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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- --- ACT OF 1934
For the Fiscal Year Ended January 31, 1997 or
- --- TRANSITION REPORT PURSUANT TO SECTION 14 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from________to_______________________
Commission File Number 0-14677
DSP TECHNOLOGY INC.
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-2832651
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
48500 KATO ROAD, FREMONT, CALIFORNIA 94538
(Address of principal executive offices, zip code)
Registrant's telephone number, including area code: (510) 657-7555
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, WITHOUT PAR VALUE
(Title of Class)
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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. X
---
The aggregate market value of registrant's voting Common Stock held by non-
affiliates of the registrant was approximately $9,710,000 (based on the closing
sales price of the Company's Common Stock at April 25, 1997 as reported by
NASDAQ). Shares of Common Stock held by each officer and director and by each
person who owns more than 5% of the Company's Common Stock have been excluded
because such persons may be deemed to be affiliates. This is not intended to be
a conclusive determination of affiliate status for any other purposes. The
number of shares outstanding of the registrant's Common Stock at April 25, 1997
was 2,180,962.
DOCUMENTS INCORPORATED BY REFERENCE:
Information in Part III is incorporated by reference to the Proxy Statement
for the Company's 1997 Annual Meeting of Shareholders which is to be filed with
the Securities and Exchange Commission before May 10, 1997.
This report (including exhibits) contains 33 pages. The Index to Exhibits
begins on page 25 of this report.
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PART I
ITEM 1: BUSINESS
This report contains forward-looking statements identified by use of the
words "expects," "anticipates," "believes," or other similar. Actual results
could differ materially from those projected in the forward-looking statements
as a result of competition, technological change and other risks detailed in
Item 7, Management's Discussion and Analysis of Financial Condition and Results
of Operations--Factors that May Affect Future Results".
INTRODUCTION
The Company designs, develops, manufactures and markets high-speed
computer-automated instrumentation for measurement and control applications in
three major areas: powertrain testing, vehicle safety and component testing, and
general data acquisition and signal analysis. The transportation industry is
currently its largest market, while the Company continues to market products to
aerospace companies, universities and government-funded agencies.
The Company's products are used by engineers and scientists to gather and
measure analog signals generated by transducers and/or detectors which measure
physical properties such as temperature, pressure, acceleration and radiation.
These products have been used in the transportation industry in applications as
diverse as powertrain dynamometer control, automotive combustion research, and
vehicle impact testing. Aerospace companies, universities and government-funded
agencies, on the other hand, use the Company's products in ultrasonics, chemical
kinetics, plasma diagnostics, spectroscopy, fusion research, explosives testing,
and vibration analysis.
In June 1994, the Company acquired substantially all the assets including
the technology of Applion, a California partnership, for $420,000 cash. The
acquisition supported the Company's corporate strategy to become a leading
supplier of high-speed data acquisition and control instrumentation. Applion's
products complemented the Company's sales of integrated turnkey systems with
what the Company believed will be a higher unit-volume, lower unit-price product
line. See "Products--SigLab."
In February 1995, the Company entered into a strategic alliance agreement
with FEV Motorentechnik GmbH & CO KG ("FEV"). The purpose of the alliance is to
develop and distribute test instrumentation and control products for the
transportation industry. FEV is a privately-held company based in Aachen,
Germany, and is a leader in complete engine and powertrain research and
development and instrumentation for the transportation industry.
DSP Technology Inc. (the "Company") was incorporated in California in July
1982 and commenced operations in May 1984. All references in this report to the
"Company" and "DSPT" refer to DSP Technology Inc. and its wholly-owned
subsidiaries.
STRATEGY
The Company has been committed to broadening its market to expand its
potential for revenue growth in its largest market, the transportation industry.
As the Company's customer base and sales of Transportation Group products
expanded, however, it found that its large domestic and international customers
demand more custom turnkey solutions that require more complex services. The
Company believes that investments in this area are necessary and logical step
towards expanding its share of the transportation market.
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To address its transportation industry customers' needs, the Company
announced its strategic decision, in the beginning of fiscal 1997, to focus more
heavily and expand on the services side of the business this year. The Company,
therefore, invested heavily this year in developing significant service
capabilities in the areas of custom manufacturing, system integration, project
engineering and management, installation and commissioning. These services are
offered as part of the sale of our transportation products, allowing the Company
to provide "one-stop shopping" to its customers.
The Company also invested in new sales and marketing personnel to support
the expected growth in sales and marketing activity. The added personnel were
hired three to six months in advance of the revenue opportunities to permit
formal and on-the-job training in the Company's products and processes. Hence,
fiscal 1997 was a transition period to ramp-up for expected future long-term
growth.
PRODUCTS AND CUSTOMERS
The Company manufactures and markets data acquisition and control products
in the form of integrated systems, modules and software. These products are
categorized into three application areas: powertrain testing, vehicle safety and
component testing, and general data acquisition and signal analysis.
POWERTRAIN TESTING PRODUCTS:
----------------------------
Powertrain testing is one of the most critical disciplines in the
transportation industry. DSPT supplies a wide range of products and services
for powertrain test cells. DSPT's RedLine products are accepted as standards by
leading automakers around the world. These systems help its customers develop
better engines and more efficient fuels. By integrating hardware, software,
services and expertise into a cost-effective system, DSPT creates solutions that
focus on its customers' specific needs. These solutions, based on industry
standards, provide long-term flexibility for changing test requirements. The
Company's major customers in the transportation market are General Motors
("GM"), Waukesha Engine, FEV, Lubrizol Corporation, Lotus Engineering, Ltd.,
Hyundai Motor and Chrysler Corporation.
RedLine Data Acquisition and Control System ("RedLine ADAPT"). The data
--------------------------------------------------------------
acquisition and control system is the most crucial component in a powertrain
test cell. RedLine ADAPT combines the latest VME/VXIbus-based electronics with
processing power, accuracy and flexibility into a system that can improve all
phases of test cell operations. All of these features are controlled through a
convenient windows-based graphical user interface. The systems sell from
$30,000 for a base system up to $500,000 with accessory products, hardware
spares, custom software, integration, installation and training.
RedLine Advanced Combustion Analyzer ("RedLine ACAP"). RedLine ACAP is the
------------------------------------------------------
only combustion analysis system that combines powerful hardware for data
acquisition with a Windows-based user interface. The system can calculate,
display and log numerous combustion parameters, all in real-time, on a cycle-by-
cycle basis for each cylinder. It is a modular solution that allows users to
begin with a cost-effective system and expand capacity as needed. The systems
range in price from about $30,000 for a base system to over $150,000.
