U.S. Securities and Exchange Commission Washington, D.C. 20549 CONFORMED Form 10-KSB (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended June 30, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from Commission File Number 0-15545 Logitek, Incorporated (Name of small business issuer in its charter) New York No. 11-2203507 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 101 Christopher St., Ronkonkoma, N.Y. 11779 (Address of principal executive offices) (Zip Code) Registrant's Telephone Number, including area code 516-467-4200 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered None None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 par value (Title of class) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Check if there is no disclosure of delinquent filers pursuant to Item 405 of Regulation S-B in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB [ X ] Issuer's revenues for its most recent fiscal year: $4,157,472 The aggregate market value of voting common stock held by non-affiliates, computed based upon the average of the closing bid and asked prices on September 3, 1997 was $2,617,990. As of September 3, 1997, there were 3,423,730 shares of common stock outstanding (of which 1,925,753 shares were held by non-affiliates). Documents Incorporated by Reference: 1996 Proxy Statement ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General The Company ("Logitek, Inc.") reported a net profit after tax of $324,566 for the year ended June 30,1997 compared to a $259,975 profit for the year ended June 30, 1996. Results of Operations Comparison of Fiscal Years Ended June 30, 1997 and 1996 Sales for fiscal 1997 were $4,157,472 compared to $3,461,412 for the prior year, or a 20% increase of $696,060. The increase was due primarily to additional sales as a result of new product lines. The company has also begun to utilize fully automated test and automatic assembly equipment and has redesigned certain of its products to take advantage of the more cost effective surface mount manufacturing technologies. Gross profit margins were 38.7 % and 40.9% for the twelve month periods ended June 30, 1997 and 1996. This reflects the company's committment to manufacturing its products in a more efficient manner, as well as close cost containment. Operating expenses for fiscal 1997 were approximately $1,188,000 compared to $1,054,000 or a increase of $134,000. Of this increase,research and development expenses accounted for approximately $27,000. This increase is a reflection of the company's efforts to develope the digital power monitor and a high density power supply, both of which will be unique in the marketplace and differentiate he company. The remaining $ 107,000 consists of a reclassification of the Vice President & General Manager's salary as well as an increase in general overhead. Interest expense decreased approximately10% due to decreased borrowing levels. During the past twelve month period the Company has reduced total debt by $123,284. By December 1994 all then existing equipment loans had been satisfied. The Company will now be required to service its two mortgages on the building and a term loan with a balance of $116,000 as of June 30, 1997 (see Notes 7 and 8). In June 1995 and October 1995 the Company decided to borrow $ 65,000 and $47,500 in order to pay off its remaining equipment leases and to purchase additional new equipment as part of its plan to streamline its operations and to make more of the manufacturing an automatic process rather than labor intensive. The legal expenses of $47,000 for the twelve month period ended June 30, 1997 were for normal ongoing legal matters, compared to $24,000 for the year ended June 30,1996. The company has made a settlement on a trademark infringement suit. The settlement is for $105,000 of which $55,000 was collected in the year ended June 30,1996 and the remaining $50,000 was collected during the year ended June 30,1997. The Company's effective tax rate of 18.8% differs from the statutory tax rate of 34% due principally to the impact of a deferred tax , utilization of federal tax credits and a state income tax provision. Liquidity and Capital Resources Total borrowings were $605,680 and $728,964, at June 30, 1997 and 1996 , respectively, which represent decreases of $123,284, or 17%, and $29,555, or 4%, for the latest two twelve month periods. As of June 30, 1997 the Company has decreased total debt, accounts payable and accrued expenses by approximately $211,000 . As of June 30,1996 the Company had increased total debt,accounts payable and accrued expenses by $195,398. During this two year period the Company has built its cash reserves to approximately $394,000 as of June 30, 1997. During the year ended June 30,1997, the Company increased its cash by about $45,000 through its operating activities primarily from its net income and depreciation.The Company used its cash to purchase equipment of $39,000 and paid down debt by about $123,000. The Company is not aware of any committments or contingencies that are likely to have a material impact on the financial statements. Term Loan In January 1996 the lender agreed to extend the loan to March 1999. Therefore the loan of $116,000 was classified partially as current and partially as long term as of the date of the June 30,1997 report. Due to the Company's current cash resources of $394,000 and it's continued profitability the Company does not anticipate a need for additional outside financing. Directors Fees The Board of Directors meets annually each year as well as on an interim basis as the need arises. All Directors, with the exception of Herbert Fischer are paid $ 150 per meeting for their services. BALANCE SHEETS June 30, ASSETS 1997 1996 Current Assets: Cash and cash equivalents $393,797 $348,979 Accounts receivable 