, all but the very smallesttelevision sets sold in the U.S.must be equipped for receiving digital, along with traditional analog,television signals. The court said that the FCC's mandate was needed becausethe industry was not moving quickly enough to make new tuners available.

 

TheCompany has historically derived a significant portion of its revenues fromtelevision broadcast equipment manufacturers. In the late 1990's, the Companyjointly defined with its customers a family of high-performance digital imagefiltering circuits that facilitate the smoothing of edges as video images arestretched and resized. The Company has developed and sampled these to OEMs forincorporation into HDTV studio production systems. While sales of HDTV studioequipment have lagged behind market forecasts, the Company believes itsproducts offer effective solutions to certain video image filtering problems inthat equipment. Therefore, if HDTV studio equipment begins to sell in highervolume, the Company believes it may benefit from increasing sales.

 

Asa result of its initial work on digital filtering and image resizing circuits,the Company identified secondary applications for this product technology. TheCompany found that the circuits were applicable to, and have been incorporatedinto, advanced medical imaging equipment, such as ultrasound and computer aidedtomography (CAT) scanners, and security camera systems.

 

Lastly,in fiscal 2002, as a result of the need to replenish stocks of advancedmilitary weapons systems, the Company enjoyed increased sales for certainmilitary programs, with sales to one defense contractor, Lockheed Martin,comprising 24 percent of net revenues. One military product comprised 17.4percent of net revenues in fiscal 2002. No other products made up more than 15percent of net revenues in fiscal 2002. No products made up more than 15percent of net revenues in fiscal 2004 or 2003.

 
Products in Development
 

Companiesin the semiconductor industry typically experience a correlation between theirsuccess in introducing new products and increases in revenues. While theCompany remains committed to product development, it did not make significantnew product introductions over the past few years as a result of focusing onreducing costs and strengthening its cash flow and balance sheet.

 

Toaddress the lack of new product introductions over the past few years, theCompany maintained high levels of research and development expenditures eventhough its net revenues decreased during fiscal 2004 and 2003. Through hiringand support of the continuing education of its employees, the Company increasedthe educational background of its design team during the past few years, whilealso acquiring new software design automation tools to increase theproductivity of its product development efforts. These efforts resulted in theintroduction of a new video frame buffer product, the LF3312, which the Companyis currently sampling to customers. At current resource levels, the Companydoes not anticipate being able to complete all product opportunities it hasidentified. However, as it considers product development critical to its futuresuccess, the Company anticipates that its product development expenditures willcontinue to be significant in the future and be directed towards those productswith the greatest revenue potential. Based on the investments the Company hasmade in research and development, it anticipates product development willaccelerate in the future.
 Wafer Fabrication Technology
 

TheCompany is a fabless manufacturer. It relies upon third-party foundry suppliersto produce processed wafers from mask patterns designed by the Company. Throughthese wafer suppliers, the Company has access to advanced high-speed,high-density complimentary metal oxide semiconductor (CMOS) process technology,without the significant investment in capital equipment and facilities requiredto establish a wafer fabrication factory. Coupled with the Company's structuredcustom design methodology and experience with high-speed circuit design, thisCMOS technology has allowed the Company to produce products that offer highcomputational speeds, high reliability, high levels of circuit integration(complexity), and low power consumption.

 

TheCompany is primarily dependent upon two wafer suppliers, one of which wasqualified during fiscal 2004, and does not have a guarantee of minimumsupplies. Therefore, there can be no assurance that such relationships willcontinue to be on terms satisfactory to the Company. The inability to obtainadequate quantities of processed wafers could limit the Company's revenues. Asa result of this risk, the Company carries a large inventory of unassembledwafers that can be packaged into a variety of carrier styles to supportcustomer requirements.

 
Production, Assembly, and Test
 

TheCompany's production operations consist of functional and parametric testing,package marking, hot and cold testing, final inspection, quality inspection,and shipment. As is customary in the industry, high-volume assemblysubcontractors in the Far East assemble theCompany's commercial grade devices. Thereafter, the assembled devices arereturned to the Company for final testing and shipment to customers. TheCompany continues to test materials and products at various stages in themanufacturing process, utilizing automated test equipment.

 
Marketing, Sales, and Customers
 

TheCompany markets its products worldwide to a broad range of customers throughits own sales efforts and through one domestic and 21 international electronicsdistributors. The Company concentrates its direct marketing efforts onhigh-performance segments of the medical imaging, broadcast equipment, andtelecommunications markets, in applications where high speed is critical. Amongthe Company's OEM customers are GE Medical, Lockheed Martin,Qualcomm, TexasInstruments, Sony, Teradyne, and Raytheon.

 

TheCompany coordinates worldwide sales from its sales office inWarminster, England.Distributors purchase the Company's products for resale, generally to a broadbase of small- to medium-sized customers. As is customary in the industry, theCompany's distributors receive certain price protection and limited stockrotation rights. However, the Company's distributors are required tosimultaneously order an amount equal to or greater than any rotation itemsreturned. During fiscal 2004, 2003, and 2002, sales through both internationaland domestic distributors accounted for approximately 66%, 68%, and 54% of netrevenues, respectively.

 

Infiscal 2004, 2003, and 2002, Jan Devices, Inc., a domestic distributor,accounted for approximately 14%, 13%, and 21% of net revenues, respectively. Inboth fiscal 2004 and 2003, MCM Japan Ltd., an international distributor,comprised approximately 12% of net revenues. In addition, Zwinz TechnicalConsulting, another international distributor, comprised approximately 14% ofnet revenues in fiscal 2003, while one non-distributor customer, LockheedMartin, comprised approximately 24% of net revenues in fiscal 2002.

 

TheCompany's domestic and international distributors are not exclusive and theymay also market products competitive with the Company's products. The Companywarrants its products against defects in materials and workmanship for a periodof 12 months from the date of shipment. Warranty expenses to date have beennominal.

 

Internationalsales are conducted by sales representatives and distributors located inAustralia, Belgium, Canada, Denmark, England, Finland, France, Germany, HongKong, Israel, Italy, Japan, Korea, the Netherlands, Singapore, South Africa,Spain, Sweden, and Taiwan. During fiscal 2004, 2003, and 2002, the Company'sexport sales were approximately 52%, 55%, and 33% of net revenues, respectively(see Note 8 in "Notes to Financial Statements" contained in Item 8).The Company's international sales are billed in United States dollars, andtherefore, settlements are not directly subject to currency exchangefluctuations. However, changes in the relative value of the dollar may createpricing pressures for the Company's products. Although the Company'sinternational sales are subject to certain export restrictions, including theExport Administration Amendments Act of 1985 and the regulations promulgatedthereunder, the Company has not experienced any material difficulties resultingfrom these restrictions to date.

 
Backlog
 

Asof December 2, 2004 and 2003, the Company's backlog was approximately $377,000and $164,400, respectively. The Company's backlog includes all releasedpurchase orders shippable within the following 12 months, including orders fromdistributors. The Company's backlog, although useful for scheduling production,does not represent actual sales and should not be used as a measure of futuresales or revenues at any particular time. In accordance with accepted industrypractice, all orders on the backlog that are not "last-time buys" aresubject to cancellation without penalty at the option of the purchaser at anytime prior to shipment. In addition, the backlog does not reflect changes indelivery schedules and price adjustments that may be passed on to distributorsand credits for returned products. The Company produces catalog products thatmay be shipped from inventory within a short time after receipt of a purchaseorder. The Company's business for its catalog products, like the businesses ofmany companies in the semiconductor industry, is characterized by short-termorders and shipment schedules rather than by volume purchase contracts. Forthese reasons, the Company's backlog as of any particular date is not representativeof actual sales for any succeeding period and the Company believes that itsbacklog is not a good indicator of future revenues.

 
Research and Development
 

Asthe Company has not introduced sufficient new products in a few years, it viewsnew product development as the most important factor affecting revenue growth;therefore, it continues its commitment to research and development. Researchand development expenditures were 31%, 36%, and 27% of net revenues in fiscal2004, 2003, and 2002, respectively. See "Selected Financial Data,""Management's Discussion and Analysis of Financial Condition and Resultsof Operations," and "Statements of Operations," contained inItems 6, 7, and 8, respectively.

