Back to GetFilings.com
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2000
Commission File Number 0-23006
DSP GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-2683643
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation and organization) Identification No.)
3120 SCOTT BOULEVARD, SANTA CLARA, CA 95054
-------------------------------------------
(Address of principal executive offices, including zip code)
(408) 986-4300
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.001 PER SHARE
(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 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. [ ]
The aggregate market value of the voting stock held by
non-affiliates of the Registrant, based on the closing price of the Common
Stock on March 30, 2001, as reported on the Nasdaq National Market, was
approximately $301,818,790.00. Shares of Common Stock held by each officer
and director and by each person who owns 5% or more of the outstanding Common
Stock have been excluded from this computation in that such persons may be
deemed to be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.
As of March 30, 2001, the Registrant had outstanding 26,520,541
shares of Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Stockholders for the
fiscal year ended December 31, 2000 are incorporated by reference into Part II
of this Form 10-K Report. Portions of the Registrants definitive Proxy Statement
to be filed subsequently relating to its 2001 annual meeting are incorporated
herein by reference into Part III of this Form 10-K Report. With the exception
of those portions which are incorporated by reference, the Registrant's 2000
Annual Report and Proxy Statement are not deemed filed as part of this Report.
INDEX
DSP GROUP, INC.
PAGE
PART I..........................................................................................................4
Item 1. BUSINESS...............................................................................................4
Item 2. PROPERTIES............................................................................................25
Item 3. LEGAL PROCEEDINGS.....................................................................................25
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...................................................25
PART II........................................................................................................25
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.................................25
Item 6. SELECTED FINANCIAL DATA...............................................................................25
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................25
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RATE............................................25
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...........................................................25
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE..................26
PART III.......................................................................................................27
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT....................................................27
Item 11. EXECUTIVE COMPENSATION................................................................................27
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT........................................27
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................................................27
PART IV........................................................................................................28
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K......................................28
SIGNATURES.....................................................................................................33
THIS ANNUAL REPORT ON FORM 10-K CONTAINS CERTAIN FORWARD-LOOKING
STATEMENTS THAT ARE BASED ON THE BELIEFS OF, AND ESTIMATES MADE BY AND
INFORMATION CURRENTLY AVAILABLE TO, DSP GROUP'S MANAGEMENT. THE WORDS "EXPECT,"
"ANTICIPATE," "INTEND," "PLAN" AND SIMILAR EXPRESSIONS IDENTIFY FORWARD-LOOKING
STATEMENTS. THESE STATEMENTS ARE SUBJECT TO RISKS AND UNCERTAINTIES. ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED HERE. FACTORS THAT COULD
CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE
DISCUSSED BELOW IN "FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS" AND
ELSEWHERE IN THIS ANNUAL REPORT ON FORM 10-K.
THIS ANNUAL REPORT ON FORM 10-K INCLUDES TRADEMARKS AND REGISTERED
TRADEMARKS OF DSP GROUP. PRODUCTS OR SERVICE NAMES OF OTHER COMPANIES MENTIONED
IN THIS ANNUAL REPORT ON FORM 10-K MAY BE TRADEMARKS OR REGISTERED TRADEMARKS OF
THEIR RESPECTIVE OWNERS.
PART I
Item 1. BUSINESS.
GENERAL BUSINESS
DSP Group was incorporated as a corporation in the State of California
in 1987 and reincorporated in the State of Delaware in 1994. DSP Group develops
and markets products and technologies that perform digital signal processing
(DSP) -the electronic manipulation of digitized speech and other digital
signals. DSP Group's products are used in a wide variety of telecom
applications.
Digital signal processing based solutions are more cost effective and
provide a broader range of features than analog based solutions. Many
applications, including digital cellular and wireless communications, broadband
modems, Voice Over the Internet and digital audio/video, all use DSP techniques
intensively.
Our work in the field of DSP has yielded four synergetic product
families:
- Integrated Digital Telephony (IDT) family of chips, comprised
of the following:
- SPEECH AND TELEPHONY. A highly integrated DSP based chip
that handles telephony functions and advanced speech
algorithms targeted for the telephony market.
- CORDLESS TELEPHONY. A 900 Megahertz / 2.4 Gigahertz Digital
Spread Spectrum chip set. The chip set is composed of a RF
transceiver and a highly integrated DSP based chip. The DSP
based chip combines three main functions into one chip: the
wireless base band; speech processing; and telephony
functions.
- VOICE OVER PACKET. A DSP based, highly integrated speech
processor targeted for the low to medium density Integrated
Accesses Device (IAD), Residential gateway and IP telephony
markets.
- DSP CORES. Digital Signal Processor Cores is a family of
programmable digital signal processors that, when combined
with other hardware elements such as memory and
input/output devices, forms a software enabled chip that
is most targeted for specific applications.
- TRUESPEECH(R). A family of proprietary speech compression
algorithms.
DSP-BASED SPEECH AND TELEPHONY PROCESSORS
DSP Group has developed two lines of speech and telephony processing
chips: integrated digital telephony processors, which are designed for use in
the consumer telephone market; and Voice over IP
4
speech co-processors, which are designed for use in network telephony and video
conferencing products. Both product lines are based upon our DSP core designs
and incorporate our TrueSpeech speech compression algorithms.
INTEGRATED DIGITAL TELEPHONY SPEECH PROCESSORS
DSP Group's integrated digital telephony (IDT) speech processors are
currently incorporated in over 90 models of featured phones from more than 40
different companies. These models are being sold in Europe, Japan and the United
States.
Our IDT speech processors are based on our PineDSPCore(R) and TeakLite
DSPCore, which are more fully described below. Our integrated digital telephony
speech processors use our TrueSpeech speech compression technology to provide
the highest quality speech recording and playback. They incorporate the
following speech and telephony technologies in various combinations:
- --------------------------------------------------------------------------------
TECHNOLOGY DESCRIPTION
- --------------------------------------------------------------------------------
Triple Rate Coder(TM) Instructs the telephone answering
system to decide automatically
between better voice quality and
longer recording time.
- --------------------------------------------------------------------------------
True Full-Duplex SpeakerPhone(TM) Allows simultaneous two-way
(full-duplex), hands-free operation of
the telephone and suppresses and
cancels acoustic and electrical
echoes.
- --------------------------------------------------------------------------------
G.723.1 Provides speech compression for Voice
over IP and video conferencing over
standard telephone lines.
- --------------------------------------------------------------------------------
Caller ID and Call Waiting Caller ID Identifies to the party being called
the telephone number of the calling
party, whether or not the party being
called is already engaged in another
call.
- --------------------------------------------------------------------------------
Call Progress Tone Detection Detects standard telephony signals
during the progress of a telephone
call.
- --------------------------------------------------------------------------------
DTMF Signaling Detects and generates touch
tone (DTMF) signals that comply with
telephone industry frequency
standards.
- --------------------------------------------------------------------------------
Speech Prompts Provides the ability to stamp
a message with a time and date and
vocal operating instructions prompts.
- --------------------------------------------------------------------------------
Variable Speed Playback Permits playback of recorded speech at
(FlexiSpeech(R)) different speeds without distorting
the natural sound of the speech.
- --------------------------------------------------------------------------------
Voice Operated Switch (VOX) Detects human speech and stops
(Smart-Vox(R)) recording during periods of silence,
thereby conserving available memory.
- --------------------------------------------------------------------------------
Alpha Least Cost Routing Automatically chooses from a number of
(LCR)/Super LCR telephone service providers in order
to select the lowest available rates.
- --------------------------------------------------------------------------------
Voice Recognition Allows a user to operate a telephone
or answering machine device by giving
voice commands.
- --------------------------------------------------------------------------------
The first integrated digital telephony speech processors were
introduced by DSP Group in 1989. Since then, we have shipped approximately
67 million units of speech processors to original equipment manufacturers
(OEMs), of which approximately 20 million were shipped in 2000. Our IDT speech
processor sales accounted for approximately 70% of our total revenues in 2000.
5
In 1999, we started the shipment of the D16000 family of fully
integrated speech processors, which combine the components of a mixed signal
system on a single chip. Each speech processor in the D16000 family contains a
DSP core, converters that transform analog signals into digital signals and vice
versa, and various signal amplifiers, all embedded on a single chip. In addition
to implementing DSP algorithms, including data compression, caller ID and
full-duplex speaker phone, these speech processors also perform tasks that would
typically be handled by a separate central processing unit (CPU) chip. Our goal
is for the D16000 processors to provide high value to telephony product vendors
by eliminating the need for almost any other electronic components and thus
reducing materials and manufacturing costs.
In 2000, we developed the D36000 family of fully integrated speech
processors based on our TeakLite Core, which can support two line telephony as
well as cordless base band modems with low power usage. We anticipate that this
product will enter to mass production deliveries in the second quarter of 2000.
The following table presents the main features of the primary IDT
speech processors that we currently offer:
DSP GROUP'S IDT SPEECH PROCESSORS
D36569 D16559 D6571 D6587
--------- ------ ------ -------
Process Geometry (microns).............. 0.25 0.45 0.5 0.5
Minutes Record, 4 Mbit Memory........... 22-25, 22-25, 22-25, 22-25,
10,15 10,15 10,15 10,15
Memory Type............................. Flash Flash Flash Flash
DSP Core: TeakLite Pine Pine Pine
Advanced Features:
Speech Prompts........................ Yes Yes Yes Yes
Variable Speed Playback............... Yes Yes Yes Yes
Full Duplex Speakerphone.............. Yes Yes Yes Yes
Caller ID and Call Waiting Caller ID Yes Yes Yes Yes
Voice Recognition -- -- -- Yes
System On Chip-included peripherals:
Microcontroller....................... Yes Yes -- --
Line Codec ........................... Yes Yes -- --
Speaker Codec......................... Yes Yes -- --
Amplifiers............................ Yes Yes -- --
CORDLESS TELEPHONY
In the beginning of 1999, DSP Group acquired two integrated groups of
engineers, one located in Israel and the other in the United States. These
twenty-five engineers specialize in the design of integrated circuits for
wireless communications. In addition, we acquired technology and products,
including associated intellectual property, related to 900 Megahertz narrow-band
cordless telephones (the transmissions between the handset and base unit of
these telephones are at or near a frequency of 900 Megahertz) and 900 Megahertz
spread spectrum cordless telephones (the transmissions between the handset and
base unit of these telephones are "spread" in a pseudo-random pattern over a
range of frequencies).
