UNITED STATES

SECURITIES ANDEXCHANGE COMMISSION

Washington, D.C. 20549

 

**FORM 10-K**

 

[X] Annual ReportPursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

**For the FiscalYear Ended September 30, 2010**

or

[   ]Transition Report Pursuant to Section 13 or 15(d) of the Securities ExchangeAct of 1934

For the TransitionPeriod ______ to ______

 

Commission FileNumber

**0-17187**

 

**LOGIC DEVICESINCORPORATED**

(Exact name of registrant as specified in its charter)

 
| **California**          | **94-2893789**                       |
|-------------------------|--------------------------------------|
| (State of Incorporation | (I.R.S. Employer Identification No,) |

 

**1375 Geneva Drive****, Sunnyvale, CA 94089**

(Address of principal executive offices, including ZipCode)

 

**(408) 542-5400**

(Registrant’s telephone number, including Area Code)

 

Securities registeredpursuant to Section 12(b) of the Act : **NONE**

 

Securities registeredpursuant to Section 12(g) of the Act: **Common Stock, no par value**

 

Indicate by check mark if the registrant is a well-knownseasoned issuer, as defined in Rule 405 of the Securities Act. Yes[   ]  No [X]

 

Indicate by check mark if the registrant is not required tofile report pursuant to Section 13 or Section 15(d) of the Act. 

Yes [   ]  No [X]

 

Indicate by check mark whether the registrant (1) has filedall 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 [   ]

 

Indicate by check mark if disclosure of delinquent filerspursuant to Item 405 of Regulation S-K is not contained herein, and will not becontained, to the best of registrant’s knowledge, in definitive proxy orinformation statements incorporated by reference in Part III of this Form 10-Kor any amendment to this Form 10-K. [   ]

 

Indicate by check mark whether the registrant is a largeaccelerated filer, an accelerated filer, a non-accelerated filer, or a smallerreporting company. See definitions of “large accelerated filer,” “acceleratedfiler,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 
| Large accelerated filer [   ]                                              | Accelerated filer [   ]

  |
|-------------------------------------------------------------------------------------------|------------------------------------------------|
| Non-accelerated filer [   ] (Do not check  if a smaller reporting company) | Smaller reporting company [X]                  |

 

Indicate by check whether the registrant is a shell company(as defined in Rule 12b-2 of the Exchange Act). Yes [   ]  No[X]

 

The aggregate market value of the voting and non-votingcommon stock held by non-affiliates computed by reference to the closing priceof the common stock as of March 31, 2010, the last day of the registrant’s mostrecently completed second quarter was $6,499,900.

 

As of December 23, 2010, the Registrant had 7,398,172 sharesof its common stock issued and outstanding.

 

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**LOGIC DEVICESINCORPORATED**

** **

**ANNUAL REPORT ONFORM 10-K**

** **

**Index**

 
| **PART I**      |                                                                                                                       |   |
|-----------------|----------------------------------------------------------------------------------------------------------------------------|--------|
| Item 1.         | Business                                                                                                                   | 2      |
| Item 1A.        | Risk Factors                                                                                                               | 6      |
| Item 1B.        | Unresolved Staff Comments                                                                                                  | 10     |
| Item 2.         | Properties                                                                                                                 | 10     |
| Item 3.         | Legal Proceedings                                                                                                          | 10     |
| Item 4          | Removed and Reserved                                                                                                       |   |
| **PART II**     |                                                                                                                       |   |
| Item 5.

  |  

Market for Registrant’s Common Equity,  Related Stockholder Matters and Issuer Purchases of Equity Securities | 10     |
| Item 7.         | Management’s Discussion and Analysis of  Financial Condition and Results of Operations                                | 11     |
| Item 7A.        | Quantitative and Qualitative Disclosures  About Market Risk                                                                | 16     |
| Item 8.         | Financial Statements and Supplementary  Data                                                                               | 17     |
| Item 9.         | Changes in and Disagreements With  Accountants on Accounting and Financial Disclosure                                      | 32     |
| Item 9A.        | Controls and Procedures                                                                                                    | 32     |
| Item 9B.        | Other Information                                                                                                          | 33     |
| **PART III**    |                                                                                                                       |   |
| Item 10.        | Directors, Executive Officers and  Corporate Governance                                                                    | 33     |
| Item 11.        | Executive Compensation                                                                                                     | 33     |
| Item 12.        | Security Ownership of Certain Beneficial  Owners and Management and Related Stockholder Matters                            | 33     |
| Item 13.        | Certain Relationships and Related  Transactions, and Director Independence                                                 | 33     |
| Item 14.        | Principal Accounting Fees and Services                                                                                     | 33     |
| **PART IV**     |                                                                                                                       |   |
| Item 15.        | Exhibits, Financial Statement Schedules                                                                                    | 33     |
| **Signatures**  | 34                                                                                                                         |

 

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***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 our products, the competitive nature of and anticipated growth inour markets, our 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, ourproduction capacity, our ability to migrate to smaller process geometries, andthe need for additional capital. These forward-looking statements are based onour current expectations, estimates, and projections about our industry,management’s beliefs, and certain assumptions made by it. Words such as“anticipates, appears, expects, intends, plans, believes, seeks, estimates,may, will,” and variations of these words or similar expressions are intendedto identify forward-looking statements. In addition, any statements that referto expectations, projections, or other characterizations of future events orcircumstances, including any underlying assumptions, are forward-lookingstatements. These statements are not guarantees of future performance and aresubject to risks, uncertainties, and assumptions that are difficult to predict.Therefore, actual results could differ materially and adversely from thoseresults expressed in any forward-looking statements, as a result of variousfactors, some of which are listed under the section, “Item 1A - Risk Factors,”of this Annual Report on Form 10-K. We undertake no obligation to revise orupdate publicly any forward-looking statements for any reason.*

 

 

**PART I**

 

Item 1. BUSINESS

 

***General Development of the Business***

 

LOGIC Devices Incorporated, an ISO 9001:2008 registeredcompany, develops and markets high-performance, low power digital integratedcircuits and integrated modules that perform high-density storage andsignal/image processing functions. Our products enable video display,transport, editing, composition, special effects, and the high-performance,high-density storage of electronic information. We also provide solutions fordigital filtering in television broadcast stations and image enhancement inmedical diagnostic scanning and imaging equipment.

 

Our products are used in video broadcasting, medicalimaging, military, industrial, embedded, and telecommunications markets. Ourproducts address memory, digital signal processing (DSP), and high-performancearithmetic computation. We focus on developing proprietary, silicon intellectualproperty (IP) and standard catalog products to address specific functionalapplication needs and performance levels that are not otherwise commerciallyavailable. We seek to provide related groups of circuits that original equipmentmanufacturers (OEMs) incorporate into high-performance electronic systems.

 

We rely on third-party silicon foundries to process siliconwafers, each wafer having up to several hundred integrated circuits of a givenLOGIC design, from which finished products are then assembled. Our strategy isto avoid the substantial investment in capital equipment and expertise requiredto establish a wafer fabrication facility, by outsourcing wafer processing tothird-party foundry specialists to take advantage of their expertise. See"Business – Background." We currently have one primary wafersupplier. We continue to explore additional foundry relationships to reduce ourdependence on any single wafer foundry.

 

We market our products worldwide via our direct marketingand business through an external sales management organization, providingincreased direct sales support and channel exposure through a combination ofdomestic sales representatives and international non-stocking distributorsand/or agents. In fiscal 2010, approximately 26 percent of net revenues werefrom international channels. We adjust our sales structure to addressappropriate market requirements. We include the following as some of ourcustomers: Texas Instruments, BAE Systems, Harmonic, GE Medical, Northrup Grumman,Qualcomm, and Raytheon.

 

LOGIC Devices was incorporated under the laws of the Stateof California in April 1983. Our headquarters are located at 1375 Geneva Drive, Sunnyvale, California 94089, and our telephone number is 408-542-5400.

***Available Information***

 

Our annual report on Form 10-K, quarterly reports on Form10-Q, current reports on Form 8-K, and amendments to those reports filed orfurnished pursuant to Section 13(a) or Section 15(d) of the Securities ExchangeAct of 1934 are available free of charge on our website, www.logicdevices.com,as soon as reasonably practicable after we electronically file such materialwith or furnish such material to the Securities and Exchange Commission.

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***Background***

 

Continuing advances in fabricating semiconductors aredriving a global revolution in electronics. With these ongoing advances, theability to economically compute, communicate, and control seems to be limitedonly by the creativity required to implement ever more complex electronic systems.It is increasingly common to implement entire electronic systems on a single,small 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. Many opportunities have thusemerged for semiconductor companies that focus on product definition, advanceddesign techniques, and technical application support, and that rely on thirdparties for wafer fabrication. We focus our resources on defining anddeveloping high-performance integrated circuit components and integratedmulti-chip modular products to growing markets, which require demandingcomputational throughput.

 

The semiconductor industry is intensely competitive, highlycyclical, and characterized by rapid technological change, productobsolescence, wide fluctuations in both demand and capacity, and steep priceerosion. These factors can obsolete processes and products currently utilizedor produced by us. In such cases, we are required to develop products utilizingnew processes and to either integrate such products into our existing foundryprocesses, or seek new foundry sources.

 

***Markets and Product Development Strategies***

 

We have historically derived a significant portion of ourrevenues from sales to video equipment manufacturers and to defense contractorsproviding systems that perform computationally intensive image processing. Ourproducts were among the first to provide economical, high-speed, yet low power,computational solutions for common image manipulation and storage problemsencountered in implementing these systems. Applications of our products alsooverlap into medical diagnostic imaging equipment, and digital cinema systems. Wejointly define with our customers, a family of digital image filtering circuitsthat address the filtering requirements of HDTV studio production systems.

 

As a result of our work on high-speed, low power imageprocessing circuits that are very computationally demanding, we have developedexpertise in circuit design and implementation that is not readily available tomany OEMs, and within the semiconductor industry, only available within some ofthe very largest companies that, due to their size, are compelled to pursue verylarge markets. Our capabilities and size provide opportunities to servicetechnically-demanding industrial and military markets that are not serviced bythose larger companies.

 

In addition to, as well as a result of our work onhigh-performance, low power silicon developments for the markets, applications,and platforms we serve, we have introduced a product family enabling us toprovide advanced, multi-chip, integrated modular products. This productpackaging medium facilitates the integration of LOGIC silicon IP as well assilicon IP from other semiconductor manufacturers providing high-density,wide-word memory arrays, sub-systems, and systems in packages.

 

The same advances in semiconductor technology that haveenabled the advancements in high definition broadcast video production anddistribution have driven a rapid increase in the ability to transmit vastamounts of data. Communications in all forms with increasing portability andbandwidth are proliferating worldwide. Much of this new communication capabilitywill be utilized to transport video streams. We believe that many opportunitiesexist to utilize our capabilities in low power, high speed computation andstorage to address the requirements of these communications and video systems.The convergence of communications and ubiquitous image processing is anopportunity that is well-suited to our capabilities and far exceeds ourabilities to address completely.

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We seek to identify additional markets that require theapplication of our silicon design and multi-chip packaging expertise; that arestable, long-lived markets that are not extremely cost-sensitive; that offerpotential for substantial revenue growth; and that are not served by largercompetitors with substantially more resources. Currently, the semiconductorindustry is challenged by several factors. First, the cost of developing highcomplexity products is escalating as fast, if not faster than, the capabilityof the technology itself is increasing. Second, the disciplines required todevelop complex, systems-on-chips (SOCs) requires a rapidly increasing breadthof technical skills. Consumer-related products are experiencing ever shrinkinglife cycles as new products are quickly supplanted by even newer products.

 

***Wafer Fabrication Technology***

 

LOGIC Devices is a fabless manufacturer. We rely uponthird-party foundry suppliers to produce processed wafers from mask patternsdesigned by us. Through these wafer suppliers, we have access to advancedhigh-speed, high-density complimentary metal oxide semiconductor (CMOS) processtechnology, without the significant investment in capital equipment andfacilities required to establish a wafer fabrication factory. Coupled with ourstructured custom design methodology and experience with high-speed circuitdesign, this CMOS technology has allowed us to produce products that offer highcomputational speeds, high reliability, high levels of circuit integration(complexity), and low power consumption.

 

We are primarily dependent upon one wafer supplier and donot have a guarantee of minimum supplies. Therefore, there can be no assurancethat such relationships will continue to be on terms satisfactory to us. Theinability to obtain adequate quantities of processed wafers could limit ourrevenues. As a result of this risk, we carry a large inventory of unassembledwafers that can be packaged into a variety of carrier styles to supportcustomer requirements.

 

***Production, Assembly, and Test***

 

Our production operations consist of functional andparametric testing, hot and cold testing, final inspection, quality inspection,and shipment. As is customary in the industry, high-volume assemblysubcontractors assemble our devices. Thereafter, the assembled devices arereturned to us for final testing and shipment to customers. We continue to testmaterials and products at various stages in the manufacturing process,utilizing automated test equipment.

 

We have historically maintained, and expect to continue tomaintain, high levels of inventory of our products. For some product types, wemust purchase our anticipated inventory needs for the life of the product(often ten or more years) in a short period of time. Our high inventory levelsheighten the risk of inventory obsolescence and write-offs.

