-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, U6m9R3Hb64yo3D5QCv/8G9kEmeMPBtznaTjlhaIRXMzdLHhvLPKocOSDLTwvUzLp 0DEM+Eiw98JEqWyZDsM5Ew== 0001012870-98-002409.txt : 19980917 0001012870-98-002409.hdr.sgml : 19980917 ACCESSION NUMBER: 0001012870-98-002409 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980731 FILED AS OF DATE: 19980916 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: DSP TECHNOLOGY INC CENTRAL INDEX KEY: 0000773720 STANDARD INDUSTRIAL CLASSIFICATION: INSTRUMENTS FOR MEAS & TESTING OF ELECTRICITY & ELEC SIGNALS [3825] IRS NUMBER: 942832651 STATE OF INCORPORATION: CA FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-14677 FILM NUMBER: 98710284 BUSINESS ADDRESS: STREET 1: 48500 KATO RD CITY: FREMONT STATE: CA ZIP: 94538 BUSINESS PHONE: 5106577555 10-Q 1 10-Q FOR THE PERIOD ENDING 7/31/1998 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q X Quarterly report pursuant to Section 13 or 15(d) of the Securities ----- Exchange Act of 1934 For the quarterly period ended JULY 31, 1998 or ------------- Transition report pursuant to Section 13 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) DELAWARE 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 - -------------------------------------------------------------------------------- (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 SEPTEMBER 8, 1998 ----- ----------------------------------- COMMON STOCK 2,241,310 DSP TECHNOLOGY INC. AND SUBSIDIARIES TABLE OF CONTENTS FORM 10-Q Page ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements: Consolidated Balance Sheets - July 31, 1998 and January 31, 1998 3 Consolidated Statements of Income - Three months and six months ended July 31, 1998 and 1997 4 Consolidated Statements of Cash Flows - Six months ended July 31, 1998 and 1997 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 10 Item 6. Exhibits and Reports on Form 8-K 10 Signatures 11 2 DSP TECHNOLOGY INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands) July 31, January 31, 1998 1998 ----------- ----------- ASSETS (Unaudited) Current assets: Cash and certificates of deposit $ 1,302 $ 4,701 Accounts receivable 6,578 5,581 Inventories 3,433 2,682 Deferred income taxes 577 577 Prepaid expenses 236 216 ------- ------- Total current assets 12,126 13,757 Property and equipment 2,081 1,341 Cost in excess of net assets of acquired business 185 244 Other assets 1,518 1,388 ------- ------- $15,910 $16,730 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 790 $ 687 Accrued liabilities 3,027 3,755 Income taxes payable 542 1,142 ------- ------- Total current liabilities 4,359 5,584 Deferred income taxes 461 489 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: 2,251,610 at July 31 and 2,264,860 at January 31 3,121 3,301 Retained earnings 7,969 7,356 ------- ------- Total shareholders' equity 11,090 10,657 ------- ------- $15,910 $16,730 ======= ======= 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 Six months ended July 31, July 31, ------------------ ---------------- 1998 1997 1998 1997 -------- -------- ------- ------- Net sales $5,792 $5,445 $11,311 $9,912 Cost of sales 2,765 2,570 5,306 4,737 ------ ------ ------- ------ Gross profit 3,027 2,875 6,005 5,175 Operating expenses: Research and development 597 530 1,190 1,108 Marketing, general and administrative 1,837 1,605 3,792 3,310 ------ ------ ------- ------ 2,434 2,135 4,982 4,418 ------ ------ ------- ------ Operating income 593 740 1,023 757 Other income 50 69 106 109 ------ ------ ------- ------ Income before income taxes 643 809 1,129 866 Income taxes 236 324 426 346 ------ ------ ------- ------ Net income $ 407 $ 485 $ 703 $ 520 ====== ====== ======= ====== Net income per share: Basic $ .18 $ .22 $ .31 $ .24 ====== ====== ======= ====== Diluted $ .16 $ .21 $ .28 $ .22 ====== ====== ======= ====== Weighted average shares used in computing basic net income per share 2,264 2,187 2,269 2,183 ====== ====== ======= ====== Weighted average shares and equivalents used in computing diluted net income per share 2,519 2,321 2,537 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)
Six months ended July 31, ----------------- 1998 1997 -------- -------- (Unaudited) Cash flows from operating activities: Net income $ 703 $ 485 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 485 537 Changes in current assets and liabilities: Accounts receivable (997) (2,313) Inventories (751) (718) Prepaid expenses (20) (36) Accounts payables 103 231 Accrued liabilities (728) 1,445 Income taxes payable (600) 435 ------- ------- Net cash provided by (used in) operating activities (1,805) 66 ------- ------- Cash flows from investing activities: Purchases of property and equipment (999) (195) Investment in software development (294) (195) Other (121) 116 ------- ------- Net cash (used in) investing activities (1,414) (274) ------- ------- Cash flows from financing activities: Repurchase of common stock (238) -- Proceeds from issuance of common stock 58 24 ------- ------- Net cash provided by financing activities (180) 24 ------- ------- Decrease in cash (3,399) (184) ------- ------- Cash at beginning of period 4,701 1,323 ------- ------- Cash at end of period $ 1,302 $ 1,139 ======= ======= Supplemental disclosure of cash flow information: Cash paid during period for income taxes $ 865 $ 10 ======= =======