In 2000, in anticipation of limited growth in the U.S. 900MHz spread
spectrum market, DSP Group initiated development of a new line of cordless
products to address this changing market. The line includes a low cost 900MHz
digital chipset, a 2.4GHz frequency-hopping, spread spectrum, high power system
(a method which uses fast channel switching to mitigate interference and improve
performance) and a 2.4GHz multihandset system.
The following table presents the main features of the cordless chipsets
that we currently offer:
6
DSP GROUP'S IDT CORDLESS SPEECH PROCESSORS
900MHZ 900MHZ
DSS DIGITAL
------- -------
Process Geometry baseband (microns)..... 0.35 0.25
RF Process Bipolar Bipolar
Advanced Features:
Digital Answering Machine............. No Yes
Full Duplex Speakerphone.............. No Yes
Caller ID and Call Waiting Caller ID No Yes
System On Chip-included peripherals:
Line Codec ........................... Yes Yes
Speaker Codec......................... No Yes
Amplifiers............................ Yes Yes
Transmit power (mW) 100 1
Multihandset Capability No No
VOICE OVER PACKET SPEECH CO-PROCESSORS
Our Voice over Packet (VoIP, VoDSL) speech co-processors were developed
for use in conjunction with other microprocessors to transmit
voice-over-packet-based public and private networks, including the Internet,
local area networks (LANs), frame relay networks, xDSL links, cable networks and
other data networks and combined data/voice networks. "Voice over IP" refers to
the transmission of voice signals over networks using the Internet Protocol
(IP), which involves dividing the signals into numerous small data packets that
are individually transmitted over the network and re-assembled in the correct
order at their destination. This technology can also be used to implement the
speech component of video conferencing applications.
DSP Group has developed a family of TrueSpeech co-processors that
integrate the various versions of TrueSpeech with important telephony
capabilities. This product line is known as the CT8000 TrueSpeech Co-processor
family. During 2000 we introduced to mass production the latest product in this
line, our CT8022 device which has G723.1 and G729AB speech coders.
In March 2000 DSP Group acquired approximately 73% of VoicePump, Inc.,
a company which specializes in speech coding and telecom algorithms for VoIP,
VoDSL and other voice-over-packet applications developed for voice gateway,
customer-oriented equipment manufacturers and broadband network providers. In
March 2001, DSP Group exercised its option to acquire the remaining founders'
shares of VoicePump, which is now a wholly-owned subsidiary of DSP Group.
VoicePump plans to launch its first products in the VP100 family of
products in the second half of 2001. The VP100 family of products is based on
DSP Group TeakLite core processor, which includes an integrated set of
peripherals optimized for VoDSL Integrated Access Device (IADs), VoIP and other
packet voice applications. VoicePump plans to offer its current and future
product lines as low cost efficient applications for both VoDSL and VoIP
solutions.
We anticipate that VoicePump's speech co-processors will take advantage
of the G.723.1, a speech compression algorithm that has been incorporated into
various international communications standards, which is more fully discussed
below, to provide cost-effective, high quality speech compression. The following
table sets forth other features of the Voice over IP speech co-processors that
we currently offer or plan to offer during 2001:
7
DSP GROUP'S VOICE OVER PACKET SPEECH CO-PROCESSORS
CT8022 VP110 VP120 VP140
-------- --------- --------- --------
Number of channels supported simultaneously 1 1 2 4
DSP Core.................................... Oak TeakLite TeakLite TeakLite
Process Geometry (microns).................. 0.5 0.25 0.25 0.25
ITU-T Standard Speech Coders................ G.723.1, G.726, G.726, G.726,
G.729AB G.723.1, G.723.1, G.723.1,
G.729AB G.729AB G.729AB
Analog Front-End integrated................. -- Yes Yes Yes
Features:
Full Duplex Speakerphone................... Yes Yes Yes Yes
Variable Speed Message Playback............ -- -- -- --
Full Duplex DSVD........................... Yes Yes Yes Yes
Video Conferencing......................... Yes Yes Yes Yes
Internet Telephony.......................... Yes Yes Yes Yes
Line Echo cancellation G168................ No Yes Yes Yes
The following is a list of manufacturers and resellers whose products
incorporate our devices:
VOIP, IDT & CORDLESS MANUFACTURERS AND RESELLERS
Manufacturers Resellers
----------------------------------- ------------------
Solectron Panasonic Bell South
Flextronics Philips Doro
CCT Telecom CKT Radio Shack
Daewoo Samsung France Telecom
D&B Electronics E-Lead GE
Primatronix Intech German Telecom
Giant Sagem Loewe-Binatone
HPF Ascom Sony Southwestern Bell
JVC Taifeng Belgacom
Decktron Thomson
L.G. Electronics Tiptel
Cenixdigicom Syhtech
DIC Dyne
Matra Uniden
Maxon Diasonics
DSP CORES
DSP Group has developed proprietary, programmable DSP core
architectures and designs that provide low-power, high performance,
cost-effective solutions for current and emerging digital signal processing
applications. Our DSP cores are incorporated in our own family of speech and
telephony, cordless, voice over packet and telephony processors and also are
licensed to more than 60 entities, including Adaptec (now part of ST Micro),
Atmel, DSP Communications (now part of Intel), Fujitsu,
8
Kawasaki, LSI Logic, Marvell, NEC, Oki, Seiko Epson, Samsung, Siemens/Infinion,
Sony, Temic and Philips.
Our SmartCores(TM) family is currently composed of five generations of
fixed-point DSPs: PineDSPCore(R); OakDSPCore(R); TeakLite(R); Teak(R); and
PalmDSPCore(R). By offering a range of performance, price and power consumption
balances, our cores family addresses a wide range of applications, from low-end,
high-volume applications, such as digital answering machines, hard disk
controllers, low speed modems and Voice over IP terminals, to high performance
applications such as third generation (3G) cellular communication devices,
broadband modems, consumer multimedia and Voice over IP gateways.
Our DSP core designs are currently licensed to a wide variety of
licensees under more than 60 license agreements, including leading semiconductor
companies such as Atmel, Fujitsu, Infineon, Intel, Kawasaki, LSI Logic,
Mitsubishi, National Semiconductor, NEC, Oki, Philips, Samsung, Seiko-Epson and
Sony.
We believe the following to be the key benefits of our solution:
- LOW POWER CONSUMPTION. Our cores have been designed to satisfy low
power consumption requirements. Applications within the embedded DSP
Group market either rely on batteries, such as cell phones and
portable audio products, or are sensitive to power dissipation as in
the case of telecommunications equipment (DSLAM or multi-channel
voice gateways).
- LOW COST. Our technology is designed to address the cost requirements
for high volume, highly-competitive applications. Reduction of chip
cost is achieved by reducing the overall physical size of the chip.
Our technology contributes to this reduction by reducing the size of
the programmable DSP core through careful selection of functions and
mechanisms to be included within the core. We also reduce chip size
by minimizing the memory size used for running a specific
application. Through our DSP algorithms, we offer instruction sets
suited for targeted applications and encode the instructions in a
very condensed form. The instruction code density factor has recently
gained more significance, as the emerging applications in our markets
are major memory consumers.
- FLEXIBILITY. Our architecture allows our licensees to differentiate
their products while still taking advantage of the benefits of our
"open architecture" designs. We license our technology as a "soft
core," allowing each of our semiconductor licensees or system OEMs to
take advantage of their respective manufacturing strengths. In
addition, our architecture has flexible memory size, which enables
our licensees to tailor the chip to include the specific memory size
required for a targeted application.
- PROGRAMMABLE SOLUTION. Our intellectual property allows our licensees
to develop software-based, application-specific chips as opposed to a
hard-wired implementation. A programmable solution allows our
licensees to use the same IC design for several generations or
variations of products, implementing these differentiations through
software, thus shortening the time to market and reducing engineering
costs. Additionally, a programmable solution allows for "field
upgrades" of the chips, where software can be replaced through remote
down-loading rather than through replacing the chip.
- IMPROVING CUSTOMERS TIME TO MARKET. A typical design cycle for a
semiconductor company can be lengthy and painful. Our technology
shortens this design cycle and improves our customers overall time to
market by addressing two of the main time-consuming stages of the
design cycle: the process of porting the core design to physical
hardware layout; and by providing ready-made software development
environments for designing the software used in our core designs.
9
- FOCUSED PRODUCT ROAD MAP OF HIGH-PERFORMANCE CORES. We have developed
five generations of programmable DSP cores, which were designed to
meet the performance, power consumption and cost requirements of the
various applications within the embedded DSP market, and we intend to
continue and enhance our cores and to design new cores to meet future
market demands. Our family of cores offers broad selection of
different price performance points, although each is designed for low
power consumption, enabling the crafting of optimal balance of
performance, cost and power efficiency. In addition, our latest DSP
cores, the Teak and the PalmDSPCore, use advanced techniques of
Instruction Level Parallelism--Single Instruction Multiple Data
(SIMD) and Multiple Instruction Multiple Data (MIMD) allowing our
cores to be embedded in high-performance applications such as
telecommunications equipment (Multi-Channel Voice Gateways, DSLAM)
and third generation cellular terminals.
- SOFT CORE / FOUNDRY NEUTRAL. Our cores are "soft cores," which means
that they include a complete software-based description of the
circuits as well as simulation and verification data. This allows the
licensee to create diversified versions of their embedded
intellectual property solutions through the selection of different
physical library vendors or silicon suppliers and allows our cores to
be easily integrated across multiple semiconductor manufacturing
processes with different geometry technologies. This manufacturing
independence enables our customers to select any foundry vendor or
semiconductor process to manufacture their designs.
- OPEN ARCHITECTURE. Our SmartCore architecture is offered to a broad
range of SoC manufacturers that provide solutions for system OEMs and
has been adopted by leading worldwide semiconductor companies. Our
architecture has been adopted by several different categories of
companies that play a role in the design of advanced DSP-based
systems. As a result, the system OEMs who are the consumers of our
intellectual property enjoy the ability to choose multiple suppliers
offering solutions based on our technology, and can leverage their
buying power.