 
Competition
 

Thesemiconductor industry is intensely competitive and characterized by rapidtechnological change and rates of product obsolescence, price erosion, periodicshortage of materials, variations in manufacturing yields and efficiencies, andincreasing foreign competition. The industry includes many major domestic andinternational companies that have substantially greater financial, technical,manufacturing, and marketing resources than the Company. The Company facescompetition from other manufacturers of high-performance integrated circuits,many of which have advanced technological capabilities and internal waferproduction capabilities. The ability of the Company to compete in this rapidlyevolving environment depends on elements both in and outside the control of theCompany. These elements include the Company's ability to develop new productsin a timely manner, the cost effectiveness of its manufacturing, the acceptanceof new products by customers, the speed at which customers incorporate theCompany's products into their systems, the continued access to advancedsemiconductor foundries, the number and capabilities of its competitors, andgeneral economic conditions. In the area of high-performance DSP circuits, theCompany competes with Altera, Analog Devices, Fairchild Semiconductor, Intersil,Lucent Technologies, Texas Instruments, and Xilinx, among others.
 Patents and Copyrights
 

Becauseof the rapidly changing technology in the semiconductor industry, the Companyrelies primarily upon its design know-how, rather than patents and copyrights, todevelop and maintain its competitive position. The Company attempts to protectits trade secrets and other proprietary information through confidentialityagreements with employees, consultants, suppliers, and customers, but there canbe no assurance that those measures will be adequate to protect the Company'sinterests.

 

TheCompany is of the opinion that patent maskwork protection is of lesssignificance in the Company's business than other factors, such as theexperience and innovative skill of its personnel and the abilities of itsmanagement. There can be no assurance that others will not develop or patenttechnology similar to the Company's technology, or copy or otherwise duplicatethe Company's products. The Company owns five patents awarded by the UnitedStates Patent and Trademark Office.

 

Since others have obtained patents covering varioussemiconductor designs and processes, certain of the Company's present or futuredesigns or processes may be claimed to infringe upon the patents of third parties.The Company has previously received, and may in the future receive, claims thatone or more aspects or uses of the Company's products infringe on patent orother intellectual property rights of third parties. See Item 3 - "LegalProceedings." The Company does not believe that it infringes upon any knownpatents 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 thesemiconductor industry, find it necessary or desirable to obtain licensesrelating to one or more of its current or future products. Based on industrypractice, the Company expects that any necessary licenses or rights underpatents could be obtained on conditions that would not have a material adverseeffect on the Company. There can be no assurance, however, that licenses couldin fact be obtained on commercially reasonable terms, or at all, or thatlitigation would not occur. The Company's inability to obtain such licenses oneconomically reasonable terms or the occurrence of litigation could adverselyaffect the Company.

 

**Factors Affecting Future Results**

 

ThisAnnual Report on Form 10-K contains forward-looking statements within themeaning of Section 27A of the Securities Act of 1933 and Section 21E of theSecurities Exchange Act of 1934. Any statements about the Company'sexpectations, beliefs, plans, objectives, assumptions, or future events orperformance are not historical facts and may be forward-looking. Words andphrases such as "anticipate, appears, estimate, plans, projects,continuing, ongoing, expect, believes, intends," and similar words orphrases may identify forward-looking statements.

 

Forward-lookingstatements involve estimates, assumptions, and uncertainties that could causeactual results to differ materially from those expressed in them. Anyforward-looking statements are qualified in their entirety by reference to thefactors discussed throughout this Form 10-K report. Among the key factors thatcould cause actual results to differ materially from the forward-lookingstatements include:

 
-  Delay in product or     technology development;Lack of market     acceptance or demand for new products;The impact of     competitive products and prices;Changes in economic     conditions of the Company's various markets;Dependencies on silicon     wafer suppliers and subcontracted assemblers and testers;The availability and     terms of financing; andOpportunities or     acquisitions the Company may pursue.
Actualresults could differ materially from those expressed in any forward-lookingstatements made by the Company. Further, any forward-looking statement appliesonly as of the date on which it is made. The Company is not required to, andundertakes no obligation, to update or revise any forward-looking statement toreflect events or circumstances after the date on which such statement wasmade, or to reflect the occurrence of unanticipated events.

 

*The Company has ahistory of losses and its future operating results could be harmed due tosemiconductor industry business cycles.*

** **

TheCompany has sustained substantial net losses during the past few fiscal years.These net losses are attributable principally to delays in the televisionbroadcast industry's transition to high definition digital broadcasting fromcurrent analog standards, the prolonged downturn in the semiconductor industry,and delays in new product development. Many factors will affect the Company'sability to become profitable or sustain profitability, such as continued demandfor the Company's products by its customers, lack of price erosion, efficiencyof its manufacturing subcontractors, continued product innovation and designwins, and the Company's continued ability to manage its operating expenses.

 

The Company produces and sells semiconductors and itsoperations are therefore impacted by the repeated and severe business cyclesthat have historically been experienced by the semiconductor industry. TheCompany's financial performance has been negatively impacted by significantdownturns in the semiconductor industry as a result of:

 
-  general reductions in     inventory levels by customers;excess production     capacity;the cyclical nature of     the demand for products of semiconductor customers; andaccelerated declines in     average product selling prices.
Whenthese or other conditions in the industry occur, the Company's operatingresults could be adversely impacted.

 

*TheCompany is a small company with very limited resources compared to its currentand potential competitors and it may not be able to compete effectively in itshighly competitive industry.*

 

The semiconductor industry is highly competitive and manyof the Company's direct and indirect competitors and potential competitors havesubstantially greater financial, technological, manufacturing, and sales resources.If the Company is unable to compete successfully in this environment, itsoperating results could be harmed.

 

The current level of competition is high and may increaseas the Company's market expands. The Company competes directly with companiesthat have developed similar products. It also competes indirectly with numeroussemiconductor companies that offer products and solutions based on alternativetechnologies. These direct and indirect competitors are establishedmultinational semiconductor companies, as well as emerging companies. Inaddition, the Company may experience additional competition from foreigncompanies in the future.

 

*The Company depends on a limited number of customersfor a majority of its sales and its sales orders are typically concentrated inthe third month of every quarter, making its financial results particularlysusceptible to the loss of a key customer and making sales in a quarterdifficult to predict.*

 

TheCompany anticipates that the concentration of its sales among relatively fewcustomers will continue in the future. The Company does not have long-termpurchase commitments from any of its customers. Therefore, these customerscould cease purchasing the Company's products with limited notice and with nopenalty.

 

TheCompany's dependence on a small number of customers increases the risksassociated with its potential loss of customers resulting from businesscombinations or consolidations. If a customer were acquired or combined withanother company, the resulting company could cancel purchase orders as part ofthe integration process.

 

Inaddition, the Company frequently ships more products during the third month ofeach quarter than in the first two months of the quarter. Moreover, shipmentsin the third month are generally higher toward the end of the month. TheCompany's sales are therefore concentrated in the latter part of each quarter,making it difficult to predict its revenues and results of operations for anyfiscal quarter or other fiscal period.

 

*Continueddelay in High Definition Television (HDTV) broadcasting could adversely impactsales of the Company's HDTV application products.*

 

Beginning in November 1998, the Federal CommunicationsCommission directed that television broadcasters begin a transition fromcurrent analog broadcasts to HDTV broadcasts. All analog broadcasts arescheduled to cease by the year 2006. However, it is generally acknowledged thatthe industry will not meet the 2006 conversion deadline.

 

The Company developed in fiscal 1998 and tested in fiscal1999, products that were designed-in (incorporated) into HDTV compatible studiosystems. Since fiscal 2000, sales of the Company's HDTV-related products havenot met expectations, and the Company anticipates that its future revenues willbe adversely affected if the slow transition persists.

*The Company depends on third parties to fabricatesilicon wafers and to assemble and test its products, which exposes it to arisk of production disruption or uncontrolled price changes.*

 

The Company does notmanufacture silicon wafers. It relies upon two wafer suppliers, each of which is the solesource for certain of the Company's products, and two assembly/testsubcontractors. These suppliers do not have a contractual obligation orcommitment to supply such wafers or services in the future. If the suppliersare unable or unwilling to supply wafers or services, the Company's operatingresults could be harmed. The Company may not be able to find sufficientsuppliers at a reasonable price or at all if such disruptions occur. As aresult of its reliance on third parties, the Company faces significant risks,including:

 

•   reduced control over delivery schedules and quality;
-  longer lead times;the potential lack of     adequate capacity during periods of excess industry demand;difficulties selecting     and integrating new subcontractors;limited warranties on     products supplied to the Company;potential increases in     prices due to capacity shortages; andpotential     misappropriation of the Company's intellectual property.
If the Company fails to deliver its products on time or ifthe costs of its products increase, then its profitability and customerrelationships could be harmed.