422,549 328,801 Inventories 1,046,082 1,018,074 Prepaid expenses and other current assets 34,292 33,941 Due from officer 30,500 30,500 Total Current Assets 1,927,220 1,760,295 Property, Plant, and Equipment, net 668,861 720,929 Deferred income taxes,state 0 7,000 Goodwill 34,441 34,441 Other Assets 36,323 33,111 TOTAL ASSETS $2,666,845 $2,555,776 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current portion of long-term debt $145,182 $140,491 Capitalized lease obligation, current 11,783 7,150 Accounts payable 385,882 463,889 Accrued expenses and taxes 154,507 166,561 Total Current Liabilities 697,354 778,091 Capitalized lease obligation, less current portion 50,119 39,402 Long-term debt, net of current portion 398,596 541,921 Deferred income taxes payable 15,380 13,380 TOTAL LIABILITIES 1,161,449 1,372,794 COMMITMENTS STOCKHOLDERS' EQUITY Common stock, $.01 par value; authorized 10,000,000 shares; issued 3,600,000 shares, of which 187,941 and 176,000 shares are held in treasury, respectively 36,000 36,000 Capital in excess of par value 280,355 280,355 Retained earnings 1,196,693 872,127 1,513,048 1,188,482 Less: Treasury stock, at cost 7,652 5,500 Total Stockholders' Equity 1,505,396 1,182,982 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,666,845 $2,555,776 The accompanying notes are an integral part of the financial statements. Weighted average shares outstanding 3,423,730 3,424,000 LOGITEK, INC. Notes to Financial Statements NOTE 1 - Description of Business and Summary of Significant Accounting Policies:Description of business: Logitek, Inc. ("the Company") is engaged in the design, development and production of electronic power monitoring equipment and electronic power supplies. The Company sells its products and provides services to domestic customers, and to a lesser extent to international customers, and to the United States government. Revenue recognition: The Company recognizes sales when merchandise is shipped. For contracts subject to Department of Defense regulations, the Company recognizes revenue when the earnings process is deemed completed. Inventories: Inventories are carried at the lower of cost (based on a moving average) or market. Property,plant and equipment and depreciation: Property, plant and equipment is recorded at cost. Expenditures for major renewals and betterments to property and equipment are capitalized, and expenditures for maintenance and repairs are charged to operations as incurred. When assets are retired or otherwise disposed of, their cost and related accumulated depreciation are eliminated from the accounts. Any resulting gain or loss is reflected in income. Depreciation is provided using the straight-line method over the estimated useful lives of the related assets, which are as follows: Buildings and improvements 15 to 31.5 years Machinery and equipment 5 to 7 years Furniture and fixtures 5 to 7 years Automobiles 5 years Goodwill: Goodwill arose from a 1969 acquisition, is being reviewed by management as to its continuing value. The Company believes its value has diminished in recent years and is contemplating writing this off to earnings in the near term. Income taxes: Deferred income tax assets and liabilities are computed annually for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities. Tax credits are accounted for on the flow-through method. Research and development costs: Research and development costs are expensed as incurred. Cash and cash equivalents: The Company considers all highly liquid debt instruments purchased with a maturity date of three months or less to be cash equivalents. At June 30, 1997 and June 30, 1996 the Company has cash deposits in banks in excess of the maximum amount insured by the Federal Deposit Insurance Corp. Earnings per share: Earnings per share for both years have been presented based on the weighted average number of shares outstanding. The treasury stock method was used to compute the fully diluted earnings per common share. This method assumes that the proceeds to be obtained when an option is exercised will be used to purchase common stock at the average market price during the period. Reclassifications: Certain accounts in the prior year financial statements have been reclassified for comparative purposes to conform with the presentation in the current year financial statements. These reclassifications have no effect on previously reported income. Use of Estimates in the Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liablilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Advertising Costs Advertising costs are expensed as incurred. LOGITEK,INC. Notes to Financial Statements Note 1- Description of Business and Summary of Significant Accounting Policies Fair Value of Financial Instruments The Company's financial instruments include cash, accounts receivable and accounts payable.Due to the short-term nature of these instruments, the fair value of these instruments approximate their recorded value. The Company has long term debt which it believes is stated at estimated fair market value. Impairment of Long Lived Assets In 1996, the Company adopted Statement of Financial Accounting Standards No. 121 "Accounting for the Impairment of Long Lived Assets and for Long Lived Assets to Be Disposed Of"(SFAS No. 121).The statement requires the recognition of an impairment loss for an asset held for use when the estimate of undiscounted future cash flows expected to be generated by the asset is less than its carrying amount. Measurement of the impairment loss is based on fair value of the asset. Generally, fair value will be determined using valuation techniques such as the present value of expected future cash flows. It was the Company's past policy to measure an impairment loss for assets held for use based on expected undiscounted future cash