- RESPONSIVENESS TO OUR CUSTOMERS NEEDS. We have accumulated experience
in supporting and assisting customers to get into production in the
fastest way. We train our licensees, provide them with detailed
application notes, design examples and software libraries for their
use in the design process. We continue to be responsive to our
customer needs and implement changes to our solutions for the benefit
of our licensees. Our development and support teams consist of
experienced and highly-skilled engineers who enable us to provide a
broad range of services and design aids.
- TECHNOLOGY PARTNER NETWORK. We have established a network of
independent third parties that provide services and technologies
complementary to ours, including leading service companies such as
Tality, EDA vendors such as Mentor, Synopsis and Cadence, Real Time
Operating Systems (RTOS) vendors such as CMX, multi-core debugger
vendors such as Allant (a subsidiary of ARM Holding) and DSP software
companies such as Ensigma, Espico and Vocal Technologies. We believe
that these third party partners offer existing and potential users of
our technologies value-added solutions and help to establish our
cores as an industry standard.
- TIGHTLY COUPLED DEVELOPMENT TOOLS AND ARCHITECTURE. We believe that
it is a great benefit for our licensees that we provide them with
both the DSP cores and the related software development and hardware
emulation tools to assist in product development. The close
relationship between the DSP core architectures and the design
development tools results in a design environment composed of
optimized, code-efficient compilers as well as efficient and accurate
hardware emulation prototypes, which we believe our customers prefer.
10
With each new core we have developed, we have added features and
enhanced overall performance. Our first core, the PineDSPCore, was released in
1992 and was developed for use in our IDT product line. It also gained success
in other DSP applications, such as hard disk drive applications, and Voice Over
IP phones. In 1994, we introduced our OakDSPCore, an enhanced version of the
PineDSPCore that, among other things, achieves a higher processing speed through
improved architecture and includes an advanced, more efficient instruction set.
The OakDSPCore is especially well-suited for use in digital cellular phones,
conventional modems, IP phones and portable audio. Algorithms that use the
PineDSPCore instruction set also can be run on the OakDSPCore.
In 1999, we introduced the TeakDSPCore. The TeakDSPCore is a family of
two low power, low-cost cores: the TeakLite(TM) and the Teak(R). These cores
were incorporated into two new methodologies known as "soft core" and
"synthesizable core" which significantly simplifies and shortens the process of
porting the design technology to the licensee's manufacturing process and
technologies. The TeakLite takes advantage of the wide adoption of the
OakDSPCore and offers the advantages of lower power and higher operating speeds
over its predecessor. The Teak offers in addition to the TeakLite benefits, two
(as opposed to one) arithmetic units functioning in parallel (Dual MAC), which
improves the performance of a notable portion of the DSP application. The
TeakDSPCore family is aimed at emerging applications in the digital cellular
communications, including products implementing the Global System for Mobile
communications (GSM), half-rate GSM, Time Division Multiple Access (TDMA) and
Code Division Multiple Access (CDMA) standards. We also have targeted these
cores for products implementing emerging digital audio standards and formats
such as AC3 and MP3, as well as for Voice over IP gateways.
In 1999, we also introduced the first version of our high performance
PalmDSPCore. The PalmDSPCore is a family of three cores, with each core version
intended for a different market segment. These cores are intended for a wide
range of high performance applications, including third generation cellular
communications, digital subscriber lines (DSL), VoIP gateways and consumer
multimedia. The following table sets forth the primary features of each our
SmartCores products:
DSP GROUP'S CORE DESIGNS
PINEDSPCORE OAKDSP CORE TEAKLITE TEAK PALMDSPCORE
----------- ----------- ---------- -------- -------------
Data Word Length .............. 16 bit 16 bit 16 bit 16 bit 16/20/24 bit
Design Methodology............. Hard Hard Soft Soft Soft
Architecture................... Single MAC Single MAC Single MAC Dual MAC Dual MAC &
Instruction
Level
Parallelism
Program address space.......... 64Kwords 64kwords 64Kwords 4Mwords 16Mwords
Program word size.............. 16 bit 16 bits 16 bit 16 bit 16/32 bit
11
In addition to incorporating our DSP core designs in our speech and
telephony processors, we also license them to third parties together with our
advanced software development tools, so that these licensees can incorporate
our DSP core designs into their semiconductor chip products. These licenses
are generally granted in exchange for a license fee payment, a support fee
and a royalty. The license fee is generally recognized when persuasive
evidence of an agreement exists, delivery has occurred, the fee is fixed on
determinable and collectability is probable. The monthly support fee is
typically paid for a period of one or two years, and recognized during that
period and ongoing per-unit royalties based on the number of units of
products containing the core that are shipped by the licensee. Non refundable
payment on account of future royalties from similar agreements are recognized
upon payments, provided no future obligation exists. The timing and amount of
royalties that we receive from our core licensees depends on the timing of
each licensee's product development and the degree of market acceptance of
each licensee's products, neither of which are within our control. In 2000,
12 licensees shipped products utilizing these cores, an increase over the
previous year.
The following is a partial list of companies who have licensed our DSP
core designs and representative applications for which they use our DSP core
designs:
DSP CORE DESIGN LICENSES
LICENSEES REPRESENTATIVE APPLICATIONS
- ----------------------------------- -----------------------------------
Atmel ASIC, Communications
DSP Communications
(a subsidiary of Intel) Digital Cellular Telephones
Fujitsu ASIC, ADSL, Communications
Hyundai ASIC, Audio, Communications
Infineon Communications; Wireless
Kawasaki ASIC, Communications
Kenwood Audio Products
Legerity Communications
LSI Logic ASIC, DAB, Servo, Cellular
Marvell Data Storage
Mitel ASIC, Cellular, VoIP
Mobilink Cellular
National Semiconductor Communications
NEC ASIC, Communications
Oki Communications, Modems, VoIP
Philips Semiconductors ASIC, Communications, Audio, Wireless
ROHM ASIC, Communications
Samsung ASIC, Communications and Multimedia
Seiko-Epson ASIC, Communications
Sony Multimedia; Audio; Servo
ST Microelectronics Disk Drives
TDK Semiconductor Modems
TEMIC DAB, Communications
Tioga ADSL
Xemics Low Voltage applications
Adaptec Disk Drives
In 2000, the number of our core licensees increased as a result of
several contracts signed for our newest products, TeakLite, Teak and
PalmDSPCore. Prior to 1999, most of our licensees licensed our cores for the
cellular market. In 2000, the PalmDSPCore was selected by leading companies as
the platform for the xDSL (full-rate and G.Lite) market as well as for third
generation cellular products.
12
TRUESPEECH PRODUCTS
TrueSpeech is a family of high-quality, cost-effective speech
compression technologies based on complex mathematical algorithms that are
derived from the way airflow from the lungs is shaped by the throat, mouth and
tongue during speech. This shaping of bursts of air is what the ear interprets
as speech. TrueSpeech converts these sounds into digital data and then
selectively eliminates and enhances certain sound data to replicate human
speech.
Originally developed for consumer telephone applications, we have also
enhanced our TrueSpeech products for use in the computer telephony and Voice
over IP markets. We have both incorporated our TrueSpeech technology into our
speech and telephony processors and as well as offer licenses of TrueSpeech to
computer telephony, personal computer and Voice over IP companies for inclusion
in their products.
Our TrueSpeech technology has become one of the leading digital speech
compression solutions in several markets. In the personal computer market,
Microsoft has incorporated one of our TrueSpeech algorithms in its Windows 95,
Windows 98 and NT products. In February 1995, the International
Telecommunications Union established its G.723.1 standard for low bit rate
speech compression, which incorporates the TrueSpeech 6.3 and 5.3 algorithms. In
March 1997, the International Multimedia Teleconferencing Consortium, a
nonprofit industry group, recommended the G.723.1 standard as a default low bit
rate audio compression technology for all voice transmissions over the Internet
and for conferencing products conforming to the International Telecommunication
Union's H.323 standard for packet-based multimedia communication systems.
G.723.1 is also part of the International Telecommunication Union's H.324
standard for video conferencing over standard telephone lines. Since its
adoption and endorsement by the International Telecommunications Union and the
International Multimedia Teleconferencing Consortium, the G.723.1 standard has
gained considerable momentum in the video and audio conferencing industry.
We believe that the principal advantages of TrueSpeech, as compared
with other currently available digital speech compression technologies, are as
follows:
- INDUSTRY ACCEPTANCE AND FIELD PROVEN. As described above, a
TrueSpeech algorithm, the G.723.1, was adopted as a standard by the
International Telecommunications Union and was recommended as the a
default speech algorithm for Voice over IP by the International
Multimedia Teleconferencing Consortium. This encourages broad usage
of the algorithm, especially in Voice over IP and video conferencing
applications.
- HIGH QUALITY SPEECH. Another advantage of TrueSpeech is that it
reproduces high quality speech playback with minimum distortion by
selectively eliminating nonessential and background sound data
without significant loss of speech quality. Our TrueSpeech technology
has received high scores for speech quality from a number of
independent evaluators. For example, TrueSpeech scored the highest on
the ITU's test used to numerically rate the quality of the five
competing speech compression algorithms submitted for adoption as the
G.723.1 standard for video telephones. In independently conducted
tests performed by Dynastat, Inc., a company specializing in the
performance evaluation of voice communication systems, TrueSpeech 6.3
received a mean opinion score of 3.98, while regular telephone
quality being based upon a mean opinion score of 4.0.
- COST EFFECTIVENESS. TrueSpeech's ability to achieve high speech
compression with lower computational complexity provides it with a
competitive cost advantage. For example, competing speech compression
algorithms evaluated by the ITU use 20% to 50% more computing power
for the same compression and transmission rates, and require more
memory for storage and operation. Consequently, these competing
speech compression algorithms
13
require larger, more expensive DSPs and result in higher cost
solutions than those based on our technologies.
Our TrueSpeech licensees include, among others, Analog Devices, Cirrus
Logic, Creative Labs, Dialogic, IBM, Intel, Microsoft, Philips,
Siemens/Infinion, Smith Micro, Texas Instruments, Unisys, US Robotics, Winbond
and White Pine Software. In addition, we have ported our TrueSpeech algorithms
to certain DSP platforms offered by Analog Devices, Motorola and Texas
Instruments, three leading merchant vendors of programmable DSP chips.