 

***Marketing, Sales, and Customers***

 

We market our products worldwide via our marketing andbusiness development group as well as an external sales managementorganization, channeling our products into both domestic and internationalterritories via manufacturers representatives and non-stocking distributorand/or agents. We concentrate our direct marketing efforts on high-performancesegments of the broadcast, medical imaging, industrial, embeddedtelecommunications and consumer markets, in applications where high speed iscritical. Among our OEM customers are Texas Instruments, BAE Systems, Harmonic,GE Medical, Northrup Grumman, Qualcomm, and Raytheon.

 

Distributors purchase our products for resale, generally toa broad base of small- to medium-sized customers. As is customary in theindustry, our distributors receive certain price protection and limited stockrotation rights. However, our distributors are discouraged from maintaininguncommitted stock and must place an order of equal or greater value if they dorequest a return. During fiscal 2010 and 2009, sales through distributorsaccounted for approximately 29% and 16% of net revenues, respectively.

 

In fiscal 2010 and 2009, no distributors generated more than10% of net revenues; however, Benchmark Electronics (manufacturers for TexasInstruments) comprised 16% and 32% of net revenues in fiscal 2010 and 2009,respectively. In addition, Oncore Electronics (manufacturer for TexasInstruments) comprised 15% and 41% of net revenues in fiscal 2010 and 2009,respectively, and BAE Systems comprised 22% of net revenues in fiscal 2010.

 

Our distributors are not exclusive and they may also marketproducts competitive with our products. We warrant our products against defectsin materials and workmanship for a period of 12 months from the date ofshipment. Warranty expenses to date have been nominal.

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International sales are conducted by sales representativesand distributors located throughout Europe and Asia. During fiscal 2010 and 2009,our export sales were approximately 26% and 13% of net revenues, respectively(see Note 7 in "Notes to Financial Statements" contained in Item 8).Our international sales are billed in United States dollars, and therefore,settlements are not directly subject to currency exchange fluctuations.However, changes in the relative value of the dollar may create pricingpressures for our products. Although our international sales are subject tocertain export restrictions, including the Export Administration Amendments Actof 1985 and the regulations promulgated thereunder, we have not experienced anymaterial difficulties resulting from these restrictions to date.

 

***Backlog***

 

As of December 2, 2010 and 2009, our backlog wasapproximately $185,900 and $644,400, respectively. This backlog includes allreleased purchase orders shippable within the following 12 months, includingorders from distributors. Our backlog, although useful for schedulingproduction, does not represent actual sales and should not be used as a measureof future sales or revenues at any particular time. In accordance with acceptedindustry practice, all orders on the backlog that are not "last-timebuys" of obsolete products are subject to cancellation without penalty atthe option of the purchaser at any time prior to shipment. In addition, thebacklog does not reflect changes in delivery schedules and price adjustmentsthat may be passed on to distributors or credits for returned products. Weproduce catalog products that may be shipped from inventory within a short timeafter receipt of a purchase order. The business for our catalog products, likethe businesses of other companies in the semiconductor industry, ischaracterized by short-term orders and shipment schedules rather than bypurchase contracts. Our shipments are generally concentrated toward the end ofeach quarter, making it difficult to predict our revenues and results ofoperations for any fiscal period. For these reasons, our backlog as of anyparticular date is not representative of actual sales for any succeeding periodand we believe that our backlog is not a good indicator of future revenues.

 

***Research and Development***

 

As we have not introduced sufficient new products over thepast few years, we view new product development as the most important factoraffecting revenue growth; therefore, we continue our commitment to research anddevelopment. In addition, we bolster our position with the addition of ourmulti-chip packaged products, facilitating the integration of our silicon IPwith the silicon IP of others to provide packaged solutions to our current andprospective customers. Research and development expenditures were 45% and 38% ofnet revenues in fiscal 2010 and 2009, respectively. These percentages areaffected by the declining revenues. 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***

 

The semiconductor industry is intensely competitive andcharacterized by rapid technological change and rates of product obsolescence,price erosion, periodic shortage of materials, variations in manufacturingyields and efficiencies, and increasing foreign competition. The industryincludes many major domestic and international companies that havesubstantially greater financial, technical, manufacturing, and marketingresources than LOGIC. We face competition from other manufacturers ofhigh-performance integrated circuits, many of which have advanced technologicalcapabilities and internal wafer production capabilities. Our ability to competein this rapidly evolving environment depends on elements both in and outsideour control. These elements include our ability to develop new products in atimely manner, the cost effectiveness of our manufacturing, the acceptance ofnew products by customers, the speed at which customers incorporate ourproducts into their systems, the continued access to advanced semiconductorfoundries, the number and capabilities of our competitors, and general economicconditions.

 

***Patents and Copyrights***

 

Because of the rapidly changing technology in thesemiconductor industry, we rely primarily upon our design know-how, rather thanpatents and copyrights, to develop and maintain our competitive position. Weattempt to protect our trade secrets and other proprietary information throughconfidentiality agreements with employees, consultants, suppliers, andcustomers, but there can be no assurance that those measures will be adequateto protect our interests.

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We are of the opinion that patent and maskwork protection isof less significance in our business than other factors, such as the experienceand innovative skill of our personnel and the abilities of our management.There can be no assurance that others will not develop or patent technologysimilar to our technology, or copy or otherwise duplicate our products. We ownfive patents awarded by the United States Patent and Trademark Office.

 

Sinceothers have obtained patents covering various semiconductor designs andprocesses, certain of our present or future designs or processes may be claimedto infringe upon the patents of third parties. We have previously received, andmay in the future receive, claims that one or more aspects or uses of ourproducts infringe on patent or other intellectual property rights of thirdparties. See Item 3 – “Legal Proceedings.” We do not believe that we infringeupon any known patents at this time. If any such infringements exist or arisein the future, we 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 our current or future products. Based on industrypractice, we expect that any necessary licenses or rights under patents couldbe obtained on conditions that would not have a material adverse effect. Therecan be no assurance, however, that licenses could, in fact, be obtained oncommercially reasonable terms, or at all, or that litigation would not occur.Our inability to obtain such licenses on economically reasonable terms or theoccurrence of litigation could adversely affect us.

 

***Employees***

 

As ofSeptember 30, 2010, we had 13 full-time employees. We have been careful toretain employees that are important to maintain our ongoing developmentefforts. Our ability to attract and retain qualified personnel is an importantfactor in our continued success. None of our employees are represented by acollective bargaining agreement, and we have never experienced any work stoppage.We believe that our employee relations are good.

 

***Regulations***

 

Federal,state, and local regulations impose various environmental controls on thedischarge of chemicals and gases in connection with the wafer manufacturingprocess. Since we rely on third party manufacturers and our activities do notinvolve utilization of hazardous substances generally associated withsemiconductor processing, we believe such regulations are unlikely to have amaterial affect on our business or operations.

 

Item 1A. RISK FACTORS

 

Set forth below are some of the risks and uncertaintiesthat, if they were to occur, could materially adversely affect our business orthat could cause our actual results to differ materially from the resultscontemplated by the forward-looking statements contained in this report andother public statements we make.

 

*Our independent auditors have issued a report questioningour ability to continue as a going concern.  This report may impair our abilityto raise additional financing and adversely affect the price of our commonstock.*

 

We have incurred significant losses and negative operatingcash flow in the past and we will likely incur significant losses and negativeoperating cash flow in the foreseeable future. Continued losses and negativeoperating cash flow could hamper our operations and prevent us from expandingour business. 

 

Reports of independent auditors questioning a company'sability to continue as a going concern are generally viewed unfavorably byanalysts and investors. This report may make it difficult for us to raiseadditional debt or equity financing necessary to continue our business. Continuedlosses and negative operating cash flow are also likely to make our capitalraising needs more acute while limiting our ability to raise additionalfinancing on favorable terms.

 

*We are a small company with very limited resourcescompared to our current and potential competitors and we may not be able tocompete effectively in our highly competitive industry.*

 

Thesemiconductor industry is highly competitive and many of our direct andindirect competitors and potential competitors have substantially greaterfinancial, technological, manufacturing, and sales resources. If we are unableto compete successfully in this environment, our operating results could beharmed.

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Thecurrent level of competition is high and may increase as our market expands. Wecompete directly with companies that have developed similar products. We alsocompete indirectly with numerous semiconductor companies that offer productsand solutions based on alternative technologies. These direct and indirectcompetitors are established multinational semiconductor companies, as well asemerging companies. In addition, we may experience additional competition fromforeign companies in the future.

 

*We depend on a limited number of customers for a majorityof our sales, making our financial results particularly susceptible to the lossof a key customer.*

 

We anticipate that the concentration of our sales among alimited number of customers will continue in the future. We do not havelong-term purchase commitments from any of our customers. Therefore, thesecustomers could cease purchasing our products with limited notice and with nopenalty.

 

Our dependence on a small number of customers increases therisks associated with the 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.

 

We*depend on third parties to fabricate silicon wafers and to assemble and testour products, which exposes us to a risk of production disruption oruncontrolled price changes.*

 

We do not manufacture silicon wafers. We rely upon oneprimary wafer supplier, which is the sole source for certain of our products,and three assembly/test subcontractors. These suppliers do not have acontractual obligation or commitment to supply such wafers or services in thefuture. If the suppliers are unable or unwilling to supply wafers or services,our operating results could be harmed. We may not be able to find sufficientsuppliers at a reasonable price or at all if such disruptions occur. As aresult of our reliance on third parties, we face 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 us;
    - potential increases in prices due to capacity shortages;     and
    - potential misappropriation of our intellectual property.

 

If we fail to deliver our products ontime or if the costs of our products increase, then our profitability andcustomer relationships could be harmed.

 

*Our international operations subject us to risks notpresent in solely domestic operations.*

 

Our primary silicon wafer supplier andassembly subcontractors are located outside the United States. Financial difficulties,government actions or restrictions, prolonged work stoppages, or any otherdifficulties experienced by our suppliers could harm future operating results.

 

We also have many overseas customers.Our export sales are affected by unique risks frequently associated withforeign economics, 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; and
    - difficulties in staffing and managing foreign sales     offices.

 

Significant changes in the economic climate in the foreigncountries from which we derive our export sales could harm future operatingresults.

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*The complex nature of semiconductors makes us highlysusceptible to manufacturing problems and these problems could have a negativeimpact on future operating results.*

 

Making semiconductors is a highly complex and preciseprocess, requiring production in a tightly controlled, clean environment. Evenminute imperfections in its materials, difficulties in the wafer fabricationprocess, defects in the masks used to print circuits on a wafer or otherfactors can cause a substantial percentage of wafers to be rejected or numerouschips on each wafer to be nonfunctional. We 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 acceptable yieldscould harm future operating results. We may also experience manufacturingproblems in our assembly and test operations, and in the introduction of newpackaging materials.

 

*Wedepend on third parties to deliver our products.*

 

We rely on independent carriers and freight haulers totransport our products between manufacturing locations and to deliver productsto our customers. Any transport or delivery problems because of their errors,or because of unforeseen interruptions, such as strikes, political instability,terrorism, natural disasters and accidents, could harm future operatingresults.

 

*Earthquakes, other natural disasters, and power shortagesmay damage our business.*

 

Our California facility and some of our suppliers are located near earthquake faults that haveexperienced major earthquakes in the past. In the event of a major earthquakeor other natural disaster near our facility or a sustained loss of power at ourfacility, our operations could be harmed. Similarly, a major earthquake or othernatural disaster near one or more of our suppliers could disrupt the operationsof these suppliers, which could limit the supply of our products and harm ourbusiness.

 

*We maintain high levels of inventory that decrease ourliquidity and substantially increase the risk of write-offs.*

 

We havehistorically maintained and expect to continue to maintain high levels ofinventory of processed silicon wafers, packaging materials, and finished goods.For some product types, we must purchase all of our anticipated inventory needsfor the life of the product in a short period of time. We commit capital tomaintain these high inventory levels, which prevents us from using that capitalfor other purposes, such as research and development, and requires us toutilize more capital than might otherwise be required. Our high inventorylevels also heighten the risk of inventory obsolescence and write-offs.Further, we may forecast demand incorrectly and produce insufficient inventory,resulting in supply shortages.

 

*Wecurrently have no bank credit facility and must rely solely upon existing cashreserves and funds from existing operations to finance future operations.*

 

We rely upon cash reserves andavailable-for-sale securities to fund our operations. If these resources shouldbe insufficient, we would be forced to obtain additional funding through debtor equity financing. If we are able to obtain debt financing, which is notassured, the terms of such financing are unknown, since we do not presentlyhave a credit facility, and may be unfavorable to us. Similarly, there can beno assurance that we would be able to sell capital stock on favorable terms orat all and any such sales may adversely affect our existing shareholders.

 

*Ouroperating success depends upon our ability to develop new products and accessnew technologies.*

 

The semiconductor industry is a dynamicenvironment marked by rapid product obsolescence. Our future success depends onour ability to introduce new or improved products that meet critical customerneeds, while achieving acceptable profit margins. If we fail to introduce thesenew products in a timely manner or these products fail to achieve marketacceptance, operating results would be harmed. The introduction of new productsin a dynamic market environment presents significant business challenges.Product development commitments and expenditures must be made well in advanceof product sales, while the success of new products depends on accurateforecasts of long-term market demand and future technology developments.