Test Cell Instrumentation and Accessory Products. The Company provides
-------------------------------------------------
various test cell instrumentation and support products as integral parts of
RedLine ACAP and RedLine ADAPT installations. These off-the-shelf solutions
include the RedLine CONNECT signal interface system, lubricant conditioners and
containerized powertrain test cells. It also provides accessory products such
as swing boom assemblies, engine mounting stands and portable cooling fans.
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Customer Support Service ("RedLine ASSIST"). RedLine ASSIST is a
--------------------------------------------
comprehensive after-sale customer support package that includes two-way video
linkage between the customer and the Company's support technicians, plus on-line
interactive sharing of application software. This combination of product and
service assures remote, real-time troubleshooting of customers' systems.
Test Cell Services. As noted in the Strategy section, the Company invested
-------------------
heavily in expanding its services capabilities in its Transportation Group this
year. These services personnel work in close partnership with its customers to
design, install and service a wide variety of powertrain test facilities. In
the planning phase, project and applications engineers work closely with
customers' selected contractors to design and integrate complex systems and
facilities that will meet their needs. During installation, our installers and
commissioning engineers work with the customer to ensure timely completion and
thorough testing of all equipment.
VEHICLE SAFETY AND COMPONENT TESTING PRODUCTS.
----------------------------------------------
IMPAX Data Acquisition Systems ("IMPAX"). IMPAX is a system typically used
-----------------------------------------
in collecting and processing data from full-scale vehicle crash tests, sled
simulators and component test stands. In addition, they have been used for
investigating lift-off dynamics for TITAN IV launch vehicles. Systems prices
range from about $150,000 to $600,000 depending on the configuration. Major
customers for this product are Calspan and Morton International.
GENERAL DATA ACQUISITION AND SIGNAL ANALYSIS PRODUCTS.
------------------------------------------------------
Signal Acquisition Products ("SigLab"). SigLab high-performance signal
---------------------------------------
acquisition products are subsystems for personal computers and workstations in
the electro-mechanical device analysis market. SigLab products provide a cost-
effective, portable technology for measurement applications like computer hard
disk head positioning or acoustic noise suppression systems in automobiles. The
products are controlled by and integrated with the MATLAB software from The
MathWorks Inc., of Natick, Massachusetts. The products range in price from $
5,000 for a base 2-channel unit to $21,000 for an 8-channel system with optional
software and additional memory. Major customers for these products are
distributors such as Signaltech, Hutchinson Technology, Sigmatest and Toyo
Corporation.
Custom Data Acquisition Systems. The Company also designs custom systems
--------------------------------
for customer-specific measurement or control applications. These systems are
configured from the Company's line of modules, such as, signal conditioners,
transient recorders, analog-to-digital converters and interface modules. These
systems are typically sold to universities, government-funded labs and research
and development labs. The typical selling price of a system ranges from about
$25,000 to about $300,000 for a complex installation. Major customers for these
products are Westinghouse Electric and Aberdeen Proving Grounds.
MANUFACTURING AND SUPPLIERS
The Company manufactures its products from components and prefabricated
parts such as integrated circuits, printed circuit boards, power supplies, and
enclosures manufactured by others. Manufacturing operations consist of assembly
of printed circuit boards, power supplies, and crates, system integration and
final testing. Materials and components used by the Company in manufacturing
are available primarily from domestic sources. Where possible, the Company buys
from multiple sources to avoid dependence on any single supplier. However,
certain custom analog devices are only available from a limited number of
suppliers.
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MARKETING AND SALES
In the United States, the Company primarily sells and services its products
through its own sales and service organizations located in Michigan and
California. In Canada, Western Europe, Korea and Japan, the Company sells its
products through independent distributors through whom the Company provides
technical and administrative assistance. In the United Kingdom, the Company
operates a sales and customer support subsidiary for its powertrain testing
products. The Company's standard terms of sale generally require payment within
30 days of shipment.
GM accounted for 18% of net sales in fiscal 1997. GM accounted for 11% of
net sales in fiscal 1996 while three separate customers accounted for 10% or
more of net sales in fiscal 1995 as follows: AVL for 19%, GM for 14% and Ford
for 12%. No other customer accounted for 10% or more of the Company's net sales
in fiscal years 1997, 1996 or 1995.
Export sales, primarily to the United Kingdom, Western Europe, and the Far
East, accounted for approximately 32%, 18%, and 18% of sales in 1997, 1996, and
1995, respectively (See Note K of Notes to Consolidated Financial Statements).
At January 31, 1997 the Company had an order backlog of approximately
$9,500,000, compared to a backlog of approximately $4,900,000 at January 31,
1996, and approximately $5,400,000 at January 31, 1995. Backlog consists of
orders believed by management to be firm and scheduled for delivery within six
months. However, most orders can be rescheduled or canceled by customers
without significant penalty. In addition, backlog is dependent on the timing of
orders, and on seasonal spending for capital requirements. Accordingly, backlog
at January 31, 1997, or at any other date, may not be indicative of prospective
sales.
SERVICE AND WARRANTY
The Company maintains a telephone "hotline" staffed with qualified
technicians to respond to service calls. Most servicing is performed at its
facilities in Fremont, California and Ann Arbor, Michigan.
The Company generally extends a one year warranty for its products. Warranty
costs have been nominal to date.
RESEARCH AND DEVELOPMENT
The Company's ability to compete successfully in an industry subject to
rapid technological change depends on, among other things, its ability to
anticipate and respond to such change. Accordingly, the Company is committed to
a high level of research and development activity. The Company incurred
expenditures for research and development of $2,203,000 in fiscal 1997,
$2,250,000 in fiscal 1996, and $1,842,000 in fiscal 1995, representing 12%, 14%,
and 14%, of total sales in each such period. In accordance with the Statement of
Financial Accounting Standards No. 86 which requires the capitalization of
software development costs incurred subsequent to establishment of the
technological feasibility of producing the finished software product, the
Company capitalized $630,000, $322,000, and $100,000, in fiscals 1997, 1996 and
1995, respectively.
There can be no assurance that customers' budgets in the automotive and
advanced research markets for data acquisition and control products will
continue at present levels or that the Company will be successful in marketing
any new product it develops. In addition, there can be no assurance that the
Company will be able to develop, manufacture or market additional products as a
result of its efforts; that expenditures in addition to those currently
anticipated may not be required to complete the research and
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development or that, if required, financing for these expenditures will be
available; that future sales from existing or developed products will be
significant; or that any sales will be profitable.
