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, 1996 or
----------------
_____ Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________________ to ___________________
0-14677
Commission File Number ________________________________________________________
DSP TECHNOLOGY INC.
_______________________________________________________________________________
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-2832651
- -------------------------------- -------------------------
(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification Number
48500 KATO RD., FREMONT, CA 94538
- ---------------------------------------- -------------------------
(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 ____
_____
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 ________
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 DECEMBER 20, 1996
----- -----------------------------------
COMMON STOCK 2,179,962
1
DSP TECHNOLOGY INC. AND SUBSIDIARIES
TABLE OF CONTENTS
FORM 10-Q
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets -
October 31, 1996 and January 31, 1996 3
Consolidated Statements of Income -
Three months and nine months ended October 31,
1996 and 1995 4
Consolidated Statements of Cash Flows -
Nine months ended October 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
2
DSP TECHNOLOGY INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
October 31, January 31,
1996 1996
------------ -----------
ASSETS (Unaudited)
Current assets:
Cash and certificates of deposit $ 898 $ 2,015
Accounts receivable 4,360 3,302
Inventories 2,432 2,195
Deferred income taxes 257 257
Prepaid expenses 217 155
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Total current assets 8,164 7,924
Property and equipment 1,484 1,044
Cost in excess of net assets of acquired
business 372 403
Other assets 1,225 923
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$11,245 $10,294
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 421 $ 459
Accrued liabilities 1,860 1,371
Income taxes payable 350 622
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Total current liabilities 2,631 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: 2,179,962 at
October 31 and 2,154,463 at January 31 2,987 2,920
Retained earnings 5,482 4,778
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Total shareholders' equity 8,469 7,698
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$11,245 $10,294
======= =======
The accompanying notes are an integral part of these financial statements.
3
DSP TECHNOLOGY INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
Three months ended Nine months ended
October 31, October 31,
--------------------- ----------------------
1996 1995 1996 1995
----------- ------ ----------- --------
Net sales $4,572 $4,215 $12,758 $11,028
Cost of sales 1,868 1,655 5,306 4,235
------ ------ ------- -------
Gross profit 2,704 2,560 7,452 6,793
Operating expenses:
Research and development 564 621 1,633 1,623
Marketing, general and administrative 1,737 1,357 4,859 3,918
------ ------ ------- -------
2,301 1,978 6,492 5,541
------ ------ ------- -------
Operating income 403 582 960 1,252
Interest income 13 32 95 95
------ ------ ------- -------
Income before income taxes 416 614 1,055 1,347
Income taxes 140 239 351 520
------ ------ ------- -------
Net income $ 276 $ 375 $ 704 $ 827
====== ====== ======= =======
Net income per common and common
equivalent share $ .12 $ .16 $ .31 $ .36
====== ====== ======= =======
Weighted average common and common
equivalent shares outstanding 2,290 2,357 2,305 2,329
====== ====== ======= =======
The accompanying notes are an integral part of these financial statements.
4
DSP TECHNOLOGY INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands)
Nine months ended
October 31,
-----------------------
1996 1995
-------- -------
(Unaudited)
Cash flows from operating activities:
Net income $ 704 $ 827
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 610 501
Changes in current assets and liabilities:
Accounts receivable (1,058) 872
Inventories (237) (754)
Prepaid expenses (62) (26)
Accounts payables (38) 248
Accrued liabilities 489 (412)
Income taxes payable (272) 131
------- ------
Net cash provided by (used in) operating
activities 136 1,387
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Cash flows from investing activities:
Purchases of property and equipment (806) (343)
Investment in software development (405) (117)
Other (109) (68)
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Net cash investing activities (1,320) (528)
------- ------
Cash flows from financing activities:
Proceeds from issuance of common stock 67 150
------- ------
Net cash provided by financing activities 67 150
------- ------
Increase (decrease) in cash (1,117) 1,009
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Cash at beginning of period 2,015 1,334
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Cash at end of period $ 898 $2,343
======= ======
Supplemental disclosure of cash flow information:
Cash paid during period for income taxes $ 559 $ 433
======= ======
The accompanying notes are an integral part of these financial statements.
5
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, 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-
-----------
out) or market. Inventories consist of:
October 31, January 31,
1996 1996
----------- -----------
(thousands)
Raw materials $1,314 $1,247
Work in process 739 492
Finished goods 379 456
------ ------
$2,432 $2,195
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations
- -------------
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
- ---------------------
Net sales for the third quarter of fiscal 1997 ended October 31, 1996
increased by $357,000 or 8% to $4,572,000 from $4,215,000 in the third quarter
of fiscal 1996 ended October 31, 1995. Net sales for the first nine months of
fiscal 1997 were $12,758,000 or 16% higher than net sales of $11,028,000 in the
first nine months of fiscal 1996. The increases were due to continued strong
demand for the company's RedLine test cell products. Sales growth in the third
quarter was limited by delays in the receipt of certain expected orders, coupled
with a vendor's delay in the delivery of necessary components.
Cost of sales as a percentage of net sales increased to 41% in this year's
third quarter from 39% in the same period last year. Cost of sales as a
percentage of net sales also increased to 42% in the first nine months this year
compared to 38% in the same period 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 decreased by $57,000 to $564,000 in the
third quarter this year compared to $621,000 in the same period last year while
expenses in the first nine months of this year increased slightly to $1,633,000
from $1,623,000 in the first nine months of fiscal 1996. The slight increase in
expenses in the first nine months 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 nine months.
Marketing, general and administrative expenses in the third quarter of
fiscal 1997 increased by $380,000 or 28% to $1,737,000 compared to the same
period a year ago. Expenses in the first nine months of this year increased by
$941,000 to $4,859,000 from $3,918,000 last year. As a percentage of sales,
however, expenses remained consistent throughout the year at 38% compared with
last year's expenses at 32% in the third quarter and 36% in the first nine
months. The higher expenses were principally due to additional sales and
marketing staff, costs associated with improvements in the company's information
technology infrastructure and higher internal sales commissions due to higher
sales bookings.
Net interest income was $13,000 in this year's third quarter compared to
$32,000 last year. Net interest income for the first nine months this year was
the same as last year's at $95,000. The lower interest income in the third
quarter this year reflect lower available cash invested in interest-bearing
accounts.
The effective tax rate computed were 34% for the third quarter and 33% for
the first nine months this year compared to 39% for the third quarter and first
nine months last year. 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
Liquidity and Capital Resources
- -------------------------------
Cash decreased by $1,117,000 during the nine month period ended October 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 nine months of fiscal 1997 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 October 31, 1996 improved to $5,533,000 compared to
$5,472,000 at the beginning of the fiscal year, while the current ratio stood at
3.1 to 1.0 at October 31, 1996 and at 3.2 to 1.0 at January 31, 1996. At
October 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 October 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
- --------------------------------------
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 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
A. Exhibits: Exhibit 27-Financial Data Schedule.
B. Reports on Form 8-K: None.
8
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.
-----------------------
(Registrant)
By: /s/ Jose M. Millares
--------------------
Jose M. Millares
Chief Financial Officer
Date: January 9, 1997
9