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Future revenue growth is dependent onmarket acceptance of new products and the continued market acceptance ofexisting products. The success of these products is dependent on a variety ofspecific technical factors, 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; and
    - product performance, quality and reliability.

 

If, due to these or other factors, newproducts do not achieve market acceptance, our operating results would beharmed. Furthermore, to develop new products and maintain the competitivenessof existing products, we need to migrate to more advanced wafer manufacturingprocesses that use larger wafer sizes and smaller geometries.

 

*The loss of key personnel or failure to hire and retainadditional qualified personnel could impair our ability to develop and marketour products.*

 

Our future success greatly depends onthe ability to attract and retain highly qualified technical and managementpersonnel. As a small company, we are particularly dependent on a relativelysmall group of employees. Competition for skilled technical and managementemployees is intense in the semiconductor industry. As a result, we may beunable to retain our existing key technical and management employees, orattract additional qualified personnel, which could harm operating results. We donot have employment agreements with any of our employees.

 

*Our failure to protect our proprietary rights, or thecosts of protecting these rights, may harm our ability to compete.*

 

We own several patents but rely primarily on our designknow-how and continued access to advanced wafer process technology to developand maintain our competitive position. We attempt to protect our trade secretsand other proprietary information through confidentiality agreements withemployees, consultants, suppliers and customers. However, competitors maydevelop, patent or gain access to similar know-how and technology, or reverseengineer our products. Our inability to adequately protect these proprietaryrights could result in our competitors offering similar products, potentiallycausing us to lose a competitive advantage and leading to decreased revenue. Wemay not obtain an adequate remedy in the event our confidentiality agreementsare breached or any remedy if our trade secrets are independently developed byothers. Despite our efforts to protect our proprietary rights, existingintellectual property laws afford only limited protection, especially under thelaws of some foreign countries. Litigation may be necessary in the future toenforce our intellectual property rights, to protect our trade secrets or todetermine the validity and scope of the proprietary rights of others. Thislitigation could result in substantial costs and diversion of resources.

 

*We could be harmed by litigation involving patents andother intellectual property rights.*

 

As a general matter, the semiconductor and relatedindustries are characterized by substantial litigation regarding patent andother intellectual property rights. We have been and in the future may beaccused of infringing the intellectual property rights of third parties.Furthermore, we may have certain indemnification obligations to customers withrespect to the infringement of third-party intellectual property rights by ourproducts. Infringement claims by third parties or claims for indemnification bycustomers or end-users of our products resulting from infringement claims maybe asserted in the future and such assertions, if proven to be true, may harmour business.

 

Any litigation relating to the intellectual property rightsof third parties, whether or not determined in our favor or settled by us,could be costly and could divert the efforts and attention of management andengineering personnel. In the event of any adverse ruling in any suchlitigation, we 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 price of our common stock may continue to be volatileand our trading volume may continue to be relatively low.*

 

The market price of our common stock has fluctuatedsignificantly to date. In the future, the market price of the common stockcould be subject to significant fluctuations due to general market conditionsand in response to quarter-to-quarter variations in:

----

 
    - our anticipated or actual operating results;
    - announcements or introductions of new products;
    - technological innovations or setbacks by us or our     competitors;
    - conditions in the semiconductor markets;
    - the commencement of litigation; and
    - general economic and market conditions.

 

Item 1B. UNRESOLVED STAFF COMMENTS

 

This itemsis not applicable as we are not an accelerated filer as defined in Exchange ActRule 12b-2.

 

Item 2. PROPERTIES

 

Ourexecutive offices, as well as our inventories and research and developmentfacilities, are located in approximately 17,200 square feet, in Sunnyvale, California, with a lease expiring August 31, 2014. We believe our facilitieswill be adequate to meet our reasonably foreseeable needs and, if necessary,alternative facilities will be available on acceptable terms, so as to meet ourrequirements.

 

Item 3.LEGAL PROCEEDINGS

 

From timeto time, we receive demands from various parties asserting patent or otherclaims in the ordinary course of business. These demands are often not based onany specific knowledge of our 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 us.

 

Item 4.REMOVED AND RESERVED

 

**PART II**

 

Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATEDSHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Our CommonStock trades under the ticker symbol, LOGC, on The Nasdaq Capital Market. Thefollowing tables sets forth, for the period indicated, the high and low closingsales prices for our Common Stock, as reported by Nasdaq during the followingcalendar quarters:

 
| Calendar  Year                          | High   | Low    |
|-----------------------------------------|--------|--------|
|                                    |   |   |
| 2008                                    |   |   |
|     Fourth  quarter | $1.01  | $0.53  |
|                                    |   |   |
| 2009                                    |   |   |
|     First  quarter  | $0.69  | $0.41  |
|     Second  quarter | $0.61  | $0.41  |
|     Third  quarter  | $1.10  | $0.44  |
|     Fourth  quarter | $2.65  | $0.90  |
|                                    |   |   |
| 2010                                    |   |   |
|     First  quarter  | $1.94  | $1.19  |
|     Second  quarter | $1.55  | $1.00  |
|     Third  quarter  | $1.34  | $0.49  |

 

*Holders*

 

As ofDecember 7, 2010, there were approximately 1,500 holders of record of ourCommon Stock.

 

----

*Dividends*

 

We havenot paid any dividends on our Common Stock since our incorporation.

 

*PerformanceGraph*

 

Thefollowing graph, which is furnished rather than filed, compares the five-yearcumulative total return on our Common Stock to the total returns on the S&P500 Index and the NASDAQ Electronic Components Stock Index. This comparisonassumes, in each case, that $100 was invested on or about September 30, 2005and all dividends were reinvested. Our fiscal year ends on September 30 eachyear.

 

* $100 invested on 09/30/05 in stock or index – includingreinvestment of dividends.

 

*SecuritiesAuthorized for Issuance Under Equity Compensation Plans*

 

Thefollowing table sets forth the position of our equity compensation plans as ofSeptember 30, 2010:

 
| 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) |
|----------------------------------------------|--------|-----------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------|
|                                         |   |                                                                                          |   |                                                                          |   |                                                                                                                                        |
| Equity  compensation plans approved by       |   |                                                                                          |   |                                                                          |   |                                                                                                                                        |
|     security  holders    |   | 363,500                                                                                       |   | $1.246                                                                        |   | 1,070,000                                                                                                                                   |
|                                         |   |                                                                                          |   |                                                                          |   |                                                                                                                                        |
| Equity compensation  plans not approved      |   |                                                                                          |   |                                                                          |   |                                                                                                                                        |
|     by  security holders |   | –                                                                                        |   |                                                                          |   | –                                                                                                                                      |
|     Total                |   | 363,500                                                                                       |   | $1.246                                                                        |   | 1,070,000                                                                                                                                   |

----

Item 7. MANAGEMENT’S DISCUSSION ANDANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Reportedfinancial results may not be indicative of the financial results of futureperiods. All non-historical information contained in the following discussionconstitutes forward-looking statements within the meaning of Section 27A of theSecurities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.These statements are not guarantees of future performance and involve a numberof risks and uncertainties, including those identified in “Item 1A – RiskFactors” of this Annual Report on Form 10-K. We undertake no obligation torevise or update these forward-looking statements to reflect events orcircumstances after the date of this report.

 

***Overview***

 

LOGIC Devices Incorporated develops and markets high-speeddigital integrated circuits that perform high-density storage and signal/imageprocessing functions. Our products enable high definition video display,transport, editing, composition, and special effects. We also provide solutionsfor digital filtering in television broadcast stations and image enhancement inmedical diagnostic scanning and imaging equipment.

 

Our products are used in the broadcast, medical, militaryand consumer electronics markets. Our products address storage and digitalsignal processing (DSP) requirements that involve high-performance arithmeticcomputation. We focus on developing proprietary catalog products to addressspecific functional application needs or performance levels that are nototherwise commercially available. We seek to provide related groups of circuitsthat original equipment manufacturers (OEMs) incorporate into high-performanceelectronic systems.

 

***Liquidityand Capital Resources***

 

Ouroperations used net cash of $476,700, despite having a net loss of $1,084,500for fiscal 2010. Non-cash expenses, such as depreciation ($296,400) and stockoption vesting ($49,600) affected the net loss, but not our cash position. Thecollection of accounts receivable produced $182,700 and the sale of existinginventories produced $114,100. We used $53,100 of cash to pay down accruedexpenses. During the year, we used $421,600 and $351,500 for capitalexpenditures (mainly mask and production tooling) and for capitalized testsoftware, respectively. Lastly, we received $250,000 from the private placementof common stock shares to our president.

 

Despitehaving a net loss of $811,300, our operations produced net cash of $261,300 forfiscal 2009. We wrote-off $406,700 of inventories and $49,400 of property andequipment no longer in use, all of which increased our net loss but did notaffect cash flows from operations. The collection of accounts receivableproduced $298,900 and the reduction of prepaid expenses produced $67,100 of netcash, respectively. During fiscal 2009, we also liquidated all $975,000 of ourauction rate securities (ARS), paid down the bank borrowings of $975,000 basedon those ARS, and made capital expenditures of $310,300.

 

*WorkingCapital*

 

Ourinvestment in inventories has been significant and will continue to besignificant in the future. However, during the past few years, we have beenable to reduce our levels of inventories as we shift from more competitivesecond source products to proprietary sole source products. We seek to furtherstreamline our inventories as we continue to shift to sole source proprietaryproducts. 

 

We rely onthird party suppliers for our raw materials, particularly our processed wafers,for which we currently rely primarily on two suppliers, and as a result,maintain substantial inventory levels to protect against disruption insupplies. We have periodically experienced disruptions in obtaining wafers. Aswe continue to shift towards higher margin proprietary products, we expect tobe able to reduce inventory levels by streamlining our product offerings.

 

Periodically, we review inventory to determinerecoverability of items on-hand using the lower-of-cost-or-market (LOCOM) andexcess methods. We group and evaluate our products based on their underlyingdie or wafer type (our raw materials, silicon wafers, can generally be used tomake multiple products), to determine the total quantity on-hand and averageunit costs. Management uses judgment in comparing historical sales quantitiesto the quantity on-hand at the end of the fiscal year. If the quantity on-handexceeds the sales quantities, we provide a valuation allowance for thepotentially obsolete or slow-moving items. For the LOCOM analysis, we comparethe average historical sales price to the average unit cost of inventories atthe end of the fiscal year. If the average unit cost exceeds the average salesprice, we provide a valuation allowance.

----

 

With continuing low revenue levels, management felt itnecessary to also review our raw materials and work-in-process. Our productsgenerally exhibit an active sales product life cycle of ten or more years.However, due to rapid changes in process technology, we are generally unable toobtain wafers for our products for as long a period as their life cycles. As aresult, early in a product's life, we are often required to estimate the salesexpectations for the entire life cycle and purchase materials upfront. On someoccasions, our expectations become lower and we provide a reserve for potentialexcess materials. In fiscal 2009, we wrote down inventory of $406,700. Infiscal 2008, we wrote down inventory against our inventory valuation allowanceof $1,573,700 and additional inventory totaling $2,059,300. We did not writedown any inventory during fiscal 2010 and believe our current inventoryvaluation provides a reasonable estimate of the recoverability of inventoriesat the end of fiscal 2010.

 

Althoughcurrent levels of inventory impact our liquidity, we believe that this is aless costly alternative to owning a wafer fabrication facility or continuouslyredesigning our products to newer process technologies, which would divert limitedengineering resources from new product development. We continue to evaluatealternative suppliers to diversify our risk of supply disruption. However, thisrequires a significant investment in product development to tool masks with newsuppliers. Such efforts compete for our limited product development resources.We seek to achieve on-going reductions in inventory, although there can be noassurance we will be successful. In the event economic conditions remain slow,we may consider identifying additional portions of inventory to write-off at afuture date.

 

Historically,due to customer order scheduling, up to 60% of our quarterly revenues wereoften shipped in the last month of the quarter, so a large portion of theshipments included in year-end accounts receivable were not yet due per our net30-day terms. This results in year-end accounts receivable balances being attheir highest point for the respective period. 

 

*Financing*

 

Our cost reductions over the past few years have allowed usto generate enough cash from operations to fund current operations and futurecapital expenditures. As we have multiple new products being introduced, our capitalrequirements have increased substantially. Cash on-hand and cash fromoperations may not be sufficient to meet these increased demands.

 

As such,our continuance of operations may depend on raising additional working capital,and on the increase of revenues from new product introductions. Accordingly,these factors raise substantial doubt about the Company’s ability to continueas a going concern. The Company is currently negotiating with several partiesto provide debt and equity financing sufficient to finance corporate operationsand provide working capital for the next twelve months. Although there is no assurancethat management’s plans will be realized, management believes that the Companywill be able to continue operations in the future.

 

*ContractualObligations*

 

Our onlycontractual obligation is our facility operating lease. The following tablesummarizes the future fixed payments under this lease as of September 30, 2010.Payment timing may be subject to change.

 
|     |           |   | Payments due by period: |   |           |
|----------|----------------|--------|----------------------------------------|--------|----------------|
|     | Total          |   | Within 1 year                |   | 1-3 years |   | After 3 years |
|     |           |   |                                   |   |           |   |   |
| Building | $987,900  |   | $239,700                          |   | $748,200       |   | –   |

 

*Off-BalanceSheet Arrangements*

 

We have nooff-balance sheet arrangements.

