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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
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Exchange Act of 1934
For the quarterly period ended JULY 31, 1995 or
Transition report pursuant to Section 13 or 15(d) of the Securities
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Exchange Act of 1934
For the transition period from _________________ to _________________
Commission File Number 0-14677
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DSP TECHNOLOGY INC.
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(Exact name of registrant as specified in its charter)
CALIFORNIA 94-2832651
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(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification Number
48500 KATO RD., FREMONT, CA 94538
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(Address of principal executive offices) (Zip Code)
(510) 657-7555
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(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
YES NO
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APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate number of shares outstanding of each of the issuer's classes of common
stock, at the latest practical date:
CLASS OUTSTANDING AS OF SEPTEMBER 8, 1995
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COMMON STOCK 2,109,465
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DSP TECHNOLOGY INC. AND SUBSIDIARIES
TABLE OF CONTENTS
FORM 10-Q
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets -
July 31, 1995 and January 31, 1995 3
Consolidated Statements of Income -
Three months and six months ended July 31, 1995 and 1994 4
Consolidated Statements of Cash Flows -
Six months ended July 31, 1995 and 1994 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K. 8
Signatures 9
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DSP TECHNOLOGY INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
July 31, January 31,
1995 1995
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<S> <C> <C>
ASSETS (Unaudited)
Current assets:
Cash $ 2,345 $ 1,334
Accounts receivable 2,056 3,003
Inventories 2,162 1,807
Deferred income taxes 257 257
Prepaid expenses 126 120
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Total current assets 6,946 6,521
Property and equipment 1,021 972
Cost in excess of net assets of acquired
business 424 445
Other assets 852 806
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$ 9,243 $ 8,744
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 606 $ 562
Accrued liabilities 1,422 1,399
Income taxes payable 302 370
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Total current liabilities 2,330 2,331
Deferred income taxes 145 145
Commitments and contingencies -- --
Shareholders' equity:
Preferred stock. Authorized 2,500,000 shares;
none issued -- --
Common stock. 25,000,000 shares authorized;
shares issued and outstanding: 2,109,465 at
July 31 and 2,106,765 at January 31 2,815 2,767
Retained earnings 3,953 3,501
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Total shareholders' equity 6,768 6,268
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$ 9,243 $ 8,744
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</TABLE>
The accompanying notes are an integral part of these financial statements.
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DSP TECHNOLOGY INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
July 31, July 31,
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1995 1994 1995 1994
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<S> <C> <C> <C> <C>
Net sales $ 3,602 $ 2,971 $ 6,813 $ 5,621
Cost of sales 1,342 1,144 2,580 2,268
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Gross profit 2,260 1,827 4,233 3,353
Operating expenses:
Research and development 545 395 1,002 757
Marketing, general and administrative 1,291 1,144 2,561 2,197
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1,836 1,539 3,563 2,954
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Operating income 424 288 670 399
Interest income 31 7 63 21
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Income before income taxes 455 295 733 420
Income taxes 176 121 281 166
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Net income $ 279 $ 174 $ 452 $ 254
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Net income per common and common
equivalent share $ .12 $ .08 $ .20 $ .12
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------- ------- ------- -------
Weighted average common and common
equivalent shares outstanding 2,342 2,175 2,315 2,175
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</TABLE>
The accompanying notes are an integral part of these financial statements.
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DSP TECHNOLOGY INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands)
<TABLE>
<CAPTION>
Six months ended
July 31,
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1995 1994
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(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 452 $ 254
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 294 225
Changes in current assets and liabilities:
Accounts receivable 947 (684)
Inventories (355) (573)
Prepaid expenses (6) 122
Accounts payables 44 205
Accrued liabilities 23 287
Income taxes payable (68) 56
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Net cash provided by (used in) operating activities 1,331 (108)
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Cash flows from investing activities:
Purchases of property and equipment (279) (100)
Investment in software development (62) (100)
Purchase of Applion technology -- (368)
Other (27) 6
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Net cash (used in) investing activities (368) (562)
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Cash flows from financing activities:
Proceeds from issuance of common stock 48 2
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Net cash provided by financing activities 48 2
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Increase (decrease) in cash 1,011 (668)
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Cash at beginning of period 1,334 1,109
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Cash at end of period $ 2,345 $ 441
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Supplemental disclosure of cash flow information:
Cash paid during period for income taxes $ 285 $ --
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</TABLE>
The accompanying notes are an integral part of these financial statements.