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, 1998 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. The second quarter fiscal 1999 ended August 2, 1998. 2. Inventories. Inventories are stated at the lower of cost (first-in, first- ----------- out) or market. Inventories consist of: July 31, January 31, 1998 1998 -------- ----------- (thousands) Raw materials $1,962 $1,695 Work in process 983 637 Finished goods 488 350 ------ ------ $3,433 $2,682 ====== ====== 6 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 second quarter of fiscal 1999 ended August 2, 1998 increased by 6% to $5,792,000 from $5,445,000 in the second quarter of fiscal 1997 ended August 3, 1997. Net sales for the first six months of fiscal 1999 were $11,311,000 or 14% higher than net sales of $9,912,000 in the first six months of fiscal 1998. The increases were due to higher shipments across all product lines and custom services. Cost of sales as a percentage of net sales remained in the 47%-48% range for all the periods being reported. The Company's overall cost of sales percentage is subject to change due to various factors, including variation in product mix, changes in component costs and timing of custom service revenues. Research and development expenses increased by $67,000 to $597,000 in the second quarter this year compared to $530,000 in the same period last year while expenses in the first half of this year increased by $82,000 to $1,190,000 from $1,108,000 in the first half of fiscal 1998. The increases were due primarily to addition of engineering personnel to develop new products. These expenses have resulted in several new product introductions so far, this year. As a percentage of net sales, however, research and development expenses remained at about 11% for all the periods being reported The Company anticipates expenses to continue to increase in dollars as it adds personnel and development projects. However, it is expected that research and development expenses will remain at approximately 11% of net sales. Marketing, general and administrative expenses in the second quarter of fiscal 1999 increased by 14% to $1,837,000 compared to the same period a year ago. Expenses in the first six months of this year increased by 15% to $3,792,000 from $3,310,000 last year. As a percentage of sales expenses increased to 32% from 29% in the second quarter this year and to 34% from 33% in the first half of this year compared to the respective periods last year. The increases in spending in this year's second quarter and first half were due to higher trade show expenses to introduce new products and increased sales related expenses due to the increase in sales activity. The Company expects that marketing, general and administrative expenses will decrease as a percentage of net sales in the second half of this year as a result of the anticipated growth in revenues. Other income, net of interest expense was $50,000 in this year's second quarter compared to $69,000 last year and $106,000 in the first half compared to $109,000 in the same period last year. The effective tax rates computed for the second quarter and first half this year were in the 37%-38% range compared to 40% in last year's second quarter and first half, respectively. The lower tax rates this year reflect the higher foreign income contribution along with lower state tax rates this year compared to last year. Domestic tax rates tend to be higher than the Company's foreign subsidiary's tax rates. The Company reviews the tax rate quarterly and could make minor adjustments to reflect changing estimates. 7 Liquidity and Capital Resources - ------------------------------- Cash decreased by $3,399,000 during the six month period ended July 31, 1998. The decrease was due to the increase in accounts receivable brought about by high shipments in the last month of the period, increase in inventory in anticipation of certain large system orders, the purchase of eight acres of land near the Company's Ann Arbor facility for $732,000 and the repurchase of 28,000 shares of the Company's common stock at an average price of $8.35 per share under its stock repurchase program. The purchase of land late in the second quarter was in anticipation of growth over the next 3-5 years. The Company is currently in the process of obtaining building permits to build the first phase on the property. Due to the rising building lease costs in the Ann Arbor, Michigan area, the Company found that it would cost the Company less to own its own facility. Based on the current building plans, the Company feels that the building site is sufficient to allow the Company to grow over the next five years. Working capital at July 31, 1998 was $7,767,000 compared to $8,173,000 at the beginning of the fiscal year, while the current ratios stood at 2.8 to 1.0 at July 31, 1998 and at 2.5 to 1.0 at January 31, 1998. At July 31, 1998, the Company has a $4,000,000 secured bank line of credit. The Company currently anticipates that internally generated funds and bank borrowings will be sufficient to satisfy its anticipated operating and capital needs over the foreseeable future. At July 31, 1998, 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 - -------------------------------------- In addition to the other information contained in this Report, the following are important factors that should be considered carefully in evaluating the Company and its business. New Products and Rapid Technological Change. The markets for the Company's products are characterized by continued demands for increasingly sophisticated measurement and control systems and turnkey solutions. The Company's success depends upon its ability to introduce new products and to enhance its existing products with features that meet changing end user requirements. There can be no assurance that new products or enhancements will gain market acceptance or that the Company will be successful in developing product enhancements or new products that respond to technological change, evolving industry standards and changing customer requirements. Development and Management of Systems Integration Services. At the beginning of fiscal 1997, management began to expand the services side of the company's transportation market business. These services include systems integration, project management, commissioning and installation and, coupled with the company's RedLine products, management believes these capabilities will allow us to pursue further the company's growth in the transportation market by providing full-service to the company's customers. These services provide us the capability to provide turnkey systems where they are required. Hence, the Company has invested in project management, custom manufacturing, system integration, installation and commissioning staff during the past two years. The Company believes