----

***Resultsof Operations***

 

*Comparisonof Fiscal Years Ended September 30, 2010 and 2009*

 

Netrevenues for fiscal 2010 decreased 27 percent from $3,013,200 in fiscal 2009 to$2,193,300. This decrease was the result of the digital cinema projectdeclining in fiscal 2010, while military purchases partially offset thedecrease.

 

Cost ofrevenues for fiscal 2010 decreased 13 percent from $1,268,800 in fiscal 2009 to$1,110,000. This decrease is due to the decline in net revenues; however, thecost of revenues did not decrease as much as the net revenues due to certainfixed costs.

 

Researchand development (R&D) expenses decreased 14 percent from $1,159,300 infiscal 2009 to $997,700 in fiscal 2010. This decrease is the result of furthersalary and staffing cuts. However, as a percent of net revenues, R&Dexpenses actually increased in fiscal 2010 compared to fiscal 2009. This ismainly due to the decline in net revenues. During fiscal 2010, we capitalizeddevelopment costs for test software aggregating $351,500, which reduced ourR&D expenses.

 

Selling,general and administrative expenses decreased 13 percent from $1,399,800 infiscal 2009 to $1,211,600 in fiscal 2010. These reductions are due to salarycuts and reductions of other operating costs where possible.

 

Otherincome for fiscal 2010 consisted of the receipt of unclaimed property from theState of California aggregating $44,200. 

 

For fiscal2010, the decreases in expenses did not offset the decrease in net revenues,resulting in 34 percent increase to our net loss from $811,300 in fiscal 2009to $1,084,500.

 

*Comparisonof Fiscal Years Ended September 30, 2009 and 2008*

 

Netrevenues for fiscal 2009 decreased 10 percent from $3,352,100 in fiscal 2008 to$3,013,200. This decrease was the result of fewer military purchases duringfiscal 2009 compared to fiscal 2008, while the digital cinema project actuallyincreased during fiscal 2009.

 

Cost ofrevenues for fiscal 2009 decreased 70 percent from $4,196,600 in fiscal 2008 to$1,268,800, mainly the result of fiscal 2008 including a write-down of$2,059,300 in inventories compared to $406,700 in fiscal 2009.Sales of productspreviously written down to zero were 18 percent of revenues in fiscal 2009 comparedto 27 percent in fiscal 2008.

 

Researchand development expenses decreased 26 percent from $1,563,400 in fiscal 2008 to$1,159,300 in fiscal 2009, mainly the result of reduced work weeks for certainemployees, salary cuts made in January 2009, and staffing cuts made at the endof fiscal 2008.

 

Selling,general and administrative expenses decreased six percent from $1,483,200 infiscal 2008 to $1,399,800 in fiscal 2009. This decrease was primarily theresult of reduced work weeks and other cost cuts made during fiscal 2009.

 

Interestincome decreased 82 percent from $56,700 in fiscal 2008 to $10,300 in fiscal2009, mainly the result of less cash being held with lower interest rates infiscal 2009. Other expense consists o $4,100 of property and equipment nolonger in use and $1,900 of interest expense.

 

As aresult of fewer inventory write-downs and increased cost cutting during fiscal2009, our net loss decreased from $3,965,000 in fiscal 2008 to $811,300 infiscal 2009.

 

***CriticalAccounting Policies***

 

Management'sdiscussion and analysis of our financial condition and the results ofoperations are based upon the financial statements included in this report andthe data used to prepare them. The financial statements have been prepared inaccordance with the accounting principles generally accepted in the United States of America and we are required to make judgments, estimates, and assumptionsin the course of such preparation. The Summary of Accounting Policies includedwith the financial statements describes the significant accounting policies andmethods used in the preparation of the financial statements. On an ongoingbasis, we reevaluate our judgments, estimates, and assumptions, including thoserelated to revenue recognition, allowance for doubtful accounts, valuation ofinventories, and valuation of long-lived assets. We base our judgments andestimates on historical experience, knowledge of current conditions, and ourbeliefs of what could occur in the future considering available information. Actualresults may differ from these estimates under different assumptions orconditions. The following are the critical accounting policies we believe areaffected by significant judgments, estimates, and assumptions used in thepreparation of the financial statements.

----

 

*RevenueRecognition*

 

Revenue isgenerally recognized upon shipment of product. Sales to distributors are madepursuant to agreements that provide the distributors certain rights of returnand price protection on unsold merchandise. Revenues from such sales arerecognized upon shipment, with a provision for estimated returns and allowancesrecorded at that time, if applicable. While distributors are allowed to returnitems for stock rotation, they are required to place an order of equal or greatervalue at the same time. As the Company historically does not have materialreturns, there is no allowance for returns recorded. Because the Company doesnot change its pricing of products more than once a year, there have not beenany pricing issues in the past several years; therefore, there is no allowancefor price protection recorded.

 

*Allowancefor Doubtful Accounts*

 

Weestablish a general allowance for doubtful accounts based on analyzinghistorical bad debts, specific customer creditworthiness, and current economicconditions. Historically, we have not experienced significant losses related toreceivables.

 

*Inventories*

 

We writedown our inventories for lower of cost or market reserves, aged inventoryreserves, and obsolescence reserves. As a result of production requirements andconstraints, we are often required to estimate the sales expectations for theentire life cycle of a product (which can be ten or more years) and purchasematerials upfront. If actual product demand or selling prices are lessfavorable than estimated, additional inventory write-downs may be required inthe future. Conversely, if demand increases for product types that have beenfully reserved, future margins may be higher.

 

*CapitalizedSoftware Costs*

 

Internaltest computer software development costs are capitalized as incurred during theapplication development stage. The capitalized software costs are classified asother assets and are amortized on a straight-line basis over the shorter of therelated expected product life cycle or five years, with amortization beginningwhen production parts are in process.

 

*Long-LivedAssets*

 

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 impairmentloss are depreciated or amortized at their new carrying amounts over theremaining estimated life; assets to be sold or otherwise disposed of are notsubject to further depreciation or amortization. In determining whether animpairment exists, we use undiscounted future cash flows without interestcharges compared to the carrying value of the assets.

 

*DeferredIncome Taxes*

 

Income taxes are accounted forusing the asset and liability method. Deferred income tax assets andliabilities are recognized for the future tax consequences attributable todifferences between the financial statement carrying amounts of existing assetsand liabilities and their respective tax bases and operating loss and taxcredit carryforwards. Deferred income tax assets and liabilities are measuredusing enacted tax rates expected to apply to taxable income in the years inwhich those temporary differences are expected to be recovered or settled. Theeffect on deferred income tax assets and liabilities of a change in tax ratesis recognized in income in the period that includes the enactment date. Futuretax benefits are subject to a valuation allowance when we are unable toconclude that our deferred income tax assets will more likely than not berealized from the results of operations. We have recorded a valuation allowanceto reflect the estimated amount of deferred income tax assets that may not be realized.The ultimate realization of deferred income tax assets is dependent upongeneration of future taxable income during the periods in which those temporarydifferences become deductible. We consider projected future taxable income andtax planning strategies in making this assessment.

----

 

Based on the historical taxableincome and projections for future taxable income over the periods in which thedeferred tax assets become deductible, management believes it more likely thannot that we will not realize benefits of these deductible differences as ofSeptember 30, 2010. Accordingly, we have established a valuation allowanceagainst our net deferred income tax assets as of September 30, 2010.

 

*Impactof New Financial Accounting Standards*

 

In January 2010,the Financial Accounting Standards Board issued amended standards that requireadditional fair value disclosures. These disclosure requirements are effectivein two phases. In the first quarter of 2010, we adopted the requirements fordisclosures about inputs and valuation techniques used to measure fair value aswell as disclosures about significant transfers. Beginning in the first quarterof 2011, these amended standards will require presentation of disaggregatedactivity within the reconciliation for fair value measurements usingsignificant unobservable inputs (Level 3). These amended standards do notaffect our statements of operations or balance sheets.

 

Item7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

TheCompany conducts all of its transactions, including those with foreignsuppliers and customers, in U.S. dollars. It is therefore not directly subjectto the risks of foreign currency fluctuations and does not hedge or otherwisedeal in currency instruments in an attempt to minimize such risks. Demand fromforeign customers and the ability or willingness of foreign suppliers toperform their obligations to the Company may be affected by the relative changein value of such customer or supplier's domestic currency to the value of the U.S.dollar. Furthermore, changes in the relative value of the U.S. dollar maychange the price of the Company's prices relative to the prices of its foreigncompetitors.

 

----

Item 8. FINANCIAL STATEMENTS ANDSUPPLEMENTARY DATA

 

***Index to Financial Statements and Financial StatementSchedules***

 
| *FINANCIAL STATEMENTS:*                                                                 | Page   |
|-----------------------------------------------------------------------------------------|--------|
|                                                                                    |   |
| Report of Independent Registered  Public Accounting Firm                                | 18     |
| Balance Sheets, September 30, 2010 and  2009                                            | 19     |
| Statements of Operations, fiscal years  ended September 30, 2010 and 2009               | 20     |
| Statement of Shareholders’ Equity,  fiscal years ended September 30, 2010 and 2009 | 21     |
| Statements of Cash Flows, fiscal years ended  September 30, 2010 and 2009               | 22     |
| Summary of Accounting Policies                                                          | 23     |
| Notes to Financial Statements                                                           | 26     |
|                                                                                    |   |

 

----

### REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTINGFIRM

 

 

 

The Shareholders and Board of Directors

LOGIC Devices Incorporated

Sunnyvale, California

 

We have audited the accompanying balance sheetsof LOGIC Devices Incorporated as of September 30, 2010 and 2009, and therelated statements of operations, shareholders' equity, and cash flows for theyears then ended.  These financial statements are the responsibility of theCompany's management.  Our responsibility is to express an opinion on thesefinancial statements based on our audits.

 

We conducted our audits in accordance with thestandards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement.  The Company is not required to have, nor were we engaged toperform an audit of its internal control over financial reporting.  Our auditincluded consideration of internal control over financial reporting as a basisfor designing audit procedures that are appropriate in the circumstances, butnot for the purpose of expressing an opinion on the effectiveness of theCompany’s internal control over financial reporting.  Accordingly, we expressno such opinion.  An audit also includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements, assessingthe accounting principles used and significant estimates made by management, aswell as evaluating the overall financial statement presentation.  We believethat our audits provide a reasonable basis for our opinion.

 

In our opinion, the financial statementsreferred to above present fairly, in all material respects, the financialposition of LOGIC Devices Incorporated as of September 30, 2010 and 2009, andthe results of its operations and its cash flows for the years then ended inconformity with U.S. generally accepted accounting principles.  

 

The accompanying financial statements have beenprepared assuming that the Company will continue as a going concern.  Asdiscussed in the Summary of Accounting Policies to the financial statements,the Company has suffered recurring losses from operations and requiresadditional funds to maintain its operations.  This raises substantial doubtabout the Company's ability to continue as a going concern.  Management's plansin regard to these matters are also described in the Summary of AccountingPolicies to the financial statements.  The financial statements do not includeany adjustments that might result from the outcome of this uncertainty.

 

/s/ **Hein** & AssociatesLLP

 

 

 

Irvine, California

December 23, 2010

----

 