COMPETITION
Competition, from both U.S. and foreign competitors, is strong and active.
Some of these competitors are substantially larger companies with greater
resources. Management believes that these companies include AVL located in Graz,
Austria, and Sverdrup Technology, Inc. based in Tennessee.
The Company competes primarily on the basis of product diversity, features
and functions, price/performance, flexibility, and technical support. In
addition, the Company believes that an additional competitive factor in the
automotive market is its installed base in the United States. The Company
believes that it competes favorably with respect to all these factors. Systems
integration experience and ability is increasingly a factor in large system
orders and the Company believes that it has the personnel and the resources to
ably compete in this area, although many of its competitors are substantially
larger with greater resources.
PROPRIETARY RIGHTS
The Company relies upon a combination of copyright, trade secret laws and
non-disclosure and licensing agreements to establish and maintain its
proprietary rights to its products. The laws of certain foreign countries may
not protect the Company's proprietary rights to the same extent as do the laws
of the United States. Although the Company continues to implement protective
measures and intends to defend its proprietary rights, there can be no assurance
that these measures will be successful. The Company believes, however, that,
because of the rapid pace of technological change in the automated test,
measurement and control industries, the legal protections for its products are
less significant factors in the Company's success than the knowledge, ability,
and experience of the Company's employees, the frequency of product enhancements
and the timeliness and quality of support services provided by the Company.
The Company is subject to the risk of adverse claims and litigation alleging
infringement of intellectual property rights. Certain technology used in the
Company's products is licensed from third parties on a non-exclusive basis.
These license agreements generally require the Company to pay royalties and to
fulfill confidentiality obligations in order to maintain the licenses. The
termination of any of these licenses may have a material adverse effect on the
Company's operations. While it may be necessary or desirable in the future to
obtain other licenses relating to one or more of its products or relating to
current or future technologies, there can be no assurance that the Company will
be able to do so on commercially reasonable terms.
EMPLOYEES
The Company had 142 employees at January 31, 1997. Of these employees, 90
worked in manufacturing and engineering, 36 in marketing and sales and 16 in
administration. None of the Company's employees is represented by a labor union
and there has never been a disruption of operations due to labor dispute.
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EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth information as to each executive officer as
of April 25, 1997:
NAME AGE OFFICE
F. Gil Troutman, Jr. 53 President and Chief Executive Officer
Alan S. Broad 50 Senior Vice President
Joe M. Millares, Jr. 44 Vice President, Finance, Chief Financial
Officer and Secretary
Larry Moulton 52 Director of Operations
All officers are elected by the Board of Directors (the "Directors").
Elected officers hold office until the first meeting of the Directors following
the Annual Meeting of Shareholders (the "Annual Meeting") and thereafter until a
successor is chosen and qualified. There are no family relationships among the
officers and/or directors.
Mr. Troutman has served as Chief Executive Officer since October 1989 and as
a Director and President since July 1988. From 1985 until July 1988, Mr.
Troutman held the position of Product Line Manager of the Test Systems and
Instruments Group of GenRad, Inc. Prior to this, he held various other
management positions with GenRad, Inc. since 1967, including the position of
National Sales Manager of all GenRad products from 1982 to 1985.
Dr. Broad has served as Senior Vice President since March 1986 and as Vice
President of Engineering since April 1985. In 1981, Dr. Broad co-founded
Transiac and served as Director and Vice President of Transiac until the company
was acquired by the Company in 1985.
Mr. Millares has served as Vice President, Finance, Chief Financial Officer
and Secretary since October 1989, and as Controller since September 1984. From
1980 to 1984, he served as Corporate Controller for Transend Corporation, a data
communications software/hardware company. Mr. Millares is a Certified Public
Accountant in California.
Mr. Moulton has served as Director of Operations since November 1996 and was
elected as an executive officer of the Company in February 1997. From 1994 to
1996, he served as Vice President of Sales and Marketing for Eagle Test Systems,
Inc., a manufacturer of test systems for the semiconductor industry. From 1990
to 1994, he held the positions of General Manager, Data Acquisition Division and
Vice President of Keithley Instruments, Inc., a publicly-held manufacturer of
hardware and software data acquisition products.
ITEM 2: PROPERTIES
The Company's facilities consist of approximately 28,000 square feet of
space in Fremont, California and about 21,000 square feet of space in Ann Arbor,
Michigan which are leased under operating leases. The Fremont facility lease
which expires in October 1998 provides for monthly rent payments of $13,009
during the first year and progressing to $15,146 during the final year. The Ann
Arbor facility leases consist of a) a seven year lease for one building which
expires in January 2000, providing for monthly rent payments starting in January
1993 of $8,551 during the first year and increasing annually until the monthly
payments reach $10,257 during the seventh year; and b) an 18-month lease which
expires in May 1998, with monthly rent payments of $4,308 starting in December
1996. The Company is obligated to pay real estate taxes, insurance and
maintenance expenses associated with the leased facilities. Management believes
that the existing facilities are adequate for the Company's present size.
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ITEM 3: LEGAL PROCEEDINGS
Not applicable.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of security holders during the fourth
quarter of the Company's fiscal year ended January 31, 1997.
PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
MARKET INFORMATION
The Company's Common Stock is currently traded on the NASDAQ Market under
the symbol DSPT. The following table sets forth, for the periods indicated, the
high and low closing sales prices of the Common Stock as reported by NASDAQ.
Year ended January 31, 1997 Year Ended January 31, 1996
--------------------------- ---------------------------
High Low High Low
---- --- ---- ---
First Quarter $6-5/8 $4-1/4 $6-7/8 $5
Second Quarter 6-3/4 5 7-5/8 5-3/4
Third Quarter 5-3/4 4-1/2 7-7/8 6
Fourth Quarter 6-5/8 4-1/4 7-1/2 6
HOLDERS
The approximate number of holders of record of the Company's Common Stock at
April 25, 1997 was 125. The Company believes that these recordholders hold
beneficially for more than 500 shareholders.
DIVIDEND POLICY
The Company has not paid dividends on its common stock. The Board of
Directors intends to retain earnings for the foreseeable future for the
Company's business. There are no dividend restrictions in the Company's bank
line of credit.
