-----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, PkeADgyE1E0UT/HwnjBPdfwEoTPlBON9D1eBm/voeYp4zValpMcYzue6B5RyFcep R5EsgUxLHLw49FP6NXEFFw== 0001012870-97-000865.txt : 19970502 0001012870-97-000865.hdr.sgml : 19970502 ACCESSION NUMBER: 0001012870-97-000865 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970131 FILED AS OF DATE: 19970501 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-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-14677 FILM NUMBER: 97593727 BUSINESS ADDRESS: STREET 1: 48500 KATO RD CITY: FREMONT STATE: CA ZIP: 94538 BUSINESS PHONE: 5106577555 10-K405 1 FORM 10-K 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. 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. 1 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. 2 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. 3 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 4 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. 5 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. 6 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. 7 DSP Technology Inc. (In thousands, except per share amounts)
1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- 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
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 8 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. 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. 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. 10 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 11 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 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 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 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 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 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 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 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 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 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 The following information applies to options outstanding at January 31, 1997:
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) $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
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 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 (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 (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 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 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 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 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 EX-3.6 2 AMENDMENT TO BYLAWS 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. 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." EX-23.1 3 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCTS 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 EX-27.1 4 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS JAN-31-1997 FEB-01-1996 JAN-31-1997 1,323 0 4,834 (50) 2,015 8,580 4,504 (2,964) 11,799 2,854 0 0 0 2,988 5,699 11,799 17,987 17,987 7,842 7,842 8,911 0 0 1,357 443 914 0 0 0 914 .40 .40
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