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DSP TECHNOLOGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION.
The accompanying consolidated financial statements have been prepared,
without audit, in accordance with Securities and Exchange Commission
requirements for interim financial statements. Therefore, they do not
include all the disclosures that would be presented in the Company's Annual
Report on Form 10-K. The financial statements should be read in
conjunction with the Company's January 31, 1995 financial statements and
accompanying notes thereto.
The information furnished reflects all adjustments (consisting only of
normal recurring adjustments) that are, in the opinion of management,
necessary for a fair presentation of financial position, results of
operations and cash flows for the interim period. The results of
operations for the periods presented are not necessarily indicative of
results to be expected for the full year.
2. INVENTORIES. Inventories are stated at the lower of cost (first-in, first-
out) or market. Inventories consist of:
<TABLE>
<CAPTION>
July 31, January 31,
1995 1995
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(thousands)
<S> <C> <C>
Raw materials $1,046 $ 975
Work in process 593 440
Finished goods 523 392
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$2,162 $1,807
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</TABLE>
3. ACQUISITION OF APPLION. In June 1994, the company acquired substantially
all the assets of Applion, a start-up California partnership for $420,000.
The operating results of Applion are included in the consolidated
statements of income since the date of acquisition and have not been
material to consolidated operations.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Net sales for the second quarter of fiscal 1996 ended July 31, 1995
increased by $631,000 or 21% to $3,602,000 from $2,971,000 in the second quarter
of fiscal 1995 ended July 31, 1994. Net sales for the first six months of
fiscal 1996 were $6,813,000 or 21% higher than net sales of $5,621,000 in the
first six months of fiscal 1995. The increases were due to continued higher
shipments of the company's core products brought about by a higher shippable
sales backlog at the beginning of the first and second quarters this year
compared to the same periods last year.
Cost of sales as a percentage of net sales decreased to 37% in this year's
second quarter from 39% in the same period last year. Cost of sales as a
percentage of net sales also decreased to 38% in the first half of fiscal 1996
compared to 40% in the first half of fiscal 1995. The decreases reflect the
positive effect of the economies of scale resulting from higher volume
production this year compared to last year.
Research and development expenses increased by $150,000 to $545,000 in the
second quarter this year compared to $395,000 in the same period last year while
expenses in the first half of this year increased by $245,000 to $1,002,000 from
$757,000 in the first half of fiscal 1995. The increases in expenses resulted
primarily from the higher capitalization of the dynamometer control software
development costs last year compared to this year and higher expenses due to
additions in personnel this year compared to last year.
Marketing, general and administrative expenses in the second quarter of
fiscal 1995 increased by $147,000 or 13% to $1,291,000 compared to the same
period a year ago. Expenses in the first six months of this year increased by
$364,000 to $2,561,000 from $2,197,000 last year. As a percentage of sales,
however, expenses decreased to 36% in this year's second quarter compared to 39%
in last year's second quarter, and to 38% in the first half of this year from
39% in the same period last year. The higher expenses were principally due to
higher expenses associated with a major trade show, higher sales expenses and
increased legal expenses associated with a strategic alliance formation.
Net interest income was $31,000 in this year's second quarter compared to
$7,000 last year and $63,000 in the first half versus $21,000 in the same period
last year. Higher interest incomes reflect higher available cash invested in
interest-bearing accounts this year compared to the same period last year.
