<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
- ---- Act of 1934
For the quarterly period ended OCTOBER 31, 1995 or
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Transition report pursuant to Section 13 or 15(d) of the Securities
- ---- Exchange Act of 1934
For the transition period from to
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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 NOVEMBER 13, 1995
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COMMON STOCK 2,154,463
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DSP TECHNOLOGY INC. AND SUBSIDIARIES
TABLE OF CONTENTS
FORM 10-Q
Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets -
October 31, 1995 and January 31, 1995 3
Consolidated Statements of Income -
Three months and nine months ended October 31, 1995
and 1994 4
Consolidated Statements of Cash Flows -
Nine months ended October 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 6. Exhibits and Reports on Form 8-K. 8
Signatures 9
2
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DSP TECHNOLOGY INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
October 31, January 31,
1995 1995
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ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash $ 2,343 $ 1,334
Accounts receivable 2,131 3,003
Inventories 2,561 1,807
Deferred income taxes 257 257
Prepaid expenses 146 120
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Total current assets 7,438 6,521
Property and equipment 950 972
Cost in excess of net assets of acquired
business 413 445
Other assets 887 806
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$ 9,688 $ 8,744
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 810 $ 562
Accrued liabilities 987 1,399
Income taxes payable 501 370
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Total current liabilities 2,298 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: 2,153,963 at
October 31 and 2,106,765 at January 31 2,917 2,767
Retained earnings 4,328 3,501
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Total shareholders' equity 7,245 6,268
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$ 9,688 $ 8,744
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</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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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 Nine months ended
October 31, October 31,
-------------------------- ---------------------------
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 4,215 $ 3,545 $ 11,028 $ 9,166
Cost of sales 1,655 1,388 4,235 3,656
-------- -------- -------- --------
Gross profit 2,560 2,157 6,793 5,510
Operating expenses:
Research and development 621 572 1,623 1,329
Marketing, general and administrative 1,357 1,117 3,918 3,314
-------- -------- -------- --------
1,978 1,689 5,541 4,643
-------- -------- -------- --------
Operating income 582 468 1,252 867
Interest income 32 15 95 36
-------- -------- -------- --------
Income before income taxes 614 483 1,347 903
Income taxes 239 193 520 359
-------- -------- -------- --------
Net income $ 375 $ 290 $ 827 $ 544
-------- -------- -------- --------
-------- -------- -------- --------
Net income per common and common
equivalent share $ .16 $ .13 $ .36 $ .25
-------- -------- -------- --------
-------- -------- -------- --------
Weighted average common and common
equivalent shares outstanding 2,357 2,189 2,329 2,180
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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DSP TECHNOLOGY INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands)
<TABLE>
<CAPTION>
Nine months ended
October 31,
---------------------
1995 1994
-------- ------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 827 $ 544
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 501 327
Changes in current assets and liabilities:
Accounts receivable 872 (1,143)
Inventories (754) (786)
Prepaid expenses (26) 253
Accounts payables 248 164
Accrued liabilities (412) 344
Income taxes payable 131 77
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Net cash provided by (used in) operating activities 1,387 (220)
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Cash flows from investing activities:
Purchases of property and equipment (343) (217)
Investment in software development (117) (100)
Purchase of Applion technology -- (368)
Other (68) 110
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Net cash (used in) investing activities (528) (575)
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Cash flows from financing activities:
Proceeds from issuance of common stock 150 4
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Net cash provided by financing activities 150 4
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Increase (decrease) in cash 1,009 (791)
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Cash at beginning of period 1,334 1,109
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Cash at end of period $ 2,343 $ 318
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Supplemental disclosure of cash flow information:
Cash paid during period for income taxes $ 433 $ 166
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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>
October 31, January 31,
1995 1995
----------- -----------
(thousands)
<S> <C> <C>
Raw materials $ 1,229 $ 1,040
Work in process 667 405
Finished goods 665 466
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$ 2,561 $ 1,911
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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.
6
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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 third quarter of fiscal 1996 ended October 31, 1995
increased by $670,000 or 19% to $4,215,000 from $3,545,000 in the quarter of
fiscal 1995 ended October 31, 1994. For the first nine months of fiscal 1996,
net sales were $11,028,000 or 20% higher than net sales of $9,166,000 in the
first nine 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 each of the quarters this year compared to the
same periods last year.
Cost of sales as a percentage of net sales remained at 39% in this year's
second quarter from the same period last year. Cost of sales as a percentage of
net sales decreased to 38% in the first nine months of fiscal 1996 compared to
39% in the first nine months of fiscal 1995. The decrease in the first nine
months reflect the positive effect of the economies of scale resulting from
higher volume production this year compared to last year. In the third quarter,
these economies were offset by higher revenues derived from lower margin
services.
Research and development expenses increased by $49,000 to $621,000 in the
third quarter this year compared to $572,000 in the same period last year while
expenses in the first three quarters of this year increased by $294,000 to
$1,623,000 from $1,329,000 in the first nine months 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 third quarter of
fiscal 1996 increased by $240,000 or 21% to $1,357,000 compared to the same
period a year ago. Expenses in the first nine months of this year increased by
$604,000 to $3,918,000 from $3,3,14,000 last year. As a percentage of sales,
however, expenses remained unchanged at 32% in this year's third quarter
compared to last year's second quarter, and at 36% in the first nine months of
this year from the same period last year. The increases 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 $32,000 in this year's third quarter compared to
$15,000 last year and $95,000 in the first nine months versus $36,000 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 rates computed were 39% for the third quarter and for the
first nine months this year compared to 40% for the third quarter and first nine
months last year, respectively. The company reviews the tax rate quarterly and
could make minor adjustments to reflect changing estimates.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and certificates of deposits increased by $1,009,000
during the nine month period ended October 31, 1995. The primary use of the
Company's cash in the first nine months of fiscal 1996 has been the purchase of
capital equipment used to equip additional personnel and to fund new software
product development.
Working capital at October 31, 1995 was $5,140,000 compared to $4,190,000
at the beginning of the fiscal year, while the current ratios stood at 3.2 to
1.0 at October 31, 1995 and at 2.8 to 1.0 at January 31, 1995. The Company has
a $1,000,000 secured bank line of credit.
7
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Based on its current operating plan, the Company believes that the
liquidity provided by cash generated from operations, its existing cash and
short-term investments and the borrowing arrangements described above, will be
sufficient to meet the Company's operating and capital requirements for fiscal
1996.
At October 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.
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 nine months this year while last year, the first nine
months 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 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.
Part II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits: None.
B. Reports on Form 8-K: None.
8
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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
--------------------------
Jose M. Millares
Chief Financial Officer
Date: November 15, 1995
9
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<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-START> FEB-01-1995
<PERIOD-END> OCT-31-1995
<CASH> 2,343
<SECURITIES> 0
<RECEIVABLES> 2,181
<ALLOWANCES> 50
<INVENTORY> 2,561
<CURRENT-ASSETS> 7,438
<PP&E> 3,311
<DEPRECIATION> 2,361
<TOTAL-ASSETS> 9,688
<CURRENT-LIABILITIES> 2,298
<BONDS> 0
<COMMON> 2,917
0
0
<OTHER-SE> 4,328
<TOTAL-LIABILITY-AND-EQUITY> 9,688
<SALES> 11,028
<TOTAL-REVENUES> 11,028
<CGS> 4,235
<TOTAL-COSTS> 4,235
<OTHER-EXPENSES> 5,541
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,347
<INCOME-TAX> 520
<INCOME-CONTINUING> 827
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 827
<EPS-PRIMARY> .36
<EPS-DILUTED> .36
</TABLE>