|                                                |                                                                                           |                                                                                                        |                                                                                                                                   | **LOGIC Devices Incorporated** |
|-----------------------------------------------------|------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------|
|                                                |                                                                                           |                                                                                                        |                                                                                                                                   |                                     |   |   |
|                                                |                                                                                           |                                                                                                        |                                                                                                                                   |                                     |   | **Balance Sheets** |
|                                                |                                                                                           |                                                                                                        |                                                                                                                                   |                                     |   |   |
|                                                |                                                                                           |                                                                                                        |                                                                                                                                   | *September 30,*                     | * * | *September 30,* |
|                                                |                                                                                           |                                                                                                        |                                                                                                                                   | *2010*                                   | * * | *2009* |
|                                                |                                                                                           |                                                                                                        |                                                                                                                                   |                                     |   |   |
| ASSETS                                              |                                                                                           |                                                                                                        |                                                                                                                                   |                                     |
|                                                |                                                                                           |                                                                                                        |                                                                                                                                   |                                     |   |   |
| Current assets:                                |                                                                                           |                                                                                                        |                                                                                                                                   |
|                                                | Cash and cash equivalents                                                       | $   241,600                                                                             |                                                                                                                                   | $1,238,400                          |
|                                                | Accounts receivable                                                                       | 176,600                                                                                                |                                                                                                                                   | 359,300                             |
|                                                | Inventories                                                                                    | 963,600                                                                                                |                                                                                                                                   | 1,077,700                           |
|                                                | Prepaid expenses and other current assets                             | 63,700                                                                                                 |                                                                                                                                   | 69,700                              |
|                                                |                                                                                           |                                                                                                        | Total current assets                                                                                                         | 1,445,500                           |   | 2,745,100  |
|                                                |                                                                                           |                                                                                                        |                                                                                                                                   |                                     |   |   |
| Property and equipment, net          | 941,600                                                                                   |                                                                                                        | 816,400                                                                                                                           |
| Capitalized software,  net                          | 351,500                                                                                   |                                                                                                        | –                                                                                                                            |
| Other assets, net                         | 22,100                                                                                    |                                                                                                        | 22,100                                                                                                                            |
|                                                |                                                                                           |                                                                                                        |                                                                                                                                   | $2,760,700                          |   | $3,583,600  |
|                                                |                                                                                           |                                                                                                        |                                                                                                                                   |                                     |   |   |
| LIABILITIES AND SHAREHOLDERS' EQUITY |                                                                                           |                                                                                                        |                                                                                                                                   |
|                                                |                                                                                           |                                                                                                        |                                                                                                                                   |                                     |   |   |
| Current liabilities:                           |                                                                                           |                                                                                                        |                                                                                                                                   |
|                                                | Accounts payable                                                                          | $   85,400                                                                              |                                                                                                                                   | $   81,200           |
|                                                | Accrued payroll, vacation and bonuses                                      | 132,100                                                                                                |                                                                                                                                   | 122,900                             |
|                                                | Accrued commissions                                                                       | 13,300                                                                                                 |                                                                                                                                   | 20,100                              |
|                                                | Other accrued expenses                                                               | –                                                                                                 |                                                                                                                                   | 55,500                              |
|                                                |                                                                                           |                                                                                                        | Total current liabilities                                                                                                    | 230,800                             |   | 279,700  |
|                                                |                                                                                           |                                                                                                        |                                                                                                                                   |                                     |   |   |
| Deferred rent                                  | 50,600                                                                                    |                                                                                                        | 42,700                                                                                                                            |
|                                                |                                                                                           |                                                                                                        | Total liabilities                                                                                                                 | 281,400                             |   | 322,400  |
|                                                |                                                                                           |                                                                                                        |                                                                                                                                   |                                     |   |   |
| Commitments and contingencies  (Note 4)   |                                                                                           |                                                                                                        |                                                                                                                                   |
|                                                |                                                                                           |                                                                                                        |                                                                                                                                   |                                     |   |   |
| Shareholders' equity:                          |                                                                                           |                                                                                                        |                                                                                                                                   |
|                                                | Preferred stock, no par value; 1,000,000 shares authorized; |                                                                                                        |                                                                                                                                   |                                     |
|                                                |                                                                                           | 5,000 designated as Series A, 0 shares issued and outstanding  | –                                                                                                                            |                                     | –  |
|                                                |                                                                                           | 70,000 designated as Series B, 0 shares issued and outstanding | –                                                                                                                            |                                     | –  |
|                                                | Common stock, no par value; 10,000,000 shares authorized;   |                                                                                                        |                                                                                                                                   |                                     |
|                                                |                                                                                           | 7,176,581 and  6,814,438 shares issued and outstanding, respectively                         | 18,796,200                                                                                                                        |                                     | 18,543,200  |
|                                                | Additional paid-in capital                                                           | 211,700                                                                                                |                                                                                                                                   | 162,100                             |
|                                                | Accumulated deficit                                                                       | (16,528,600)                                                                                                |                                                                                                                                   | (15,444,100)                             |
|                                                |                                                                                           |                                                                                                        | Total shareholders' equity                                                                                                   | 2,479,300                           |   | 3,261,200  |
|                                                |                                                                                           |                                                                                                        |                                                                                                                                   | $2,760,700                          |   | $3,583,600  |
|                                                |                                                                                           |                                                                                                        |                                                                                                                                   |                                     |   |   |
|                                                |                                                                                           |                                                                                                        | *See accompanying Summary of Accounting Policies and Notes to Financial Statements.* |

----

 
|                                                                      |                                               |                                         |                                                                                                                                   |             | **LOGIC Devices Incorporated**                             |
|---------------------------------------------------------------------------|----------------------------------------------------|----------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------|------------------|----------------------------------------------------------------------|
|                                                                      |                                               |                                         |                                                                                                                                   |             |                                                                 |   |   |
|                                                                      |                                               |                                         |                                                                                                                                   |             | **Statements of Operations**                               |
|                                                                      |                                               |                                         |                                                                                                                                   |             |                                                                 |   |   |
|                                                                      |                                               |                                         |                                                                                                                                   |             | *     For fiscal years ended September 30,* |
|                                                                      |                                               |                                         |                                                                                                                                   |             | *2010 *                                                         | * * | *2009 * |
|                                                                      |                                               |                                         |                                                                                                                                   |             |                                                                 |   |   |
| Net revenues                                                         |                                               | $2,193,300                              |                                                                                                                                   | $3,013,200  |
| Cost of revenues                                                |                                               | 1,110,000                               |                                                                                                                                   | 1,268,800   |
|                                                                      |                                               |                                         | Gross margin                                                                                                                      |             | 1,083,300                                                       |   | 1,744,400  |
|                                                                      |                                               |                                         |                                                                                                                                   |             |                                                                 |   |   |
| Operating expenses:                                                  |                                               |                                         |                                                                                                                                   |             |
|                                                                      | Research and development                 |                                         | 997,700                                                                                                                           |             | 1,159,300                                                       |
|                                                                      | Selling, general and administrative |                                         | 1,211,500                                                                                                                         |             | 1,399,800                                                       |
|                                                                      |                                               | Total operating expenses           |                                                                                                                                   | 2,209,200   |                                                                 | 2,559,100  |
|                                                                      |                                               |                                         | Operating loss                                                                                                                    |             | (1,125,900)                                                          |   | (814,700) |
|                                                                      |                                               |                                         |                                                                                                                                   |             |                                                                 |   |   |
| Other  (income)  expense, net:                                  |                                               |                                         |                                                                                                                                   |             |
|                                                                      | Interest income                               |                                         | (100)                                                                                                                                  |             | (10,300)                                                             |
|                                                                      | Other (income)  expense, net                  |                                         | (44,200)                                                                                                                               |             | 6,000                                                           |
|                                                                      |                                               | Total other  (income) expense, net |                                                                                                                                   | (44,300)         |                                                                 | (4,300) |
|                                                                      |                                               |                                         | Loss before provision for income taxes                                                                        |             | (1,081,600)                                                          |   | (810,400) |
| Provision for income taxes                                 |                                               | 2,900                                   |                                                                                                                                   | 900         |
|                                                                      |                                               |                                         | Net loss                                                                                                                               |             | $(1,084,500)                                                         |   | $ (811,300) |
| Basic loss per common share                           |                                               | $(0.16)                                      |                                                                                                                                   | $(0.12)          |
| Basic weighted average common shares outstanding |                                               | 6,816,521                               |                                                                                                                                   | 6,814,438   |
|                                                                      |                                               |                                         |                                                                                                                                   |             |                                                                 |   |   |
|                                                                      |                                               |                                         | *See accompanying Summary of Accounting Policies and Notes to Financial Statements.* |
|                                                                           |                                                    |                                              |                                                                                                                                        |                  |                                                                      |  |  |  |  |  |  |  |

----

 

|                                     |                           |          |                                                                                                                                                                                                                                                                                  |          |                    |         |                                                                                                                                                                     |          |                                                                                                                     |         | **LOGIC Devices Incorporated** |
|------------------------------------------|--------------------------------|---------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------|-------------------------|--------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------|--------------------------------------------------------------------------------------------------------------------------|--------------|------------------------------------------|
|                                     |                           |          |                                                                                                                                                                                                                                                                                  |          |                    |         |                                                                                                                                                                     |          |                                                                                                                     |         |                                     |   |   |
|                                     |                           |          |                                                                                                                                                                                                                                                                                  |          |                    |         |                                                                                                                                                                     |          | **Statement of Shareholders' Equity**                                                                     |
|                                     |                           |          |                                                                                                                                                                                                                                                                                  |          |                    |         |                                                                                                                                                                     |          |                                                                                                                     |         |                                     |   |   |
|                                     |                           |          | *                                           Common Stock* | * *      | *Additional*

*Paid-In* | * *     | *     Other*

*                   Comprehensive* | *Accumulated* | * *                                                                                                                 | * *     |
|                                     |                           |          | *Shares*                                                                                                                                                                                                                                                                              | * *      | *Amount*                | * *     | *Capital*                                                                                                                                                                | * *      | *                   Loss* | * *     | *Deficit*                                | * * | *Total* |
| Balances, September 30, 2008             | 6,814,438                 |          | $18,543,200                                                                                                                                                                                                                                                                      |          | $155,600           |         | $(30,600)                                                                                                                                                                |          | $(14,632,800)                                                                                                            |         | $4,035,400                          |
|                                     |                           |          |                                                                                                                                                                                                                                                                                  |          |                    |         |                                                                                                                                                                     |          |                                                                                                                     |         |                                     |   |   |
| Grants of director common |                           |          |                                                                                                                                                                                                                                                                                  |          |                    |         |                                                                                                                                                                     |          |                                                                                                                     |         |                                     |
|                                     | stock options             | –   |                                                                                                                                                                                                                                                                                  | –   |                    | 6,500   |                                                                                                                                                                     | –   |                                                                                                                     | –  |                                     | 6,500  |
|                                     |                           |          |                                                                                                                                                                                                                                                                                  |          |                    |         |                                                                                                                                                                     |          |                                                                                                                     |         |                                     |   |   |
| Unrealized gain on  available- |                           |          |                                                                                                                                                                                                                                                                                  |          |                    |         |                                                                                                                                                                     |          |                                                                                                                     |         |                                     |
|                                     | for-sale securities            | –   |                                                                                                                                                                                                                                                                                  | –   |                    | –  |                                                                                                                                                                     | 30,600   |                                                                                                                     | –  |                                     | 30,600  |
|                                     |                           |          |                                                                                                                                                                                                                                                                                  |          |                    |         |                                                                                                                                                                     |          |                                                                                                                     |         |                                     |   |   |
| Net loss                            | –                    |          | –                                                                                                                                                                                                                                                                           |          | –             |         | –                                                                                                                                                              |          | (811,300)                                                                                                                |         | (811,300)                                |
| Balances, September 30, 2009             | 6,814,438                 |          | 18,543,200                                                                                                                                                                                                                                                                       |          | 162,100            |         |   –                                                                                                                                                  |          | (15,444,100)                                                                                                             |         | 3,261,200                           |
|                                     |                           |          |                                                                                                                                                                                                                                                                                  |          |                    |         |                                                                                                                                                                     |          |                                                                                                                     |         |                                     |   |   |
| Grants of director common |                           |          |                                                                                                                                                                                                                                                                                  |          |                    |         |                                                                                                                                                                     |          |                                                                                                                     |         |                                     |
|                                     | stock options             | –   |                                                                                                                                                                                                                                                                                  | –   |                    | 38,100  |                                                                                                                                                                     | –   |                                                                                                                     | –  |                                     | 38,100  |
|                                     |                           |          |                                                                                                                                                                                                                                                                                  |          |                    |         |                                                                                                                                                                     |          |                                                                                                                     |         |                                     |   |   |
| Exercise of employee           |                           |          |                                                                                                                                                                                                                                                                                  |          |                    |         |                                                                                                                                                                     |          |                                                                                                                     |         |                                     |
|                                     | common stock options | 5,000    |                                                                                                                                                                                                                                                                                  | 3,000    |                    | –  |                                                                                                                                                                     | –   |                                                                                                                     | –  |                                     | 3,000  |
|                                     |                           |          |                                                                                                                                                                                                                                                                                  |          |                    |         |                                                                                                                                                                     |          |                                                                                                                     |         |                                     |   |   |
| Vesting of employee            |                           |          |                                                                                                                                                                                                                                                                                  |          |                    |         |                                                                                                                                                                     |          |                                                                                                                     |         |                                     |
|                                     | common stock options | –   |                                                                                                                                                                                                                                                                                  | –   |                    | 11,500  |                                                                                                                                                                     | –   |                                                                                                                     | –  |                                     | 11,500  |
|                                     |                           |          |                                                                                                                                                                                                                                                                                  |          |                    |         |                                                                                                                                                                     |          |                                                                                                                     |         |                                     |   |   |
| Private placement of                     |                           |          |                                                                                                                                                                                                                                                                                  |          |                    |         |                                                                                                                                                                     |          |                                                                                                                     |         |                                     |
|                                     | common stock                   | 357,143  |                                                                                                                                                                                                                                                                                  | 250,000  |                    | –  |                                                                                                                                                                     | –   |                                                                                                                     | –  |                                     | 250,000  |
|                                     |                           |          |                                                                                                                                                                                                                                                                                  |          |                    |         |                                                                                                                                                                     |          |                                                                                                                     |         |                                     |   |   |
| Net loss                            | –                    |          | –                                                                                                                                                                                                                                                                           |          | –             |         | –                                                                                                                                                              |          | (1,084,500)                                                                                                              |         | (1,084,500)                              |
| Balances, September 30, 2010             | 7,176,581                 |          | $18,796,200                                                                                                                                                                                                                                                                      |          | $211,700           |         | $  –                                                                                                                                                 |          | $(16,528,600)                                                                                                            |         | $2,479,300                     |
|                                     |                           |          |                                                                                                                                                                                                                                                                                  |          |                    |         |                                                                                                                                                                     |          |                                                                                                                     |         |                                     |   |   |
|                                     |                           |          | *See accompanying Summary of Accounting Policies and Notes to Financial Statements.*                                                                                                                                                |
|                                          |                                |               |                                                                                                                                                                                                                                                                                       |               |                         |              |                                                                                                                                                                          |               |                                                                                                                          |              |                                          |  |  |  |  |  |