The effective tax rate computed were 41% for the second quarter and 40% for
the first half this year compared to 37% and 38% for the second quarter and
first half last year, respectively. The company reviews the tax rate quarterly
and could make minor adjustments to reflect changing estimates.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Large system orders represent an increasingly large percentage of the
Company's sales. Also, sales of such systems have been concentrated in a
relatively small number of customers. The Company did not receive a large system
order in the first half this year while last year, the first half sales and
orders benefited from receipt of two major system contracts totaling
approximately $ 3.6 million which were delayed from the previous year. Hence,
the Company's
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operating results may fluctuate, especially when measured on a quarterly basis,
as a result of the timing of receipt of major system orders.
The Company's future operating results may also be affected by a number of
factors, including: its ability to introduce new products and enhancements for
its customers as demands for increasingly sophisticated measurement and control
systems continue; uncertainties relative to global economic conditions, the
Company's ability to withstand competition particularly from several companies
that are much larger in size than the Company; natural disasters, particularly
earthquakes which may strike the California area where the Company's
headquarters and manufacturing facility are located; and availability and cost
of components for its products.
LIQUIDITY AND CAPITAL RESOURCES
Cash increased by $1,011,000 during the six month period ended July 31,
1995. The primary use of the Company's cash in fiscal 1996 has been the
purchase of capital equipment used to equip additional personnel.
Working capital at July 31, 1995 was $4,616,000 compared to $4,190,000 at
the beginning of the fiscal year, while the current ratios stood at 3.0 to 1.0
at July 31, 1995 and at 2.8 to 1.0 at January 31, 1995. At July 31, 1995, the
Company has a $1,000,000 secured bank line of credit. The Company currently
anticipates that internally generated funds and bank borrowings will be
sufficient to satisfy its anticipated operating and capital needs over the
foreseeable future.
At July 31, 1995, the Company had no material outstanding commitments to
purchase capital equipment. Management believes that inflation has not had a
material effect on the Company's operations or financial condition.
Part II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Shareholders was held on June 12, 1995.
There were 2,109,465 shares outstanding on May 1, 1995, the date of record.
There were 2,013,652 shares represented at the meeting in person or by proxy.
All director candidates were elected with no director candidate receiving
fewer than 1,995,000 votes.
The proposal to increase the number of shares of the Company's Common Stock
reserved for issuance under its 1991 Stock Option Plan by 210,000 from 608,327
to 818,327 was approved. Total votes counted were 964,074 shares with 722,309
shares or 75% of total votes for, 224,485 or 23% against and 17,280 or 2%
abstaining.
The appointment of Grant Thornton as the independent accountants of the
Company for the fiscal year ending January 31, 1996 was ratified with 2,001,252
votes for, 7,800 against, and 4,600 abstaining.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits: None.
B. Reports on Form 8-K: None.
9
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DSP TECHNOLOGY INC.
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(Registrant)
By: /s/ Jose M. Millares
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Jose M. Millares
Chief Financial Officer
Date: September 12, 1995
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<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-START> FEB-01-1995
<PERIOD-END> JUL-31-1995
<CASH> 2,345
<SECURITIES> 0
<RECEIVABLES> 2,106
<ALLOWANCES> 50
<INVENTORY> 2,162
<CURRENT-ASSETS> 6,946
<PP&E> 3,246
<DEPRECIATION> 2,225
<TOTAL-ASSETS> 9,243
<CURRENT-LIABILITIES> 2,330
<BONDS> 0
<COMMON> 2,815
0
0
<OTHER-SE> 3,953
<TOTAL-LIABILITY-AND-EQUITY> 9,243
<SALES> 6,813
<TOTAL-REVENUES> 6,813
<CGS> 2,580
<TOTAL-COSTS> 2,580
<OTHER-EXPENSES> 3,563
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 733
<INCOME-TAX> 281
<INCOME-CONTINUING> 432
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 432
<EPS-PRIMARY> .20
<EPS-DILUTED> .20
</TABLE>