 

*The Company's international operations subject it torisks not present in solely domestic operations.*

 

The Company's primary silicon wafer supplier and assemblysubcontractors are located in Asia, primarily in South Korea and Taiwan.Economic, financial, social, and political conditions inhave been volatile. Financial difficulties, government actions or restrictions,prolonged work stoppages, or any other difficulties experienced by theCompany's suppliers could harm future operating results.

The Company also has many overseas customers. Its exportsales are affected by unique risks frequently associated with foreigneconomics, including:

 
-  governmental controls     and trade restrictions;export license     requirements and restrictions on the export of technology;changes in local     economic conditions;political instability;changes in tax rates, tariffs,     or freight rates;interruptions in air     traffic; anddifficulties in     staffing and managing foreign sales offices.
Significantchanges in the economic climate in the foreign countries from which the Companyderives its export sales could harm future operating results.

 

*Thecomplex nature of semiconductors makes the Company highly susceptible tomanufacturing problems and these problems could have a negative impact onfuture operating results.*

 

Making semiconductors is a highly complex and precise process,requiring production in a tightly controlled, clean environment. Even minuteimperfections in its materials, difficulties in the wafer fabrication process,defects in the masks used to print circuits on a wafer or other factors cancause a substantial percentage of wafers to be rejected or numerous chips oneach wafer to be nonfunctional. The Company may experience problems inachieving an acceptable quality and yield rate in the manufacture of wafers.The interruption of wafer fabrication or the failure to achieve acceptableyields could harm future operating results. The Company may also experiencemanufacturing problems in its assembly and test operations, and in theintroduction of new packaging materials.

*TheCompany depends on third parties to deliver its products.*

 

The Company relies on independent carriers and freighthaulers to transport its products between manufacturing locations and todeliver its products to its customers. Any transport or delivery problemsbecause of their errors, or because of unforeseen interruptions, such asstrikes, political instability, terrorism, natural disasters and accidents,could harm the Company's future operating results.

 

*Earthquakes, other natural disasters, and powershortages may damage the Company's business.*

 

The Company'sCaliforniafacility and some of its suppliers are located near major earthquake faultsthat have experienced earthquakes in the past. In addition, the risk of powershortages and outages in Californiahas been widely reported. In the event of a major earthquake or other naturaldisaster near the Company's facility or a sustained loss of power at itsfacility, its operations could be harmed. Similarly, a major earthquake orother natural disaster near one or more of the Company's suppliers, such as theone that occurred in Taiwanin September 1999, could disrupt the operations of its suppliers, which couldlimit the supply of its products and harm its business.

 

*The Company maintains high levels of inventory thatdecrease its liquidity and substantially increase the risk of write-offs.*

 

The Company has historically maintained and expects tocontinue to maintain high levels of inventory of processed silicon wafers,packaging materials, and finished goods. For some product types, it must purchase,in a short period of time, all of its anticipated inventory needs for the lifeof the product. The Company commits capital to maintain these high inventorylevels, which prevents it from using that capital for other purposes, such asresearch and development, and requires it to utilize more capital than it wouldotherwise require. The Company's high inventory levels also heighten its riskof inventory obsolescence and write-offs. Further, the Company may forecastdemand incorrectly and produce insufficient inventory, resulting in supplyshortages.

 

*The Company currently has no bank credit facility andmust rely solely upon existing cash reserves and funds from existing operationsto finance future operations.*

 

Although the Company sustained substantial net losses duringfiscal 2004, 2003, and 2002, its cash flows from operations were positiveduring these fiscal years, due to its reductions in accounts receivable andinventory and its cost reduction efforts. However, these reductions cannotcontinue indefinitely. If the Company is unable to return to profitability, itwould have to utilize cash reserves and thereafter obtain additional fundingthrough debt or equity financing. If the Company is able to obtain debtfinancing, which is not assured, the terms of such financing are unknown, sinceit does not presently have a credit facility, and may be unfavorable to it.Similarly, there can be no assurance that the Company would be able to sellcapital stock on favorable terms or at all and any such sales may adverselyaffect its existing shareholders.

 

*The Company's operating success depends upon itsability to develop new products and access new technologies.*

 

The semiconductor industry is a dynamic environment markedby rapid product obsolescence. The Company's future success depends on itsability to introduce new or improved products that meet critical customerneeds, while achieving acceptable profit margins. If the Company fails tointroduce these new products in a timely manner or these products fail toachieve market acceptance, operating results would be harmed. The introductionof new products in a dynamic market environment presents significant businesschallenges. Product development commitments and expenditures must be made wellin advance of product sales, while the success of new products depends onaccurate forecasts of long-term market demand and future technologydevelopments.

 

Future revenue growth is dependent on market acceptance ofnew products and the continued market acceptance of existing products. Thesuccess of these products is dependent on a variety of specific technicalfactors, including:

 
-  successful product     definition;timely and efficient     completion of product design;timely design into     customers' future products and maintenance of close working relationships     with customers;timely and efficient     access to wafer manufacturing and assembly processes; andproduct performance,     quality and reliability.
If, due to these or other factors, new products do notachieve market acceptance, the Company's operating results would be harmed.Furthermore, to develop new products and maintain the competitiveness ofexisting products, the Company needs to migrate to more advanced wafermanufacturing processes that use larger wafer sizes and smaller geometries.

 

*The loss of key personnel or failure to hire andretain additional qualified personnel could impair the Company's ability todevelop and market its products.*

 

The Company's future success greatly depends on the abilityto attract and retain highly qualified technical and management personnel. As asmall company, the Company is particularly dependent on a relatively smallgroup of key employees.  Competition forskilled technical and management employees is intense in the semiconductorindustry. As a result, the Company may be unable to retain its existing keytechnical and management employees, or attract additional qualified personnel,which could harm its operating results. The Company does not have employmentagreements with, or key person life insurance policies on the lives of, any ofits key employees.

 

*The Company's failure to protect its proprietaryrights, or the costs of protecting these rights, may harm its ability tocompete.*

 

TheCompany owns several patents but relies primarily on its design know-how andcontinued access to advanced wafer process technology to develop and maintainits competitive position. The Company attempts to protect its trade secrets andother proprietary information through confidentiality agreements with employees,consultants, suppliers and customers. However, competitors may develop, patentor gain access to similar know-how and technology, or reverse engineer theCompany's products. The Company's inability to adequately protect itsproprietary rights could result in its competitors offering similar products,potentially causing the Company to lose a competitive advantage and leading todecreased revenue. The Company may not obtain an adequate remedy in the eventits confidentiality agreements are breached or any remedy if its trade secretsare independently developed by others. Despite the Company's efforts to protectits proprietary rights, existing intellectual property laws afford only limitedprotection, especially under the laws of some foreign countries. Litigation maybe necessary in the future to enforce the Company's intellectual propertyrights, to protect its trade secrets or to determine the validity and scope ofthe proprietary rights of others. This litigation could result in substantialcosts and diversion of resources.

 

*The Company could be harmed by litigation involvingpatents and other intellectual property rights.*

 

Asa general matter, the semiconductor and related industries are characterized bysubstantial litigation regarding patent and other intellectual property rights.The Company has been and in the future may be accused of infringing theintellectual property rights of third parties. Furthermore, the Company mayhave certain indemnification obligations to customers with respect to theinfringement of third-party intellectual property rights by its products.Infringement claims by third parties or claims for indemnification by customersor end-users of Company products resulting from infringement claims may beasserted in the future and such assertions, if proven to be true, may harm theCompany's business.

 

Anylitigation relating to the intellectual property rights of third parties,whether or not determined in the Company's favor or settled by the Company,could be costly and could divert the efforts and attention of management andengineering personnel. In the event of any adverse ruling in any suchlitigation, the Company could be required to pay substantial damages, cease themanufacturing, use and sale of infringing products, discontinue the use ofcertain processes or obtain a license under the intellectual property rights ofthe third party claiming infringement. A license might not be available onreasonable terms, if at all.