ITEM 6: SELECTED FINANCIAL DATA
The following table presents selected historical financial data for the
Company derived from the audited financial statements of the Company and should
be read in conjunction with Item 7: "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements and respective Notes thereto, included elsewhere in this report.
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DSP Technology Inc.
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Operating Results Data (for the year):
- --------------------------------------
Net sales $17,987 $15,538 $12,977 $9,180 $11,041
Net income 914 1,277 874 250 921
Net income per common share .40 .55 .40 .12 .43
Balance Sheet Data (at year end):
- ---------------------------------
Working capital $ 5,726 $ 5,472 $ 4,190 $3,644 $ 3,574
Total assets 11,799 10,294 8,744 6,774 6,671
Long-term obligations -- -- -- -- --
Shareholders' equity 8,687 7,698 6,268 5,390 5,090
</TABLE>
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
The following table sets forth, for the indicated periods, the percentages
that certain items in the Consolidated Statements of Income bear to net sales.
The table and subsequent discussion should be read in conjunction with the
Consolidated Financial Statements and the Notes thereto included elsewhere in
this report.
Year ended January 31,
----------------------
1996 1996 1995
---- ---- ----
Net sales 100% 100% 100%
Cost of sales 44 40 40
Research and development 12 14 14
Marketing, general and administrative 37 33 35
Operating income 7 13 11
Net income 5 8 7
Net sales increased by 16% to $17,987,000 in 1997 and by 20% to $15,538,000
in 1996. The increases in 1997 and 1996 were principally due to continued
increase in demand for the Company's RedLine products and custom services
associated with RedLine ADAPT.
Cost of sales as a percentage of net sales were 44%, 40%, and 40% in 1997,
1996 and 1995, respectively. The increase in cost of sales in 1997 primarily
reflects 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 service-related
revenues. The Company, however, expects service related revenues to lag related
service expenditures over the short-term, thus, impacting near-term earnings. In
1996, positive benefits from economies of scale were offset by higher volume of
lower-margin products and services.
Research and development expenses decreased slightly in 1997 to $2,203,000
and increased by $408,000 to $2,250,000 in 1996. As a percentage of net sales,
research and development expenses were
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12%, 14%, and 14% in 1997, 1996 and 1995. The decrease in expenses in 1997 was
due primarily to the higher capitalization of software development costs this
year which more than offset increased personnel staffing. The increase in
expenses in 1996 was attributable to personnel additions.
Marketing, general and administrative expenses increased by 30% to
$6,708,000 (or 37% of sales) in 1997 and by 13% to $5,145,000 (or 33% of net
sales) in 1996 from $4,558,000 (or 35% of net sales) in 1995. The increase in
1997 resulted from additional sales and marketing staff, costs associated with
improvements in the Company's information technology infrastructure, and higher
internal sales commissions due to higher shipments and sales bookings. The
increase in 1996 was primarily due to higher expenses associated with a major
trade show, higher sales expenses and increased legal expenses associated with
strategic alliance and acquisition negotiation activities.
Net interest income decreased to $123,000 after increasing to $136,000 in
1996 from $41,000 in 1995. The lower interest income this year reflect lower
available cash invested in interest-bearing accounts. The increase in 1996 was
due to higher available cash balances invested in higher-yielding interest-
bearing accounts compared to 1995.
The effective tax rate was approximately 33% in 1997, 39% in 1996, and 40%
in 1995. The lower tax rates this year reflect the increased profit
contributions of the Company's UK subsidiary which benefits from a lower tax
rate.
As a result of the factors discussed above, net income decreased to
$914,000, or $.40 per share in 1997 compared to $1,277,000, or $.55 per share in
1996 and to $874,000, or $.40 per share in 1995.
FACTORS THAT MAY AFFECT FUTURE RESULTS
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; timing of service revenues; product
mix; uncertainties relative to global economic conditions; ability to compete
for qualified personnel in various technical positions; 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
expand the services side of our transportation market business. These services
include systems integration, project management, commissioning and installation
and, coupled with our RedLine products, management believes these capabilities
will allow us to pursue further 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
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 the ability to manage
customer projects profitably.
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Because of the foregoing factors, as well as other factors affecting the
Company's operating results, past financial performance should not be considered
to be a reliable indicator of future performance, and investors should not use
historical trends to anticipate results or trends in future periods.
LIQUIDITY AND CAPITAL RESOURCES
Working capital stayed level at $5,726,000 at January 31, 1997 compared to
$5,472,000 at January 31, 1996, while the current ratio decreased to 3.0 to 1.0
from 3.2 to 1.0. In 1997, cash and cash equivalents decreased to $1,323,000
from $1,816,000 due to $1,015,000 used for capital expenditures and $630,000
investment in software development, offset somewhat by $929,000 increase in
operating activities. At January 31, 1997, the Company had a $1,000,000 secured
bank line of credit.
The Company's management believes that cash and cash equivalents, funds from
operations and funds available under its bank line of credit will be sufficient
to satisfy its anticipated requirements in 1998. At January 31, 1997, the
Company had no material outstanding commitments to purchase capital equipment.
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ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
DSP TECHNOLOGY INC. AND SUBSIDIARIES Page
----
Report of Independent Certified Public Accountants 12
Consolidated Balance Sheets 13
Consolidated Statements of Income 14
Consolidated Statement of Shareholders' Equity 15
Consolidated Statements of Cash Flows 16
Notes to Consolidated Financial Statements 17
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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of DSP Technology Inc.:
We have audited the accompanying consolidated balance sheets of DSP
Technology Inc. and subsidiaries as of January 31, 1997 and 1996, and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the three years in the period ended January 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of DSP Technology
Inc. and subsidiaries as of January 31, 1997 and 1996, and the consolidated
results of their operations and their consolidated cash flows for each of the
three years in the period ended January 31, 1997, in conformity with generally
accepted accounting principles.
