<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 JULY 31, 1996 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:
<TABLE>
<CAPTION>
CLASS OUTSTANDING AS OF SEPTEMBER 13, 1996
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<S> <C>
COMMON STOCK 2,179,962
</TABLE>
1
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DSP TECHNOLOGY INC. AND SUBSIDIARIES
TABLE OF CONTENTS
FORM 10-Q
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Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets -
July 31, 1996 and January 31, 1996 3
Consolidated Statements of Income -
Three months and six months ended July 31, 1996 and 1995 4
Consolidated Statements of Cash Flows -
Six months ended July 31, 1996 and 1995 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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2
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DSP TECHNOLOGY INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
July 31, January 31,
1996 1996
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(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and certificates of deposit $ 867 $ 2,015
Accounts receivable 4,905 3,302
Inventories 2,381 2,195
Deferred income taxes 257 257
Prepaid expenses 190 155
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Total current assets 8,600 7,924
Property and equipment 1,330 1,044
Cost in excess of net assets of acquired
business 383 403
Other assets 1,171 923
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$11,484 $10,294
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 392 $ 459
Accrued liabilities 2,285 1,371
Income taxes payable 524 622
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Total current liabilities 3,201 2,452
Deferred income taxes 145 144
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: 2,160,963 at
July 31 and 2,154,463 at January 31 2,932 2,920
Retained earnings 5,206 4,778
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Total shareholders' equity 8,138 7,698
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$11,484 $10,294
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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 Six months ended
July 31, July 31,
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1996 1995 1996 1995
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<S> <C> <C> <C> <C>
Net sales $4,411 $3,602 $8,186 $6,813
Cost of sales 1,900 1,342 3,438 2,580
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Gross profit 2,511 2,260 4,748 4,233
Operating expenses:
Research and development 573 545 1,069 1,002
Marketing, general and administrative 1,647 1,291 3,122 2,561
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2,220 1,836 4,191 3,563
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Operating income 291 424 557 670
Interest income 40 31 82 63
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Income before income taxes 331 455 639 733
Income taxes 104 176 211 281
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Net income $ 227 $ 279 $ 428 $ 452
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Net income per common and common
equivalent share $ .10 $ .12 $ .19 $ .20
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Weighted average common and common
equivalent shares outstanding 2,309 2,342 2,312 2,315
====== ====== ====== ======
</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>
Six months ended
July 31,
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1996 1995
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(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 428 $ 452
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 337 294
Changes in current assets and liabilities:
Accounts receivable (1,603) 947
Inventories (186) (355)
Prepaid expenses (35) (6)
Accounts payables (67) 44
Accrued liabilities 914 23
Income taxes payable (98) (68)
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Net cash provided by (used in) operating activities (310) 1,331
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Cash flows from investing activities:
Purchases of property and equipment (515) (279)
Investment in software development (285) (62)
Other (50) (27)
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Net cash (used in) investing activities (850) (368)
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Cash flows from financing activities:
Proceeds from issuance of common stock 12 48
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Net cash provided by financing activities 12 48
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Increase (decrease) in cash (1,148) 1,011
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Cash at beginning of period 2,015 1,334
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Cash at end of period $ 867 $2,345
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Supplemental disclosure of cash flow information:
Cash paid during period for income taxes $ 270 $ 286
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</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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DSP TECHNOLOGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation.
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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, 1996 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-
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out) or market. Inventories consist of:
<TABLE>
<CAPTION>
July 31, January 31,
1996 1996
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(thousands)
<S> <C> <C>
Raw materials $1,316 $1,247
Work in process 639 492
Finished goods 426 456
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$2,381 $2,195
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6
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
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of Operations
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This section of the report contains forward-looking statements regarding
the Company's expected growth and enhanced future performance. All forward-
looking statements are subject to risk and actual results could differ
materially from those projected in the forward-looking statements as a result of
many factors which are set forth below.
Results of Operations
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Net sales for the second quarter of fiscal 1997 ended July 31, 1996
increased by $809,000 or 22% to $4,411,000 from $3,602,000 in the second quarter
of fiscal 1996 ended July 31, 1995. Net sales for the first six months of
fiscal 1997 were $8,186,000 or 20% higher than net sales of $6,813,000 in the
first six months of fiscal 1996. The increases were due to continued strong
demand for the company's RedLine test cell products.
Cost of sales as a percentage of net sales increased to 43% in this year's
second quarter from 37% in the same period last year. Cost of sales as a
percentage of net sales also increased to 42% in the first half of fiscal 1997
compared to 38% in the first half of fiscal 1996. The increases primarily
reflect the expansion of the service staff to increase the company's capacity to
build, install and commission RedLine products. These new personnel were
brought on-board ahead of time to support expected growth in this area.
