##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended March 31, 2010
 Commission File Number 000-28539
 DRI CORPORATION
 (Exact name of Registrant as specified in its Charter)
 North Carolina(State or other jurisdiction of 
incorporation or organization)
    
    56-1362926(I.R.S. Employer
Identification Number)
 13760 Noel Road, Suite 830
Dallas, Texas 75240  (Address of principal executive offices, Zip Code)
 (214) 378-8992
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller Reporting Company þ(Do not check if a smaller reporting company)
 o þ
  Common Stock, par value $.10 per share
(Class of Common Stock)
    
    11,804,620
Number of Shares




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##### 



DRI CORPORATION AND SUBSIDIARIES
 INDEX
    
    Page No.PART I - FINANCIAL INFORMATIONItem 1.
    
    Financial Statements
    
    
    3Consolidated Balance Sheets  March 31, 2010 (Unaudited) and December 31, 2009
    
    
    3Consolidated Statements of Operations  Three Months Ended March 31, 2010 and 2009  (Unaudited)
    
    
    4Consolidated Statements of Cash Flows  Three Months Ended March 31, 2010 and 2009 (Unaudited)
    
    
    5Notes to Unaudited Consolidated Financial Statements
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13Item 4T.
    
    Controls and Procedures
    
    
    19PART II - OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    20Item 1A.
    
    Risk Factors
    
    
    20Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    21Item 3.
    
    Defaults Upon Senior Securities
    
    
    21Item 4.
    
    (Removed and Reserved)
    
    
    21Item 5.
    
    Other Information
    
    
    21Item 6.
    
    Exhibits
    
    
    22SIGNATURES
    
    
    23EX-10.2EX-31.1EX-31.2EX-32.1EX-32.2
  2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. FINANCIAL STATEMENTS
  
 
 March 31, 2010
    
    
    December 31, 2009(Unaudited)
    
    
    (Note 1)ASSETSCurrent AssetsCash and cash equivalents
    
    $
    1,847
    
    
    $
    1,800Trade accounts receivable, net
    
    
    16,540
    
    
    
    18,192Current portion of note receivable
    
    
    86
    
    
    
    86Stock subscription receivable
    
    
    
    
    
    
    670Other receivables
    
    
    973
    
    
    
    1,645Inventories, net
    
    
    13,792
    
    
    
    13,042Prepaids and other current assets
    
    
    1,404
    
    
    
    1,844Deferred tax assets, net
    
    
    307
    
    
    
    250Total current assets
    
    
    34,949
    
    
    
    37,529Property and equipment, net
    
    
    5,856
    
    
    
    5,266Long-term portion of note receivable
    
    
    86
    
    
    
    86Goodwill
    
    
    9,692
    
    
    
    9,793Intangible assets, net
    
    
    693
    
    
    
    728Other assets
    
    
    781
    
    
    
    890Total assets
    
    $
    52,057
    
    
    $
    54,292LIABILITIES AND SHAREHOLDERS EQUITYCurrent LiabilitiesLines of credit
    
    $
    7,329
    
    
    $
    7,200Loans payable
    
    
    380
    
    
    
    463Current portion of long-term debt
    
    
    907
    
    
    
    960Current portion of foreign tax settlement
    
    
    545
    
    
    
    561Accounts payable
    
    
    9,497
    
    
    
    10,099Accrued expenses and other current liabilities
    
    
    5,785
    
    
    
    6,459Preferred stock dividends payable
    
    
    20
    
    
    
    20Total current liabilities
    
    
    24,463
    
    
    
    25,762Long-term debt and capital leases, net
    
    
    6,483
    
    
    
    6,572Foreign tax settlement, long-term
    
    
    201
    
    
    
    294Deferred tax liabilities, net
    
    
    292
    
    
    
    338Liability for uncertain tax positions
    
    
    332
    
    
    
    380Commitments and contingencies (Notes 6 and 7)Shareholders Equity and Noncontrolling InterestsSeries K Redeemable, Convertible Preferred Stock, $.10 par value,
liquidation preference of $5,000 per share; 500 shares authorized; 334 and 299
shares issued and outstanding at March 31, 2010 and December 31, 2009,
respectively; redeemable at the discretion of the Company at any time
    