 

*The Company has adopted certain anti-takeover,indemnification and limited liability provisions which may adversely affect itsstock price.*

 

TheCompany has adopted a shareholder rights plan that is designed to make a changeof control through the acquisition of large amounts of its common stock, orthrough a tender offer to its shareholders, prohibitively expensive unless itsboard of directors has approved the transaction. The Company's restatedarticles of incorporation and bylaws also provide for the indemnification ofits officers and directors and insulate its directors from monetary liabilityfor certain breaches of their duty of care to the Company. These provisions mayalso have the effect of delaying or preventing a change in control withoutaction by the Company's shareholders, and therefore could adversely affect theprice of the Company's common stock.

 

The*price of the Company's common stockmay continue to be volatile and its trading volume may continue to berelatively low.*

 

Themarket price of the Company's common stock has fluctuated significantly todate. In the future, the market price of the common stock could be subject tosignificant fluctuations due to general market conditions and in response toquarter-to-quarter variations in:

 
-  the Company's     anticipated or actual operating results;announcements or     introductions of new products;technological     innovations or setbacks by the Company or its competitors;conditions in the     semiconductor markets;the commencement of     litigation; andgeneral economic and     market conditions.
InJuly 2002, the Company received a written warning from the Nasdaq Stock Marketindicating that its common stock was not in compliance with minimum marketvalue of publicly held shares required and minimum bid price required forcontinued listing on the Nasdaq National Market. The common stock subsequentlyregained compliance and was not delisted. However, there can be no assurancethat the Company's common stock will continue to satisfy the Nasdaq continuedlisting requirements.  In the event ofdelisting, if the Company's shares are not then traded on an exchange oranother quotation system, a public market for the shares would not exist andthe ability of individuals to buy and sell shares would be limited. Even if theshares are traded on an exchange or another quotation system, there can be noassurance that the trading volume in the shares would be comparable to thepresent volume on the Nasdaq National Market. Any reduction in liquidity of theshares may reduce the value that a holder can obtain for them, regardless of theCompany's performance or financial condition.

 
Employees
 

As of September 30, 2004, the Company had 16 employees,consultants, and part-time employees, of which 13 were full-time employees.This reduction of 13 full-time employees is part of the Company's efforts toreduce costs; however, it was careful to retain employees that are important tomaintain the Company's ongoing development efforts. The Company's ability toattract and retain qualified personnel is an important factor in its continuedsuccess. None of the Company's employees are represented by a collectivebargaining agreement, and the Company has never experienced any work stoppage.The Company believes that its employee relations are good.

 
Regulations
 

Federal, state, and local regulations impose variousenvironmental controls on the discharge of chemicals and gases in connectionwith the wafer manufacturing process. Since the Company relies on third partymanufacturers and its activities do not involve utilization of hazardoussubstances generally associated with semiconductor processing, the Companybelieves such regulations are unlikely to have a material affect on itsbusiness or operations.

**ITEM 2.    PROPERTIES**

 

The Company's executive offices, as well as itsinventories and principal research and design facilities, are located inapproximately 15,400 square feet, in Sunnyvale, California, with a lease expiringSeptember 30, 2007. The Company also maintains additional sales or fieldapplication support offices in the metropolitan area of San Diego, California and Warminster, England.The Company believes that its facilities will be adequate to meet itsreasonably foreseeable needs and, if necessary, that alternative facilitieswill be available to it on acceptable terms, so as to meet its requirements.
 ITEM 3.    LEGAL PROCEEDINGS
 

From time to time, the Company receives demands fromvarious parties asserting patent claims. These demands are often not based onany specific knowledge of the Company's products or operations. Because of theuncertainties inherent in litigation, the outcome of any such claim, includingsimply the cost of a successful defense against such a claim, could have amaterial adverse impact on the Company.

 

In January 1998, the Company was contacted by the attorneysrepresenting the estate of Mr. Jerome Lemelson, charging that the Companyinfringed on certain patents registered by Mr. Lemelson. The attorneys for theestate have not filed suit, but have urged the Company to enter into alicensing agreement with the estate in order to avoid litigation. The Companyunderstands a similar demand has been made upon other manufacturers ofintegrated circuits, and that some have successfully defeated the claims. The Company has not had contact withthe estate of Lemelson regarding this matter for several years. The Company hasnot analyzed the impact, if any, on the estate's claim from the January 2004United States District Court of Nevada ruling, which is currently under appeal,that certain patents held by Mr. Lemelson's foundation relating to bar codescanners and related products were unenforceable as a result of the long delaybetween the filing of the patent applications and the issuance of the patents.

 

In September 2002, the Company was contacted by SyndiaCorporation, the owner of certain patents of which Mr. Jerome Lemelson is anamed inventor (Syndia patents). Syndia has not filed suit, but has urged theCompany to enter into a licensing agreement with Syndia in order to avoidlitigation. The Company understands a similar demand has been made upon othermanufacturers of integrated circuits. On June 20, 2003, Taiwan SemiconductorManufacturing Corporation (TSMC), the Company's primary wafer supplier, filed aclaim against Syndia for a declaratory judgment of non-infringement,invalidity, and unenforceability of the Syndia patents. Further, TSMC claimedintentional interference with contractual relations, unfair business practices,and unfair competition arising from Syndia's bad-faith allegations that TSMCand TSMC's customers infringe the Syndia patents. On November 10, 2003, TSMCand Syndia jointly announced they had reached a settlement that resolved alloutstanding legal claims raised by both parties, with no admission of liabilityby either party. TSMC also stated in the announcement that it settled thisdispute for business reasons and to protect its customers from potential claimsrelating to products manufactured for them by TSMC. There has been no activityrelated to this claim for over a year.

 

Should the Lemelson estate or Syndia file suit, theCompany would vigorously defend itself in this matter. However, because of theinherent uncertainties of litigation, the outcome of this action could beunfavorable, in which event the Company might be required to pay damages andother expenses, which could have a material adverse effect on the Company'sfinancial position and results of operations. In addition, the Company could berequired to alter certain of its production processes or products as a resultof this matter.

 
ITEM 4.    SUBMISSION OF MATTERS TO VOTE OF SECURITYHOLDERS
 

No matters were submitted to a vote of the Company'ssecurity holders during the last quarter of fiscal 2004.

 

**PART II**

** **
ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY ANDRELATED SHAREHOLDER MATTERS
 

The Company's Common Stock is traded under the symbol,LOGC, on The Nasdaq National Market. The following table sets forth, for theperiods indicated, the high and low closing sale prices for the Company'sCommon Stock, as reported by Nasdaq during the following calendar quarters:

 

**Calendar Year**

**High**

**Low**

 

**2002**

Fourth quarter

$1.48

$0.72

 

**2003**

First quarter

$1.30

$0.89

Second quarter

$1.46

$0.94

Third quarter

$1.91

$1.22

Fourth quarter

$2.58

$1.42

 

**2004**

First quarter

$1.95

$1.65

Second quarter

$1.79

$1.45

Third quarter

$1.55

$1.02

 

**Holders**

 

As of December20, 2004, there were approximately 2,300holders of record of the Company's Common Stock.

 

**Dividends**

 

The Company has not paid any dividends on its Common Stocksince its incorporation.

 

**Securities Authorized for Issuance Under EquityCompensation Plans**

 

Thefollowing table represents the position of the Company's equity compensationplans as of September 30, 2004:

 

Plan  category
 
Number of securities to be  issued upon exercise of outstanding options, warrants, and rights

Weighted-average exercise  price of outstanding options, warrants, and rights

Number of securities  remaining available for future issuance under equity compensation plans  (excluding securities reflected in column a)

(a)

(b)

(c)

Equity  compensation plans

approved  by security holders

345,000 

$2.073 

572,000 

Equity  compensation plans not

approved  by security holders

-  

-  

-  

Total

345,000 

$2.073 

572,000 
ITEM 6.    SELECTED FINANCIAL DATA
 

On December 15, 2003, the Company elected to change itscalendar business year to a fiscal year ending September 30. Previously, theCompany's fiscal years were comprised of 52 weeks of seven days, each beginningon Monday and ending on Sunday. Previously, the Company's fiscal quarters werecomprised of exactly 13 weeks and, therefore, its fiscal years consisted ofonly 364 days.