SALES, MARKETING AND DISTRIBUTION
We market and distribute our products through our direct sales and
marketing organization, as well as through a network of distributors and
independent manufacturers' representatives. A marketing and sales team located
in our headquarters in Santa Clara, California and in Israel pursues business
with our customers in North America and closely monitors new markets, trends and
customer needs to shape our strategic decisions. In Japan, we operate from a
marketing and support office in Tokyo and through Tomen Electronics, a local
distributor. In the rest of Asia, we operate through sales representatives in
China, Hong Kong, India, South Korea and Taiwan. To handle sales and
distribution in Europe, we operate a marketing and support office located in
France and have sales representatives in Denmark, Germany, Israel, Spain, Sweden
and the United Kingdom. Our sales representatives and distributors are not
subject to minimum purchase requirements and can cease marketing our products at
any time. The loss of one or more representatives or their failure to renew
agreements with us upon expiration could harm our business, financial condition
and results of operations.
Sales to Tomen Electronics comprised 52% of our total revenues in 2000,
47% in 1999 and 45% in 1998. Export sales accounted for 85% of our total
revenues in 2000, 97% in 1999 and 95% in 1998. Due to our export sales, we are
subject to the risks of conducting business internationally, including
unexpected changes in regulatory requirements, fluctuations in exchange rates
that could increase the price of our products in foreign markets, delays
resulting from difficulty in obtaining export licenses for certain technology,
tariffs, other barriers and restrictions and the burden of complying with a
variety of foreign laws. All of our export sales are denominated in United
States dollars. See Note 5 of the Notes to Consolidated Financial Statements of
our Annual Report to Stockholders for the year ended December 31, 2000, for a
summary of our operations within various geographic areas.
MANUFACTURING AND DESIGN METHODOLOGY
Since our products are based on our proprietary DSP core designs, which
are not dependent upon a particular foundry's library cells, these products can
be manufactured at a number of independent foundries. Accordingly, all of our
manufacturing occurs at independent foundries. We contract fabrication services
for speech and telephony processors from Taiwan Semiconductor Manufacturing
Company, Sony and UMC. Under non-exclusive agreements, these independent
foundries normally provide us with either finished, packaged and tested speech
processors at variable prices depending on the volume of units purchased or as
sorted good wafers. We customarily pay for fully-tested products meeting
predetermined specifications. To ensure the integrity of quality assurance
procedures, we develop detailed testing procedures and specifications for each
product and require each foundry to use these procedures and specifications
before shipping us finished products.
We intend to continue to use independent foundries to manufacture
digital speech processors, cordless devices and other products for the consumer
telephone and computer telephony markets. To obtain an adequate supply of
finished wafers in the future, we are considering various alternative production
sites. Our reliance on independent foundries involves a number of risks,
including the foundries' ability to achieve acceptable manufacturing yields and
their allocation of sufficient capacity to us to meet our needs. In addition,
foundries in Taiwan produce a significant portion of our wafer supply. As a
result, earthquakes, aftershocks or other natural disasters in Asia, could
preclude us from obtaining an adequate supply of wafers to fill customer
orders and could harm our business, financial condition, and results of
operations.
14
In addition to our speech processors, our IDT speech processor products
require an external component in the finished product to provide analog random
access memory circuits (ARAMs) and flash memory that are supplied by third party
manufacturers. Temporary fluctuations in the pricing and availability of these
components could negatively impact sales of our IDT speech processors, which
could in turn harm our business, financial condition and results of operations.
COMPETITION
The markets in which we operate are extremely competitive and we expect
that competition will increase in the future. In each of our business
activities, we face current and potential competition from competitors that have
significantly greater financial, technical, manufacturing, marketing, sales and
distribution resources and management expertise than we do. Our future prospects
will depend greatly on our ability to successfully develop and introduce new
products that are responsive to market needs. We cannot assure you that we will
be able to successfully develop or market any of these products.
The principal competitive factors in the IDT speech processors market
include price, speech quality, compression ratio, value-added features (such as
variable speed message playback and speakerphone), the level of mixed-signal
integration, customer support and the timing of product introductions by us and
our competitors. We believe that we are competitive with respect to each of
these factors. Our principal competitors in the IDT market include Agere,
Macronix, Philips, Sanyo, Siemens/Infinion and Toshiba.
The principal competitive factors in the cordless telephony market
include price, system integration level, range, customer support and the timing
of product introductions by us and our competitors. We believe that we are
competitive with respect to most of these factors. Our principal competitors in
the cordless market include Conexant, National Semiconductor, Philips and
Siemens/Infinion.
The principal competitive factors in the Voice over Packet market
include price, system integration level, customer support and the timing of
product introductions by us and our competitors. We believe that we are
competitive with respect to most of these factors. Our principal competitors in
the Voice over Packet market include TI/Telogy, Virata and Ishoni.
The principal competitive factors in the DSP core designs market for
high volume, low cost applications include such features as small size, low
power, flexible I/O blocks and associated development tools. Our DSP core
designs compete with companies such as LSI Logic and Siemens/Infinion, which
license DSP platforms, and companies such as Analog Devices, Agere, Motorola,
and Texas Instruments, which sell their own complete general purpose DSP
solutions.
Several digital speech compression technologies exist and are currently
being developed that may be promoted by competitors as industry standards for
the computer telephony and personal computer markets. Our TrueSpeech algorithms
compete with ADPCM, and the speech compression technologies used in the GSM and
VSELP protocols, each of which is available in the public domain. There are many
versions of these algorithms that have been developed by different parties,
including AT&T, which has been actively involved in the development of GSM
protocols, and Motorola, which developed the original VSELP protocols. Although
TrueSpeech has achieved a degree of acceptance in the computer telephony,
personal computer and VoIP markets, ADPCM and the speech compression
technologies for the GSM and VSELP protocols are widely used in the development
and implementation of new products in the telephony industry. In addition, other
advanced speech compression algorithms have been introduced by competitors that
offer compression ratios comparable to or higher than the TrueSpeech algorithms.
Large companies, such as AT&T, Creative Labs, Motorola and Rockwell, have speech
processing technologies that can be applied to speech compression for use in the
same markets for which our products are targeted.
15
Price competition in the markets in which we currently compete and
propose to compete is intense and may increase, which could harm our business,
financial condition and results of operations. We have experienced and expect to
continue to experience increased competitive pricing pressures for our IDT
processors. We were able to offset price reductions which occurred during 2000
through manufacturing cost reductions and by achieving a higher level of
integration in our products and by combining other functions, which used to be
part of separate chips, into our DSP Group chips. However, we cannot assure you
that we will be able to further reduce product costs, or be able to compete
successfully as to price or any other of the key competitive factors in the
future.
RESEARCH AND DEVELOPMENT
We believe that continued timely development and introduction of new
products is essential to maintain our competitive position. We currently conduct
most of our product development in our facilities and at December 31, 2000 had a
staff of 135 research and development personnel, of which 102 were located in
Israel. We also employ independent contractors to assist with certain product
development and testing activities. We spent approximately $20.9 million in
2000, compared with $15.4 million in 1999, on research and development
activities.
RELATIONSHIPS WITH AFFILIATED COMPANIES
AUDIOCODES, LTD.
AudioCodes, Ltd. ("AudioCodes") is an Israeli corporation primarily
engaged in design, research, development, manufacturing and marketing hardware
and software products that enable simultaneous transmission of voice and data
over networks including the Internet, ATM and frame relay. DSP Group acquired
approximately 35% of the outstanding stock of in AudioCodes in two separate
transactions in 1993 and 1994. In July 1997, AudioCodes completed a private
placement of additional equity securities without the participation of DSP Group
and, as a result, DSP Group's equity ownership interest in AudioCodes was
diluted from 35% to approximately 29%. DSP Group was also granted an option to
purchase up to an additional 5% of the outstanding stock of AudioCodes under
certain conditions.
DSP Group accounts for its ownership in AudioCodes using the equity
method. DSP Group's original investment in AudioCodes included the excess of
purchase price over net assets acquired (approximately $1,907,000 at the date of
purchase), which was attributed to developed technology to be amortized over
seven years. The private placement by AudioCodes in July 1997 was at a price per
share greater than DSP Group's then current investment in AudioCodes. As a
result, even though DSP Group's ownership interest decreased from 35% to 29%,
DSP Group's proportionate share of the net assets of AudioCodes increased from
$816,000 to $1,481,000 at the date of the private placement. This increase in
DSP Group's proportionate share of the net assets of AudioCodes reduced the
remaining unamoritized excess of purchase price over net assets acquired from
$1,080,000 to $415,000 as of the date of the private placement.
In May 1999, DSP Group exercised its option to purchase approximately
3.5% of the outstanding stock of AudioCodes for approximately $1.2 million. In
the same month AudioCodes completed its initial public offering (IPO) and is now
listed on the Nasdaq SmallCap Market under the symbol AUDC. In its IPO,
AudioCodes issued 7.0 million shares at a price of $7.00 per share. As a result,
DSP Group recorded in "Financial and Other income (expense)" in its consolidated
statements of income for 1999 a one-time capital gain in the amount of $11.8
million. This amount was comprised of a $9.4 million gain from the sale of
AudioCodes' stock to the public in the IPO and a $2.5 million gain from the sale
of approximately 496,000 AudioCodes shares to the underwriters, to cover their
over-allotment option. The gross proceeds to DSP Group from the sale of some of
our AudioCodes shares was approximately $3.2 million. In October 1999,
AudioCodes successfully concluded a follow-on public offering of 6 million
shares at a price of $20.50 per share. In the follow-on, AudioCodes issued and
sold 3.0 million shares and an additional 3.9 million shares were sold by
shareholders, of which approximately 2,138,000 shares were sold by DSP
16
Group in two separate transactions. The gross proceeds to DSP Group from these
transactions were approximately $42.8 million, and we recorded as additional
capital gain in the amount of $47.1 million. This amount was comprised of a
$10.8 million gain from the increase in audio net asset value in the public
offering and $36.3 million gain from our sale of approximately 2,138,000
AudioCodes shares. As of December 31, 1999, DSP Group a amortized all the
remaining portion of the excess of purchase price over net assets.