    
    1,506
    
    
    
    1,341Series E Redeemable, Nonvoting, Convertible Preferred Stock, $.10 par value,
liquidation preference of $5,000 per share; 80 shares authorized; 80 shares
issued and outstanding at March 31, 2010 and December 31, 2009; redeemable at
the discretion of the Company at any time
    
    
    337
    
    
    
    337Series G Redeemable, Convertible Preferred Stock, $.10 par value,
liquidation preference of $5,000 per share; 725 shares authorized; 490 and 480
shares issued and outstanding at March 31, 2010 and December 31, 2009,
respectively; redeemable at the discretion of the Company after five years
from date of issuance
    
    
    2,168
    
    
    
    2,118Series H Redeemable, Convertible Preferred Stock, $.10 par value,
liquidation preference of $5,000 per share; 125 shares authorized; 70 and 69
shares issued and outstanding at March 31, 2010 and December 31, 2009,
respectively; redeemable at the discretion of the Company after five years
from date of issuance
    
    
    302
    
    
    
    297Series AAA Redeemable, Nonvoting, Convertible Preferred Stock, $.10 par value,
liquidation preference of $5,000 per share; 166 shares authorized; 166 shares
issued and outstanding at March 31, 2010 and
December 31, 2009; redeemable at
the discretion of the Company at any time
    
    
    830
    
    
    
    830Common stock, $.10 par value, 25,000,000 shares authorized; 11,761,763 and
11,746,327 shares issued and outstanding at March 31, 2010 and December
31, 2009, respectively
    
    
    1,176
    
    
    
    1,175Additional paid-in capital
    
    
    30,402
    
    
    
    30,393Accumulated other comprehensive income  foreign currency translation
    
    
    1,871
    
    
    
    1,976Accumulated deficit
    
    
    (19,163
    )
    
    
    (18,276
    )Total DRI shareholders equity
    
    
    19,429
    
    
    
    20,191Noncontrolling interests
    
    
    857
    
    
    
    755Total shareholders equity
    
    
    20,286
    
    
    
    20,946Total liabilities and shareholders equity
    
    $
    52,057
    
    
    $
    54,292
  3




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##### Table of Contents



Three Months Ended March 31,2010
    
    
    2009Net sales
    
    $
    22,129
    
    
    $
    13,202Cost of sales
    
    
    16,805
    
    
    
    9,516Gross profit
    
    
    5,324
    
    
    
    3,686Operating expensesSelling, general and administrative
    
    
    5,981
    
    
    
    4,473Research and development
    
    
    108
    
    
    
    79Total operating expenses
    
    
    6,089
    
    
    
    4,552Operating loss
    
    
    (765
    )
    
    
    (866
    )Other expense
    
    
    (1
    )
    
    
    (6
    )Foreign currency gain (loss)
    
    
    89
    
    
    
    (125
    )Interest expense
    
    
    (360
    )
    
    
    (336
    )Total other income and expense
    
    
    (272
    )
    
    
    (467
    )Loss before income tax benefit
    
    
    (1,037
    )
    
    
    (1,333
    )Income tax benefit
    
    
    252
    
    
    
    19Net loss
    
    
    (785
    )
    
    
    (1,314
    )Less: Net (income) loss attributable to noncontrolling interests, net of tax
    
    
    (102
    )
    
    
    241Net loss attributable to DRI Corporation
    
    
    (887
    )
    
    
    (1,073
    )Provision for preferred stock dividends
    
    
    (108
    )
    
    
    (76
    )Net loss applicable to common shareholders of DRI Corporation
    
    $
    (995
    )
    
    $
    (1,149
    )Net loss per share applicable to common shareholders of DRI CorporationBasic
    
    $
    (0.08
    )
    
    $
    (0.10
    )Diluted
    
    $
    (0.08
    )
    
    $
    (0.10
    )Weighted average number of common shares and common
share equivalents outstandingBasic
    
    
    11,753,359
    
    
    
    11,473,219Diluted
    
    
    11,753,359
    
    
    
    11,473,219
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Three Months Ended March 31,2010
    
    
    2009Cash flows from operating activitiesNet loss
    
    $
    (785
    )
    
    $
    (1,314
    )Adjustments to reconcile net loss to net cash
provided by operating activitiesDeferred income taxes
    