flows. Adoption of this statement will result in recognition of a larger loss, based on discounted future cash flows, in the year of impairment and lower depreciation charges over the remaining life of the asset. Since adoption, no impairment losses have been recognized. The recognition and measurement of impairment losses for long-lived assets to be disposed of under SFAS No. 121 is consistent with the Company's past practice. Stock- Based Compensation In October 1995, Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 123 " Accounting for Stock Based Compensation"("SFAS No. 123"). SFAS No. 123 requires compensation expense to be recorded (i) using the new fair value method or (ii) using existing accounting rules prescribed by Accounting Principles Board Opinion No.25, "Accounting for Stock Issued to Employees" ("APB 25") and related interpretations with pro forma disclosure of what net income and earnings per share would have been had the Company adopted the new fair value method. The Company intends to continue to account for its stock based compensation plans in accordance with the provision of APB 25. Had the Company elected to recognize compensation costs based on the fair value of the options at the date of grant as prescribed by SFAS No. 123, there would be no material effect from that recognized under APB 25 for the years ended June 30,1997 and 1996. LOGITEK ,INC. Notes to Financial Statements Note 3 - Property, Plant and Equipment Property, plant and equipment consists of the following: June 30, 1997 1996 Land $78,000 $78,000 Buildings and improvements 802,850 802,850 Machinery and equipment 1,150,902 1,111,529 Furniture and fixtures 142,876 142,876 Automobiles 68,988 68,988 Total 2,243,616 2,204,243 Less:Accumulated Depreciation (1,574,755 ) (1,483,314) Property Plant and Equipment,Net $ 668,861 $ 720,929 (a)Depreciation expense charged to operations was $ 91,441 and $ 110,037 for the years ended June 30, 1997 and June 30,1996,respectively. (b)The cost of equipment under a capital lease and accumulated depreciation on these assets was $ 72,646 and $ 11,994, respectively, at June 30,1997, and $47,646 and $3,403 respectively at June 30,1996 NOTE 6 - Leases Capitalized lease obligation-During the year ended June 30,1997 and June 30, 1996 the Company obtained equipment under capital leases expiring in June 2002 and June 2001. The assets and liabilities under capital leases are recorded at the lower of the present values of the minimum lease payments or the fair values of the assets. The assets are included in property and equipment and are depreciated over their estimated useful lives.As of June 30,1997 , minimum future lease payments under all capital leases are: Year ending Amount June 30, 1998 $ 11,783 1999 13,673 2000 15,863 2001 16,145 2002 4,438 Total capitalized lease payments 61,902 Less: current portion 11,783 Total capitalized lease payments net of $ 50,119 current portion Operating leases The Company leases certain equipment to support its manufacturing and test capabilities and certain office equipment. Such leases expire through June 2000. Rent expense for the years ended June 30, 1997 and 1996 was $5,252 and $2,580 respectively. Future minimum rental payments under noncancelable operating leases as of June 30,1997 are as follows: Year Ending June 30, Amount 1998 $5,252 1999 5,252 2000 2,672 Total $13,176 NOTE 7 - Long-Term Debt Long-term debt consists of the following: June 30, 1997 1996 Mortgage payable to NY Job Development Authority (JDA) in monthly installments of $2,656 including interest (8.25% at June 30, 1997 and 1996) through June 2004, collateralized by restricted cash, building and improvements with a net book value of approximately $406,822 (a) $154,340 $ 170,309 Mortgage payable to Long Island Development Corp. (LIDC) in monthly installments of $4,427, including interest at 14.296% through June 2004, subordinate to the JDA mortgage, collateralized by restricted cash, land, building and improvements with a net book value of $406,822 (b) 229,340 247,755 Notes payable to bank in monthly installments in the the aggregate amount of $3,125 plus interest at 1.5% above prime through October 1998, collateralized by a secondary lien on all assets of the Company (d) 44,098 81,598 Term loan payable to bank (c) 116,000 182,750 Total debt 543,778 682,412 Less: Current Portion (145,182) (140,491) Total Long term debt $398,596 $541,921 (a) Interest rate varies in response to market conditions. This mortgage is guaranteed by the U.S.Small Business Administration. The loan contains restrictive convenants including default if the Company defaults on any superior debt. (b) This mortgage is personally guaranteed by the Company's president and principal stockholder. The mortgage contains restrictive covenants which include, among others, limiting property, plant and equipment additions in each year, obtaining written consent of the lender prior to incurring additional financing obligations and prior to transferring ownership of common stock belonging to the Company's president and principal stockholder. The mortgage is subordinated to the JDA mortgage. (c) The term loan payable to bank requires monthly principal payments of $5,750 plus interest at 2% above the bank's prime rate ( 8.25% at June 30, 1997) through March 1999. The note is collateralized by accounts receivable, inventory and certain machinery and equipment. (d) Interest rate varies in response to market conditions. Aggregate long-term debt maturities for the five fiscal years subsequent to June 30, 1997 are: Year Ending June 30, Amount 1998 $145,182 1999 97,123 2000 48,991 2001 55,163 2002 62,134 Thereafter 135,185 Total $543,778 Note 13 - Treasury Stock Treasury stock at June 30,1997 and June 30,1996 consists of 187,941 and 176,000 shares at various prices per share.