 

As a result of this change, the Company's fiscal yearswill be comprised of 365 days or, in leap years such as 2004, 366 days witheach fiscal quarter ending at the end of a calendar quarter. The Company's 2004fiscal year ended September 30, 2004 rather than September 26, 2004. Theadditional four days were included in the Company's first quarter for fiscal2004, which ended December 31, 2003.

 

The following table sets forth selected financial data forthe Company's last five fiscal periods. This information is derived from theCompany's audited financial statements, unless otherwise stated. This datashould be read in conjunction with the financial statements, related notes, andother financial information included elsewhere in this report.

 

(Dollars in thousands, except per share amounts)

 

Fiscal Years  Ended:

September 30,  2004

September 28,

2003

September 29,

2002

September 30,

2001

October 1,

2000

 

Net revenues

 

$   4,415 

 

$   5,009 

 

$   6,573 

 

$ 10,007 

 

$ 11,786

 

Research and

    development

 

$   1,364 

 

$   1,785 

 

$   1,776 

 

$   1,926 

 

$   1,661

 

Net (loss) income

$  (1,472)

$  (2,461)

$  (2,124)

$     (212)

$      522

 

Basic and diluted

    (loss) income per

    common share

 

 

$ (0.22)

 

 

$ (0.37)

 

 

$ (0.31)

 

 

$ (0.03)

 

 

$ 0.08

 

Weighted average

    common shares

    outstanding (000s)

 

 

6,715 

 

 

6,652 

 

 

6,850 

 

 

6,842 

 

 

6,772

 

Working capital

$   9,583 

$ 11,084 

$ 13,674 

$ 14,882 

$ 14,115

 

Net property and

    equipment

 

$      862 

 

$      857 

 

$      931 

 

$   1,592 

 

$   2,424

 

Total assets

$ 10,836 

$ 12,248 

$ 14,927 

$ 17,231 

$ 17,589

 

Long-term liabilities

$        41 

$        40 

$         -  

$          3 

$        38

 

Shareholders' equity

$ 10,590 

$ 11,943 

$ 14,627 

$ 16,652 

   $ 16,845

****
ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS
 

Reported financial results may not be indicative of thefinancial results of future periods. All non-historical information containedin the following discussion constitutes forward-looking statements within themeaning of Section 27A of the Securities Act of 1933 and Section 21E of theSecurities Exchange Act of 1934. These statements are not guarantees of futureperformance and involve a number of risks and uncertainties, including but notlimited to operating results, new product introductions and sales, competitiveconditions, customer demand, capital expenditures and resources, manufacturingcapacity utilization, and intellectual property claims and defense.  Factors that could cause actual results todiffer materially are included in, but not limited to, those identified in"Factors Affecting Future Results" at the end of Item 1 of this Annual Reporton Form 10-K. The Company undertakes no obligation to publicly release theresults of any revisions to these forward-looking statements that may reflectevents or circumstances after the date of this report.

 

**Overview**

 

The Company is one of the smallest publicly tradedsemiconductor makers. Following its formation, the Company initially developedplug-compatible second source products that were form, fit, and functioncompatible with products offered by other manufacturers. Beginning in 1996, theCompany began identifying unique, proprietary products driven by its existingcustomer base. While this transition to proprietary products required theCompany to obtain advanced design automation tools and to increase the numberof people involved in product development, it enabled the Company to focus itssales channels and limit the costs of those channels, and to compete in marketswith pricing and delivery demands that are not as highly competitive as themarkets for second source products. The Company primarily derives its revenuesfrom the sale of semiconductor chips that perform high-speed DSP in video imagefiltering and digital communications applications.

 

The Company's transition to a proprietary product focushas had a significant impact on its financial results. In 1998, the Companyrecorded significant write-downs of inventory and long-lived assets, as itrecognized the obsolescence of its more mature, second-source products. TheCompany anticipated increased revenues from the HDTV market starting in 1999,but the delays in the broadcast industry's transition to high-definition fromanalog signals resulted in less revenues from these products than the Companyanticipated. In the meantime, revenues from the Company's older second-sourceproducts dropped dramatically as they were obsoleted. Therefore, while theCompany's revenues have decreased over the past few years, revenues from newerproducts have actually increased to partially take the place of revenues frommature, second-source products.

 

In addition, the events of September 11, 2001 and the"war on terrorism" resulted in the Company receiving approximately$2.92 million in sales to a defense contractor for the cruise missile programduring fiscal 2002. The Company anticipated receiving additional revenues fromthe military programs during fiscal 2004 or 2003; however, these revenues wererelatively insignificant. While the revenues from these programs may besignificant in the future, the Company cannot be sure if and when that willoccur.

 

The Company anticipates revenues from its newerproprietary products to increase if the HDTV market begins to ramp up. InAugust 2002, the FCC issued an order to television manufacturers that requiresdigital tuners to be incorporated into 50 percent of the television sets withscreens of 36 or more inches starting in 2004, into 50 percent of the sets withscreens of 25-35 inches starting in 2005, and into all sets with screens of 13inches or more by 2007. On October 29, 2003, the U.S. Court of Appeals for theD.C. Circuit upheld the FCC mandate that, by 2007, all but the very smallesttelevision sets sold in the U.S.must be equipped for receiving digital, along with traditional analog,television signals. The Court said the FCC's mandate was needed because theindustry was not moving quickly enough to make new tuners available.

 

Notwithstanding the impact of the delayed transition inthe broadcasting industry and the overall downturn in the economy, the Companyhas strengthened its balance sheet in the last few years. As a result of the1998 reorganization, aggressive expenditure controls, limitations on capitalexpenditures, reductions of inventory levels, and increased revenues frommilitary programs, the Company has increased its cash balance by 1,156 percentfrom fiscal 1998 to fiscal 2004, while reducing its total liabilities by 97percent during the same period.

 

OnDecember 15, 2003, the Company elected to change its fiscal year to a fiscalyear ending September 30. Previously, the Company's fiscal years were comprisedof 52 weeks of seven days, each beginning on Monday and ending on Sunday, withfiscal 2003 ending September 28, 2003 and fiscal 2002 ending September 29,2002. Previously, the Company's fiscal quarters were comprised of exactly 13weeks and, therefore, its fiscal years consisted of only 364 days.

 

Asa result of this change, the Company's fiscal years will be comprised of 365 daysor, in leap years such as 2004, 366 days with each fiscal quarter ending at theend of a calendar quarter. The Company's 2004 fiscal year ended September 30,2004 rather than September 26, 2004. The additional four days were included inthe Company's first quarter for fiscal 2004, which ended December 31, 2003.

 

**Results of Operations**

 

*Fiscal Year Ended September 30, 2004 compared to FiscalYear Ended September 28, 2003*

 

Net revenues for fiscal 2004 decreased 12 percent, from$5,009,000 in fiscal 2003 to $4,414,600. This decrease was due to a continueddown cycle of the semiconductor industry, the continued sluggish economy, andthe prolonged delay in the widespread adoption of HDTV broadcasting. Inaddition, the Company continues to experience a drop-off in sales of its olderproducts that is not countered enough by revenues from newer products.

 

While the Company's net revenues decreased by 12 percent, the Company'scost of revenues, as a percentage of net revenues, decreased by 9 percentagepoints. This reduction in the cost of revenues is the result of the costcutting of the past several years and a reduction in the amount ofwork-in-process inventory scrapped during fiscal 2004 compared to fiscal 2003.In fiscal 2004, the Company scrapped $187,200 of work-in-process inventorycompared to $560,200 in fiscal 2003. In addition, the Company increased itsinventory reserve by approximately $750,000 in fiscal 2003, while it decreasedthe reserve by $300 in fiscal 2004. As a result of the foregoing, the Company'sgross profit increased by 16 percent from $1,411,800 in fiscal 2003 to$1,641,000 in fiscal 2004. As a percentage of net revenues, gross profitincreased from 28 percent in fiscal 2003 to 37 percent in fiscal 2004.

 

While the Company continues to believe new productdevelopment is key to future growth, revenue constraints forced the Company todecrease research and development expenditures 24 percent, from $1,784,600 infiscal 2003 to $1,363,900 in fiscal 2004. However, as a percentage of netrevenues, this decrease in expenditures still leaves the Company over itstarget of 20 percent. As a percentage of net revenues, research and developmentexpenditures decreased from 36 percent in fiscal 2003 to 31 percent in fiscal2004. In addition, the Company believes its current team is made up of veryqualified individuals that are capable of accelerating new productintroductions in the future. 