    
    (103
    )
    
    
    Change in liability for uncertain tax positions
    
    
    (13
    )
    
    
    (1
    )Depreciation and amortization of property and equipment
    
    
    313
    
    
    
    212Amortization of intangible assets
    
    
    28
    
    
    
    31Amortization of deferred financing costs
    
    
    137
    
    
    
    109Amortization of debt discount
    
    
    27
    
    
    
    28Loan termination fee accrual
    
    
    58
    
    
    
    61Bad debt expense
    
    
    19
    
    
    
    13Stock issued in lieu of cash compensation
    
    
    27
    
    
    
    22Stock-based compensation expense
    
    
    91
    
    
    
    77Write-down of inventory for obsolescence
    
    
    66
    
    
    
    54Loss on sale of fixed assets
    
    
    2
    
    
    
    11Other, primarily effect of foreign currency gain
    
    
    (139
    )
    
    
    (85
    )Changes in operating assets and liabilitiesDecrease in trade accounts receivable
    
    
    1,634
    
    
    
    2,013(Increase) decrease in other receivables
    
    
    88
    
    
    
    (43
    )Increase in inventories
    
    
    (911
    )
    
    
    (736
    )(Increase) decrease in prepaids and other current assets
    
    
    721
    
    
    
    (195
    )Increase in other assets
    
    
    (23
    )
    
    
    (21
    )Increase (decrease) in accounts payable
    
    
    (455
    )
    
    
    1,719Decrease in accrued expenses
    
    
    (268
    )
    
    
    (461
    )Decrease in foreign tax settlement
    
    
    (83
    )
    
    
    (63
    )Net cash provided by operating activities
    
    
    431
    
    
    
    1,431Cash flows from investing activitiesPurchases of property and equipment
    
    
    (242
    )
    
    
    (64
    )Investments in software development
    
    
    (681
    )
    
    
    (444
    )Net cash used in investing activities
    
    
    (923
    )
    
    
    (508
    )Cash flows from financing activitiesProceeds from bank borrowings and lines of credit
    
    
    23,397
    
    
    
    15,854Principal payments on bank borrowings and lines of credit
    
    
    (23,538
    )
    
    
    (16,759
    )Proceeds from issuance of Preferred stock, net of costs
    
    
    721
    
    
    
    Payment of loan amendment fees
    
    
    (5
    )
    
    
    Payment of dividends on Preferred stock
    
    
    (53
    )
    
    
    (26
    )Net cash provided by (used in) financing activities
    
    
    522
    
    
    
    (931
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    17
    
    
    
    (13
    )Net increase (decrease) in cash and cash equivalents
    
    
    47
    
    
    
    (21
    )Cash and cash equivalents at beginning of period
    
    
    1,800
    
    
    
    598Cash and cash equivalents at end of period
    
    $
    1,847
    
    
    $
    577Supplemental disclosures of non-cash investing and financing activities:Preferred stock issued for services
    
    $
    120
    
    
    $
    Preferred stock dividends
    
    $
    55
    
    
    $
    45Increase in fair value of warrants due to modification
    
    $
    
    
    
    $
    56
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DRI CORPORATION AND SUBSIDIARIES
 
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
  (1) BASIS OF PRESENTATION AND DISCLOSURE
    Product Warranties
  Three Months ended March 31,2010
    
    
    2009(In thousands)Balance at beginning of period
    
    $
    805
    
    
    $
    495Additions charged to costs and expenses
    
    
    8
    
    
    
    Deductions
    
    
    (32
    )
    
    
    (86
    )Foreign exchange translation gain
    
    
    (13
    )
    
    
    (14
    )Balance at end of period
    
    $
    768
    
    
    $
    395
 6




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Recent Accounting Pronouncements
  Fair Value of Assets and Liabilities
  Fair Value of Financial Instruments
  (2) GOODWILL AND OTHER INTANGIBLE ASSETS
  (3) INVENTORIES
 March 31,
    
    
    December 31,2010
    
    
    2009(In thousands)Raw materials and system components
    
    $
    9,640
    
    
    $
    8,924Work in process
    
    
    16
    
    
    
    35Finished goods
    
    
    4,136
    
    
    