GRANT THORNTON LLP
San Jose, California
April 4, 1997
12
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DSP TECHNOLOGY INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
January 31,
----------------------
1997 1996
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 1,323 $1,816
Certificates of deposit -- 199
Accounts receivable, net of allowance for doubtful
accounts of $50 in 1997 and 1996 4,784 3,302
Inventories 2,015 2,195
Deferred income taxes 154 257
Prepaid expenses and other 304 155
------ ------
Total current assets 8,580 7,924
Property and equipment, net 1,540 1,044
Cost in excess of net assets of acquired business, net of
accumulated amortization of $523 in 1997 and $482 in 1996 362 403
Other assets 1,317 923
------ ------
$11,799 $10,294
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 799 $ 459
Accrued liabilities 1,849 1,371
Income taxes payable 206 622
------ ------
Total current liabilities 2,854 2,452
Deferred income taxes 258 144
Commitments -- --
Shareholders' equity:
Preferred stock; 2,500,000 shares authorized;
none issued -- --
Common stock; 25,000,000 shares authorized; shares
issued and outstanding: 2,179,962 in 1997 and
2,154,463 in 1996 2,988 2,920
Retained earnings 5,699 4,778
------ ------
Total shareholders' equity 8,687 7,698
------ ------
$11,799 $10,294
======= =======
The accompanying notes are an integral part of these financial statements.
13
<PAGE>
DSP TECHNOLOGY INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Year ended January 31,
----------------------
1997 1996 1995
---- ---- ----
Net sales $17,987 $15,538 $12,977
Cost of sales 7,842 6,187 5,161
------- ------- -------
Gross profit 10,145 9,351 7,816
Operating expenses:
Research and development 2,203 2,250 1,842
Marketing, general and administrative 6,708 5,145 4,558
------- ------- -------
8,911 7,395 6,400
------- ------- -------
Operating income 1,234 1,956 1,416
Interest income 123 136 41
------- ------- -------
Income before income taxes 1,357 2,092 1,457
Income taxes 443 815 583
------- ------- -------
Net income $ 914 $ 1,277 $ 874
======= ======= =======
Net income per common and common
equivalent share $ .40 $.55 $.40
======= ======= =======
Weighted average common and common
equivalent shares outstanding 2,303 2,331 2,189
======= ======= =======
The accompanying notes are an integral part of these financial statements.
14
<PAGE>
DSP TECHNOLOGY INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(In Thousands)
Total
Common stock share-
----------------- Retained holders'
Shares Amount earnings equity
------ ------ -------- -------
Balance at January 31, 1994 2,107 $2,763 $2,627 $5,390
Exercise of stock options 2 4 4
Net income 874 874
------ ------ ------ ------
Balance at January 31, 1995 2,109 $2,767 $3,501 $6,268
Exercise of stock options 45 153 153
Net income 1,277 1,277
------ ------ ------ ------
Balance at January 31, 1996 2,154 $2,920 $4,778 $7,698
Exercise of stock options 26 68 68
Foreign exchange translations 7 7
Net income 914 914
------ ------ ------ ------
Balance at January 31, 1997 2,180 $2,988 $5,699 $8,687
====== ====== ====== ======
The accompanying notes are an integral part of this financial statement.
15
<PAGE>
DSP TECHNOLOGY INC. AND SUBSIDIARIESc
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Year ended January 31,
----------------------
1997 1996 1995
---- ---- ----
Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities:
Net income $ 914 $ 1,277 $ 874
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 847 741 662
Changes in operating assets and liabilities:
Accounts receivable (1,482) (299) (1,176)
Inventories 180 (388) (682)
Deferred income taxes, net 217 -- (133)
Prepaid expenses and other (149) (35) 488
Accounts payables 340 (103) 194
Accrued liabilities 478 (28) 689
Income taxes payable (416) 252 254
------- ------- -------
Net cash provided by operating activities 929 1,417 1,170
------- ------- -------
Cash flows from investing activities:
Purchases of property and equipment (1,015) (521) (474)
(Purchases) redemptions of certificates
of deposit, net 199 (199) --
Investment in software development (630) (322) (100)
Purchase of Applion technology -- -- (368)
Other (44) (46) (7)
------- ------- -------
Net cash used in investing activities (1,490) (1,088) (949)
------- ------- -------
Cash flows from financing activities:
Proceeds from issuance of common stock 68 153 4
------- ------- -------
Increase (decrease) in cash and cash equivalents (493) 482 225
Cash and cash equivalents at beginning of period 1,816 1,334 1,109
------- ------- -------
Cash and cash equivalents at end of period $ 1,323 $ 1,816 $ 1,334
======= ======= =======
Supplemental disclosure of cash flow information:
Cash paid during year for income taxes $ 639 $ 433 $ 2
======= ======= =======
Cash paid during year for interest $ 22 $ 12 $ 5
======= ======= =======
The accompanying notes are an integral part of these financial statements.
16
<PAGE>
DSP TECHNOLOGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business. The Company is engaged in a single business consisting of the
--------
design, manufacture, marketing and maintenance of high-speed, computer-automated
measurement and control systems for the worldwide automotive powertrain, vehicle
safety and advanced research and development markets. The Company's principal
markets are in the United States, United Kingdom, Western Europe, and the Far
East.
Principles of Consolidation. The consolidated financial statements include
---------------------------
the accounts of the Company and its subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
Inventories. Inventories are stated at the lower of cost (first-in, first-
-----------
out) or market.
Property and Equipment. Property and equipment are stated at cost.
----------------------
Depreciation and amortization are computed using the straight-line method based
on the estimated useful lives of the assets (three to seven years) or the lease
term if shorter.
Intangible Assets. Cost in excess of net assets (goodwill) is amortized on a
-----------------
straight line basis over 25 years. The Company evaluates the realizability of
goodwill periodicallly by comparing the carrying value to the undiscounted
future cash flows of the related assets. Purchased technology, is included in
other assets and amortized over five years. Effective February 1, 1996,
impairments, if any, are recognized in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-
Lived Assets and Long-Lived Assets to Be Disposed Of," if applicable.
Research and Development. Expenditures for research and development are
------------------------
expensed as incurred, except for certain costs incurred in developing computer
software to be sold, which have been capitalized in accordance with the
provisions of SFAS Statement No. 86, "Accounting for the Costs of Computer
Software to Be Sold, Leased or Otherwise Marketed." Such costs are capitalized
once technological feasibility of the product has been established. Capitalized
software costs aggregated $630,000, $322,000 and $100,000 for the years ended
January 31, 1997, 1996 and 1995, respectively. Capitalized software is included
in other assets and is being amortized over the life of the product on a
straight-line basis. The Company evaluates the realizability of capitalized
software on an ongoing basis relying on a number of factors including operating
results, business plans, market trends and product development cycles.
Income Taxes. The Company accounts for deferred income taxes using the
------------
liability method. Under the liability method, deferred tax assets and
liabilities are determined based on the difference between the financial
statement and tax bases of assets and liabilities as measured by the enacted tax
rates which will be in effect when the differences reverse. Deferred tax
expense is the result of changes in deferred tax assets and liabilities.