Research and development expenses increased by $28,000 to $573,000 in the
second quarter this year compared to $545,000 in the same period last year while
expenses in the first half of this year increased by $67,000 to $1,069,000 from
$1,002,000 in the first half of fiscal 1996. The slight increases in expenses
resulted primarily from the ramp up of joint new product development with FEV,
the Company's strategic ally in Germany and offset by higher capitalization of
software development costs in this year's first half.
Marketing, general and administrative expenses in the second quarter of
fiscal 1997 increased by $356,000 or 28% to $1,647,000 compared to the same
period a year ago. Expenses in the first six months of this year increased by
$561,000 to $3,122,000 from $2,561,000 last year. As a percentage of sales,
however, expenses remained consistent with last year's expenses for both the
second quarter and first half of the year. The higher expenses were principally
due to the addition of new sales and marketing personnel to help deal with the
current and expected future increase in sales activity level.
Net interest income was $40,000 in this year's second quarter compared to
$31,000 last year and $82,000 in the first half compared to $63,000 in the same
period last year. Higher interest incomes reflect higher available cash
invested in interest-bearing accounts at higher interest rates this year
compared to the same period last year.
The effective tax rate computed were 31% for the second quarter and 33% for
the first half this year compared to 39% and 38% for the second quarter and
first half last year, respectively. The lower tax rates this year reflect the
increased profit contributions of the company's UK subsidiary which benefits
from a lower tax rate. The company reviews the tax rate quarterly and could
make minor adjustments to reflect changing estimates.
7
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Liquidity and Capital Resources
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Cash decreased by $1,148,000 during the six month period ended July 31,
1996. The decrease was due to the increase in accounts receivable brought about
by high shipments in the last month of the period. The primary use of the
Company's cash in the first half of fiscal 1996 has been: a) the purchase of
capital equipment used to equip additional personnel and to upgrade our
information systems capabilities, and b) investment in software development.
Working capital at July 31, 1996 was $5,399,000 compared to $5,472,000 at
the beginning of the fiscal year, while the current ratios stood at 2.7 to 1.0
at July 31, 1996 and at 3.2 to 1.0 at January 31, 1996. At July 31, 1996, 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, 1996, 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
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The Company's future operating results may be affected by a number of
factors, including: its ability to successfully introduce new products, services
and enhancements for its customers as demands for increasingly sophisticated
measurement and control systems and turnkey solutions continue; timing of
receipt of major system orders; product mix; 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.
At the end of last fiscal year, management made a strategic decision to
focus on the services side of our transportation market business. These
services include systems integration, project management, commissioning and
installation and coupled with our RedLine products, will allow us to fuel our
growth in the transportation market by providing one stop shopping to our
customers. These services provide us the capability to provide turnkey systems
where they are required. Hence, we have invested in system integration,
installation and commissioning staff during the first half of the year.
However, the introduction of these services raises several risk factors.
Specifically, the success depends on the time it takes for these personnel and
future staff to come up to speed on our products, customers and the services
they will provide; market acceptance of the services and pricing; and efficient
use of these resources.
Part II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
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The Company's Annual Meeting of Shareholders was held on June 24, 1996.
There were 2,159,963 shares outstanding on May 17, 1996, the date of record.
There were 1,894,263 shares represented at the meeting in person or by proxy.
8
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All director candidates were elected with no director candidate receiving
fewer than 1,827,000 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 100,000 from 818,327
to 918,327 was approved. Total votes counted were 1,894,263 shares with
1,574,748 shares or 83% of total votes for, 312,915 or 17% against and 6,600 or
0% abstaining.
The appointment of Grant Thornton as the independent accountants of the
Company for the fiscal year ending January 31, 1997 was ratified with 1,884,303
votes for, 6,750 against, and 3,210 abstaining.
Item 6. Exhibits and Reports on Form 8-K
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A. Exhibits: Exhibit 27 -- Financial Data Schedule
B. Reports on Form 8-K: None.
9
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SIGNATURES
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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 16, 1996
10
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<PAGE>
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> FEB-01-1996
<PERIOD-END> JUL-31-1996
<CASH> 867
<SECURITIES> 0
<RECEIVABLES> 4,955
<ALLOWANCES> 50
<INVENTORY> 2,381
<CURRENT-ASSETS> 8,600
<PP&E> 4,004
<DEPRECIATION> 2,674
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0
0
<COMMON> 2,932
<OTHER-SE> 5,206
<TOTAL-LIABILITY-AND-EQUITY> 11,484
<SALES> 8,186
<TOTAL-REVENUES> 8,186
<CGS> 3,438
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<OTHER-EXPENSES> 4,191
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