    4,083Total inventories
    
    $
    13,792
    
    
    $
    13,042
 (4) PROPERTY AND EQUIPMENT
 EstimatedDepreciable
    
    
    March 31,
    
    
    December 31,Lives (years)
    
    
    2010
    
    
    2009(In thousands)Leasehold improvements
    
    
    3-10
    
    
    $
    306
    
    
    $
    306Automobiles
    
    
    4-6
    
    
    
    393
    
    
    
    387Computer and telecommunications equipment
    
    
    2-5
    
    
    
    1,157
    
    
    
    1,137Software
    
    
    5
    
    
    
    7,151
    
    
    
    7,163Test equipment
    
    
    3-7
    
    
    
    149
    
    
    
    144Furniture and fixtures
    
    
    2-10
    
    
    
    2,502
    
    
    
    2,331Software projects in progress
    
    
    
    
    
    
    1,862
    
    
    
    1,24513,520
    
    
    
    12,713Less accumulated depreciation and amortization
    
    
    
    
    
    
    7,664
    
    
    
    7,447Total property and equipment, net
    
    
    
    
    
    $
    5,856
    
    
    $
    5,266
 7




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##### Table of Contents



(5) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
 March 31,
    
    
    December 31,2010
    
    
    2009(In thousands)Salaries, commissions, and benefits
    
    $
    2,341
    
    
    $
    2,024Taxes  payroll, sales, income, and other
    
    
    1,322
    
    
    
    1,967Warranties
    
    
    768
    
    
    
    805Current portion of capital leases
    
    
    15
    
    
    
    15Interest payable
    
    
    107
    
    
    
    166Deferred revenue
    
    
    362
    
    
    
    557Customer rebates and credits
    
    
    227
    
    
    
    404Other
    
    
    643
    
    
    
    521Total accrued expenses
    
    $
    5,785
    
    
    $
    6,459
 (6) LINES OF CREDIT AND LOANS PAYABLE
 (a) Domestic line of credit and loan payable
   b) International lines of credit and loans payable
  8




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9




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##### Table of Contents



March 31,
    
    
    December 31,2010
    
    
    2009(In thousands)Line of credit with PNC Bank, National Association dated June 30, 2008; payable in
full June 30, 2011; secured by all tangible and intangible U.S. assets of the
Company; bears average interest rate of 5.00% and 5.00% in 2010 and 2009,
respectively.
    
    $
    3,196
    
    
    $
    3,786Line of credit with Svenska Handelsbanken AB; renews annually on a calendar-year
basis; secured by certain assets of the Swedish subsidiary, Mobitec AB;
bears average interest rate of 3.90% and 3.53% in 2010 and 2009, respectively.
    
    
    848
    
    
    
    Line of credit with Svenska Handelsbanken AB; renews annually on a calendar-year
basis; secured by accounts receivable of the Swedish subsidiary, Mobitec
AB; bears average interest rate of 4.25% and 4.83% in 2010 and 2009, respectively.
    
    
    1,748
    
    
    
    2,047Line of credit with Svenska Handelsbanken AB dated June 23, 2004; open-ended
term; secured by accounts receivable and inventory of the German subsidiary,
Mobitec GmbH; bears average interest rate of 4.05% and 3.48% in 2010 and 2009,
respectively.
    
    
    1,537
    
    
    
    1,367Total lines of credit
    
    $
    7,329
    
    
    $
    7,200
 (7) LONG-TERM DEBT
 March 31,
    
    
    December 31,2010
    
    
    2009(In thousands)Term loan with BHC Interim Funding III, L.P., dated June 30, 2008;
payable in full June 30, 2011; secured by substantially all tangible
and intangible assets of the Company; bears interest rate of 12.75%
    
    $
    4,750
    
    
    $
    4,750Term loan with Svenska Handelsbanken AB, dated June 30, 2008;
payable in quarterly installments of $52,000; secured by accounts
receivable and inventory of the Swedish subsidiary, Mobitec AB;
bears average interest rate of 5.55% and 7.32% in 2010 and 2009,
respectively
    
    
    414
    
    
    
    470Term loan with Roberto Demore, dated August 31, 2009; payable in
quarterly installments of $162,500; unsecured; bears interest rate of
5.0%
    