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|                                                                                        |                                                                                                   |                                               |                                                                 |                                                               |                                                                                                                                   |             |          | **LOGIC Devices Incorporated**    |
|---------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------|----------------------------------------------------|----------------------------------------------------------------------|--------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------|------------------|---------------|---------------------------------------------|
|                                                                                        |                                                                                                   |                                               |                                                                 |                                                               |                                                                                                                                   |             |          |                                        |   |   |
|                                                                                        |                                                                                                   |                                               |                                                                 |                                                               |                                                                                                                                   |             |          | **Statements of Cash Flows** |
|                                                                                        |                                                                                                   |                                               |                                                                 |                                                               |                                                                                                                                   |             |          | * *                                    |
|                                                                                        |                                                                                                   |                                               |                                                                 |                                                               |                                                                                                                                   |             |          | *For fiscal years ended September 30,*      |
|                                                                                        |                                                                                                   |                                               |                                                                 |                                                               |                                                                                                                                   |             |          | *2010*                                      |   | *2009* |
|                                                                                        |                                                                                                   |                                               |                                                                 |                                                               |                                                                                                                                   |             |          |                                        |   |   |
| Cash flows from operating activities:                                   |                                                                                                   |                                               |                                                                 |                                                               |                                                                                                                                   |
|                                                                                        | Net loss                                                                                          |                                               |                                                                 | $(1,084,500)                                                       |                                                                                                                                   | $ (811,300) |
|                                                                                        | Adjustments to reconcile net loss to net cash  (used in)  |                                               |                                                                 |                                                               |                                                                                                                                   |             |
|                                                                                        |                                                                                                   | provided by   operating activities: |                                                                 |                                                               |                                                                                                                                   |             |          |
|                                                                                        |                                                                                                   |                                               | Depreciation                                                         |                                                               |                                                                                                                                   | 296,400     |          | 322,300                                |
|                                                                                        |                                                                                                   |                                               | Vesting  of common stock options                      |                                                               |                                                                                                                                   | 49,600      |          | 6,500                                  |
|                                                                                        |                                                                                                   |                                               | Write-down of inventory                                    |                                                               |                                                                                                                                   | –      |          | 406,700                                |
|                                                                                        |                                                                                                   |                                               | Loss on disposal of capital equipment       |                                                               |                                                                                                                                   | –      |          | 49,400                                 |
|                                                                                        |                                                                                                   |                                               | Deferred rent                                                   |                                                               |                                                                                                                                   | 7,900       |          | 16,200                                 |
|                                                                                        |                                                                                                   |                                               | Change in operating assets and liabilities: |                                                               |                                                                                                                                   |             |          |                                        |
|                                                                                        |                                                                                                   |                                               |                                                                 | Accounts receivable                                           |                                                                                                                                   |             | 182,700  |                                        | 298,900  |
|                                                                                        |                                                                                                   |                                               |                                                                 | Inventories                                                        |                                                                                                                                   |             | 114,100  |                                        | (59,700) |
|                                                                                        |                                                                                                   |                                               |                                                                 | Prepaid expenses and other current assets |                                                                                                                                   |             | 6,000    |                                        | 67,100  |
|                                                                                        |                                                                                                   |                                               |                                                                 | Accounts payable                                              |                                                                                                                                   |             | 4,200    |                                        | (75,100) |
|                                                                                        |                                                                                                   |                                               |                                                                 | Accrued payroll and vacation                        |                                                                                                                                   |             | 9,200    |                                        | (3,300) |
|                                                                                        |                                                                                                   |                                               |                                                                 | Accrued commissions                                           |                                                                                                                                   |             | (6,800)       |                                        | 4,100  |
|                                                                                        |                                                                                                   |                                               |                                                                 | Other accrued expenses                                   |                                                                                                                                   |             | (55,500)      |                                        | 39,500  |
|                                                                                        |                                                                                                   |                                               |                                                                 |                                                               | Net cash (used in)   provided by operating activities                                                    |             |          | (476,700)                                   |   | 261,300  |
| Cash flows from investing activities:                                   |                                                                                                   |                                               |                                                                 |                                                               |                                                                                                                                   |
|                                                                                        | Purchases of available-for-sale securities                                              |                                               |                                                                 | –                                                        |                                                                                                                                   | –      |
|                                                                                        | Sales of available-for-sale securities                                                  |                                               |                                                                 | –                                                        |                                                                                                                                   | 975,000     |
|                                                                                        | Capital expenditures                                                                              |                                               |                                                                 | (421,600)                                                          |                                                                                                                                   | (310,300)        |
|                                                                                        | Capitalized test  software                                                                             |                                               |                                                                 | (351,500)                                                          |                                                                                                                                   | –      |
|                                                                                        |                                                                                                   |                                               |                                                                 |                                                               | Net cash provided  by (used in) investing activities                                                     |             |          | (773,100)                                   |   | 664,700  |
| Cash flows from financing activities:                                   |                                                                                                   |                                               |                                                                 |                                                               |                                                                                                                                   |
|                                                                                        | Proceeds of bank  borrowings                                                                           |                                               |                                                                 | –                                                        |                                                                                                                                   | 975,000     |
|                                                                                        | Repayment of bank  borrowings                                                                          |                                               |                                                                 | –                                                        |                                                                                                                                   | (975,000)        |
|                                                                                        | Proceeds of common  stock private placement                                                            |                                               |                                                                 | 250,000                                                       |                                                                                                                                   | –      |
|                                                                                        | Exercise of employee stock options                                                 |                                               |                                                                 | 3,000                                                         |                                                                                                                                   | –      |
|                                                                                        |                                                                                                   |                                               |                                                                 |                                                               | Net cash provided by financing activities                                                                     |             |          | 253,000                                |   | –  |
| Net   (decrease) increase   in cash and cash equivalents |                                                                                                   |                                               | (996,800)                                                            |                                                               | 926,000                                                                                                                           |
| Cash and cash equivalents, beginning                                    |                                                                                                   |                                               | 1,238,400                                                       |                                                               | 312,400                                                                                                                           |
| Cash and cash equivalents, ending                                       |                                                                                                   |                                               | $    241,600                                |                                                               | $1,238,400                                                                                                                        |
|                                                                                        |                                                                                                   |                                               |                                                                 |                                                               |                                                                                                                                   |             |          |                                        |   |   |
|                                                                                        |                                                                                                   |                                               |                                                                 |                                                               | *See accompanying Summary of Accounting Policies and Notes to Financial Statements.* |
|                                                                                             |                                                                                                        |                                                    |                                                                      |                                                                    |                                                                                                                                        |                  |               |                                             |  |  |  |  |

 

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**LOGIC Devices Incorporated**

**Summary of Accounting Policies**

 

*The Company and Nature of Business*

 

LOGICDevices Incorporated (the Company) develops and markets high-performanceintegrated circuits. The Company’s products include chips that are used indigital communications, broadcast and medical imaging processing applications,instrumentation, and smart weapons systems. The Company markets its productsworldwide, such that 71 percent of the Company's net revenues in fiscal 2010were derived from original equipment manufacturers, while sales throughdistributors accounted for approximately 29 percent of net revenues.Approximately 74 percent of the Company's fiscal 2010 net revenues were fromdomestic sales and approximately 26 percent from foreign sales.

 

*Basisof Presentation*

 

Theaccompanying financial statements have been prepared assuming the Company willcontinue as a going concern. This contemplates that assets will berealized and liabilities and commitments satisfied in the normal course ofbusiness. We have incurred operating losses in the past four years and requireadditional funds to maintain our operations. The Company’s continuance ofoperations is contingent on raising additional working capital, and on the increaseof revenues from new product introductions. Accordingly, these factors raisesubstantial doubt about the Company’s ability to continue as a going concern.The Company is currently negotiating with several parties to provide debt and equityfinancing sufficient to finance corporate operations and provide workingcapital for the next twelve months. Although there is no assurance thatmanagement’s plans will be realized, management believes that the Company willbe able to continue operations in the future. The financial statements donot include any adjustments relating to the recoverability and classificationof recorded assets, or the amounts and classification of liabilities that mightbe necessary in the event the Company cannot continue operating as a goingconcern.

 

*Use ofEstimates*

 

Thepreparation of financial statements in conformity with accounting principlesgenerally accepted in the United States of America requires management to makeestimates and assumptions that affect the reported amounts of assets andliabilities, disclosure of contingent assets and liabilities at the date of thefinancial statements, and the reported amounts of revenues and expenses duringthe reporting period. Actual results could differ from those estimates.

 

*FairValue of Financial Instruments*

* *

Thecarrying amounts of cash and cash equivalents, available-for-sale securities,accounts receivable, and accounts payable approximate fair value because of theshort maturity of these items. 

 

*Cashand Cash Equivalents*

 

TheCompany considers all highly liquid investments with original maturities ofthree months or less to be cash equivalents.

 

*AccountsReceivable*

 

TheCompany establishes a general allowance for doubtful accounts based on itsanalysis of historical bad debts, specific customer creditworthiness, and currenteconomic conditions. Historically, the Company has not experienced significantlosses related to receivables. At September 30, 2010 and 2009, the Companydetermined that no allowance for doubtful accounts was necessary.

 

*Inventories*

 

Inventoriesof raw materials, work-in-process, and finished goods are stated at the lowerof cost (first-in, first-out) or market. Cost includes the purchase price ofparts, assembly costs, and overhead.

----

*Propertyand Equipment*

 

Propertyand equipment are stated at cost. Depreciation on equipment is calculated onthe straight-line method over the estimated useful lives of the assets,generally three to seven years. Leasehold improvements and assets held undercapital lease are amortized on a straight-line basis over the shorter of thelease terms or the estimated lives of the assets. Certain tooling costs arecapitalized by the Company and are amortized on a straight-line basis over theshorter of the related product life cycle or five years. Upon disposition, thecost and related accumulated depreciation or accumulated amortization isremoved from the accounts and the resulting gain or loss is reflected in incomefor the period.

 

*CapitalizedSoftware Costs*

 

Internaltest computer software development costs are capitalized as incurred during theapplication development stage. The capitalized software costs are classified asother assets and are amortized on a straight-line basis over the shorter of therelated expected product life cycle or five years, with amortization beginningwhen production parts are in process.

 

*RevenueRecognition*

 

Revenue isgenerally recognized upon shipment of product. Sales to distributors are madepursuant to agreements that provide the distributors certain rights of returnand price protection on unsold merchandise. Revenues from such sales arerecognized upon shipment, with a provision for estimated returns and allowancesrecorded at that time, if applicable. While distributors are allowed to returnitems for stock rotation, they are required to place an order of equal orgreater value at the same time. As the Company historically does not havematerial returns, there is no allowance for returns recorded. Because theCompany does not change its pricing of products more than once a year, there havenot been any pricing issues in the past several years; therefore, there is noallowance for price protection recorded.

 

*Researchand Development Costs*

 

Researchand development costs are expensed to operations as incurred.

 

*Shippingand Handling Costs*

 

Shippingand handling costs are expensed to cost of revenues as incurred.

 

*IncomeTaxes*

 

Deferredincome tax assets and liabilities are recognized based on the temporarydifferences between the financial statement and income tax basis of assets,liabilities, and net operating loss and tax credit carryforwards using enactedtax rates. Valuation allowances are established for deferred tax assets to theextent of the likelihood that the deferred tax assets may not be realized.

 

*Income(Loss) Per Common Share*

 

Basicincome (loss) per share is calculated by dividing net income or loss by theweighted average common shares outstanding during the period. Diluted income(loss) per share reflects the net incremental shares that would be issued ifdilutive outstanding stock options were exercised, using the treasury stockmethod. In the case of a net loss, no incremental shares would be issuedbecause they are antidilutive. Stock options with exercise prices above theaverage market price during the period are also antidilutive.

 

There were363,500 and 310,500 common stock options outstanding at September 30, 2010 and 2009,respectively. These options were not considered in calculating diluted net lossper common share as their effect would have been antidilutive. As a result, forfiscal 2010, and 2009, the Company’s basic and diluted net loss per commonshare is the same.

----

*Long-livedAssets*

 

Long-livedassets, including property and equipment and intangible assets, are assessedfor possible impairment whenever events or changes in circumstances indicatethat the carrying amounts may not be recoverable, or whenever management hascommitted to a plan to dispose of the assets. Such assets are carried at thelower of book value or fair value as estimated by management based onappraisals, current market value, and comparable sales value, as appropriate.Assets to be held and used affected by such impairment loss are depreciated oramortized at their new carrying amounts over the remaining estimated lives;assets to be sold or otherwise disposed of are not subject to furtherdepreciation or amortization. In determining whether an impairment exists, theCompany uses undiscounted future cash flows without interest charges comparedto the carrying value of the assets.

 

*Share-basedPayments*

 

TheCompany issues common stock options to its employees, certain consultants, andcertain of its board members. The Company measures the cost of servicesreceived in exchange for an award of equity instruments based on the grant-datefair value of the award. That cost is recognized over the period during whichservices are provided in exchange for the award, known as the requisite serviceperiod (usually the vesting period). 

