##### 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, 2011
 Commission File Number 000-28539
 DRI CORPORATION
 (Exact name of Registrant as specified in its Charter)
 North Carolina
    
    56-1362926(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    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 $0.10 per share
    
    11,882,091(Class of Common Stock)
    
    Number of Shares




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##### 



DRI CORPORATION AND SUBSIDIARIES
 INDEX
 Page No.PART I  FINANCIAL INFORMATIONItem 1. Financial StatementsConsolidated Balance Sheets  March 31, 2011 (Unaudited) and December 31, 2010
    
    
    3Consolidated Statements of Operations  Three Months Ended March 31, 2011 and 2010 (Unaudited)
    
    
    4Consolidated Statements of Cash Flows  Three Months Ended March 31, 2011 and 2010 (Unaudited)
    
    
    5Notes to Unaudited Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14Item 4. Controls and Procedures
    
    
    21PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    21Item 1A. Risk Factors
    
    
    21Item 6. Exhibits
    
    
    22SIGNATURES
    
    
    23EX-31.1EX-31.2EX-32.1EX-32.2
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PART I  FINANCIAL INFORMATION
 
 Item 1.
    
    FINANCIAL STATEMENTS
  
   March 31, 2011
    
    
    December 31, 2010(Unaudited)
    
    
    (Note 1)ASSETSCurrent AssetsCash and cash equivalents
    
    $
    1,377
    
    
    $
    1,391Trade accounts receivable, net
    
    
    16,801
    
    
    
    15,678Current portion of note receivable
    
    
    86
    
    
    
    86Other receivables
    
    
    259
    
    
    
    300Inventories, net
    
    
    15,211
    
    
    
    15,134Prepaids and other current assets
    
    
    1,135
    
    
    
    1,389Deferred tax assets, net
    
    
    676
    
    
    
    613Total current assets
    
    
    35,545
    
    
    
    34,591Property and equipment, net
    
    
    1,378
    
    
    
    1,388Software, net
    
    
    6,214
    
    
    
    5,757Goodwill
    
    
    11,149
    
    
    
    10,398Intangible assets, net
    
    
    662
    
    
    
    651Other assets
    
    
    918
    
    
    
    1,045Total assets
    
    $
    55,866
    
    
    $
    53,830LIABILITIES AND SHAREHOLDERS EQUITYCurrent LiabilitiesLines of credit
    
    $
    9,711
    
    
    $
    8,454Loans payable
    
    
    362
    
    
    
    442Current portion of long-term debt
    
    
    961
    
    
    
    944Current portion of foreign tax settlement
    
    
    477
    
    
    
    550Accounts payable
    
    
    9,559
    
    
    
    8,703Accrued expenses and other current liabilities
    
    
    5,651
    
    
    
    6,354Preferred stock dividends payable
    
    
    124
    
    
    
    19Total current liabilities
    
    
    26,845
    
    
    
    25,466Long-term debt and capital leases, net
    
    
    6,085
    
    
    
    6,239Deferred tax liabilities, net
    
    
    87
    
    
    
    84Liability for uncertain tax positions
    
    
    891
    
    
    
    723Commitments
and contingencies (Notes 7 and 8)Shareholders EquitySeries K redeemable, convertible preferred stock, $0.10 par value,
liquidation preference of $5,000 per share; 475 shares authorized; 439 shares issued and outstanding at March 31, 2011 and December 31, 2010; redeemable at the discretion of the Company at any time.
    
    
    1,957
    
    
    
    1,957Series E redeemable, nonvoting, convertible preferred stock, $0.10 par value,
liquidation preference of $5,000 per share; 80 shares authorized; 80 shares issued and outstanding at March 31, 2011 and December 31, 2010; redeemable at the discretion of the Company at any time.
    
    
    337
    
    
    
    337Series G redeemable, convertible preferred stock, $0.10 par value,
liquidation preference of $5,000 per share; 725 shares authorized; 536 shares issued and outstanding at March 31, 2011 and December 31, 2010; redeemable at the discretion of the Company at any time.
    
    
    2,398
    
    
    
    2,398Series H redeemable, convertible preferred stock, $0.10 par value,
liquidation preference of $5,000 per share; 125 shares authorized; 76 shares issued and outstanding at March 31, 2011 and December 31, 2010; redeemable at the discretion of the Company at any time.
    
    
    332
    
    
    
    332Series AAA redeemable, nonvoting, convertible preferred stock, $0.10 par value,
liquidation preference of $5,000 per share; 166 shares authorized; 166 shares issued and outstanding at March 31, 2011 and December 31, 2010; redeemable at the discretion of the Company at any time.
    
    
    830
    
    
    
    830Common stock, $0.10 par value, 25,000,000 shares authorized; 11,858,270 and
11,838,873 shares issued and outstanding at March 31, 2011 and December 31, 2010, respectively.
    