In January 2000, DSP Group sold an additional 1,200,000 shares of
AudioCodes for approximately $43.8 million and recorded an additional capital
gain in the amount of $40.0 million in the first quarter of 2000. In May
2000, DSP Group sold an additional 500,000 shares of AudioCodes for
approximately $19.2 million and recorded an additional capital gain in the
amount of $17.6 million in the second quarter of 2000. In December 2000, DSP
Group purchased in the open market 300,000 shares of AudioCodes stock for
approximately $4.9 million. This transaction created an excess of purchase
price over net assets acquired (approximately $3,745,000 at the date of
purchase), which was attributed to developed technology to be amortized over
seven years. As of December 31, 2000, DSP Group held 4.45 million shares of
AudioCodes common stock, which represented approximately 11% of the
outstanding shares of AudioCodes. DSP Group's equity in the net income of
AudioCodes was $2,644,000 in 2000, $2,475,000 in 1999, and $125,000 in 1998.
All shares and per share numbers with respect to AudioCodes have been
adjusted to reflect the 2 for 1 Stock Split effected as a stock dividend by
AudioCodes in October 2000. As of December 31, 2000, the fair market value of
DSP Group's investment in AudioCodes was approximately $60.4 million.
APTEL LTD. AND NEXUS TELECOMMUNICATIONS SYSTEMS LTD.
In July 1996, DSP Group invested in Aptel Ltd. ("Aptel"), which is
located in Israel. DSP Group accounted for its investment in Aptel using the
equity method of accounting. DSP Group's equity in the net losses of Aptel,
including amortization of related intangibles, was $408,000 in 1997. As of June
30,1997, DSP Group had fully written-off its investment in Aptel.
In December 1997, Aptel's shareholders, including DSP Group exchanged
their shares in Aptel for ordinary shares of Nexus Telecommunications Systems
Ltd. ("Nexus"). Nexus is an Israeli company whose shares are registered and
traded on the Nasdaq SmallCap Market under the symbol NXUSF. In October 1997,
DSP Group invested $176,000 in a convertible debenture in Aptel which was
converted into ordinary shares of Aptel prior to the closing of the Nexus
transaction. DSP Group received approximately 297,000 ordinary shares of Nexus
in the exchange transaction for these shares, which represented approximately 3%
of the outstanding shares in Nexus. DSP Group's basis in the Nexus stock
received is $176,000. At December 31, 1997, DSP Group's investment in Nexus was
presented in DSP Group's consolidated balance sheet at the market value of
$1,226,000, with the unrealized gain of $1,050,000 recorded as other
comprehensive income, as a separate component of stockholder's equity. In April
1998, DSP Group sold all of its Nexus shares in a private transaction for
approximately $1.3 million and realized a pre-tax gain on marketable equity
securities of approximately $1.1 million, which is included under "Financial and
Other income (expense)" in DSP Group's consolidated statements of income for
1998.
ACQUISITION OF VOICEPUMP, INC.
VoicePump, Inc. ("VoicePump") is a US corporation primarily engaged in
the design, research, development and marketing of software applications for
Voice Over DSL (VoDSL) and Voice Over Internet Protocol (VoIP). In March 2000,
DSP Group acquired (1) approximately 1,960,250 shares of Common Stock of
VoicePump from certain VoicePump shareholders in exchange for approximately
261,000 shares of its DSP Group's Common Stock and a nominal amount of cash (to
pay for fractional shares) and (2) approximately 1,027,397 shares of VoicePump
common stock directly from VoicePump together with warrants to purchase up to
1,027,397 shares of VoicePump Common Stock at an exercise price of $4.866 per
share within two years (of the date of issuance of the warrant) and up to
1,027,397 additional shares at an exercise price of $4.866 per share within
three years (of the date of issuance of the warrant) for $5,000,000. The shares
acquired from VoicePump and its shareholders (not including the
17
shares issuable upon exercise of the warrants) represented approximately 73% of
the outstanding shares of VoicePump. In the second quarter of 2000 the
investment in VoicePump was diluted due to the exercise of warrants by a
VoicePump shareholder to approximately 71% of the outstanding shares of
VoicePump. DSP Group recorded a loss of $100,000 in the second quarter of 2000
as a result of this option exercise which was attributed to loss from issuance
of subsidiaries' stock on our income statement.
DSP Group's original investment in VoicePump included the excess of
purchase price over net assets acquired (approximately $16,070,000 at the date
of purchase), which was attributed to in-process research and development and to
goodwill. The operation expenses include unusual items in the amount of
$11,869,000 related to the acquired in-process research and development, which
was written off in the first quarter of 2000. The write-off was due to the fact
that there was no established technological feasibility or alternative future
use of some of the technology. Other intangible assets acquired had an estimated
fair value of $4,201,000 and were recorded as goodwill.
As of December 31, 2000 the balance of this goodwill to be amortized in
seven years was approximately $3,854,000. The consolidated statements of income
for the year ended December 31, 2000 (commencing from the acquisition date)
include losses in the investment in VoicePump of approximately $2.2 million and
include the minority interest in those losses in the amount of $627,000.
TOMEN LTD.
In September 2000, DSP Group invested approximately $485,000 (31.0
million Yen) in shares of its Japanese distributor's parent company, Tomen Ltd.,
as part of a long-term strategic relationship. Tomen's shares are traded on the
Japanese stock exchange, and are recorded in "Other Investments" on our balance
sheets. DSP Group accounts for investments in debt and equity securities (other
than those accounted for under the equity method of accounting) in accordance
with FASB Statement No.115, "Accounting for Certain Investments in Debt and
Equity Securities." Securities available for sale are carried at fair value,
with the unrealized gains and losses, net of income taxes, reported as a
separate component of shareholders' equity, accumulated other comprehensive
income (loss). Realized gains and losses on sales of investments, as determined
on a specific identification basis, are included in the consolidated statement
of income. At December 31, 2000 the carrying amount of securities approximated
their fair value and the amount of unrealized gain or loss was not significant.
LICENSES, PATENTS AND TRADEMARKS
We have been granted eighteen United States patents, one Canadian
patent and two Israeli patents, and have twenty-five patents pending in the
United States, two patents pending in Japan, one patent pending in Taiwan,
fourteen patents pending in Israel and one patent pending in Europe. We actively
pursue foreign patent protection in other countries of interest to us. Our
policy is to apply for patents or for other appropriate statutory protection
when we develop valuable new or improved technology. The status of any patent
involves complex legal and factual questions, and the breadth of claims allowed
is uncertain. Accordingly, we cannot assure you that any patent application
filed by us will result in a patent being issued, or that our patents, and any
patents that may be issued in the future, will afford adequate protection
against competitors with similar technology; nor can we provide assurance that
patents issued to us will not be infringed or designed around by others. In
addition, the laws of certain countries in which our products are or may be
developed, manufactured or sold, including Hong Kong, Japan and Taiwan, may not
protect our products and intellectual property rights to the same extent as the
laws of the United States.
We attempt to protect our trade secrets and other proprietary
information through agreements with our customers, suppliers, employees and
consultants, and through other security measures. Although we intend to protect
our rights vigorously, we cannot provide assurance that these measures will be
successful.
The semiconductor and software industries are subject to frequent
litigation regarding patent and other
18
intellectual property rights. While we have not been involved in any material
patent or other intellectual property rights litigation to date, we cannot
provide assurance that third parties will not assert claims against us with
respect to existing or future products or that we will not need to assert claims
against third parties to protect our proprietary technology. For example, AT&T
has asserted in the past that G.723.1, which is primarily composed of a
TrueSpeech algorithm, includes certain elements covered by patents held by AT&T
and has requested that video conferencing equipment manufacturers license this
technology from AT&T. If litigation becomes necessary to determine the validity
of any third party claims or to protect our proprietary technology, it could
result in significant expense to us and could divert the efforts of our
technical and management personnel, whether or not the litigation is determined
in our favor. In the event of an adverse result in any litigation, we could be
required to expend significant resources to develop non-infringing technology or
to obtain licenses to the technology that is the subject of the litigation. We
cannot provide assurance that we would be successful in developing
non-infringing technology or that any licenses would be available on
commercially reasonable terms.
We have been issued registered trademarks for the use of the
PineDSPCore, Pine assyst simulatorm, Pine, OakDSPCore, TeakDSPCore, Teak,
PalmDSPCore, OCEM, TrueSpeech, Full Duplex SpeakerPhone, TeakLite, Triple
Rate Coder, SpeechOnChip, DSPeech and Speechip trademarks. In addition, we
applied for trademarks for PalmAssyst, Assyst and SmartCores.
While our ability to compete may be affected by our ability to
protect our intellectual property, we believe that, because of the rapid pace
of technological change in the industry, our technical expertise and ability
to innovate on a timely basis will be more important in maintaining our
competitive position than protection of our intellectual property. We believe
that, because of the rapid pace of technological change in the consumer
telephone, computer telephony and personal computer industries, patents and
trade secret protection are important but must be supported by other factors,
including the expanding knowledge, ability and experience of our personnel,
new product introductions and frequent product enhancements. Although we
continue to implement protective measures and intend to defend our
intellectual property rights, we cannot provide assurance that these measures
will be successful.
BACKLOG
At December 31, 2000, our backlog was approximately $36.2 million
compared with approximately $28.8 million at December 31, 1999. We include in
our backlog all accepted product purchase orders with respect to which a
delivery schedule has been specified for product shipment within one year and
fees have been specified in executed licensing contracts. Our business in IDT
speech processors is characterized by short-term order and shipment schedules.
Product orders in our current backlog are subject to changes in delivery
schedules or to cancellation at the option of the purchaser without significant
penalty. Accordingly, although useful for scheduling production, backlog as of
any particular date may not be a reliable measure of our sales for any future
period.
EMPLOYEES
At December 31, 2000, we had 217 employees, including 135 in research
and development, 34 in marketing and sales and 48 in corporate and
administration and manufacturing coordination. Competition for personnel in the
semiconductor, software and personal computer industries in general is intense.
We believe that our future prospects will depend, in part, on our ability to
continue to attract and retain highly-skilled technical, marketing and
management personnel, who are in great demand. In particular, there is a limited
supply of highly-qualified engineers with digital signal processing experience.
None of our employees is represented by a collective bargaining agreement, nor
have we ever experienced any work stoppage. We believe that relations with our
employees are well established.
RISK FACTORS
OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY.