17
<PAGE>
Net Income Per Share. Net income per common share is computed by dividing
--------------------
net income by the weighted average number of outstanding common shares and
dilutive common stock equivalent shares. Common stock equivalents consist of
stock options.
Cash and Cash Equivalents. The Company considers all highly liquid debt
-------------------------
instruments purchased with a maturity of three months or less to be cash and
cash equivalents. These instruments are recorded at their carrying values which
approximate fair values because of their short maturity.
Using Estimates. In preparing financial statements in conformity with
---------------
generally accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements, as well as revenue and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE B - ACQUISITION OF APPLION
In June 1994, the Company purchased substantially all the assets of Applion,
a start-up California partnership, for cash of $420,000. The fair value of
assets acquired included $378,000 in purchased technology and other intangibles
and $42,000 in tangible assets. Applion products are sub-systems for personal
computers and workstations in the electromechanical device analysis market. 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.
NOTE C - INVENTORIES
Inventories consist of:
January 31,
-----------
1997 1996
---- ----
(Thousands)
Raw materials $ 1,221 $ 1,247
Work-in-process 476 492
Finished goods 318 456
------- -------
$ 2,015 $ 2,195
======= =======
NOTE D - PROPERTY AND EQUIPMENT
Property and equipment consist of:
January 31,
-----------
1997 1996
---- ----
(Thousands)
Machinery and equipment $ 717 $ 682
Office furniture 1,717 1,355
Computer equipment 2,070 1,452
------- -------
4,504 3,489
Accumulated depreciation and
amortization (2,964) (2,445)
------- -------
$ 1,540 $ 1,044
======= =======
18
<PAGE>
NOTE E - OTHER ASSETS
Other assets consist of:
January 31,
-----------
1997 1996
---- ----
(Thousands)
Capitalized software, net of
amortization of $544 in 1997
and $331 in 1996 $ 987 $ 570
Purchased technology, net of
amortization of $190 in 1997
and $117 in 1996 178 251
Other 152 102
------- ------
$ 1,317 $ 923
======= ======
NOTE F - BANK LINE OF CREDIT
At January 31, 1997, the Company has a $1,000,000 line of credit with a bank
renewable annually in May. Under the provisions of the line of credit
agreement, the Company may borrow amounts up to $1,000,000 at the bank's prime
rate of interest (8.25% at January 31, 1997). Borrowings are collaterized by
all unencumbered assets of the Company and the Company must maintain certain
financial ratios and be profitable on an annual basis. There was no outstanding
balance at January 31, 1997 and at January 31, 1996. Maximum balances
outstanding were $985,000 in fiscal 1997, and $460,000 in fiscal 1996. The
weighted average amounts outstanding were $266,000 during 1997 and $139,000
during 1996. Funds were borrowed at a weighted average interest rate of 8.15%
and 8.9% during 1997 and 1996, respectively.
NOTE G - ACCRUED LIABILITIES
Accrued liabilities consist of:
Year ended January 31,
----------------------
1997 1996
---- ----
(Thousands)
Employee compensation and benefits $ 605 $ 781
Commissions 105 86
Customer deposits 841 296
Other 298 208
------ ------
$1,849 $1,371
====== ======
19
<PAGE>
NOTE H - INCOME TAXES
Income tax expense consists of:
Year ended January 31,
----------------------
1997 1996 1995
---- ---- ----
(Thousands)
Currently payable:
Federal income taxes $ 67 $ 575 $ 548
State income taxes 43 182 153
Foreign taxes 116 58 15
----- ----- -----
226 815 716
Deferred:
Federal income taxes 184 -- (111)
State income taxes 33 -- (22)
----- ----- -----
217 -- (133)
----- ----- -----
$ 443 $ 815 $ 583
===== ===== =====
The difference between income tax rates computed by applying the Federal
statutory income tax rate to income before income taxes and the actual
effective tax rate is reconciled as
follows:
Year ended January 31,
----------------------
1997 1996 1995
---- ---- ----
(Thousands)
Federal statutory rate 34.0% 34.0% 34.0%
Goodwill 1.1 .7 1.0
State income taxes 2.7 5.7 6.9
Research and development credits (3.3) (1.8) --
Benefit of foreign sales corporation (3.8) (1.6) --
Other 2.0 1.9 (1.9)
----- ----- -----
Effective tax rate 32.7% 38.9% 40.0%
===== ===== =====
At January 31, 1997 and 1996, respectively, the major components of deferred
tax assets are: inventory reserves and cost capitalization - $ 102,000 and $
129,000; receivable and warranty reserves - $ 35,000 and $ 36,000; and accrued
compensation-$ 90,000 and $87,000. The major item in non-current deferred tax
liabilities is research and development expenses of $335,000 at January 31, 1997
and $186,000 at January 31, 1996.
NOTE I - STOCK OPTION PLANS
The Company has two stock option plans, the 1991 Option Plan ("1991 Option
Plan") and the 1991 Directors Option Plan ("1991 Directors Option Plan")
accounted for under APB Opinion 25, Accounting for Stock Issued to Employees,
----------------------------------------
and related interpretations. The 1991 Option Plan provides for the granting of
incentive and non-statutory options to employees (including officers and
directors who are employees). The 1991 Directors Option Plan provides for the
granting of nonqualifed stock options to directors of the Company who are not
employees of the Company. The options, which have terms of five or ten years
when issued, typically vest over three years. The exercise price of each option
equals the market price of the Company's stock on the date of grant or, in the
case of those holding more than 10% of the Company's outstanding common stock,
110% of the market price. Accordingly, no compensation cost has been recognized
for the plan. A total of 918,327 shares of the Company's common stock have been
reserved for issuance under the 1991 Option Plan, of which 187,414 shares are
available for grant at
20
<PAGE>
January 31, 1997. The 1991 Directors Option Plan has 75,000 common stock shares
reserved, of which 18,000 shares are available for grant at January 31, 1997.
Had compensation cost for the plan been determined based on the fair value
of the options at the grant dates consistent with the method of Statement of
Financial Accounting Standards 123, Accounting for Stock-Based Compensation
("SFAS 123"), the Company's net income and income per share would have been
reduced to the pro forma amounts indicated below. Pro forma results for 1996 and
1997 may not be indicative of pro forma results in future periods because the
pro forma amounts do not include pro forma compensation cost for options granted
prior to February 1, 1995.
