8-K

As filed with the Securities and Exchange Commission on July 19, 2006

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of report (Date of earliest event reported): July 19, 2006

DSP GROUP, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware

(State or Other Jurisdiction of Incorporation)

0-23006	94-2683643
(Commission File Number)	(I.R.S. Employer Identification No.)
3120 Scott Boulevard, Santa Clara, CA	95054
(Address of Principal Executive Offices)	(Zip Code)

408/986-4300

(Registrant’s Telephone Number, Including Area Code)

With a copy to:

Bruce Alan Mann, Esq.

Morrison & Foerster LLP

425 Market Street

San Francisco, CA 94105

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

ITEM 2.02.  RESULTS OF OPERATIONS AND FINANCIAL CONDITION

On July 19, 2006, DSP Group, Inc. (the “Company”) announced its financial results for the quarter ended June 30, 2006. A copy of the press release, dated July 19, 2006, is attached and filed herewith as Exhibit 99.1. This information, including Exhibit 99.1 attached hereto, shall not be deemed “filed” for purposes of Section 18 of the Securities Act of 1934, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, except as shall be expressly set forth by specific reference to such filing.

In addition to the disclosure of financial results for the quarter ended June 30, 2006 in accordance with generally accepted accounting principles in the United States (“GAAP”), the press release also included non-GAAP (pro forma) net income and diluted earnings per share (EPS) figures for the quarter ended June 30, 2006 that excluded the expenses associated with the application of Statement of Financial Accounting Standards (“SFAS”) 123R.

The Company believes that the pro forma presentation in the press release is useful to investors in analyzing the results for the quarter ended June 30, 2006 because the pro forma presentation excluded non-cash equity-based compensation expenses relating to SFAS 123R that management does not consider meaningful for purposes of analyzing the Company’s core operating results and making budget-planning decisions. In addition, the Company’s financial results for the second quarter of 2005 did not include non-cash equity-based compensation expenses; therefore the non-GAAP presentation facilitates comparison of operating results between comparative reporting periods. Further, the Company believes it is useful to investors to understand how the expenses associated with the application of SFAS 123R are reflected on its statements of income.

ITEM 9.01.  FINANCIAL STATEMENTS AND EXHIBITS.

d. Exhibits

Exhibit No.	Description
99.1	Press Release of DSP Group, Inc., dated July 19, 2006.

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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 hereunto duly authorized.

	DSP GROUP, INC.
Date: July 19, 2006	By:	/s/ Moshe Zelnik
		Moshe Zelnik
		Chief Financial Officer and Secretary

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EX-99.1

Exhibit 99.1

DSP Group, Inc. Reports Second Quarter 2006 Earnings

Quarterly Revenues Increased 24% YoY

SANTA CLARA, Calif., July 19, 2006—DSP Group, Inc. (NASDAQ: DSPG), a worldwide leader in developing and providing chip-set solutions for residential wireless connectivity, announced today its results for the second quarter ended June 30, 2006.

Second Quarter Results:

Revenues for the second quarter of 2006 were $60,737,000, an increase of 24% from revenues of $49,047,000 for the second quarter of 2005. Net income for the second quarter was $7,088,000, a decline of 14% from net income of $8,248,000 for the second quarter of 2005. Diluted earnings per share (EPS) for the second quarter of 2006 were $0.23, a decline of 18% from $0.28 for the second quarter of 2005.

Pro Forma Results:

Pro forma net income and diluted EPS for the second quarter of 2006, excluding the impact of equity-based compensation expense as required upon adoption of Statement of Financial Accounting Standards No. 123R, “Share Based Payment” (“SFAS 123(R)”), were $10,325,000 and $0.34, respectively, representing an increase of 25% and 21%, respectively, from the second quarter of 2005.

Share Buyback:

During the second quarter of 2006, DSP Group repurchased 976,000 shares of its Common Stock at an average price of $25.58 per share, for an aggregate price of approximately $25.0 million.

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After giving effect to the most recent repurchases, approximately 2.0 million shares of the Company’s Common Stock remain authorized for repurchase under the current repurchase program approved by the Company’s board of directors.

Eli Ayalon, Chairman and CEO of DSP Group, stated: “The second quarter of 2006 was another strong quarter for DSP Group. Our revenues increased by 24% as compared to 2005, and the overall financial results of the Company for the second quarter of 2006 reflect a successful implementation of our strategy.”

The Company believes that the pro forma presentation of net income and diluted EPS presented in this press release is useful to investors in comparing results for the quarter ended June 30, 2006 to the same period during 2005, because results for the second quarter of 2005 did not include equity-based compensation expenses relating to SFAS 123(R). Further, the Company believes it is useful to investors to understand how the expenses associated with the application of SFAS 123(R) are reflected on its statements of income.

About DSP Group

DSP Group, Inc. is a fabless semiconductor company, offering advanced chip-set solutions for a variety of applications. DSP Group is a worldwide leader in the short-range wireless communication market, enabling home networking convergence for voice, video & data. By combining its in-house technologies of Digital Signal Processors (DSPs), portfolio of wireless communication protocols, including DECT, Bluetooth and Wi-Fi, most advanced Radio Frequency CMOS and SiGe, as well as VoIP ICs, DSP Group is a worldwide leader and a one-stop-shop for a wide range of applications. These applications include ISM band digital 900MHz, 2.4GHz and 5.8GHz telephony, European DECT (1.9GHz) telephony, Bluetooth systems for voice, data and video communication and deployment in residential, SOHO, SME, enterprise and automotive applications. DSP Group ICs provide solutions for MP3 players, VoIP Phones, Gateways, and Integrated Access Devices and are widely used in Digital Voice Recorders. More information about DSP Group is available at www.dspg.com.