    
    1,788
    
    
    
    1,950Term loan with HDFC Bank, dated October 5, 2009; payable in
monthly installments of $4,461; bears interest rate of 8.0%
    
    
    126
    
    
    
    132Term loan with HDFC Bank, dated November 14, 2009; payable in
monthly installments of $481; bears interest rate of 9.51%
    
    
    22
    
    
    
    22Total long-term debt
    
    
    7,100
    
    
    
    7,324Term loan termination fee accrual
    
    
    404
    
    
    
    346Less current portion
    
    
    (907
    )
    
    
    (960
    )Less debt discount
    
    
    (139
    )
    
    
    (166
    )6,458
    
    
    
    6,544Long-term portion of capital leases
    
    
    25
    
    
    
    28Total long-term debt and capital leases, less current portion
    
    $
    6,483
    
    
    $
    6,572
 (8) PREFERRED STOCK
  10




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(9) PER SHARE AMOUNTS
   Three months ended March 31,2010
    
    
    2009(Unaudited)Weighted average shares outstanding  Basic and Diluted
    
    
    11,753,359
    
    
    
    11,473,219
 (10) SHAREHOLDERS EQUITY, COMPREHENSIVE INCOME (LOSS) AND NONCONTROLLING INTERESTS
  DRI Shareholders EquityAccumulatedAdditional
    
    
    Accum-
    
    
    Other
    
    
    Total DRI
    
    
    
    
    
    
    TotalPreferred
    
    
    Common
    
    
    Paid-in
    
    
    ulated
    
    
    Comprehensive
    
    
    Shareholders
    
    
    Noncontrolling
    
    
    ShareholdersStock
    
    
    Stock
    
    
    Capital
    
    
    Deficit
    
    
    Income (Loss)
    
    
    Equity
    
    
    Interests
    
    
    EquityBalance as of December 31, 2009
    
    $
    4,923
    
    
    $
    1,175
    
    
    $
    30,393
    
    
    $
    (18,276
    )
    
    $
    1,976
    
    
    $
    20,191
    
    
    $
    755
    
    
    $
    20,946Issuance of common stock
    
    
    
    
    
    
    1
    
    
    
    26
    
    
    
    
    
    
    
    
    
    
    
    27
    
    
    
    
    
    
    
    27Issuance of Series K Preferred Stock, net of issuance costs
    
    
    165
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    165
    
    
    
    
    
    
    
    165Issuance of Series G Preferred Stock dividend
    
    
    50
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50
    
    
    
    
    
    
    
    50Issuance of Series H Preferred Stock dividend
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    5Preferred stock dividends
    
    
    
    
    
    
    
    
    
    
    (108
    )
    
    
    
    
    
    
    
    
    
    
    (108
    )
    
    
    
    
    
    
    (108
    )Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    91
    
    
    
    
    
    
    
    
    
    
    
    91
    
    
    
    
    
    
    
    91Comprehensive income (loss):Net income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (887
    )
    
    
    
    
    
    
    (887
    )
    
    
    102
    
    
    
    (785
    )Translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (105
    )
    
    
    (105
    )
    
    
    
    
    
    
    (105
    )Balance as of March 31, 2010
    
    $
    5,143
    
    
    $
    1,176
    
    
    $
    30,402
    
    
    $
    (19,163
    )
    
    $
    1,871
    
    
    $
    19,429
    
    
    $
    857
    
    
    $
    20,286
 DRI Shareholders EquityAccumulatedAdditional
    
    
    Accum-
    
    
    Other
    
    
    Total DRI
    
    
    
    
    
    
    TotalPreferred
    
    
    Common
    
    
    Paid-in
    
    
    ulated
    
    
    Comprehensive
    
    
    Shareholders
    
    
    Noncontrolling
    
    
    ShareholdersStock
    
    
    Stock
    
    
    Capital
    
    
    Deficit
    
    
    Income (Loss)
    
    
    Equity
    
    
    Interests
    
    
    EquityBalance as of December 31, 2008
    
    $
    3,765
    
    
    $
    1,147
    
    
    $
    32,706
    
    
    $
    (20,398
    )
    