 

Selling, general and administrative expenditures decreased16 percent from $2,110,900 in fiscal 2003 to $1,772,100 in fiscal 2004. Thisreduction is a result of the cost cutting of the past several years, includingbut not limited to a reduction in staffing, a reduction of office space andrent, and reductions in directors and officers insurance levels.

 

While the Company incurred a reduction of net revenues infiscal 2004, greater reductions of expenditures resulted in a 40 percentdecrease in the loss from operations, from $2,483,700 in fiscal 2003 to$1,495,000 in fiscal 2004.

 

Due to slightly decreased cash balances during the year,the Company's interest income from deposits decreased 15 percent in fiscal 2004from $23,600 in fiscal 2003 to $19,700.

 

As a result of the foregoing, the Company's net loss forfiscal 2004 decreased 40 percent from $2,461,300 in fiscal 2003 to $1,472,300in fiscal 2004.

*Fiscal Year Ended September 28, 2003 compared to FiscalYear Ended September 29, 2002*

 

Net revenues for fiscal 2003 decreased 24 percent, from$6,572,600 in fiscal 2002 to $5,009,000. This decrease was due to the down cycleof the semiconductor industry, the sluggish economy, and the prolonged delay inthe adoption of HDTV broadcasting. These factors limited the Company'scommercial product revenues to only a slight increase in fiscal 2003 comparedto 2002. However, a sharp drop in sales of chips to military programs adverselyimpacted the Company's overall revenues in fiscal 2003. During fiscal 2002,approximately 24 percent of revenues were derived from sales to defensecontractors, while fiscal 2003 defense related sales were insignificant.

 

While the Company's net revenues decreased 24 percent, theCompany's cost of revenues also decreased by 25 percent. The Company was ableto reduce the cost of revenues at a rate proportional to the drop in revenues,in spite of having certain overhead expenses that are relatively fixed, due tocost cutting for the past several years. In addition, during fiscal 2003, theCompany obsoleted $1,072,800 and scrapped $560,200 of inventory, both of whichare reflected in the cost of revenues. The Company's gross profit decreased 21percent from $1,792,600 in fiscal 2002 to $1,411,800 in fiscal 2003. Grossprofit as a percent of revenues increased from 27 percent in fiscal 2002 to 28percent in fiscal 2003.

 

Research and development expenditures increased less thanone percent, from $1,775,700 in fiscal 2002 to $1,784,600 in fiscal 2003. TheCompany believes that new product development is a key ingredient for futuregrowth and elected to maintain research and development levels in spite of thedrop in revenues. As a result, research and development expenditures, as apercentage of net revenues, increased from 27 percent in fiscal 2002 to 36percent in fiscal 2003.

 

Selling, general, and administrative expenses decreasedslightly from $2,138,400 in fiscal 2002 to $2,110,900 in fiscal 2003. TheCompany was able to contain selling, general, and administrative expendituresas a result of on-going cost control efforts.

 

As a result of the significant decrease in revenues andthe sustained funding of research and development levels, the Company had a netloss from operations of $2,483,700 in fiscal 2003, compared to a net loss fromoperations of $2,121,500 in fiscal 2002.

 

Because the Company had essentially no borrowing duringfiscal 2003, it had no interest expense, compared to $37,900 in fiscal 2002.

 

Due to the above factors, the Company experienced a netloss of $2,461,300 in fiscal 2003 compared to a net loss of $2,123,700 infiscal 2002.

 

**Liquidity and Capital Resources**

** **

During fiscal 2004, the Company's operations produced$292,500 of net cash, despite its $1,472,300 net loss. This was mainly from thenet collection of accounts receivable of $114,600, reductions in inventories of$1.4 million, a decrease in prepaid expenses of $49,200, and an increase inaccounts payable at year-end. Even though the Company maintains its promptpayments to vendors, the accounts payable balance increased by $90,200 infiscal 2004 compared to fiscal 2003, due to the invoices of some vendors beingreceived during the last week of the fiscal year and not yet being due as ofthe end of the fiscal year. The Company maintains its prompt payments termswith its vendors. The Company also received $119,300 of cash from the exerciseof common stock options. The Company used this and the cash from operations tofund capital purchases of $285,700 and other asset purchases of $143,300, whichresulted in the Company's cash position decreasing by one percent, from$1,806,100 in fiscal 2003 to $1,788,900 in fiscal 2004.

 

During fiscal 2003, the Company's operations produced$1,318,200 of net cash, despite its $2,461,300 net loss. This was mainly theresult of the net collection of accounts receivable of $1,972,300 and adecrease in prepaid expenses of $333,600. At the same time, the Companymaintained its prompt payment terms with vendors, so accounts payable decreased$82,100. The Company used cash from operations to purchase capital assetsaggregating $326,900 and to fund the repurchase of $233,700 of its common stockon the open market. The Company's cash position increased from $1,061,100 atthe end of fiscal 2002 to $1,806,100 at the end of fiscal 2003.

During fiscal 2002, the Company produced net cash of$938,900 from operations, despite its $2,123,700 net loss. While the Companyspent $269,300 for prepaid expenses, $139,000 for accounts payable, and $83,300for accrued expenses, it netted $556,300 from accounts receivable collections.In addition, the Company was able to produce $1,767,600 from its inventories asmany of its fiscal 2002 revenues were shipped from existing stock. The Companyused some of the cash from operations to fund capital expenditures of $43,000and to repay capital lease obligations of $54,700. The Company's cash positionincreased from $217,500 at the end of fiscal 2001 to $1,061,100 at the end offiscal 2002.

 

The Company's current working capital requirements aregreatly reduced due to the cost cutting of the past few years. The Companybelieves that these cost cutting actions and its continued focus on higher-marginproducts should result in after-tax cash earnings being sufficient to supportits working capital and capital expenditure requirements for the next 12months. Based on the fact that, as of December 20, 2004, it holds approximately$1,937,200 in cash reserves and its cash usage for operations is approximatelyequal to or less than its current revenue rate, the Company believes it cancover its cash operating expenses using future revenues, while saving currentcash reserves for the stock repurchase plan and future capital expenditures,such as mask tooling for new products.

 

*Working Capital*

 

The Company's investment in inventories has beensignificant and will continue to be significant in the future. However, duringthe past few years, the Company has been able to reduce its levels ofinventories as it shifts from more competitive second source products toproprietary sole source products. The Company believes it will be able tostreamline its inventories as it continues to shift to sole source proprietaryproducts. It also intends to continue its shortened accounts receivablecollection cycle by re-focusing on direct sales to customers rather thanthrough distribution channels.

 

The Company relies on third party suppliers for its rawmaterials, particularly its processed wafers, for which it currently reliesprimarily on one supplier, and as a result, maintains substantial inventorylevels to protect against disruption in supplies. The Company has periodicallyexperienced disruptions in obtaining wafers. As the Company continues to shifttowards higher margin proprietary products, it expects to be able to reduceinventory levels by streamlining its product offerings.

 

Periodically,the Company reviews inventory to determine recoverability of items on-handusing the lower-of-cost-or-market (LOCOM) and excess methods. The Companygroups and evaluates its products based on their underlying die or wafer type(the Company's raw materials, silicon wafers, can generally be used to makemultiple products), to determine the total quantity on-hand and average unitcosts. Management uses judgment in comparing the sales quantities for up to theprior 18 fiscal months to the quantity on-hand at the end of the fiscal year.If the quantity on-hand exceeds the sales quantities, the Company provides areserve for the potentially obsolete or slow-moving items. For the LOCOManalysis, the Company compared the average sales price to the average unit costof inventories at the end of the fiscal year. If the average unit cost exceedsthe average sales price, the Company provides a reserve. During fiscal 2004 and2003, the Company's LOCOM and excess reserves totaled $856,200 and $1,043,200,respectively.

 

Withthe continuing slow economic conditions, the Company felt it necessary toreview its raw materials and work-in-process as well. During fiscal 2004, theCompany wrote off approximately $250,300 of work-in-process inventory andscrapped $187,200, which were directly expensed to the cost of revenues. Duringfiscal 2003, the Company wrote off approximately $1.1 million ofwork-in-process inventory and scrapped an additional $560,200, which weredirectly expensed to the cost of revenues. The Company believes its currentreserve of $1,042,900 for inventory provides a reasonable estimate of therecoverability of inventories at the end of fiscal 2004.