that the successful marketing and expansion of its transportation products will be increasingly 8 dependent on its ability to offer these services. However, the introduction of these services raises several risks for the Company. Specifically, success depends on the time it takes for these personnel and future staff to come up to speed on the company's products, customers and the services they will provide; ability to compete for qualified personnel in various technical positions; market acceptance of the services; timing of service revenues; and the ability to manage customer projects profitably. The successful management of these projects depends on the timely availability and quality of key products, the availability of key personnel, the ability to integrate different products from a variety of vendors effectively and the management of difficult scheduling and delivery problems. Most of the Company's systems integration projects use fixed price contracts. The pricing of fixed price contracts requires accurate cost estimation in order to be profitable. Potential Fluctuations in Quarterly Results. The Company's quarterly operating results may vary significantly, depending on a number of factors, some of which could adversely affect the Company's operating results and the trading price of the Company's Common Stock. These factors include timing of receipt of system orders from and shipments to major customers; variation in the Company's product mix and component costs; economic conditions prevailing within the Company's geographic markets and in the world-wide automotive industry; market acceptance of new products and services; the timing and levels of operating expenditures; and exchange rate fluctuations. Any unfavorable change in these or other factors could have a material adverse effect on the Company's operating results for a particular quarter. Quarterly sales depend in part on the volume and timing of orders received during a quarter, which are difficult to forecast. Moreover, a disproportionate percentage of the Company's net sales in any quarter are typically generated in the last month of a quarter. As a result, a shortfall in net sales in any quarter as compared to expectations may not be identifiable until the end of the quarter. In addition, a significant portion of the Company's sales are derived from a few customers. Hence, a decrease in the purchasing levels from one or more of these customers could adversely impact operating results. Dependence on International Sales. Part of the Company's revenue growth in the past few years was due to increases in the Company's international sales, particularly in Western Europe and Asia. International sales accounted for approximately 35%, 32%, and 18% of net sales in fiscals 1998, 1997 and 1996. The Company's international sales are subject to the risks inherent in international sales, including political and economic changes and disruptions, various regulatory requirements, and tariffs or other barriers. In addition, fluctuations in exchange rates may render the Company's products less competitive relative to local product offerings or may cause foreign customers to delay or decrease potential orders. One or more of these factors may have a material effect on the Company's future international sales and, consequently, on the Company's operating results. Competition. The markets for the Company's products are intensely competitive and subject to rapid technological change. Some of the Company's competitors have significantly greater financial, technical, product development, manufacturing or marketing resources than the Company. In addition, some of these competitors have a larger installed base than the Company, particularly outside the United States. The Company believes that its ability to compete depends on a number of factors, including price, product functionality, product quality and reliability, system integration capabilities, and post-sale service and support. There can be no assurance that the Company will be able to continue to compete successfully with respect to these factors. Competitors could introduce additional products or add features to their existing products that are superior to the Company's products or that achieve greater market acceptance. 9 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. Part II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders - ------------------------------------------------------------ The annual meeting of stockholders was held on May 18, 1998. The stockholders approved a proposal to elect the Board of Directors of the Company to serve for the ensuing fiscal year. The proposal received the following votes: FOR AGAINST ABSTENTIONS --------- ------- ----------- Howard O. Painter, Jr. 2,088,150 0 73,750 F. Gil Troutman, Jr. 2,088,150 0 73,750 J. Scott Kamsler 2,088,150 0 73,750 Michael A. Ford 2,076,250 0 85,650 The stockholders approved a proposal to increase the number of shares of the Company's Common Stock reserved for issuance under its 1991 Stock Option Plan by 111,000 shares. The proposal received the following votes: FOR AGAINST ABSTENTIONS BROKER NON-VOTES - --------- ------- ----------- ---------------- 1,684,930 450,575 0 26,395 The stockholders ratified the appointment of the accounting firm of Grant Thornton as independent accountants of the Company for the fiscal year ending January 31, 1999. The proposal received the following votes: FOR AGAINST ABSTENTIONS BROKER NON-VOTES - --------- ------- ----------- ---------------- 2,149,750 10,550 1,600 0 Item 6. Exhibits and Reports on Form 8-K - ------------------------------------------ A. Exhibits: Exhibit 27-Financial Data Schedule. B. Reports on Form 8-K: None. 10 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: September 10, 1998 11 EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 6-MOS JAN-31-1999 FEB-01-1998 JUL-31-1998 1,302 0 6,728 150 3,433 12,126 5,910 3,829 15,910 4,359 0 0 0 3,121 7,969 11,090 11,311 11,311 5,306 5,306 4,982 0 0 1,129 426 703 0 0 0 703 .31 .28
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