    $
    512
    
    
    $
    17,732
    
    
    $
    852
    
    
    $
    18,584Cumulative effect of reclassification
of warrants (ASC 815-40)
    
    
    
    
    
    
    
    
    
    
    (333
    )
    
    
    292
    
    
    
    
    
    
    
    (41
    )
    
    
    
    
    
    
    (41
    )Balance as of January 1, 2009, as adjusted
    
    $
    3,765
    
    
    $
    1,147
    
    
    $
    32,373
    
    
    $
    (20,106
    )
    
    $
    512
    
    
    $
    17,691
    
    
    $
    852
    
    
    $
    18,543Issuance of common stock
    
    
    
    
    
    
    2
    
    
    
    20
    
    
    
    
    
    
    
    
    
    
    
    22
    
    
    
    
    
    
    
    22Issuance of Series G Preferred Stock dividend
    
    
    40
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40
    
    
    
    
    
    
    
    40Issuance of Series H Preferred Stock dividend
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    5Preferred stock dividends
    
    
    
    
    
    
    
    
    
    
    (76
    )
    
    
    
    
    
    
    
    
    
    
    (76
    )
    
    
    
    
    
    
    (76
    )Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    77
    
    
    
    
    
    
    
    
    
    
    
    77
    
    
    
    
    
    
    
    77Comprehensive loss:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,073
    )
    
    
    
    
    
    
    (1,073
    )
    
    
    (241
    )
    
    
    (1,314
    )Translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,004
    )
    
    
    (1,004
    )
    
    
    
    
    
    
    (1,004
    )Balance as of March 31, 2009
    
    $
    3,810
    
    
    $
    1,149
    
    
    $
    32,394
    
    
    $
    (21,179
    )
    
    $
    (492
    )
    
    $
    15,682
    
    
    $
    611
    
    
    $
    16,293
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##### Table of Contents



COMPREHENSIVE INCOME (LOSS)


March 31,2010
    
    
    2009(In thousands)Net loss
    
    $
    (785
    )
    
    $
    (1,314
    )Other comprehensive loss, net of tax:Foreign currency translation adjustment, net of tax
    
    
    (105
    )
    
    
    (1,004
    )Total other comprehensive loss, net of tax
    
    
    (105
    )
    
    
    (1,004
    )Comprehensive loss
    
    
    (890
    )
    
    
    (2,318
    )Comprehensive income attributable to the noncontrolling interest
    
    
    9
    
    
    
    29Comprehensive loss attributable to DRI Corporation
    
    $
    (881
    )
    
    $
    (2,289
    )
 (11) SEGMENT AND GEOGRAPHIC INFORMATION
  Three Months Ended March 31,2010
    
    
    2009(Unaudited)(In thousands)Net salesNorth America
    
    $
    7,058
    
    
    $
    7,336Europe
    
    
    4,663
    
    
    
    3,965Asia-Pacific
    
    
    8,014
    
    
    
    927Middle East
    
    
    223
    
    
    
    42South America
    
    
    2,171
    
    
    
    932$
    22,129
    
    
    $
    13,202
 March 31,2010
    
    
    December 31,(Unaudited)
    
    
    2009(In thousands)Long-lived assetsNorth America
    
    $
    3,868
    
    
    $
    3,670Europe
    
    
    2,102
    
    
    
    1,948Asia-Pacific
    
    
    339
    
    
    
    313South America
    
    
    328
    
    
    
    225$
    6,637
    
    
    $
    6,156
 (12) INCOME TAXES
    (13) SUBSEQUENT EVENTS
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Business  General
 ® ® ® ®
  Critical Accounting Policies and Estimates
  
    
    Allowance for doubtful accounts;
    
    Inventory valuation;
    
    Warranty reserve;
    
    Intangible assets and goodwill;
    
    Income taxes, including deferred tax assets;
    
    Revenue recognition; and
    
    Stock-based compensation.
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Recent Accounting Pronouncements
  Results of Operations
  Three Months Ended March 31,2010
    
    
    2009Net sales
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    75.9
    
    
    
    72.1Gross profit
    
    
    24.1
    
    
    
    27.9Operating expenses:Selling, general and administrative
    
    
    27.0
    
    
    
    33.9Research and development
    
    
    0.5
    
    
    
    0.6Total operating expenses
    
    
    27.5
    
    
    