Although current levels of inventory impact the Company'sliquidity, the Company believes that this is a less costly alternative toowning a wafer fabrication facility. The Company continues to evaluatealternative suppliers to diversify its risk of supply disruption. However, thisrequires a significant investment in product development to tool masks with newsuppliers. Such efforts compete for the Company's limited product developmentresources. The Company seeks to achieve on-going reductions in inventory,although there can be no assurance it will be successful. In the event economicconditions remain slow, the Company may consider identifying additionalportions of inventory to write-off at a future date.

 

Historically, due to customer order scheduling, up to 80%of the quarterly revenues were often shipped in the last month of the quarter,so a large portion of the shipments included in year-end accounts receivablewere not yet due per the Company's net 30-day terms. This results in year-endaccounts receivable balances being at their highest point for the respectiveperiod. 

 

*Financing*

 

While the Company will continue to evaluate future debtand equity financing opportunities, it believes the cost reductions implementedin the past few years have resulted in the cash flow generated from operationsproviding an adequate base of liquidity to fund future operating and capitalneeds. Based on the fact that, as of December 20, 2004, it holds approximately$1,937,200 in cash reserves and its anticipated cash usage for operations isapproximately equal to or less than its current revenue rate, the Companybelieves it can cover its cash operating expenses using future revenues, whilesaving current cash reserves for the stock repurchase plan and future capitalexpenditures, such as mask tooling for new products.

 

*Contractual Obligations*

 

Below is a summary of fixed payments related to certaincontractual obligations. Payment timing may be subject to change.

 

Payments due by  period:

Total

Within 1 year

1-3 years

After 3 years

Operating leases:

Buildings

$    708,400 

$    234,900 

$    473,500 

$    -  

Equipment

180,600 

154,800 

25,800 

-  

Purchase obligations  1

285,000 

285,000 

-  

-  

$ 1,174,000 

$    674,700 

$    499,300 

$    -  

1 Purchase obligations are licensing fees for engineering designsoftware.

 

*Off-Balance Sheet Arrangements*

 

Other than its operating leases, the Company does not haveany off-balance sheet arrangements.

 

**Critical Accounting Policies**

 

The Company's discussion and analysis of its financialcondition and the results of operations are based upon the financial statementsincluded in this report and the data used to prepare them. The financialstatements have been prepared in accordance with the accounting principlesgenerally accepted in the United  States of America and we are required tomake judgments, estimates, and assumptions in the course of such preparation.The Summary of Accounting Policies included with the financial statementsdescribes the significant accounting policies and methods used in thepreparation of the financial statements. On an ongoing basis, the Companyreevaluates its judgments, estimates, and assumptions, including those relatedto revenue recognition, allowance for doubtful accounts, valuation ofinventories, and valuation of long-lived assets. The Company bases itsjudgments and estimates on historical experience, knowledge of currentconditions, and its beliefs of what could occur in the future consideringavailable information. Actual results may differ from these estimates underdifferent assumptions or conditions. The following are the critical accountingpolicies the Company believes are affected by significant judgments, estimates,and assumptions used in the preparation of the financial statements.

 

*Revenue Recognition*

 

Revenue is generally recognized upon shipment of product.Sales to distributors are made pursuant to agreements that provide thedistributors certain rights of return and price protection on unsoldmerchandise. Revenues from such sales are recognized upon shipment, with aprovision for estimated returns and allowances recorded at that time, ifapplicable. While distributors are allowed to return items for stock rotation,they are required to place an order of equal or greater value at the same time.Therefore, no allowance for returns is recorded. Because the Company does notchange its pricing of products more than once a year, there has not been anypricing issues in the past several years; therefore, there is no allowance forprice protection recorded.

 

*Allowance for Doubtful Accounts*

 

The Company establishes a general allowance for doubtfulaccounts based on analyzing historical bad debts, specific customercreditworthiness, and current economic conditions. Historically, the Companyhas not experienced significant losses related to receivables.

 

*Inventories*

 

The Company writes down its inventories for lower of costor market reserves, aged inventory reserves, and obsolescence reserves.Inventory reserves are generally recorded when inventory for a product typeexceeds 18 months of demand for that product type. If actual product demand orselling prices are less favorable than estimated, additional inventorywrite-downs may be required in the future. Conversely, if demand comes back forproduct types that have been fully reserved, future margins may be higher.

 

*Long-Lived Assets*

 

Long-livedassets, including property and equipment, goodwill, and other intangibleassets, are assessed for possible impairment whenever events or changes incircumstances indicate that the carrying amounts may not be recoverable, orwhenever management has committed to a plan to dispose of the assets. Suchassets are carried at the lower of book value or fair value as estimated bymanagement based on appraisals, current market value, and comparable salesvalue, as appropriate. Assets to be held and used affected by such impairment lossare depreciated or amortized at their new carrying amounts over the remainingestimated life; assets to be sold or otherwise disposed of are not subject tofurther depreciation or amortization. In determining whether an impairmentexists, the Company uses undiscounted future cash flows without interestcharges compared to the carrying value of the assets.

 

*Impact of New Financial Accounting Standards*

 

There were no new financial accounting pronouncements witha significant impact on the Company's financial statements.

 

**ITEM 7A.    QUANTITATIVE ANDQUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

The Company conducts all of its transactions, includingthose with foreign suppliers and customers, in U.S. dollars. It is thereforenot directly subject to the risks of foreign currency fluctuations and does nothedge or otherwise deal in currency instruments in an attempt to minimize suchrisks. Of course, demand from foreign customers and the ability or willingnessof foreign suppliers to perform their obligations to the Company may beaffected by the relative change in value of such customer or supplier'sdomestic currency to the value of the U.S. dollar. Furthermore, changes in therelative value of the U.S. dollar may change the price of the Company's pricesrelative to the prices of its foreign competitors. The Company also does nothold any market risk sensitive instruments that are not considered cash underaccounting principles generally accepted in the United States of America.

**ITEM 8.    FINANCIAL STATEMENTSAND SUPPLEMENTARY DATA**

** **

**Index to Financial Statements and Financial StatementSchedules**

 

FINANCIAL STATEMENTS:

Page

 

Report of Independent Registered Public Accounting Firm

 

23

Report of Independent Registered Public Accounting Firm

24

Balance Sheets, September 30, 2004 and September 28,  2003

25

Statements of Operations, fiscal years ended September  30, 2004, September 28, 2003, and 

September 29, 2002

26

Statements of Shareholders' Equity, fiscal years ended  September 30, 2004, September 28, 2003, and

September 29, 2002

27

Statements of Cash Flows, fiscal years ended September  30, 2004, September 28, 2003, and 

September 29, 2002

28

Summary of Accounting Policies

29

Notes to Financial Statements

33

Quarterly Financial Data (unaudited), fiscal years ended  September 30, 2004, September 28, 2003, and

September 29, 2002

40

** **

**Financial Statement Schedule**

** **

Schedule II - Valuation and Qualifying Accounts

43
REPORT OF INDEPENDENT REGISTEREDPUBLIC ACCOUNTING FIRM
 

 

The Shareholders

   and Board of Directors

LOGIC Devices Incorporated

Sunnyvale, 4881:    California

 

We have audited the accompanying balance sheet ofLOGIC Devices Incorporated (the "Company") as of September 30, 2004and September 28, 2003 and the related statements of operations, shareholders'equity, and cash flows for the fiscal years then ended.  We have also audited the 2004 and 2003information included in Schedule II - Valuation and Qualifying Accounts(Schedule II).  These financialstatements are the responsibility of the Company's management.  Our responsibility is to express an opinionon these financial statements based on our audits.  The financial statements of the Company forthe fiscal year ended September 29, 2002 and the 2002 information included inSchedule II, were audited by other auditors, whose report, dated November 6,2002 expressed an unqualified opinion on those statements and schedules.

 

We conducted our audit in accordance with thestandards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan andperform the audit to obtain reasonable assurance about whether the financialstatements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting theamounts and disclosures in the financial statements.  An audit also includes assessing theaccounting principles used and significant estimates made by management, aswell as evaluating the overall financial statement presentation.  We believe that our audit provides areasonable basis for our opinion.