 

Incalculating compensation related to stock option grants, the fair value of eachstock option is estimated on the date of grant using the Black-Scholesoption-pricing model and the following weighted average assumptions:

 
|                      | * * | * * | *2010* | * * | *2009* |
|---------------------------|----------|----------|--------|----------|--------|
|                      |     |     |   |     |   |
| Dividend  yield           |     |     | None   |     | None   |
| Expected  volatility      |     |     | 133.3% |     | 148.2% |
| Expected  forfeiture rate |     |     | 32%    |     | 10%    |
| Risk-free  interest rate  |     |     | 1.3%   |     | 1.5%   |
| Expected  term (years)    |     |     | 4.0    |     | 4.0    |

 

Thecomputation of expected volatility used in the Black-Scholes option-pricingmodel is based on the historical volatility of our share price. The expected termis estimated based on a review of historical exercise behavior with respect tooption grants.

 

*SegmentReporting*

 

TheCompany is organized in a single operating segment for purposes of makingoperating decisions and assessing performance. The president (the chiefoperating decision maker) evaluates performance, makes operating decisions, andallocates resources based on financial data consistent with the presentation inthe accompanying financial statements.

 

*Impactof New Financial Accounting Pronouncements*

 

In January 2010, the FinancialAccounting Standards Board issued amended standards that require additionalfair value disclosures. These disclosure requirements are effective in twophases. In the first quarter of 2010, we adopted the requirements fordisclosures about inputs and valuation techniques used to measure fair value aswell as disclosures about significant transfers. Beginning in the first quarterof 2011, these amended standards will require presentation of disaggregatedactivity within the reconciliation for fair value measurements usingsignificant unobservable inputs (Level 3). These amended standards do notaffect our statements of operations or balance sheets.

----

 

 

**LOGIC Devices Incorporated**

**Notes to Financial Statements**

**1.           ****Inventories**

 

A summary of inventories follows:

 

|                |                            |   | *September 30,*                        |   | *September 30,* |
|---------------------|---------------------------------|--------|---------------------------------------------|--------|----------------------|
|                |                            |   | *2010*                                      |   | *2009*               |
|                |                            |   |                                        |   |                 |
| Raw materials  | $   92,100  |   | $     38,700  |
| Work-in-process     | 181,300                    |   | 194,800                                |
| Finished goods | 690,200                    |   | 844,200                                |
|                |                            |   | $ 963,600                         |   | $1,077,700      |

 

**2.           ****Property and Equipment**

 

A summary of property and equipmentfollows:

 

|                                    |             |   | *September 30,*       |   | *September 30,*       |
|-----------------------------------------|------------------|--------|----------------------------|--------|----------------------------|
|                                    |             |   | *2010*                     |   | *2009*                     |
|                                    |             |   |                       |   |                       |
| Equipment                               | $1,208,300  |   | $1,187,500            |
| Tooling costs                      | 934,200     |   | 535,800               |
| Leasehold improvements             | 197,200     |   | 194,700               |
|                                    |             |   | 2,339,700             |   | 1,918,000             |
| Less accumulated depreciation | 1,398,000   |   | 1,101,600             |
|                                    |             |   | $  941,700  |   | $  816,400  |

 

Depreciation expense for fiscal 2010and 2009 was $296,400 and $322,300, respectively.

 

**3.           ****Capitalized Software**

 

During fiscal 2010, the Companycapitalized test software development costs totaling $351,500 for products thatare in the application development stage. There was no amortization expenserelated to capitalized software during fiscal 2010 and 2009. There was nocapitalization of test software development costs in fiscal 2009.

** **

**4.           ****Share-Based Compensation**

 

The Company issues options to purchasecommon stock to its employees, certain consultants, and certain of its boardmembers. Options are generally granted with an exercise price equal to theclosing market value of a common share at the date of grant, have five- toten-year terms and typically vest over periods ranging from immediately tothree years from the date of grant. There are 1,070,000 authorized sharesremaining for granting of future options.

 

The estimated fair value ofequity-based awards, less expected forfeitures, is amortized over the awards’vesting period on a straight-line basis. Share-based compensation expenserecognized in the statements of operations for fiscal years ended September 30,2010 and 2009 related to common stock options was $49,600 ($0.73 per share) and$6,500 ($0.12 per share), respectively. The Company did not record income taxbenefits related to the equity-based compensation expense as deferred taxassets are fully offset by a valuation allowance. 

----

A summary of nonvested shares atSeptember 30, 2010 and changes during the fiscal year then ended follows:

 

|                                                            |              | *Shares*     |        | *Weighted*

*Average*

*Grant Date*

*Fair Value* |
|-----------------------------------------------------------------|-------------------|--------------|-------------|-------------------------------------------------------------|
|                                                            |              |         |        |                                                        |
| Nonvested shares at October 1, 2009    | 33.750       |         | $0.60  |
|                                                            |              |         |        |                                                        |
|                                                            | Granted           | 90,000  |        | $1.38                                                  |
|                                                            | Vested            | (67,500)     |        | $1.31                                                  |
|                                                            | Forfeited/Expired | –  |        | –                                                 |
| Nonvested shares at September 30, 2010 | 56,250       |         | $1.01  |

 

A summary of changes in common stockoptions outstanding under the equity-based compensation plans for the fiscalyears ended September 30, 2009 and 2008 follows:

 

|                                                  |              | *Common*

*Stock*

*Options* |         | *Weighted*

*Average*

*Exercise*

*Price* |       | *Weighted*

*Average*

*Remaining*

*Contractual*

*Term (Years)* |           | *Aggregate*

*Intrinsic*

*Value* |
|-------------------------------------------------------|-------------------|------------------------------|--------------|--------------------------------------------|------------|------------------------------------------------------------------------|----------------|-----------------------------------|
|                                                  |              |                         |         |                                       |       |                                                                   |           |                              |
| Outstanding at September 30, 2008 | 337,500      |                         | $1.595  |                                       | 2.57  |                                                                   | $ –  |
|                                                  |              |                         |         |                                       |       |                                                                   |           |                              |
|                                                  | Granted           | 90,000                  |         | $0.53                                 |       |                                                                   |           |                              |
|                                                  | Exercised         | –                  |         | –                                |       |                                                                   |           |                              |
|                                                  | Forfeited/Expired | (73,000)                     |         | $1.958                                |       |                                                                   |           |                              |
| Outstanding at September 30, 2009 | 354,500      |                         | $1.250  |                                       | 3.38       |                                                                   | $32,400   |
|                                                  |              |                         |         |                                       |       |                                                                   |           |                              |
|                                                  | Granted           | 90,000                  |         | $1.376                                |       |                                                                   |           |                              |
|                                                  | Exercised         | (5,000)                      |         | $0.60                                 |       |                                                                   |           | $3,000                       |
|                                                  | Forfeited/Expired | (76,000)                     |         | $1.458                                |       |                                                                   |           |                              |
| Outstanding at  September 30, 2010                    | 363,500      |                         | $1.246  |                                       | 3.97  |                                                                   | $13,900   |
| Exercisable at September 30, 2010 | 307,250      |                         | $1.293  |                                       | 3.06  |                                                                   | $11,900   |
| Exercisable at  September 30, 2009                    | 320,750      |                         | $1.318  |                                       | 2.71  |                                                                   | $22,600   |

 

The weighted average fair value ofoptions granted during the fiscal years ended September 30, 2010 and 2009 was$1.03 and $0.29, respectively. As September 30, 2010, there was $31,100 oftotal unrecognized compensation cost related to nonvested options granted underthe plans. That cost is expected to be recognized over the next three years.The total fair value of options vested during the fiscal years ended September30, 2010 and 2009 was $49,600 and $6,500, respectively.

----

**5.           **** Shareholders’ Equity and Related Party Transaction**

 

On September 29, 2010, the Companyraised $250,000 from the private placement of 357,143 shares of Common Stock tothe Company’s president.

 

**6.           ****Commitments and Contingencies**

 

*Leases*

 

The Company leases its facilitiesunder an operating lease, which requires the Company to pay certain maintenanceand operating expenses, such as taxes, insurance, and utilities. Rent expenseunder the various leases was $239,300 for fiscal 2010 and 2009.

 

A summary of future minimum paymentsrequired under non-cancelable operating leases with terms in excess of oneyear, follows:

 

|                             |                         |   |   |           | *Amount*       |
|----------------------------------|------------------------------|--------|--------|----------------|----------------|
|                             |                         |   |   |           |           |
| *Fiscal years ending:* |                         |   |   |
|                             | September 30, 2011 |   |   | $239,700  |
|                             | September 30, 2012           |   |   | 248,100   |
|                             | September 30, 2013           |   |   | 257,300   |
|                             | Thereafter                   |   |   | 242,800   |
|                             |                         |   |   |           | $987,900  |

 

*Contingencies*

 

The Company is subject to legalproceedings and claims that arise in the ordinary course of business. In theopinion of management, the amount of ultimate liability with respect to suchactions will not materially affect the financial position or results ofoperations of the Company.

 

**7.           ****Provisions for Income Taxes**

 

The provision for income taxes forfiscal 2010 and 2009 includes a current state expense of $2,900 and $900,respectively. The following summarizes the difference between the income taxexpense and the amount computed by applying the Federal income tax rate of 34percent in fiscal 2010 and 2009, to the loss before taxes:

 

|                                                                              |                                                    |   |          |        | *2010*        |         | *2009*     |
|-----------------------------------------------------------------------------------|---------------------------------------------------------|--------|---------------|-------------|---------------|--------------|------------|
|                                                                              |                                                    |   |          |        |          |         |       |
| Federal income tax   benefit at statutory rate           |                                                    |   | $(367,700)    |        | $(275,500)    |
| Tax credit carryforwards originated in current year |                                                    |   | (46,400)      |        | (33,000)      |
| State tax  benefit, net of federal tax benefit |                                                    |   | (60,400)      |        | (46,800)      |
| Adjustment of prior year net operating loss         |                                                    |   |          |        |          |
|                                                                              | carryforwards before valuation allowance |   |          | 2,600  |          | 10,700  |
| Valuation allowance                                                          |                                                    |   | 474,800  |        | 341,200  |
| Other, net                                                                   |                                                    |   | –   |        | 4,300    |
|                                                                              |                                                    |   |          |        | $2,900   |         | $900  |

 

----

Deferred tax assets and liabilitiescomprise the following:

 

|                                |                                            |                                     | *September 30,* |             | *September 30,* |
|-------------------------------------|-------------------------------------------------|------------------------------------------|----------------------|------------------|----------------------|
|                                |                                            |                                     | *2010*               |             | *2009*               |
|                                |                                            |                                     |                 |             |                 |
| Deferred tax assets:      |                                            |                                     |                 |
|                                | Net operating loss carryforwards | $8,783,000                          |                 | $8,416,200  |
|                                | Tax credit carryforwards              | 735,300                             |                 | 634,900     |
|                                |                                            | Gross deferred tax assets | 9,518,300       |             | 9,051,100       |
|                                |                                            |                                     |                 |             |                 |
| Deferred tax liabilities: |                                            |                                     |                 |
|                                | State tax benefit                     | (618,300)                                |                 | (581,300)        |
|                                | Other                                           | (21,000)                                 |                 | (41,300)         |
|                                |                                            | Net deferred tax assets   | 8,879,000       |             | 8,428,500       |
| Valuation allowance            | (8,879,000)                                     |                                     | (8,428,500)          |
| Net deferred taxes        | $ –                              |                                     | $ –   |

 

The valuation allowance increased $450,500from fiscal 2009 to fiscal 2010. This was the result of an increase in the netdeferred tax assets, primarily net operating loss carryforwards (NOLs),partially offset by the increase in the state tax benefit liability. Becausethe Company's management is unable to determine whether it is more likely thannot that the net deferred tax assets will be realized, the Company continues torecord a 100 percent valuation against the net deferred tax assets.

 

As of September 30, 2010, the Companyhas Federal and State NOLs totaling approximately $21,687,400 and $15,942,400, respectively,available to offset future taxable income. These NOLs expire at various timesthrough 2029 and 2019, respectively. The Company also has Federal and Stateresearch and development credit carryforwards totaling approximately $277,000and $114,700, respectively, expiring at various times through 2029. The Companyhas state manufacturing tax credit carryforwards totaling approximately $289,600,which expire at various times through 2012.

 

Utilization of the Company’s netoperating loss and tax credit carryforwards may be subject to a substantialannual limitation due to ownership change limitations provided by the InternalRevenue Code and similar state provisions. Such an annual limitation couldresult in the expiration or elimination of the net operating loss and taxcredit carryforwards before utilization.

 

We adopted authoritative guidancerelated to accounting for uncertain tax positions on October 1, 2007. Asof the date of adoption, the Company had no unrecognized income tax benefits.Should the Company incur interest and penalties relating to tax uncertainties,such amounts would be classified as a component of interest expense and operatingexpense, respectively.

 

At September 30, 2010, the Company noincrease or decrease in unrecognized income tax benefits for the fiscal yearand there was no accrued interest or penalties relating to tax uncertainties atSeptember 30, 2010. Unrecognized income tax benefits are not expected toincrease or decrease within the next 12 months.

----

The Company is subject to income taxin the U.S. federal and California and New Hampshire state jurisdictions. Theyears still open to audit for the U.S. federal and New Hampshire state jurisdictionare 2007 through 2009 and for the California state jurisdiction are 2006through 2009. However, because the Company has net operating losses and creditscarried forward in both these jurisdictions, certain items attributable toclosed tax years are still subject to adjustment by applicable taxingauthorities through an adjustment to tax attributes carried forward to openyears.