19
Our quarterly results of operations may vary significantly in the
future for a variety of reasons, including the following:
- - fluctuations in volume and timing of product orders;
- - level of per unit royalties;
- - changes in demand for our products due to seasonal customer buying
patterns and other factors;
- - timing of new product introductions by us or our customers, licensees
or competitors;
- - changes in the mix of products sold by us;
- - fluctuations in the level of sales by original equipment manufacturers
(OEMs) and other vendors of products incorporating our products; and
- - general economic conditions, including the changing economic conditions
in the United States.
Each of the above factors is difficult to forecast and thus could harm
our business, financial condition and results of operations.
Through 2001, we expect that revenues from our DSP core designs and
TrueSpeech algorithms will be derived primarily from license fees rather than
per unit royalties. The uncertain timing of these license fees has caused, and
may continue to cause, quarterly fluctuations in our operating results. Our per
unit royalties from licenses are dependent upon the success of our OEM licensees
in introducing products utilizing our technology and the success of those OEM
products in the marketplace. Per unit royalties from TrueSpeech licensees have
not been significant to date.
OUR AVERAGE SELLING PRICES CONTINUE TO DECLINE.
We have experienced a decrease in the average selling prices of our
integrated digital telephony (IDT) speech processors, but have to date been able
to offset this decrease on an annual basis through manufacturing cost reductions
and the introduction of new products with higher performance. However, we cannot
guarantee that our on-going efforts will be successful or that they will keep
pace with the anticipated, continuing decline in average selling prices.
WE DEPEND ON THE IDT MARKET WHICH IS HIGHLY COMPETITIVE.
Sales of IDT products comprise a substantial portion of our product
sales. Any adverse change in the digital IDT market or in our ability to compete
and maintain our position in that market would harm our business, financial
condition and results of operations. The IDT market and the markets for our
products in general are extremely competitive and we expect that competition
will only increase. Our existing and potential competitors in each of our
markets include large and emerging domestic and foreign companies, many of which
have significantly greater financial, technical, manufacturing, marketing, sale
and distribution resources, and management expertise than we do. It is possible
that we may one day be unable to respond to increased price competition for IDT
processors or other products through the introduction of new products or
reductions of manufacturing costs. This inability would have a material adverse
effect on our business. Likewise, any significant delays by us in developing,
manufacturing or shipping new or enhanced products also would have a material
adverse effect on our business.
The 900 Mhz Digital Spread Spectrum RF and Base Band technology
acquired in 1999 from Advances Micro Devises gave us a "cheap entry ticket" to
this market. This technology is not state of the
20
art and we have noticed a trend of decreasing sales for the product models
which are based on this technology. In the first quarter of 2000 we
recognized two unusual expense items, of which the outstanding balance of the
capitalized assets were amortized. We may not succeed in our development of
new RF and Base Band models and those which are going to be developed may not
be accepted by the market. Despite the recent success of development and
sales of our DSP Cores, the market needs extensive R&D efforts in new
technologies not currently owned by us, and we may not succeed in developing
such technologies in due time, which could affect our competitive position.
WE DEPEND ON INDEPENDENT FOUNDRIES TO MANUFACTURE OUR INTEGRATED CIRCUIT
PRODUCTS.
All of our integrated circuit products are manufactured by independent
foundries. While these foundries have been able to adequately meet the demands
of our increasing business, we are and will continue to be dependent upon these
foundries to achieve acceptable manufacturing yields, quality levels and costs,
and to allocate to us a sufficient portion of foundry capacity to meet our needs
in a timely manner. To meet our increased wafer requirements, we have added
additional independent foundries to manufacture our processors. Our revenues
could be harmed should any of these foundries fail to meet our request for
products due to a shortage of production capacity, process difficulties, low
yield rates or financial instability. For example, foundries in Taiwan produce a
significant portion of our wafer supply. As a result, earthquakes, aftershocks
or other natural disasters in Asia, could preclude us from obtaining an adequate
supply of wafers to fill customer orders and could harm our business, financial
condition and results of operations.
WE MAY NEED TO INCREASE OUR RESEARCH AND DEVELOPMENT EFFORTS TO REMAIN
COMPETITIVE.
The DSP Cores market is experiencing extensive efforts by some of our
competitors to use new technologies to manipulate the chip design programming to
increase the parallel processing of the chip. One such technology used is Very
Long Instruction Word (VLIW), which some of our competitors possess elements of,
but which we do not possess at the present time. If such technology continues to
improve the programming processing of these chips, then we may need to further
our research and development to obtain such technology or our failure to remain
competitive could have an adverse effect on our results of operations.
WE DEPEND ON INTERNATIONAL OPERATIONS.
We are dependent on sales to customers outside the United States. We
expect that international sales will continue to account for a significant
portion of our net product and license sales for the foreseeable future. As a
result, the occurrence of any negative international, political, economic or
geographic events could result in significant revenue shortfalls. These
shortfalls could cause our business to be harmed. Some of the risks of doing
business internationally include:
- - unexpected changes in regulatory requirements;
- - fluctuations in the exchange rate for the United States dollar;
- - imposition of tariffs and other barriers and restrictions;
- - burdens of complying with a variety of foreign laws;
- - political and economic instability; and
- - changes in diplomatic and trade relationships.
WE FACE RISK FROM OPERATING IN ISRAEL.
21
Our principal research and development facilities are located in the
State of Israel and, as a result, at December 31, 2000, 164 of our 217
employees were located in Israel, including 102 out of 135 of our research
and development personnel. In addition, although DSP Group is incorporated in
Delaware, a majority of our directors and executive officers are residents of
Israel. Although substantially almost all of our sales currently are being
made to customers outside Israel, we are nonetheless directly influenced by
the political, economic and military conditions affecting Israel. Any major
hostilities involving Israel, or the interruption or curtailment of trade
between Israel and its present trading partners, could significantly harm our
business, operating results and financial condition.
Israel's economy has been subject to numerous destabilizing factors,
including a period of rampant inflation in the early to mid-1980's, low
foreign exchange reserves, fluctuations in world commodity prices, military
conflicts and civil unrest. In addition, Israel and companies doing business
with Israel have been the subject of an economic boycott by the Arab
countries since Israel's establishment. Although they have not done so to
date, these restrictive laws and policies may have an adverse impact on our
operating results, financial condition or expansion of our business.
Since the establishment of the State of Israel in 1948, a state of
hostility has existed, varying in degree and intensity, between Israel and the
Arab countries. Although Israel has entered into various agreements with certain
Arab countries and the Palestinian Authority, and various declarations have been
signed in connection with efforts to resolve some of the economic and political
problems in the Middle East, we cannot predict whether or in what manner these
problems will be resolved. Our results of operations may be negatively affected
by the obligation of key personnel to perform military service. In addition,
certain of our officers and employees are currently obligated to perform annual
reserve duty in the Israel Defense Forces and are subject to being called for
active military duty at any time. Although we have operated effectively under
these requirements since our inception, we cannot predict the effect of these
obligations on the Company in the future. Our operations could be disrupted by
the absence, for a significant period, of one or more of our officers or key
employees due to military service.
Moreover, part of our expenses in Israel are paid in Israeli currency
which subjects us to the risks of foreign currency fluctuations and to economic
pressures resulting from Israel's general rate of inflation. While substantially
all of our sales and expenses are denominated in United States dollars, a
portion of our expenses are denominated in Israeli shekels. Our primary expenses
paid in Israeli currency are employee salaries and lease payments on our Israeli
facilities. As a result, an increase in the value of Israeli currency in
comparison to the United States dollar could increase the cost of technology
development, research and development expenses and general and administrative
expenses. We cannot provide assurance that currency fluctuations, changes in the
rate of inflation in Israel or any of the other factors mentioned above will not
have a material adverse effect on our business, financial condition and results
of operations.
ANY FUTURE PROFITABILITY MAY BE DIMINISHED IF TAX BENEFITS FROM THE STATE OF
ISRAEL ARE REDUCED OR WITHHELD.
DSP Group receives certain tax benefits in Israel, particularly as a
result of the "Approved Enterprise" status of our facilities and programs. To be
eligible for tax benefits, DSP Group must meet certain conditions, relating
principally to adherence to the investment program filed with the Investment
Center of the Israeli Ministry of Industry and Trade and to periodic reporting
obligations. DSP Group believes that it will be able to meet such conditions.
Should we fail to meet such conditions in the future, however, it would be
subject to corporate tax in Israel at the standard rate of 36%, and could be
required to refund tax benefits already received. There can be no assurance that
such grants and tax benefits will be continued in the future at their current
levels or otherwise. The termination or reduction of certain programs and tax
benefits (particularly benefits available to us as a result of the Approved
Enterprise status of the company's facilities and programs) or a requirement to
refund tax benefits already received may have a material adverse effect on our
operating results and financial condition.
PROPOSED ISRAELI TAX REFORM COULD HARM OUR FINANCIAL RESULTS.
22
On May 4, 2000, a committee chaired by the Director General of the
Israeli Ministry of Finance, Avi Ben-Bassat, issued a report recommending a
sweeping reform in the Israeli system of taxation. The proposed reform would
significantly alter the taxation of individuals, and would also affect corporate
taxation. In particular, the proposed reform would reduce, but not eliminate,
the tax benefits available to approved enterprises such as ours. The proposed
reform would also impose a capital gains tax on individuals on the sale of
shares, unless the selling shareholder is entitled to benefits under a tax
treaty. The Israeli cabinet has approved the recommendations in principle, but
implementation of the reform requires legislation by Israel's Knesset. DSP Group
cannot be certain whether the proposed reform will be adopted, when it will be
adopted or what form any reform will ultimately take. The elimination of our
approved status could have negative tax consequences discussed above and could
have a material adverse effect on our business.
Israel has recently elected a new government. At this time this
government has not taken any position with respect to these tax benefits or the
proposed tax reforms discussed above, and we cannot predict what, if any, impact
this new government will have on our Israeli operations and current tax
benefits. Any significant adverse change in the government's position could harm
our business, results of operations and financial condition.
WE DEPEND ON OEMS AND THEIR SUPPLIERS TO OBTAIN REQUIRED COMPLEMENTARY
COMPONENTS.