 

In our opinion, the 2004 and 2003 financial statementsreferred to above present fairly, in all material respects, the financialposition of LOGIC Devices Incorporated as of September 30, 2004 andSeptember 28, 2003 and the results of its operations and its cash flows for theyears then ended, in conformity with accounting principles generally acceptedin the United States of America.  Also,in our opinion, Schedule II, when considered in relation to the basic financialstatements taken as a whole, presents fairly, in all material respects, the2004 and 2003 information set forth therein.

 

/s/ Perry-Smith LLP

 

 

Sacramento, California

November5, 2004

**Report of Independent Registered Public  Accounting Firm**

 

  THE BOARD OF DIRECTORS

LOGIC DEVICES  INCORPORATED

  Sunnyvale, California 

 

We have audited the balance sheet as of September 29, 2002 of  **LOGIC DEVICES INCORPORATED (the Company)**, and the related  statements of operations, stockholders' equity, and cash flows for the fiscal  year then ended. We have also audited the 2002 information included in  Schedule II - Valuation and Qualifying Accounts (Schedule II). These financial  statements are the responsibility of the Company's management. Our  responsibility is to express an opinion on these financial statements based on  our audit.

 

We conducted our audit in accordance with the standards of the  Public Company Accounting Oversight Board (United States). Those standards  require that we plan and perform the audit to obtain reasonable assurance  about whether the financial statements are free of material misstatement. An  audit includes examining, on a test basis, evidence supporting the amounts and  disclosures in the financial statements. An audit also includes assessing the  accounting principles used and significant estimates made by management, as  well as evaluating the overall financial statement presentation. We believe  that our audit provides a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above  present fairly, in all material respects, the financial position of LOGIC  Devices Incorporated as of September 29, 2002, and the results of its  operations and its cash flows for the fiscal year then ended in conformity  with accounting principles generally accepted in the United States of America.  Also, in our opinion, Schedule II, when considered in relation to the basic  financial statements taken as a whole, presents fairly, in all material  respects, the 2002 information set forth therein.

 

 

/s/ Hood & Strong LLP

 

 

Menlo Park, California

November 6, 2002
**LOGIC Devices Incorporated**

** **

**Balance Sheets**

 

September 30,

2004

September 28,

2003

ASSETS

 

Current assets:

Cash and cash equivalents

$   1,788,900 

$   1,806,100 

Accounts receivable, net of allowance for doubtful  accounts of

 $0 and $3,500, respectively (Notes 8, 9, and  12)

729,000 

840,100 

Inventories (Notes 1, 8, and 12)

7,079,300 

8,510,900 

Prepaid expenses (Note 3)

143,100 

192,300 

Sales tax refund receivable

47,600 

Total current assets

9,787,900 

11,349,400 

 

Property and equipment, net (Note 2)

862,000 

856,700 

Other assets (Note 4)

185,700 

42,400 

 

$ 10,835,600 

 

$ 12,248,500 

 

LIABILITIES AND SHAREHOLDERS' EQUITY:

 

Current liabilities:

Accounts payable

$      137,200 

$       47,000 

Accrued payroll and vacation

52,500 

160,500 

Accrued commissions

15,500 

20,200 

Other accrued expenses

-  

38,000 

Total current liabilities

205,200 

265,700 

 

Deferred rent

40,500 

39,900 

Total liabilities

245,700 

305,600 

 

Commitments and contingencies (Note 6)

 

Shareholders' equity (Note 7):

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;

  6,743,188 and 6,640,688 shares issued and  outstanding

18,436,500 

18,317,200 

Additional paid-in capital

100,000 

100,000 

Accumulated deficit

(7,946,600)

(6,474,300)

 

Total shareholders' equity

 

10,589,900 

 

11,942,900 

 

$ 10,835,600 

 

$ 12,248,500 

 

*See accompanyingsummary of accounting policies and notes to financial statements.*

**LOGIC Devices Incorporated**

** **

**Statements of Operations**

 

Fiscal Years Ended:

September 30,

2004

September 28,

2003

September 29,

2002

 

Net revenues (Notes 8 and 12)

 

$  4,414,600 

 

$  5,009,000 

 

$  6,572,600 

 

Cost of revenues

2,773,600 

3,597,200 

4,780,000 

 

Gross profit (Note 12)

 

1,641,000 

 

1,411,800 

 

1,792,600 

 

Operating expenses:

Research and development

1,363,900 

1,784,600 

1,775,700 

Selling, general, and administrative

1,772,100 

2,110,900 

2,138,400 

 

Total operating expenses

 

3,136,000 

 

3,895,500 

 

3,914,100 

  Loss from operations

 

(1,495,000)

 

(2,483,700)

 

(2,121,500)

 

Other (income) expense:

Interest expense

-  

-  

37,900 

Interest income

(19,700)

(23,600)

(7,800)

Other (income) expense, net

(3,800)

400 

(37,300)

 

Total other income

 

(23,500)

 

(23,200)

 

(7,200)

 

Loss before provision for income taxes

 

(1,471,500)

 

(2,460,500)

 

(2,114,300)

 

Provision for income taxes (Note 5)

(800)

(800)

(9,400)

 

Net loss

 

$ (1,472,300)

 

$ (2,461,300)

 

$ (2,123,700)

 

Basic and diluted loss per share

 

$ (0.22)

 

$ (0.37)

 

$ (0.31)

 

Basic and diluted   weighted average common

shares outstanding

6,715,480 

6,651,705 

6,850,096 

 

*S**eeaccompanying summary of accounting policies and notes to financial statements.*

 

**LOGIC Devices Incorporated**

** **

**Statements of Shareholders' Equity**

 

Common Stock

Additional

Paid-in

Capital

 

Accumulated

Deficit

 

 

Total

Shares

Amount

 

(Consolidated)

Balances, September 30, 2001

 

 

6,841,888 

 

 

18,522,700 

 

 

19,000 

 

 

(1,889,300)

 

 

16,652,400 

 

Issuance of common stock on

exercise of stock options (Note 7)

 

11,000 

 

17,200 

 

-  

 

-  

 

17,200 

 

Extension of common stock

warrants (Note 7)

 

-  

 

-  

 

81,000

 

-  

 

81,000 

 

Net loss

-  

-  

-  

(2,123,700)

(2,123,700)

 

Balances, September 29, 2002

 

6,852,888 

 

18,539,900 

 

100,000 

 

(4,013,000)

 

14,626,900 

 

Repurchase of common stock

(Note 7)

 

(222,200)

 

(233,700)

 

-  

 

-  

 

(233,700)

 

Issuance of common stock on

 exercise of stock options (Note 7)

 

10,000 

 

11,000 

 

-  

 

-  

 

11,000 

 

Net loss

-  

-  

-  

(2,461,300)

(2,461,300)

 

Balances, September 28, 2003

 

6,640,688 

 

18,317,200 

 

100,000 

 

(6,474,300)

 

11,942,900 

 

Issuance of common stock on

 exercise of stock options (Note 7)

 

102,500 

 

119,300 

 

-  

 

-  

 

119,300 

 

Net loss
-  
-  
-  
(1,472,300)
(1,472,300)
 

Balances, September 30, 2004
 

6,743,188

 

$ 18,436,500 

 

$ 100,000 

 

$ (7,946,600)

 

$ 10,589,900 
 

*See accompanyingsummary of accounting policies and notes to financial statements.*

**LOGIC Devices Incorporated**

** **

**Statements of Cash Flows**

 

Fiscal Years  Ended:

September 30,

2004

September 28,

2003

September 29,

2002

 

Cash flows from operating activities:

Net loss

$ (1,472,300)

$ (2,461,300)

$ (2,123,700)

Adjustments to reconcile net loss to net

  cash provided by (used in) operating  activities:

Depreciation and amortization

277,900 

400,800 

814,200 

Allowance for doubtful accounts

(3,500)

(16,500)

-  

Deferred rent

600 

39,900 

-  

Loss on disposal of capital equipment

2,500 

300 

-  

Issuance of common stock warrants for services

-  

-  

81,000 

Changes in current assets and liabilities:

Accounts receivable

114,600 

1,972,300 

556,300 

Inventories

1,431,600 

1,080,200 

2,104,600 

Prepaid expenses

49,200 

333,600 

(269,300)

Sales tax refund receivable

(47,600)

-  

-  

Accounts payable

90,200 

(82,100)