    34.5Operating loss
    
    
    (3.4
    )
    
    
    (6.6
    )Other income and expense
    
    
    (1.2
    )
    
    
    (3.5
    )Loss before income tax benefit
    
    
    (4.6
    )
    
    
    (10.1
    )Income tax benefit
    
    
    1.1
    
    
    
    0.1Net loss
    
    
    (3.5
    )
    
    
    (10.0
    )Net (income) loss attributable to noncontrolling interests
    
    
    (0.5
    )
    
    
    1.8Net loss attributable to DRI Corporation
    
    
    (4.0)
    %
    
    
    (8.2)
    %
 COMPARISON OF OUR RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009
 Net Sales and Gross Profit.
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Selling, General and Administrative.
 Research and Development .
 Operating Loss.
 Other
Expense, Foreign Currency Gain (Loss), and Interest Expense.
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Income Tax Benefit.
 Net Loss Applicable to Common Shareholders.
 Industry and Market Overview
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OUR LIQUIDITY AND CAPITAL RESOURCES
 Cash Flows for the Three Months Ended March 31, 2010 and 2009
    Significant Financing Arrangements
  
    
    Our wholly-owned subsidiaries Digital Recorders, Inc. and TwinVision of North
America, Inc. (collectively, the Borrowers) have in place a three-year, asset-based lending
agreement (as amended, the PNC Agreement) with PNC Bank, National Association (PNC). DRI
has agreed to guarantee the obligations of the Borrowers under the PNC Agreement. The PNC
Agreement provides up to $8.0 million in borrowings under a revolving credit facility and is
secured by substantially all tangible and intangible U.S. assets of the Company. Borrowing
availability under the PNC Agreement is based upon an advance rate equal to 85% of eligible
domestic accounts receivable of the Borrowers plus 75% of eligible foreign receivables of the
Borrowers, limited to the lesser of $2.5 million or the amount of coverage under acceptable
credit insurance policies of the Borrowers, as determined by PNC in its reasonable discretion,
plus 85% of the appraised net orderly liquidation value of inventory of the Borrowers, limited
to $750,000. The PNC Agreement provides for one of two possible interest rates on borrowings:
(1) an interest rate based on the rate (the Eurodollar Rate) at which U.S. dollar deposits
are offered by leading banks in the London interbank deposit market (a Eurodollar Rate Loan)
or (2) interest at a rate (the Domestic Rate) based on either (a) the base commercial
lending rate of PNC, or (b) the open rate for federal funds transactions among members of the
Federal Reserve System, as determined by PNC (a Domestic Rate Loan). The actual annual
interest rate for borrowings under the PNC Agreement is (a) the Eurodollar Rate plus 3.25% for
a Eurodollar Rate Loan and (b) the Domestic Rate plus 1.75% for Domestic Rate Loans. Interest
is calculated on the principal amount of borrowings outstanding, subject to a minimum
principal amount of $3.5 million. The PNC Agreement contains certain covenants and provisions
with which we and the Borrowers must comply on a quarterly basis. At March 31, 2010, the
outstanding principal balance on the revolving credit facility was approximately $3.2 million
and remaining borrowing availability under the revolving credit facility was approximately
$1.4 million.
    
    Mobitec AB has credit facilities in place under agreements with Svenska
Handelsbanken AB (Handelsbanken) pursuant to which it may currently borrow up to a maximum
of 32.5 million krona, or approximately US$4.5 million (based on exchange rates at March 31,
2010) through October 31, 2010, on which date, under terms of the credit agreements, the
maximum borrowing capacity will be reduced by 8.5 million krona, or approximately US$1.2
million (based on exchange rates at March 31, 2010). At
March 31, 2010, borrowings due and outstanding under these credit facilities totaled 18.8
million krona (approximately US$2.6
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million, based on exchange rates at March 31, 2010). Additional borrowing availability under these agreements at March 31, 2010 amounted to
approximately US$1.2 million. These credit agreements renew annually on a calendar-year basis.
    