Some of the raw materials, components and subassemblies included in the
products manufactured by our OEM customers, which also incorporate our products,
are obtained from a limited group of suppliers. Supply disruptions, shortages or
termination of any of these sources could have an adverse effect on our business
and results of operations due to the delay or discontinuance of orders for our
products by customers until those necessary components are available.
WE DEPEND UPON THE ADOPTION OF INDUSTRY STANDARDS BASED ON TRUESPEECH
TECHNOLOGY.
Our prospects are partially dependent upon the establishment of
industry standards for digital speech compression based on TrueSpeech algorithms
in the computer telephony and Voice over IP markets. The development of industry
standards utilizing TrueSpeech algorithms would create an opportunity for us to
develop and market speech co-processors that provide TrueSpeech solutions and
enhance the performance and functionality of products incorporating these
co-processors.
In February 1995, the International Telecommunications Union
established G.723.1, which is predominately composed of a TrueSpeech algorithm,
as the standard speech compression technology for use in video conferencing over
public telephone lines. In March 1997, the International Multimedia
Teleconferencing Consortium, a nonprofit industry group, recommended the use of
G.723.1 as the default audio coder for all voice transmissions over the Internet
or for IP applications for H.323 conferencing products. If TrueSpeech algorithms
are not adopted as the standard speech compression technology for different
applications, the sales of our TrueSpeech products may not achieve anticipated
levels.
THERE ARE RISKS ASSOCIATED WITH OUR ACQUISITION STRATEGY.
DSP Group has pursued, and will continue to pursue, growth
opportunities through internal development and acquisition of complementary
businesses, products and technologies. We are unable to predict whether or when
any prospective acquisition will be completed. The process of integrating an
acquired business may be prolonged due to unforeseen difficulties and may
require a disproportionate amount of our resources and management's attention.
We cannot provide assurance that we will be able to successfully identify
suitable acquisition candidates, complete acquisitions, integrate acquired
businesses into our operations or expand into new markets.
Once integrated, acquisitions may not achieve comparable levels of
revenues, profitability or productivity as the existing business of DSP Group or
otherwise perform as expected. The occurrence of
23
any of these events could harm our business, financial condition or results of
operations. Future acquisitions may require substantial capital resources, which
may require us to seek additional debt or equity financing.
PROTECTION OF OUR INTELLECTUAL PROPERTY IS LIMITED; RISKS OF INFRINGEMENT OF
RIGHTS OF OTHERS.
As is typical in the semiconductor industry, we have been and may from
time to time be notified of claims that we may be infringing patents or
intellectual property rights owned by third parties. For example, AT&T has
asserted that G.723.1, which is primarily composed of a TrueSpeech algorithm,
includes certain elements covered by patents held by AT&T and has requested that
video conferencing manufacturers license the technology from AT&T. Other
organizations, including Agere, NTT and VoiceCraft have raised public claims
that they also have patents related to the G.723.1 technology.
If it appears necessary or desirable, we may try to obtain licenses for
those patents or intellectual property rights that we are allegedly infringing.
Although holders of these types of intellectual property rights commonly offer
these licenses, we cannot assure you that licenses will be offered or that terms
of any offered licenses will be acceptable to us. Our failure to obtain a
license for key intellectual property rights from a third party for technology
used by us could cause us to incur substantial liabilities and to suspend the
manufacturing of products utilizing the technology. However, at this time we
believe that the ultimate resolution of these matters will not harm our
financial position, results of operations, or cash flows.
OUR STOCK PRICE MAY BE VOLATILE.
Announcements of developments related to our business, announcements by
competitors, quarterly fluctuations in our financial results, changes in the
general conditions of the highly dynamic industry in which we compete or the
national economies in which we do business, and other factors could cause the
price of our common stock to fluctuate, perhaps substantially. In addition, in
recent years the stock market has experienced extreme price fluctuations, which
have often been unrelated to the operating performance of affected companies.
These factors and fluctuations could have a material adverse effect on the
market price of our common stock.
WE HAVE MADE FORWARD-LOOKING STATEMENTS IN THIS ANNUAL REPORT ON FORM 10-K
The information contained in this Annual Report on Form 10-K and in the
other documents referenced herein contains forward-looking statements that
involve a number of risks and uncertainties. Forward-looking statements can be
identified by the use of forward-looking terminology, including "believe,"
"expect," "may," "will," "should" or "anticipate," or the negative of these
terms or other variations or comparable terminology, or by discussions of
strategy that involve risks and certainties. Numerous factors, including
economic and competitive conditions, timing and volume of incoming orders,
shipment volumes, product margins, and foreign exchange rates, could cause
actual results to differ materially from those described in these statements.
These forward-looking statements are based on current expectations and we assume
no obligation to update this information.
As we have previously announced, we currently intend to create a
stand-alone company which will manage and develop our SmartCores business. We
have applied to the IRS for a revenue ruling relating to this anticipated
spin-off, which we anticipate will be tax-free to our shareholders. We cannot
predict when the spin-off will occur, if at all, or if we will receive favorable
tax treatment from the IRS. All of the forward-looking statements made herein
with respect to our business, results of operation and financial condition are
necessarily colored by, and would be materially affected by, the spin-off, if it
occurs.
24
Item 2. PROPERTIES.
DSP Group's operations in the United States are located in an
approximately 15,700 square foot leased facility in Santa Clara, California.
This facility houses our marketing and technical support, North American sales,
operations, manufacturing coordination and administrative personnel. This
facility is leased through June 2001. DSP Group's operations in Israel are
located in approximately 29,800 square feet of leased facilities, with the
primary leased facility located in Herzelia Pituach, Israel. These facilities
are leased through November 2003. VoicePump operations in the United States are
located in an approximately 4,000 square foot leased facility in Palo Alto and
Chicago. The facility in Palo Alto is leased through February 2006. The facility
in Chicago is leased through November 2003.
Item 3. LEGAL PROCEEDINGS.
From time to time, we have been and may become involved in litigation
relating to claims arising from our ordinary course of business activities. We
believe that there are no claims or actions pending or threatened against us,
the ultimate disposition of which would have a material adverse effect on us.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The information contained in the section labeled "Price Range of Common
Stock" appearing on page 18 of DSP Group's Annual Report to Stockholders for the
year ended December 31, 2000 is incorporated herein by reference.
Item 6. SELECTED FINANCIAL DATA.
The information contained in the section labeled "Selected Consolidated
Financial Data" appearing on page 17 of DSP Group's Annual Report to
Stockholders for the year ended December 31, 2000 is incorporated herein by
reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The information contained in the section labeled "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
appearing on pages 19 through 22 of DSP Group's Annual Report to Stockholders
for the year ended December 31, 2000 is incorporated herein by reference.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RATE.
The information contained in the section labeled "Quantitative and
Qualitative Disclosures About Market Risk" appearing on page 22 of DSP Group's
Annual Report to Stockholders for the year ended December 31, 2000 is
incorporated herein by reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements and related notes and independent
auditors report appearing on pages 26 through 47 of DSP Group's Annual Report to
Stockholders for the year ended December 31, 2000 are incorporated herein by
reference.
The information contained in the section labeled "Quarterly Data"
appearing on page 17 of DSP Group's Annual Report to Stockholders for the year
ended December 31, 2000 is incorporated herein by reference.
25
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
26
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The section labeled "Directors, Executive Officers and Key Personnel"
of DSP Group's definitive Proxy Statement to be filed shortly hereafter for the
annual meeting of stockholders to be held on May 14, 2001 is incorporated herein
by reference.
Item 11. EXECUTIVE COMPENSATION.
The section labeled "Executive Compensation and Other Information" of
DSP Group's definitive Proxy Statement to be filed shortly hereafter for the
annual meeting of stockholders to be held on May 14, 2001 is incorporated herein
by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The section labeled "Security Ownership of Certain Beneficial Owners
and Management" of DSP Group's definitive Proxy Statement to be filed shortly
hereafter for the annual meeting of stockholders to be held on May 14, 2001 is
incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The section labeled "Certain Relationships and Related Transactions" of
DSP Group's definitive Proxy Statement to be filed shortly hereafter for the
annual meeting of stockholders to be held on May 14, 2001 is incorporated herein
by reference.
27
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents have been filed as a part of this Annual Report
on Form 10-K.
1. Index to Financial Statements.
The following consolidated financial statements and related notes and
auditor's report are included in DSP Group's Annual Report to
Stockholders for the year ended December 31, 2000 and are incorporated
into this Form 10-K by reference.
DESCRIPTION:
Report of Kost Forer & Gabbay, a member of Ernst & Young
International, Independent Auditors
Consolidated Statements of Income for the years ended December 31,
2000, 1999 and 1998
Consolidated Balance Sheets as of December 31, 2000 and 1999
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 2000, 1999 and 1998
Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 1999 and 1998
Notes to Consolidated Financial Statements
2. Index to Financial Statement Schedules.
The following financial statement schedules and related auditor's
report are filed as part of this Annual Report on Form 10-K:
DESCRIPTION
Schedule II: Valuation and Qualifying Accounts
Consent of Kost Forer & Gabbay, a member of Exhibit 23.1
Ernst & Young International, Independent Auditors
All other schedules are omitted because they are not applicable or the
required information is included in the consolidated financial
statements or the related notes incorporated into this Form 10-K by
reference to DSP Group's Annual Report to Stockholders for the year
ended December 31, 2000.
28
3. List of Exhibits:
EXHIBIT
NUMBER DESCRIPTION
---------- ------------------------------------------------------------
3.1 Amended and Restated Certificate of Incorporation (filed
as Exhibit 3.1B to the Registrant's Registration
Statement on Form S-1, file no. 33-73482, as declared
effective on February 11, 1994 and incorporated herein by
reference).
3.2 Amended and Restated Bylaws, as of April 13, 2000 (filed
as Exhibit 3.1 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended March 31, 2000, and
incorporated herein by reference).
3.3 Certificate of Determination of Preference of Series A
Preferred Stock of the Registrant, filed with the
Secretary of State of the State of Delaware on June 6,
1997 (filed as Exhibit 3.1 to the Registrant's Current
Report on Form 8-K filed on June 6, 1997 and incorporated
herein by reference).
4.1 Specimen Rights Certificate (filed as Exhibit 1.1 to the
Registrant's Current Report on Form 8-K filed on June 6,
1997 and incorporated herein by reference).