Earnings conference call

DSP Group has scheduled a conference call for 8:30 a.m. EDT today to discuss the financial results for the second quarter of 2006 and invites you to listen to a live broadcast over the Internet. The broadcast can be accessed by all interested parties through the Investor Relations section (investor message board) of DSP Group’s Web site at www.dspg.com or link to: http://ir.dspg.com./phoenix.zhtml?c=101665&p=irol-calendar

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If you cannot join the call, please listen to the replay, which will be available for approximately two weeks after the call on DSP Group’s Web site or by calling the following numbers:

—US Dial-In # 1-888-286-8010 (passcode: 45741883)

—International Dial-In # 1-617-801-6888 (passcode: 45741883)

For more information, please contact Ofer Elyakim, Director of Investor Relations & Business Development, DSP Group Inc. at (408) 986-4421; or e-mail: ofere@dsp.co.il

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DSP GROUP, INC.

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

	Three Months Ended June 30,				Six Months Ended June 30,
	2006		2005		2006		2005
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Product revenues and other	$	60,737	$	49,047	$	112,689	$	89,210
Cost of product revenues and other		35,632		25,990		65,987		48,234
Gross profit		25,105		23,057		46,702		40,976
Operating expenses:
Research and development		12,409		10,542		23,310		19,941
Sales and marketing		4,070		3,290		7,876		6,176
General and administrative		2,895		1,783		5,695		3,648
Total operating expenses		19,374		15,615		36,881		29,765
Operating income		5,731		7,442		9,821		11,211
Other income:
Interest and other income, net		3,351		2,499		6,460		4,771
Income before provision for income taxes		9,082		9,941		16,281		15,982
Provision for income taxes		1,994		1,693		3,555		2,727
Net income	$	7,088	$	8,248	$	12,726	$	13,255
Net earnings per share:
Basic	$	0.24	$	0.29	$	0.43	$	0.47
Diluted	$	0.23	$	0.28	$	0.41	$	0.45
Weighted average number of shares of Common Stock used in the computation of:
Basic		29,871		28,328		29,674		28,221
Diluted		30,632		29,718		30,708		29,662

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DSP GROUP, INC.

CONSOLIDATED PRO FORMA STATEMENTS OF INCOME

(In thousands, except per share amounts)

	Three Months Ended June 30,				Six Months Ended June 30,
	2006		2005		2006		2005
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Product revenues and other	$	60,737	$	49,047	$	112,689	$	89,210
Cost of product revenues and other		35,502		25,990		65,779		48,234
Gross profit		25,235		23,057		46,910		40,976
Operating expenses:
Research and development		10,706		10,542		20,385		19,941
Sales and marketing		3,716		3,290		7,254		6,176
General and administrative		1,724		1,783		3,599		3,648
Total operating expenses		16,146		15,615		31,238		29,765
Operating income		9,089		7,442		15,672		11,211
Other income:
Interest and other income, net		3,351		2,499		6,460		4,771
Income before provision for income taxes		12,440		9,941		22,132		15,982
Provision for income taxes		2,115		1,693		3,763		2,727
Net income	$	10,325	$	8,248	$	18,369	$	13,255
Net earnings per share:
Basic	$	0.35	$	0.29	$	0.62	$	0.47
Diluted	$	0.34	$	0.28	$	0.60	$	0.45
Weighted average number of shares of Common Stock used in the computation of:
Basic		29,871		28,328		29,674		28,221
Diluted		30,632		29,718		30,708		29,662

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The above pro forma consolidated statements of income have been adjusted to exclude the

following to US GAAP reported net income:

	Three Months Ended June 30,					Six Months Ended June 30,
	2006			2005		2006			2005
	(Unaudited)			(Unaudited)		(Unaudited)			(Unaudited)
Reported net income per US GAAP	$	7,088		$	8,248	$	12,726		$	13,255
Adjustments:
Equity-based compensation expense included in cost of product revenues and other		130			—		208			—
Equity-based compensation expense included in research and development		1,703			—		2,925			—
Equity-based compensation expense included in sales and marketing		354			—		622			—
Equity-based compensation expense included in general and administrative		1,171			—		2,096			—
Tax benefit resulting from equity-based compensation		(121	)		—		(208	)		—
Pro forma net income	$	10,325		$	8,248	$	18,369		$	13,255

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DSP GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands)

	June 30, 2006			December 31, 2005
	(Unaudited)			(Audited)
Assets
Current assets:
Cash and cash equivalents	$	33,019		$	50,460
Marketable securities and cash deposits		134,790			108,928
Trade receivables, net		28,216			16,991
Inventories		19,426			12,686
Other accounts receivable		1,734			1,617
Deferred income taxes		1,434			1,227
Total current assets		218,619			191,909
Property and equipment, net		11,322			11,704
Long term marketable securities		185,016			185,828
Severance pay fund		4,944			4,419
Deferred income taxes		1,638			1,638
Other assets		3,972			4,507
Total assets	$	425,511		$	400,005
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	19,032		$	12,753
Other current liabilities		28,457			33,411
Total current liabilities		47,489			46,164
Accrued severance pay		5,170			4,707
Stockholders’ equity:
Common Stock		29			29
Additional paid-in capital		209,093			188,539
Accumulated other comprehensive income		347			45
Retained earnings		187,902			179,968
Less – Cost of treasury stock		(24,519	)		(19,447	)
Total stockholders’ equity		372,852			349,134
Total liabilities and stockholders’ equity	$	425,511		$	400,005

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