Note A - Basis of Presentation and Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2021

Notes to Financial Statements

Significant Accounting Policies [Text Block]

NOTE A—BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine months ended September 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021. For further information, reference is made to the consolidated financial statements and footnotes thereto included in the Annual Report on Form 10-K of DSP Group, Inc. (the “Company”) for the year ended December 31, 2020.

The significant accounting policies applied in the annual consolidated financial statements of the Company as of December 31, 2020, contained in the Company’s Annual Report on Form 10‑K filed with the Securities and Exchange Commission on March 15, 2021, have been applied consistently in these unaudited interim condensed consolidated financial statements, except as noted below:

Recently Issued and Adopted Accounting Pronouncements 

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which simplifies the accounting for income taxes. ASU 2019-12 is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2020. The adoption of ASU 2019-12 did not have a material impact on the Company’s condensed consolidated financial statements.

In August 2018, the FASB issued ASU 2018-14—Compensation—Retirement Benefits—Defined Benefit Plans—General (Topic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans (“ASU 2018-14”) which improves disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. This standard is effective for fiscal years ending after December 15, 2020, for public business entities. Early adoption is permitted for all entities. Entities are to apply the amendments in this update on a retrospective basis for all periods presented. The adoption of ASU 2018-14 did not have a material impact on the Company’s condensed consolidated financial statements.

Use of Estimates

The preparation of the interim condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions. The Company’s management believes that the estimates, judgments and assumptions used are reasonable based upon information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the dates of the interim condensed consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Acquisition of SoundChip

In July 2020, the Company completed the acquisition of SoundChip SA, a privately-held Swiss company (“SoundChip”) for an initial purchase price of approximately $15 million (with a portion held in escrow in accordance with the agreement terms), subject to working capital adjustments (the “Initial Purchase Price”) and agreed to pay future contingent cash milestone payments of up to $6 million upon the achievement of certain customer and product sales milestones during the period from July 1, 2020 to December 31, 2022.

The results of operations of SoundChip have been included in the Company’s consolidated financial statements since July 1, 2020. The Company did not provide pro forma disclosure according to ASC 810 for the SoundChip acquisition due to immateriality.

The preliminary purchase price allocation ("PPA") was based on information available at the time of closing of the SoundChip acquisition. During 2021, the Company finalized the PPA for SoundChip as a result of finalizing the working capital adjustments as stated above.

The following table summarizes adjustments since the preliminary PPA was disclosed as of December 31, 2020:

	Preliminary estimated fair value			Adjustments			Fair value
Cash	$	443		$	-		$	443
Property and equipment		456			-			456
Current assets		2,301			-			2,301
Other non-current assets		1,042			-			1,042
Current liabilities		(1,007	)		25			(982	)
Other long-term liabilities		(1,945	)		-			(1,945	)
Net tangible assets acquired		1,290			-			1,315
Deferred tax liability		(1,121	)		-			(1,121	)
Intangible assets:
Developed technology		7,189			-			7,189
Backlog		54			-			54
Customer relationships		678			-			678
Total intangible assets		7,921			-			7,921
Goodwill		6,862			(197	)		6,665
Net assets acquired	$	14,952					$	14,780

Proposed Acquisition by Synaptics Incorporated (“Synaptics”)

On August 30, 2021, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Synaptics, and Osprey Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Synaptics (the “Merger Sub”). The Merger Agreement provides, subject to its terms and conditions, for the acquisition of the Company by Synaptics at a price of $22.00 per share of the Company’s common stock, $0.001 par value per share (each, a “Share”), in cash, without interest and subject to deduction for any required withholding tax (the “Merger Consideration”), through the merger of the Merger Sub with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly owned subsidiary of Synaptics. The Company’s Board of Directors (the “Board”) has unanimously approved the Merger and the Merger Agreement and recommended that stockholders adopt the Merger Agreement, and the Company will hold a stockholders’ meeting on November 29, 2021 to submit the Merger Agreement to its stockholders for their consideration.

