SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
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Exchange Act of 1934
For the quarterly period ended APRIL 30, 1997 or
Transition report pursuant to Section 13 or 15(d) of the Securities
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Exchange Act of 1934
For the transition period from to
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Commission File Number 0-14677
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DSP TECHNOLOGY INC.
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(Exact name of registrant as specified in its charter)
CALIFORNIA 94-2832651
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(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification Number
48500 KATO RD., FREMONT, CA 94538
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(Address of principal executive offices) (Zip Code)
(510) 657-7555
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(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
YES NO
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APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate number of shares outstanding of each of the issuer's classes of common
stock, at the latest practical date:
CLASS OUTSTANDING AS OF JUNE 6, 1997
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Common Stock 2,187,361
DSP TECHNOLOGY INC. AND SUBSIDIARIES
TABLE OF CONTENTS
FORM 10-Q
Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets -
April 30, 1997 and January 31, 1997 3
Consolidated Statements of Income -
Three months ended April 30, 1997 and 1996 4
Consolidated Statements of Cash Flows -
Three months ended April 30, 1997 and 1996 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K. 8
Signatures 9
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DSP TECHNOLOGY INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
April 30, January 31,
1997 1997
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ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 1,553 $1,323
Accounts receivable 4,756 4,784
Inventories 2,449 2,015
Deferred income taxes 154 154
Prepaid expenses 214 304
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Total current assets 9,126 8,580
Property and equipment 1,495 1,540
Cost in excess of net assets of acquired
business 352 362
Other assets 1,399 1,317
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$12,372 $11,799
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 680 $ 799
Accrued liabilities 2,631 1,849
Income taxes payable 76 206
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Total current liabilities 3,387 2,854
Deferred income taxes 258 258
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: 2,180,962 at
April 30 and 2,179,962 at January 31 2,990 2,988
Retained earnings 5,737 5,699
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$12,372 $11,799
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The accompanying notes are an integral part of these financial statements.
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DSP TECHNOLOGY INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
Three months ended
April 30,
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1997 1996
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Net sales $4,467 $3,775
Cost of sales 2,167 1,538
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Gross profit 2,300 2,237
Operating expenses:
Research and development 578 496
Marketing, general and administrative 1,705 1,475
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2,283 1,971
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Operating income 17 266
Interest income 40 42
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Income before income taxes 57 308
Income taxes 22 107
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Net income $ 35 $ 201
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Net income per common and common
equivalent share $ .02 $ .09
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Weighted average common and common
equivalent shares outstanding 2,305 2,313
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The accompanying notes are an integral part of these financial statements.
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DSP TECHNOLOGY INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands)
Three months ended
April 30,
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1997 1996
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(Unaudited)
Cash flows from operating activities:
Net income $ 35 $ 201
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 240 183
Changes in current assets and liabilities:
Accounts receivable 28 (154)
Inventories (434) 69
Prepaid expenses and other 90 (28)
Accounts payables (119) (27)
Accrued liabilities 782 (108)
Income taxes payable (130) (79)
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Net cash provided by (used in) operating activities 492 57
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Cash flows from investing activities:
Purchases of property and equipment (110) (295)
Redemption of certificates of deposit, net -- 100
Investment in software development (170) (175)
Other 16 (75)
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Net cash provided by (used in) investing activities (264) (445)
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Cash flows from financing activities:
Proceeds from issuance of common stock 2 6
Increase (decrease) in cash 230 (382)
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Cash at beginning of period 1,323 1,816
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Cash at end of period $1,553 $1,434
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Supplemental disclosure of cash flow information:
Cash paid during period for income taxes $ 10 $ 175
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The accompanying notes are an integral part of these financial statements.
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DSP TECHNOLOGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation.
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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, 1997 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.
For accounting purposes, the Company changed to a 52/53 week convention
with the fiscal year ending on the Sunday nearest the end of January.
However, for financial reporting purposes, each fiscal quarter or year is
presented as if it ended on the last day of such period.
2. Inventories. Inventories are stated at the lower of cost (first-in, first-
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out) or market. Inventories consist of:
April 30, January 31,
1997 1997
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(thousands)
Raw materials $1,300 $1,221
Work in process 794 476
Finished goods 355 318
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$2,449 $2,015
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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 first quarter of fiscal 1998 (three months ended May 4,
1997) increased by 18% to $4,467,000 from $3,775,000 in the first quarter of
fiscal 1997 (three months ended April 30, 1996). The increase in net sales was
due to the continuing growth in the Company's RedLine products sales, which
remain the Company's largest product line, led the increase in first quarter
sales this year compared to last year's first quarter.
Cost of sales as a percentage of net sales increased to 49% in this year's
first quarter compared to 41% in the first quarter last year. The increase in
cost of sales is a result of service-related costs exceeding service-related
revenues in the first quarter this year.
Research and development expenses increased by $82,000 or 17% in the first
quarter this year to $578,000 compared to the same period a year ago. The
increase in expenses is primarily due to the continued 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
quarter.
Marketing, general and administrative expenses in the first quarter of
fiscal 1998 increased by $230,000 or 16% to $1,705,000 from $1,475,000 in the
same quarter last year. As a percentage of sales, however, expenses remained at
the 38-39% level in both quarters. The increase primarily reflected additional
sales, marketing and information systems personnel, and higher sales commissions
due to higher sales and bookings.
Net interest income was $40,000 this year compared to $42,000 in the first
quarter last year.
The effective tax rate computed for the first quarter this year was 38%
compared to 35% in last year's first quarter. The Company reviews the tax rate
quarterly and could make minor adjustments to reflect changing estimates.
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 introduce new products, services and
enhancements for its customers as demands for increasingly sophisticated
measurement and control systems 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
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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.
Management expanded the services side of the Company's transportation
market business. These services include systems integration, project
management, commissioning and installation. These services are usually coupled
with the sale of our RedLine products and has allowed us to pursue further
growth in the transportation market by providing "one-stop" shopping to our
customers. This services business raises several risk factors. Specifically,
the success depends on the time it takes for services 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.
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
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Cash and cash equivalents increased by $230,000 during the quarter ended
April 30, 1997, to $1,553,000. The increase was due primarily to cash provided
by operating activities. Cash was used in the quarter to: a) purchase equipment
for additional personnel, and b) investment in software development. The
Company's working capital remained level at approximately $5.7 million compared
to January 31, 1997. Current ratio remained strong at 2.7 to 1 at April 30,
1997 from 3.0 to 1.0 at January 31, 1997. At April 30, 1997, the Company has
$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 April 30, 1997, 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 and financial condition.
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.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DSP TECHNOLOGY INC.
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(Registrant)
By: /s/ Jose M. Millares
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Jose M. Millares
Chief Financial Officer
Date: June 6, 1997
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