4.2 Amended and Restated Rights Agreement, dated as of
November 9, 1998, between the Registrant and Norwest Bank
Minnesota, N.A., as Rights Agent (filed as Exhibit 3.7 to
the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1998, and incorporated herein by
reference).
4.3 Amendment No. 1, dated May 19, 1999, to the Amended and
Restated Rights Agreement, dated as of November 9, 1998,
between the Registrant and Norwest Bank Minnesota, N.A.,
as Rights Agent (filed as Exhibit 3.6 to the Registrant's
Annual Report on Form 10-K for the year ended December
31, 1999, and incorporated herein by reference).
4.4 Letter dated as of March 13, 2001 amending the Amended and
Restated Rights Agreement, dated as of November 9, 1998,
substituting American Stock Transfer & Trust Company for
Norwest Bank Minnesota, N.A. as Rights Agent.
4.5 Registration Rights Agreement, dated as of February 2,
1999, by and between the Registrant and Magnum Technology
Limited (filed as Exhibit 4.1 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended March
31, 1999, and incorporated herein by reference).
10.1 1991 Employee and Consultant Stock Plan, as amended and
restated July 19, 1999 (filed as Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1999, and incorporated herein
by reference).
10.2 Forms of option agreements under 1991 Employee and
Consultant Stock Plan (filed as Exhibit 10.2 to the
Registrant's Registration Statement on Form S-1, file no.
33-73482, as declared effective on February 11, 1994 and
incorporated herein by reference).
29
EXHIBIT
NUMBER DESCRIPTION
---------- ------------------------------------------------------------
10.3 1993 Director Stock Option Plan, as amended and restated
July 19, 1999 (filed as Exhibit 10.2 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999, and incorporated herein by
reference).
10.4 Israeli Stock Option Plan and form of option agreement
thereunder (filed as Exhibit 10.3 to the Registrant's
Registration Statement on Form S-1, file no. 33-73482, as
declared effective on February 11, 1994 and incorporated
herein by reference).
10.5 1993 Employee Stock Purchase Plan and form of
subscription agreement thereunder (filed as Exhibit 10.5
to the Registrant's Registration Statement on Form S-1,
file no. 33-73482, as declared effective on February 11,
1994 and incorporated herein by reference).
10.6 Technology Assignment and License Agreement, dated
January 7, 1994, by and between the Registrant and DSP
Telecommunications, Ltd. (filed as Exhibit 10.24 to the
Registrant's Registration Statement on Form S-1, file no.
33-73482, as declared effective on February 11, 1994 and
incorporated herein by reference).
10.7 ACL Technology License Agreement, dated June 24, 1994, by
and between the Registrant and AudioCodes, Ltd. (filed as
Exhibit 10.12 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1994, and
incorporated herein by reference).
10.8 Investment Agreement, dated June 16, 1994, by and between
the Registrant and AudioCodes Ltd. (see Exhibit 10.30 for
Appendix B to Investment Agreement) (filed as Exhibit
10.39 to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1994, and incorporated herein
by reference).
10.9 Form of Indemnification Agreement for directors and
executive officers (filed as Exhibit 10.1 to the
Registrant's Registration Statement on Form S-1, file no.
33-73482, as declared effective on February 11, 1994, and
incorporated herein by reference).
10.10 Employment Agreement, dated April 22, 1996, by and
between the Registrant and Eliyahu Ayalon (filed as
Exhibit 10.3 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1996, and
incorporated herein by reference).
10.11 Assignment and Assumption Agreement, dated October 9,
1996, by and between the Registrant and Dialogic
Corporation, relating to the Registrant's facility
located at 3120 Scott Boulevard in Santa Clara,
California (filed as Exhibit 10.24 to the Registrant's
Annual Report on Form 10-K for the year ended December
31, 1996, and incorporated herein by reference).
10.12 Sublease, dated October 18, 1996, as amended on December
4, 1996, by and between Dialogic Corporation and the
Registrant, relating to the Registrant's facility located
at 3120 Scott Boulevard in Santa Clara, California (filed
as Exhibit 10.25 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1996, and
incorporated herein by reference).
10.13 Lease, dated November 28, 1996, by and between DSP
Semiconductors Ltd. and Gav-Yam Lands Company Ltd., relating
to the property located on Shenkar Street, Herzlia Pituach,
Israel (filed as Exhibit 10.1 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1997, and incorporated herein by reference).
10.14 Amendment to Employment Agreement with Eliyahu Ayalon,
dated as of November 3, 1997 (filed as Exhibit 10.26 to
the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1997, and incorporated herein by
reference).
30
EXHIBIT
NUMBER DESCRIPTION
---------- ------------------------------------------------------------
10.15 Amendment to 1993 Directors Stock Option Plan, as adopted
November 3, 1997 (filed as Exhibit 10.28 to the Registrant's
Annual Report on Form 10-K for the year ended
December 31, 1997, and incorporated herein by reference).
10.16 Separation and Consulting Agreement between the
Registrant and Martin M. Skowron, dated May 31, 1998
(filed as Exhibit 10.1 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1998,
and incorporated herein by reference).
10.17 Lease, dated September 13, 1998, between DSP Group, Ltd. and
Bayside Land Corporation Ltd., relating to the property
located on Shenkar Street, Herzlia Pituach, Israel (filed as
Exhibit 10.22 to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1998, and incorporated
herein by reference).
10.18 Amendment to 1998 Non-Officer Employee Stock Option Plan
(filed as exhibit 10.2 to the Registrant's Registration
Statement on Form S-8 filed December 18, 2000, and
incorporated herein by reference).
10.19 1998 Non-Officer Employee Stock Option Plan (filed as
Exhibit 10.23 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1998, and
incorporated herein by reference).
10.20 Stock Purchase Agreement, dated as of February 2, 1999,
by and between the Registrant and Magnum Technology
Limited (filed as Exhibit 10.1 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended March
31, 1999, and incorporated herein by reference).
10.21 Second Amendment to Sublease, dated February 11, 1999, by
and between Dialogic Corporation and the Registrant,
relating to the Registrant's facility located at 3120
Scott Boulevard in Santa Clara, California (filed as
Exhibit 10.22 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1999, and
incorporated herein by reference).
10.22 Employment Agreement, dated May 1, 1999, by and between
the Registrant and Moshe Zelnik (filed as Exhibit 10.23
to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1999, and incorporated herein by
reference).
10.23 Employment Agreement, dated May 1, 1999, by and between
the Registrant and Boaz Edan (filed as Exhibit 10.24 to
the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1999, and incorporated herein by
reference).
10.24 Appendix Agreement, dated May 5, 1999, by and between
DSP Group, Ltd. and Bayside Land Corporation Ltd., relating
to the property located on Shenkar Street, Herzlia Pituach,
Israel (filed as Exhibit 10.25 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1999,
and incorporated herein by reference).
10.25 Amendment to Employment Agreement with Eliyahu Ayalon,
effective as of November 11, 1999 (filed as Exhibit 10.26
to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1999, and incorporated herein by
reference).
31
EXHIBIT
NUMBER DESCRIPTION
---------- ------------------------------------------------------------
10.26 Amendment to Employment Agreement with Igal Kohavi,
effective as of November 11, 1999 (filed as Exhibit 10.27
to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1999, and incorporated herein by
reference).
10.27 Separation Agreement between the Registrant and Igal
Kohavi, dated January 24, 2000 (filed as Exhibit 10.28 to
the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1999, and incorporated herein by
reference).
10.28 Non-Exclusive Distribution Agreement between the
Registrant and Tomen Electronics Corporation as amended
on October 12, 2000.
10.29 Investors' Rights Agreement between the Registrant and
certain Investors listed on Schedule thereto, dated as of
March 27, 2000 (filed as Exhibit 4.2 on Form S-3, file
no. 333-58060, filed with the SEC on March 30,
2001, and incorporated herein by reference).
11.1 Statements regarding computation of per share earnings.
13.1 Portions of the Annual Report to Stockholders for the year ended December 31, 2000.
21.1 Subsidiaries of DSP Group.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
(b) Reports on Form 8-K in Fourth Quarter.
The Company did not file any reports on Form 8-K during the three
months ended December 31, 2000.
32
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.
DSP GROUP, INC.
By: /s/ Eliyahu Ayalon
----------------------------------------
Eliyahu Ayalon
Chairman of the Board and Chief
Executive Officer
(Principal Executive Officer)
Date: March 30, 2001
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Eliyahu Ayalon and Moshe Zelnik
or either of them, his true and lawful attorneys-in-fact and agents, with full
power of substitution and re-substitution, for him and in his name, place and
stead, in any and all capacities to sign any and all amendments to this Report
on Form 10-K, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or either of them, or their or his
substitutes or substitute, may lawfully 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 and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- -------------------------------------------- ----------------------------------------- ---------------
/s/ Eliyahu Ayalon Chairman of the Board and Chief Executive March 30, 2001
- -------------------------------------------- Officer (Principal Executive Officer)
Eliyahu Ayalon
/s/ Zvi Limon Director March 30, 2001
- -----------------------------------------
Zvi Limon
/s/ Louis Silver Director March 30, 2001
- -----------------------------------------
Louis Silver
/s/ Patrick Tanguy Director March 30, 2001
- -----------------------------------------
Patrick Tanguy
/s/ Yair Shamir Director March 30, 2001
- -----------------------------------------
Yair Shamir
/s/ Saul Shani Director March 30, 2001
- -----------------------------------------
Saul Shani
33
SCHEDULE II
DSP GROUP, INC.
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
CHARGED TO
BALANCE AT (DEDUCTED
BEGINNING OF FROM) COSTS BALANCE AT END
DESCRIPTION PERIOD AND EXPENSES DEDUCTION OF PERIOD
Year ended December 31, 1997:
Allowance for doubtful accounts 71 60 61(1) 70
Sales returns reserve 377 345 600(2) 122
Year ended December 31, 1998: -
Allowance for doubtful accounts 70 10 80
Sales returns reserve 122 - - 122
Year ended December 31, 1999:
Allowance for doubtful accounts 80 60 - 140
Sales returns reserve 122 - 122
Year ended December 31, 2000:
Allowance for doubtful accounts 140 60 - 200
Sales returns reserve 122 - 122
(1) write-offs of uncollectible amounts
(2) sales returns applied against revenue