** **

**8.            ****Major Customers, Major Suppliers, and Export Sales**

 

*Major Customers and Suppliers*

 

For fiscal 2010, three customersaccount for approximately 22, 16, and 15 percent of net revenues. The 22percent customer had no outstanding accounts receivable as of September 30,2010, while the 16 and 15 percent customers had accounts receivable of $22,100and $17,500, respectively. For fiscal 2009, two customers account forapproximately 41 and 32 percent of net revenues, with accounts receivable of$159,400 and $142,000 as of September 30, 2009, respectively.

 

For fiscal 2010, three supplierscomprised 10 or more percent of the total inventory purchases (48, 24, and 12percent). For fiscal 2009, three suppliers comprised 10 or more percent of thetotal inventory purchases (49, 21, and 14 percent). 

 

*Export Sales*

 

The following table summarizes exportsales information:

 

|   |                |   |   | *2010*         |   | *2009*         |
|--------|---------------------|--------|--------|----------------|--------|----------------|
|   |                |   |   |           |   |           |
|   | Western Europe |   |   | $325,600  |   | $225,000  |
|   | Far East       |   |   | 240,700   |   | 180,800   |
|   | Other               |   |   | –    |   | –    |
|   |                |   |   | $566,300  |   | $405,800  |

 

In fiscal 2010 and 2009, no onecountry accounted for more than 10 percent of net revenues.

 

**9.            ****Use of Estimates and Concentrations of Credit Risks**

 

The Company’s financial statementsare prepared in accordance with accounting principles generally accepted in the  United States of America, which require the use of management estimates.These estimates are impacted, in part, by the following risks anduncertainties:

 

Financial instruments, whichpotentially subject the Company to concentration of credit risk, consistprincipally of cash and cash equivalents and trade receivables. The Companyplaces its cash and cash equivalents and available-for-sale securities withhigh quality financial institutions, and, by policy, limits the amounts ofcredit exposure to any one financial institution as much as practicable.

 

A large portion of the Company’saccounts receivable have historically been derived from one major class ofcustomer (foreign distributors) with the remainder being spread across manyother customers in various electronic industries. The Company believes any riskof accounting loss is significantly reduced due to the diversity of itsproducts, end-customers, and geographic sales areas. The Company performscredit evaluations of its customers’ financial condition whenever necessary.The Company generally does not require cash collateral or other security tosupport customer receivables.

----

 

The Company currently is dependent onone primary supplier as its wafer-processing source. If this supply was to beinterrupted or the terms were to become unfavorable to the Company, this couldhave a material adverse impact on the Company’s operations.

 

The Company produces inventory basedon orders received and forecasted demand. The Company must order wafers andbuild inventory well in advance of product shipments. Due to the Company'sreliance upon a limited number of suppliers, high levels of inventory are alsomaintained to protect against a disruption in supply. Because the Company’smarkets are volatile and subject to rapid technology and price changes, thereis a risk that the Company will forecast incorrectly and produce excess orinsufficient inventories of particular products. This inventory risk isheightened because many of the Company’s customers place orders with short leadtimes. Demand will differ from forecasts and such differences may have amaterial effect on actual operations.

** **

**10.        ****Statements of Cash Flows**

 

During fiscal 2009, we paid $1,900for interest, while there was no interest paid during fiscal 2010. In fiscal 2010and 2009, the Company paid $2,900 and $900 for income taxes, respectively.There were no non-cash investing and financing activities during fiscal 2010and 2009.

** **

**11.        ****401(k) Savings Plan**

 

The Company adopted a 401(k) SavingsPlan (the Plan) in September 2005. Employees are able to make voluntarycontributions and the Company has the discretion to make matching contributions.The Plan covers all employees meeting certain age and service requirements. TheCompany funds expenses incurred in connection with the Plan. The Company madeno matching contributions in fiscal 2010 and 2009.

 

**12.        ****Subsequent Events**

 

On November 9, 2010, the Companyraised $50,000 from the private placement of 62,500 shares of Common Stock tothe Company’s Chairman of the Board. On December 6, 2010, the Company raised$50,000 from the private placement of 83,333 shares of Common Stock to theCompany’s president. On December 9, 2010, the Company raised $50,000 from theprivate placement of 75,758 shares of Common Stock to the Company’s Chairman ofthe Board.

----

 

Item 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIALDISCLOSURE

 

Not applicable.

 

Item 9A. CONTROLS AND PROCEDURES

 

*(a) Evaluation of Disclosure Controls and Procedures*

 

We maintain disclosure controls and procedures (as definedin Rule 13a15(e) and 15d-15(e) under the Securities Exchange Act of 1934)designed to ensure that information we are required to disclose in reports thatwe file or submit under the Securities Exchange Act of 1934 is accumulated andcommunicated to our management, including our principal executive and principalfinancial officers, as appropriate to allow timely decisions regarding requireddisclosures, and that such information is recorded, processed, summarized, andreporting within the time periods specified in Securities and ExchangeCommission rules and forms. Our management evaluated, with the participation ofour Chief Executive Officer and Chief Financial Officer, the effectiveness ofour disclosure controls and procedures as of the end of the period covered bythis Annual Report on Form 10-K. Based on this evaluation, our Chief ExecutiveOfficer and our Chief Financial Officer have concluded that our disclosurecontrols and procedures were effective as of September 30, 2010.

 

*(b) Management’s Annual Report on Internal Control Over FinancialReporting*

 

Our management is responsible for establishing andmaintaining adequate internal control over financial reporting as defined inRules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. Ourinternal control over financial reporting is a process designed to providereasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance withgenerally accepted accounting principles. Internal control over financialreporting includes those policies and procedures that:

 
    - Pertain to the maintenance of records that, in reasonable     detail, accurately and fairly reflect the transactions and dispositions of     the assets of the Company;
    - Provide reasonable assurance that transactions as     necessary to permit preparation of financial statements in accordance with     generally accepted accounting principles, and that receipts and     expenditures of the Company are being made only in accordance with     authorizations of management and directors of the Company, and
    - Provide reasonable assurance regarding prevention or     timely detection of unauthorized acquisition, use, or disposition of the     Company’s assets that could have a material effect on the financial     statements.

 

Because of its inherent limitations, internal control overfinancial reporting may not prevent or detect misstatements. In addition,projections of any evaluation of effectiveness to future periods are subject tothe risk that controls may become ineffective because of changes in conditionsand that the degree of compliance with the policies or procedures maydeteriorate.

 

Management assessed the effectiveness of the Company’sinternal control over financial reporting as of September 30, 2010. In makingthis assessment, management used the criteria set forth in the *InternalControl-Integrated Framework* issued by the Committee of SponsoringOrganizations of the Treadway Commission (COSO).

 

As a result of its assessment of internal control overfinancial reporting, management has concluded that, as of September 30, 2010, theCompany’s internal control over financial reporting was effective to providereasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance withaccounting principles generally accepted in the United States.

 

This Annual Report on Form 10-K does not include anattestation report of our registered public accounting firm regarding internalcontrol over financial reporting. Management’s report was not subject toattestation by our registered public accounting firm pursuant to rules of theSEC that permit us to provide only management’s report in this Annual Report.

 

*(c) Changes in Internal Control Over Financial Reporting*

 

There was no change in our internal control over financialreporting that occurred during the fourth quarter of fiscal 2010 that hasmaterial affected, or is reasonably likely to materially affect, our internalcontrol over financial reporting.

----

Item 9B. OTHER INFORMATION

 

Not applicable.

 

**PART III**

 

Item 10. DIRECTORS AND EXECUTIVEOFFICERS OF THE REGISTRANT.

 

Information required by this Item is incorporated byreference from our proxy statement for our 2011 Annual Meeting, expected to befiled with the SEC no later than January 28, 2011.

 

Item 11. EXECUTIVE COMPENSATION

 

Information required by this Item is incorporated byreference from our proxy statement for our 2011 Annual Meeting, expected to befiled with the SEC no later than January 28, 2011.

 

Item 12.                SECURITYOWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDERMATTERS.

 

Information required by this Item is incorporated byreference from our proxy statement for our 2011 Annual Meeting, expected to befiled with the SEC no later than January 28, 2011.

 

Item 13. CERTAIN RELATIONSHIPS ANDRELATED TRANSACTIONS

 

Information required by this Item isincorporated by reference from our proxy statement for our 2011 Annual Meeting,expected to be filed with the SEC no later than January 28, 2011.

 

Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

Information required by this Item is incorporated byreference from our proxy statement for our 2011 Annual Meeting, expected to befiled with the SEC no later than January 28, 2011.

 

 

**PART IV**

 

Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

 
| (A)    | The  following documents are filed as part of this report:

  |
|--------|--------------------------------------------------------------------|
|   | (1)                                                                | Our  Financial Statements, Summary of Accounting Policies, and Notes to Financial  Statements appear at pages 18 to 31 of this report; see Index to Financial  Statements at page 17 of this report.

  |
|   | (2)                                                                | Our  Index to Exhibits appears at page 35 of this report.

  |

 

----

**SIGNATURES**

 

Pursuant to the requirements of Section 13 or 15(d) of theSecurities Exchange Act of 1934, as amended, the registrant has duly causedthis report to be signed on its behalf by the undersigned, thereunto dulyauthorized.

 

LOGIC DEVICES INCORPORATED

 
| Dated:  December 23, 2010 | By:   /s/  William  J.  Volz                         |
|---------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                      |                                                                                                                                                                                             | William  J. Volz, President and

Principal  Executive Officer |

 

Pursuant to the requirements of the Securities Exchange Actof 1934, as amended, this report has been signed below by the following personsin the capacities and on the dates indicated.

 
| Signature                                                                                                                                                         |   | Title                                                                           |   | Dated

       |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------|--------|--------------------|
|   /s/  William  J. Volz           

    William  J. Volz           |   | President  and Director

(Principal  Executive Officer)

                  |   | December  23, 2010 |
|   /s/  Kimiko  Milheim         

    Kimiko  Milheim                         |   | Chief  Financial Officer

(Principal  Financial and Accounting Officer)

  |   | December 23, 2010  |
|   /s/  Howard  L. Farkas       

    Howard  L. Farkas

                          |   | Chairman  of the Board of Directors

                                      |   | December 23, 2010  |
|   /s/  James  T. Hooper         

    James  T. Hooper

                |   | Director                                                                        |   | December 23, 2010  |
|   /s/  Hal  Shoemaker            

    Hal  Shoemaker

  |   | Director                                                                        |   | December 23, 2010  |
|   /s/  Robert  Stanley             

    Robert  Stanley |   | Director                                                                        |   | December 23, 2010  |
|                                                                                                                                                              |   |                                                                            |   |               |

 

----

**INDEX TO EXHIBITS**

 
| Exhibit No.     |   | Description                                                                                                                                                                                                                                                                                                                                                                                                        |
|----------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                 |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 3.1                  |   | Articles of Incorporation, as amended. [3.1] (1)                                                                                                                                                                                                                                                                                                                                     |
| 3.2                  |   | Bylaws, as amended. [3.2] (2)                                                                                                                                                                                                                                                                                                                                                                  |
| 10.1                 |   | Real estate lease regarding our Sunnyvale, CA facilities. [99.1] (3)                                                                                                                                                                                                                                                                                                  |
| 10.2                 |   | Amended and Restated LOGIC Devices Incorporated 1998  Director Stock Incentive Plan, as amended. [10.2] (4)                                                                                                                                                                                                                                                                                                        |
| 10.3                 |   | LOGIC Devices Incorporated 2007 Employee Stock Incentive  Plan. [10.3] (4)                                                                                                                                                                                                                                                                                                                                         |
| 10.4                 |   | Registration Rights Agreement dated October 3, 1998 between William J. Volz, BRT  Partnership, and Registrant. [10.19] (5)                                                                                                                                                                                                              |
| 10.5                 |   | Stock Purchase Agreement dated September  29, 2010 between William J. Volz and Registrant.                                                                                                                                                                                                                                                                                                                         |
| 10.6                 |   | Registration Rights Agreement dated  September 29, 2010 between William J. Volz and Registrant.                                                                                                                                                                                                                                                                                                                    |
| 23.1                 |   | Consent letter of Hein & Associates LLP.                                                                                                                                                                                                                                                                                                                                         |
| 31.1                 |   | Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14 and 15d-14.                                                                                                                                                                                                                                                             |
| 31.2                 |   | Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14 and 15d-14.                                                                                                                                                                                                                                                             |
| 32.1                 |   | Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.  Section 1350.                                                                                                                                                                                                                                        |
|                 |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
|                 |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| [   ] |   | Exhibits so marked have been previously filed with the Securities Exchange Commission  (SEC) as exhibits to the filings shown below under the exhibit numbers indicated following  the respective  document description and are incorporated herein by reference. |
|                 |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| (1)                  |   | Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2004, as filed with  the SEC on January 26, 2005.                                                                                                                                                                                                     |
| (2)                  |   | Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2007, as filed with the  SEC on May 15, 2007.                                                                                                                                                                                                       |
| (3)                  |   | Current Report on Form 8-K, as filed with the SEC on August 7, 2007.                                                                                                                                                                                                                                                                              |
| (4)                  |   | Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2008, as filed with the  SEC on May 6, 2008.                                                                                                                                                                                                                  |
| (5)                  |   | Annual Report on Form 10-K for the transition period January 1, 1998 to October 3, 1999, as  filed with the SEC on January 13, 1999.                                                                                                                                                                      |