Year ended January 31,
----------------------
1997 1996
---- ----
Net income (in thousands):
As reported $ 914 $1,277
Pro forma $ 678 $1,158
Net income per share:
As reported $ .40 $ .55
Pro forma $ .30 $ .51
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes options-pricing model with the following weighted-average
assumptions used for grants in 1997 and 1996, respectively: no expected
dividends; weighted average risk-free interest rate of 6.8% and 6.5%; and
expected lives of 6 years.
A summary of the status of the 1991 Option Plan as of January 31, 1997 and
1996, and changes during the years ending on those dates is presented below.
1997 1996
---------------- ----------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------ ----- ------ -----
(in thousand) (in thousand)
Outstanding at beginning of year 555 $ 4.29 452 $3.48
Granted 95 5.11 165 6.36
Exercised (25) 2.67 (45) 3.40
Forfeited (23) 4.81 (17) 5.46
--- ---
Outstanding at end of year 602 4.47 555 4.29
Weighted-average fair value of
options granted during the year $ 3.18 $3.99
21
<PAGE>
The following information applies to options outstanding at January 31,
1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------- -----------------------
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Outstanding Contractual Exercise Exercisable Exercise
Range of Exercise Prices at 1/31/97 Life Price at 1/31/97 Price
- ------------------------ ----------- ------------ --------- ----------- ---------
(in thousands) (in years) (in thousands)
<S> <C> <C> <C> <C> <C>
$0.875 - 1.250 37 3 $1.23 37 $1.23
2.625 - 3.875 226 7 3.26 188 3.23
4.000 - 6.000 195 8 5.05 100 5.02
6/125 - 7.750 144 9 6.40 48 6.40
</TABLE>
NOTE J - COMMITMENTS
Leases. The Company leases its facilities in Fremont, California and Ann
------
Arbor, Michigan under operating leases which expire in October 1998 and January
2000, respectively. The Fremont facility lease provides for monthly rent
payments starting in November 1993 of $13,009 during the first year, $14,721
during the second and third years and $15,146 during the fourth and fifth years.
The Ann Arbor facility lease is a seven year lease with monthly rent payments
starting in January 1993 of $8,551 during the first year and increasing annually
until the monthly payments reach $10,257 during the seventh year. In December
1996, the Company leased additional space in Ann Arbor with monthly rent
payments of $4,308 until the expiration of the lease in May 1998. Rental
expenses were $303,000 in 1997, $286,000 in 1996, and $267,000 in 1995.
Future minimum rental commitments for all leases with initial non-cancelable
lease terms of more than one year are $350,000 in 1998, $273,000 in 1999 and
$118,000 in 2000.
NOTE K - MAJOR CUSTOMERS AND FOREIGN OPERATIONS
One customer accounted for 18% and 11% of net sales for 1997 and 1996,
respectively. Three separate customers accounted for 10% or more of net sales
in 1995 as follows: 19%, 14% and 12
Foreign sales were as follows:
Year ended January 31,
----------------------
1997 1996 1995
---- ---- ----
United Kingdom ("UK") $2,916 $1,120 $552
Asia/Pacific Rim 1,476 1,322 1,257
Western Europe, excluding UK 1,352 367 173
Other countries 16 47 328
------ ------ ------
$5,760 $2,856 $2,310
====== ====== ======
The Company's subsidiary in the United Kingdom, DSP Technology Ltd.
contributed operating profits of $395,000, $209,000 and $62,000 in 1997, 1996
and 1995, respectively.
NOTE L - EMPLOYEE BENEFIT PLAN
The Company has established the DSP Technology Inc. 401(k) Profit Sharing
Plan covering substantially all employees of the Company who have at least six
months of service and are at least
22
<PAGE>
twenty-one years of age. The amount participants may voluntarily contribute in
any year is established by law and subject to cost of living adjustments. The
Company has the option to make matching contributions on a year to year basis.
Contributions to the plan by the Company in 1997, 1996, and 1995 aggregated
$69,000, $46,000, and $28,000, respectively.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS
Information contained in Registrant's Proxy Statement for its 1997 Annual
Meeting of Shareholders under the captions, "ELECTION OF DIRECTORS," is hereby
incorporated herein by reference.
ITEM 11: EXECUTIVE COMPENSATION
Information contained in Registrant's Proxy Statement for its 1997 Annual
Meeting of Shareholders under the caption, "EXECUTIVE COMPENSATION AND OTHER
MATTERS" is hereby incorporated herein by reference.
ITEM 12: SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information contained in Registrant's Proxy Statement for its 1996 Annual
Meeting of Shareholders under the caption, " GENERAL INFORMATION---Stock
Ownership of Certain Beneficial Owners and Management" is hereby incorporated
herein by reference.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS
The financial statements required in accordance with this Item have been
filed as part of this Report under Part II, Item 8.
23
<PAGE>
(a)(2) FINANCIAL STATEMENT SCHEDULES
The following financial statement schedule has been filed as part of this
Report:
Schedule Description Page No.
- -------- ----------- --------
Auditors' Report on Schedule 26
II Valuation and Qualifying Accounts 27
Financial statement schedules not listed above have been omitted because the
information required to be set forth herein is inapplicable or is shown in the
Consolidated Financial Statements or Notes thereto.
(a)(3) EXHIBITS
The following exhibits are filed or incorporated by reference as part of
this Report:
Ex. No. Description
- ------- ----------------------------------------------------
3.1 Restated Articles of Incorporation (1)
3.2 Amendment to Restated Articles of Incorporation (2)
3.3 Amended and Restated By-laws (4)
3.4 Form of Indemnity Agreement (4)
3.5 Certificate of Amendment of Articles of Incorporation on
September 28, 1988 (4)
3.6 Amendment to By-laws adopted by the Board of Directors of
DSP Technology Inc. by telephonic meeting on November 14, 1996
10.39 Profit Sharing Plan Employees' Retirement Trust (3) **
10.40 Non-Qualified Unfunded Deferred Compensation Plan (3) **
10.51 1991 Directors Stock Option Plan, as amended (6) **
10.52 Form of 1991 Directors Stock Option Plan Agreement (5) **
10.53 1991 Stock Option Plan, as amended (6) **
10.54 Form of 1991 Stock Option Plan Agreement (5) **
10.55 Lease Agreement dated July 15, 1992 between Varsity Drive
Company Inc. and DSP Technology Inc. (6)
10.56 Lease Agreement dated August 2, 1993 between Minos Management
Company and DSP Technology Inc.(7)
22.1 Subsidiaries of Registrant (7)
23.1 Consent of independent Certified Public Accountants (to
incorporate report on consolidated financial statements into
Company's Form S-8 Registration Statements)
___________________________________
** Compensatory plan or arrangement.
24
<PAGE>
(1) Incorporated by reference to the corresponding Exhibit filed as part of the
Company's Registration Statement on Form S-1 (File No. 2-99364) on August
1, 1985.