Pursuant to the Merger Agreement, at the effective time of the Merger (the “Effective Time”):

● each Share that is issued and outstanding immediately prior to the Effective Time (other than Shares held in the treasury of the Company, all of which will be canceled, and Shares held by holders who properly exercise their appraisal rights under Delaware law) will be automatically converted into the right to receive the Merger Consideration;

● each Company stock option that is outstanding, vested and unexercised immediately prior to the Effective Time will be canceled and converted into the right to receive in cash the excess, if any, of the Merger Consideration over the exercise price per share of such stock option; provided that, in the event that the exercise price of any such vested stock option is equal to or greater than the Merger Consideration, such stock option will be canceled, without any consideration being payable in respect thereof and have no further force or effect; 

● each Company stock appreciation right (a “Company SAR”) that is outstanding, vested and unexercised immediately prior to the Effective Time will be canceled and converted into the right to receive in cash the excess, if any, of the Merger Consideration over the base appreciation price per share of such Company SAR; provided that, in the event that the base appreciation price of any such Company SAR is equal to or greater than the Merger Consideration, such Company SAR will be canceled, without any consideration being payable in respect thereof and have no further force or effect;

● each Company restricted stock unit (a “Company RSU”) that is outstanding and vested prior to the Effective Time and has not been settled immediately prior to the Effective Time will be canceled and converted into the right to receive in cash the Merger Consideration;

● each Company stock option, Company SAR and Company RSU that is outstanding and unvested immediately prior to the Effective Time will be canceled and replaced with a restricted stock unit for Synaptics common shares. In the case of Company stock options and Company SARs, the number of restricted stock units for Synaptics common shares will be determined by dividing the spread of the Company stock option or Company SAR by the Synaptics Stock Price (as defined in the Merger Agreement). In the case of Company RSUs, the number of restricted stock units for Synaptics common shares will be determined using an exchange ratio designed to preserve the intrinsic value of such Company RSU; and

● each Company performance stock unit that is outstanding and vested prior to the Effective Time and has not been settled immediately prior to the Effective Time will be canceled and converted into the right to receive the Merger Consideration.

Pursuant to the Merger Agreement, the Company will take actions necessary with respect to the Company’s Amended and Restated 1993 Employee Stock Purchase Plan (the “ESPP”) to provide that, among other things, (i) any ongoing offering period under the ESPP will be terminated prior to the Effective Time, (ii) no new offering period under the ESPP will commence during the period between the date of the Merger Agreement and the Effective Time and (iii) the ESPP will terminate on the date immediately prior to the Effective Time.

The Merger Agreement contains customary representations and warranties from both the Company, on the one hand, and Synaptics and the Merger Sub, on the other hand. It also contains customary covenants, including covenants providing for each of the Company and Synaptics to use its reasonable best efforts to cause the Merger to be consummated, and covenants requiring the Company, among other things, (i) to use commercially reasonable efforts to conduct its business in the ordinary course in all material respects, substantially consistent with past practice, during the interim period between the execution of the Merger Agreement and the Effective Time, (ii) not to engage in specified types of transactions during such period and (iii) not to solicit proposals or engage in discussions relating to alternative acquisition proposals or change the recommendation of the Board to the Company’s stockholders regarding the Merger Agreement, in each case except as otherwise permitted by the Merger Agreement, including in connection with the compliance by the Board with its fiduciary duties under applicable law.

Completion of the Merger is subject to customary closing conditions, including (i) adoption of the Merger Agreement by the Company’s stockholders, and (ii) the absence of governmental injunctions or other legal restraints prohibiting the Merger. In addition, the obligation of each party to consummate the Merger is conditioned upon, among other things, the accuracy of the representations and warranties of the other party (subject to certain materiality exceptions), and material compliance by the other party with its covenants under the Merger Agreement. Synaptics’s obligation to consummate the Merger is also conditioned on the absence of a “Company Material Adverse Effect,” as defined in the Merger Agreement. Synaptics’s obligations under the Merger Agreement are not subject to any financing condition.

The Merger Agreement may be terminated, subject to the terms and conditions of the Merger Agreement: (i) by mutual written agreement of Synaptics and the Company, (ii) by either Synaptics or the Company, if a governmental injunction or other legal restraint in certain jurisdictions prevents the consummation of the Merger, (iii) by either Synaptics or the Company, if the requisite vote of the Company’s stockholders has not been obtained or (iv) by either Synaptics or the Company upon the other party’s uncured material breach of any representation, warranty, covenant or agreement under the Merger Agreement. The Merger Agreement may also be terminated by the Company to enter into an agreement with respect to a superior proposal, subject to specified conditions, and by Synaptics, if the Board changes its recommendation regarding the Merger, the Board’s recommendation is not included in the Company’s proxy statement for the Merger, or the Board fails to reaffirm its recommendation in response to an alternative acquisition proposal. In addition to the foregoing termination rights, and subject to certain limitations, either party may terminate the Merger Agreement if the Merger is not consummated by January 30, 2022.

If the Merger Agreement is terminated under certain circumstances specified in the Merger Agreement, the Company will be required to pay Synaptics a termination fee of $19,774,000 (including under specified circumstances in connection with the Company’s entry into an agreement with respect to a superior proposal).