    Mobitec GmbH has a credit facility in place under an agreement with Handelsbanken
pursuant to which it could borrow up to a maximum of 1.4 million Euro (approximately US$1.9
million, based on exchange rates as of March 31, 2010) through April 30, 2010, on which date
the borrowing capacity was reduced by 500,000 Euro to 912,000 Euro (approximately US$1.2
million, based on exchange rates as of March 31, 2010). At March 31, 2010, borrowings due and
outstanding under this credit facility totaled 1.1 million Euro (approximately US$1.5 million,
based on exchange rates at March 31, 2010) and additional borrowing availability amounted to
approximately US$400,000. During April 2010, Mobitec GmbH reduced the outstanding balance due
under this credit facility to an amount below the 912,000 Euro maximum borrowing capacity as
of April 30, 2010. The agreement under which this credit facility is extended has an
open-ended term.
  Management Conclusion
  Impact of Inflation
  FORWARD-LOOKING STATEMENTS
   
    
    our ability to meet our capital requirements;
    
    our ability to meet and maintain our existing debt obligations, including obligations to
make payments under such debt instruments;
    
    our ability to comply with debt covenant requirements;
    
    the sufficiency of our liquidity and capital resources to support current operations for
the remainder of 2010;
    
    expected revenue growth in our domestic and international operations and increased
production efforts to meet such expected growth;
    
    our ability to secure additional financing on commercially reasonable terms;
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
    
    our future cash flow position;
    
    recent legislative action affecting the transportation and/or security industry;
    
    future legislative action affecting the transportation and/or security industry;
    
    the impact of transit funding legislation and stimulus funding legislation on the market
for our products;
    
    the likelihood of passage of new transit funding legislation and when passage of such
legislation might occur;
    
    the impact of uncertainties in transit funding legislation on the markets we serve;
    
    changes in federal or state funding for transportation and/or security-related funding;
    
    our future outlook with respect to the domestic and international markets for our products;
and
    
    our opinion that increased funding for transit security establishes a positive trend.
   
 ITEM 4T. CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
  Internal Control-Integrated Framework
   Material Weakness  Mobitec Brazil Ltda.
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Material Weakness  Revenue Recognition.
 Changes in Internal Control over Financial Reporting
  
 PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  Risks Related to Indebtedness, Financial Condition and Results of Operations
 Our substantial debt could adversely affect our financial position, operations and ability to
grow.
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
    
    we could be required to dedicate a substantial portion of our cash flow from
operations to payments on our debt, which would reduce amounts available for working
capital, capital expenditures, research and development and other general corporate
purposes;
    
    our flexibility in planning for, or reacting to, changes in our business and
the industries in which we operate could be limited;
    
    we may be more vulnerable to general adverse economic and industry conditions;
    
    we may be at a disadvantage compared to our competitors that may have less
debt than we do;
    
    it may be more difficult for us to obtain additional financing that may be
necessary in connection with our business;
    
    it may be more difficult for us to implement our business and growth
strategies;
    
    we may have to pay higher interest rates on future borrowings; and
    
    we may not comply with financial loan covenants, which could require us to
incur additional expenses to obtain waivers from lenders or could restrict the
availability of financing we can obtain to support our working capital requirements.
 
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
   
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. (REMOVED AND RESERVED)
 
 ITEM 5. OTHER INFORMATION
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ITEM 6. EXHIBITS
  Exhibit No.
    
    Document10.1
    
    Third Payment Extension Agreement, dated as of April 19, 2010,
by and between DRI Corporation and Digital Audio Corporation
(incorporated herein by reference to the Companys current
report on Form 8-K, filed with the SEC on April 23, 2010)10.2
    
    Contract A Supplementary Overdraft Facility for purposes other
than personal consumption, dated May 11, 2010, by and between
Mobitec AB and Svenska Handelsbanken AB (filed herewith)31.1
    
    Section 302 Certification of David L. Turney (filed herewith)31.2
    
    Section 302 Certification of Stephen P. Slay (filed herewith)32.1
    
    Section 906 Certification of David L. Turney (filed herewith)32.2
    
    Section 906 Certification of Stephen P. Slay (filed herewith)
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SIGNATURES
  DRI CORPORATIONSignature:
    
    /s/ Stephen P. SlayBy:
    
    Stephen P. SlayTitle:
    
    Chief Financial Officer 
(Principal Financial and Accounting Officer)Date:
    
    May 14, 2010
 23