(2) Incorporated by reference to the corresponding Exhibit filed as part of
Amendment No. 1 to the Company's Registration Statement Form S-1 (File No.
2-99364) on November 5, 1985.
(3) Incorporated by reference to the corresponding Exhibit filed as part of the
Company's Annual Report on Form 10-K (File No. 0-14677) on April 24, 1987.
(4) Incorporated by reference to the corresponding Exhibit filed as part of the
Company's Annual Report on Form 10-K (File No. 0-14677) on April 14, 1989.
(5) Incorporated by reference to the corresponding Exhibit filed as part of the
Company's Annual Report on Form 10-K (File No. 0-14677) on April 27, 1992.
(6) Incorporated by reference to the corresponding Exhibit filed as part of the
Company's Annual Report on Form 10-K (File No. 0-14677) on April 27, 1993.
(7) Incorporated by reference to the corresponding Exhibit filed as part of the
Company's Annual Report on Form 10-K (File No 0-14677) on April 22, 1994.
(b) REPORTS ON FORM 8-K
None.
25
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULE
To the Board of Directors and Shareholders of DSP Technology Inc.:
In connection with our audits of the consolidated financial statements of DSP
Technology Inc. and subsidiary companies referred to in our report dated April
4, 1997, which is included in Part II of this form, we have also audited
Schedule II for each of the three years in the period ended January 31, 1997.
In our opinion, this schedule presents fairly the information required to be set
forth therein.
San Jose, California
April 4, 1997
26
<PAGE>
Schedule II
DSP TECHNOLOGY Inc.
Valuation and Qualifying Accounts
(Thousands)
Additions
Balance at Charged to Balance
Beginning Costs and at End
of Year Expenses Deductions of Year
---------- --------- ---------- -------
Allowance for doubtful accounts:
Year ended:
January 31, 1995....... 50 (18) 18 (1) 50
January 31, 1996....... 50 0 0 (1) 50
January 31, 1997....... 50 0 0 (1) 50
Reserve for inventory obsolescence:
Year ended:
January 31, 1995........ 155 100 (11) 244
January 31, 1996........ 244 71 (24) 291
January 31, 1997........ 291 0 (133) 158
(1) Uncollectible accounts written off, net of recoveries
27
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, this 30th day of April
1997.
DSP TECHNOLOGY INC.
By /s/ Jose M. Millares
____________________
JOSE M. MILLARES
Chief Financial Officer
28
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints F. Gil Troutman, Jr. and Jose M. Millares, Jr.,
or either of them, his attorneys-in-fact, each with power of substitution, for
him in any and all capacities, to sign this Annual Report on Form 10-K, and any
amendments thereto, and to file the same, with Exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant, in the capacities and on the dates indicated.
Signatures Title Date
---------- ----- ----
/s/ Howard O. Painter, Jr. Chairman of the Board April 30, 1997
- --------------------------
Howard O. Painter, Jr.
/s/ F. Gil Troutman, Jr. Director, Chief Executive Officer April 30, 1997
- --------------------------- and President (Principal Executive
F. Gil T Troutman, Jr. Officer)
/s/ Jose M. Millares Vice President, Finance April 30, 1997
- --------------------------- (Principal Financial and
Jose M. Millares Accounting Officer and
Secretary)
/s/ J. Scott Kamsler Director April 30, 1997
- ---------------------------
J. Scott Kamsler
/s/ Michael A. Ford Director April 30, 1997
- ---------------------------
Michael A. Ford
29
<PAGE>
EXHIBIT 3.6 (PAGE 1 OF 2)
RESOLUTIONS AMENDING BY-LAWS
REGARDING TELEPHONIC MEETING
ADOPTED BY
THE BOARD OF DIRECTORS OF
DSP TECHNOLOGY INC.
November 14, 1996
WHEREAS, Section 307 of the California General Corporations Law has recently
been amended to provide for alternative means of Board meetings through
conference telephone, electronic screen communications or other communications
equipment and to require the Company to develop a procedure for verification of
the identity of directors participating by various media in a directors'
meeting.
RESOLVED, that Section 7 of the Company's Amended and Restated By-laws be
amended and restated in its entirety to read as set forth on Exhibit A.
<PAGE>
EXHIBIT 3.6 (PAGE 2 OF 2)
EXHIBIT A
---------
Section 7. NOTICE, PLACE AND MANNER OF MEETINGS. Meetings of the Board of
Directors may be called by the Chairman of the Board, or the President, or any
Vice President, or the Secretary, or any two (2) Directors and shall be held at
the principal office of the corporation, unless some other place is designated
in the notice of the meeting. So long as permitted by statute, Directors may
participate in a regular or special meeting through any means of communication,
including conference telephone, electronic screen communication or other
communications equipment. Participation in a meeting pursuant to this Section 7
constitutes presence in person at that meeting if each participating Director is
provided the means to communicate with all of the other Directors concurrently
and (1) the meeting is held by conference telephone or video conferencing or
other communication mode enabling participants to determine, through voice or
image recognition, that a participant is or is not a Director entitled to
participate in the meeting or (2) another verification device (determined in the
discretion of the chairman of the meeting) is used to determine that each person
participating in the meeting is in fact a Director. Such verification method
may include (at the discretion of the chairman of the meeting) use of passwords
or similar codes for gaining access to the meeting. Accurate minutes of any
meeting of the Board or any committee thereof, shall be maintained by the
Secretary or other Officer designated for the purpose."
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our reports dated April 4, 1997 accompanying the consolidated
financial statements and schedule included in the annual report of DSP
Technology Inc. and subsidiaries on Form 10-K for the year ended January 31,
1997. We hereby consent to the incorporation by reference of said reports in
the Registration Statements of DSP Technology Inc. and subsidiaries on Forms S-
8, (File No. 33-6994, effective July 13, 1990, File No. 33-43163 and File No.
33-43164, effective October 4, 1991, and File No. 33-85554 and File No. 33-
85540, effective October 24, 1994).
GRANT THORNTON LLP
San Jose, California
April 29, 1997
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