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LOGIC DEVICES INC - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations(Edgar Glimpses Via Acquire Media NewsEdge) The following discussion of our financial condition and results ofoperations should be read in conjunction with the accompanying unaudited interim financial statements and notes to those statements included elsewhere in this Quarterly Report on Form 10-Q as of June 30, 2011 and our audited consolidated financial statements for the year ended September 30, 2010 included in our Annual Report on Form 10-K, that was filed with the Securities and Exchange Commission on December 27, 2010. This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. When used in this report, the words "expects," "anticipates," "suggests," "believes," "intends," "estimates," "plans," "projects," "continue," "ongoing," "potential," "expect," "predict," "believe," "intend," "may," "will," "should," "could," "would" and similar expressions are intended to identify forward-looking statements. Forward-looking statements are subject to risks and uncertainties that could cause our actual results to differ materially from those projected. These risks and uncertainties include, but are not limited to the risks described in our Annual Report on Form 10-K including but not limited to: operating results, new product introductions and sales, competitive conditions, customer demand, capital expenditures and resources, manufacturing capacity utilization, and intellectual property claims and defense. These forward-looking statements speak only as of the date hereof. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based, except as required by law. Overview We develop and market high-speed digital integrated circuits that perform high-density storage and signal/image processing functions. Our products enable high definition video display, transport, editing, composition, and special effects. We also provide solutions for digital filtering in television broadcast stations and image enhancement in medical diagnostic scanning and imaging equipment. Our products are used in the broadcast, medical, military, and consumer electronics markets. Our products address storage and digital signal processing (DSP) requirements that involve high-performance arithmetic computation. We focus on developing proprietary catalog products to address specific functional application needs or performance levels that are not otherwise commercially available. We seek to provide related groups of circuits that original equipment manufacturers (OEMs) incorporate into high-performance electronic systems. Results of Operations For the quarter ended June 30, 2011, our net revenues increased by $134,300 (49%) compared to the same quarter of fiscal 2010. This increase was primarily the result of military program orders in fiscal 2011. For the nine months ended June 30, 2011, our net revenues decreased by $742,900 (39%), which was mainly the result of digital cinema revenues declining compared to fiscal 2010. We are seeing a continuing increase in interest and inquiry regarding our newer products. In addition, bookings and quoting activity for military programs continue to be strong. Our cost of revenues for the quarter and nine months ended June 30, 2011 decreased $118,800 (51%) and $485,100 (53%) respectively compared to the same periods of fiscal 2010. This decrease is the result of reductions in staffing and the reduction in net revenues for the nine- month period. Research and development expenditures (R&D expenditures) decreased $276,900 (34%) for the nine-month period ended June 30, 2011 compared to the same period of fiscal 2010. as we reduced staffing. R&D expenditures were consistent in the quarter ended June 30, 2011 compared to June 30, 2010 as the staffing reductions of fiscal 2010 had occurred earlier in the year. In addition, there were higher prototype expenses in the prior fiscal year. Sales, general, and administrative expenditures decreased $38,500 (14%) and $98,300 (10%) for the quarter and nine months of fiscal 2011, respectively, compared to the same periods of fiscal 2010. Unfortunately, there are many fixed operating expenses that we cannot reduce any further. As a result of the similar net revenues being offset by reductions in expenses, we had a reduced net loss of $119,800 and $630,800 respectively for the third quarter and nine-month period of fiscal 2011 compared to a net loss of $404,800 and $739,600 in the same quarter and nine-month period of fiscal 2010. -------------------------------------------------------------------------------- Liquidity and Capital Resources Cash Flows A net loss of $630,800 for the nine months ended June 30, 2011 resulted in our net cash used by operations being $701,100. We used $97,000 of cash to increase inventory for new products, $81,300 on prepaid expenses and deposits to vendors, and $33,200 to reduce accrued payroll and vacation. During the nine months ended June 30, 2011, we received a total of $653,900 from financing activities, including: $425,000 from private placements of our common stock, $717,600 from bank borrowings, and $55,000 from a related party note payable, offset by repayments of bank borrowings of $543,700. During the nine months ended June 30, 2011, we invested $70,200 and $108,700 for capital expenditures and capitalized test software development, respectively. While we had a net loss of $739,600 for the nine months ended June 30, 2010, our operations used net cash of only $73,900. Reductions of accounts receivable and inventory produced cash of $144,200 and $251,400, respectively, while we used cash of $48,600 to reduce accrued expenses. During the nine months ended June 30, 2010, we used cash of $259,500 for capital equipment purchases, mainly for the testing and production of new products, and $257,600 for capitalized test software development. Working Capital Historically, due to order scheduling by our customers, up to 60% of our quarterly revenues are often shipped in the last month of the quarter, so a large portion of shipments included in our quarter-end accounts receivable are not yet due per our net 30 day terms. As a result, quarter-end accounts receivable balances are typically at their highest level for the respective period. As a fabless semiconductor company with products having longer than normal product life cycles, our investment in inventories has been, and will continue to be, significant. Although high levels of inventory impact liquidity, we believe these costs are a less costly alternative to owning a wafer fabrication facility. Over the past few years, we have attempted to streamline our product offerings, in turn reducing our inventory levels. Going forward, we will need to produce more inventory for new product offerings, while selling off existing inventory. Therefore, our goal is to keep our inventory levels relatively consistent with their current state. Financing Cost reductions over the past few years have allowed us to generate enough cash from operations to fund current operations and capital expenditures. As we have multiple new products being introduced, our capital requirements have increased, while cash on-hand and cash from operations is not 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 continue as a going concern. While we have established a limited line of credit with a commercial finance company and an equity line with an investment fund, our limited financing, cash on-hand and cash from operations may not be sufficient to meet the increased demands of our market. We have also received working capital bridge loans from our president. Impact of New Financial Accounting Standards In January 2010, the Financial Accounting Standards Board issued amended standards that require additional fair value disclosures. These disclosure requirements are effective in two phases. In the first quarter of 2010, we adopted the requirements for disclosures about inputs and valuation techniques used to measure fair value as well as disclosures about significant transfers. During the first quarter of 2011, these amended standards required presentation of disaggregated activity within the reconciliation for fair value measurements using significant unobservable inputs (Level 3). These amended standards did not affect our statements of operations or balance sheets. --------------------------------------------------------------------------------Off-Balance Sheet Arrangements We currently have no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources. |