    
    1,186
    
    
    
    1,184Additional paid-in capital
    
    
    30,320
    
    
    
    30,374Accumulated other comprehensive income  foreign currency translation
    
    
    4,444
    
    
    
    3,180Accumulated deficit
    
    
    (20,627
    )
    
    
    (20,121
    )Total DRI shareholders equity
    
    
    21,177
    
    
    
    20,471Noncontrolling interest  Castmaster Mobitec India Private Limited
    
    
    781
    
    
    
    847Total shareholders equity
    
    
    21,958
    
    
    
    21,318Total liabilities and shareholders equity
    
    $
    55,866
    
    
    $
    53,830
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Three Months Ended March 31,2011
    
    
    2010Net sales
    
    $
    19,089
    
    
    $
    22,129Cost of sales
    
    
    12,957
    
    
    
    16,805Gross profit
    
    
    6,132
    
    
    
    5,324Operating expensesSelling, general and administrative
    
    
    6,027
    
    
    
    5,981Research and development
    
    
    156
    
    
    
    108Total operating expenses
    
    
    6,183
    
    
    
    6,089Operating loss
    
    
    (51
    )
    
    
    (765
    )Other income (loss)
    
    
    2
    
    
    
    (1
    )Foreign currency gain (loss)
    
    
    (289
    )
    
    
    89Interest expense
    
    
    (381
    )
    
    
    (360
    )Total other income and expense
    
    
    (668
    )
    
    
    (272
    )Loss before
income tax benefit
    
    
    (719
    )
    
    
    (1,037
    )Income tax benefit
    
    
    147
    
    
    
    252Net loss
    
    
    (572
    )
    
    
    (785
    )Less: Net (income) loss attributable to noncontrolling interest, net of tax
    
    
    66
    
    
    
    (102
    )Net loss attributable to DRI Corporation
    
    
    (506
    )
    
    
    (887
    )Provision for preferred stock dividends
    
    
    (174
    )
    
    
    (108
    )Net loss applicable to common shareholders of DRI Corporation
    
    $
    (680
    )
    
    $
    (995
    )Net loss per share applicable to common shareholders of DRI CorporationBasic and diluted
    
    $
    (0.06
    )
    
    $
    (0.08
    )Weighted average number of common shares outstandingBasic and diluted
    
    
    11,851,804
    
    
    
    11,753,359
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Three Months Ended March 31,2011
    
    
    2010Cash flows from operating activitiesNet loss
    
    $
    (572
    )
    
    $
    (785
    )Adjustments to reconcile net loss to net cash
provided by operating activitiesDeferred income taxes
    
    
    (45
    )
    
    
    (103
    )Change in liability for uncertain tax positions
    
    
    52
    
    
    
    (13
    )Depreciation of property and equipment
    
    
    112
    
    
    
    100Amortization
of software
    
    
    293
    
    
    
    213Amortization of intangible assets
    
    
    31
    
    
    
    28Amortization of deferred financing costs
    
    
    185
    
    
    
    137Amortization of debt discount
    
    
    27
    
    
    
    27Loan termination fee accrual
    
    
    59
    
    
    
    58Bad debt expense
    
    
    7
    
    
    
    19Stock issued in lieu of cash compensation
    
    
    31
    
    
    
    27Stock-based compensation expense
    
    
    91
    
    
    
    91Write-down of inventory for obsolescence
    
    
    18
    
    
    
    66Loss on disposal of fixed assets
    
    
    
    
    
    
    2Other, primarily effect of foreign currency (gain) loss
    
    
    293
    
    
    
    (139
    )Changes in operating assets and liabilities(Increase) decrease in trade accounts receivable
    
    
    (782
    )
    
    
    1,634Decrease in other receivables
    
    
    43
    
    
    
    88(Increase) decrease in inventories
    
    
    369
    
    
    
    (911
    )Decrease in prepaids and other current assets
    
    
    20
    
    
    
    721Increase in other assets
    
    
    
    
    
    
    (23
    )Increase (decrease) in accounts payable
    
    
    611
    
    
    
    (455
    )Decrease in accrued expenses and other current liabilities
    
    
    (359
    )
    
    
    (268
    )Decrease in foreign tax settlement
    
    
    (171
    )
    
    
    (83
    )Net cash provided by operating activities
    
    
    313
    
    
    
    431Cash flows from investing activitiesPurchases of property and equipment
    
    
    (60
    )
    
    
    (242
    )Investments in software development
    
    
    (602
    )
    
    
    (681
    )Net cash used in investing activities
    
    
    (662
    )
    
    
    (923
    )Cash flows from financing activitiesProceeds from bank borrowings and lines of credit
    
    
    18,945
    
    
    
    23,397Principal payments on bank borrowings and lines of credit
    
    
    (18,544
    )
    
    
    (23,538
    )Proceeds from issuance of preferred stock, net of costs
    
    
    
    
    
    
    721Payment of loan amendment fees
    
    
    (30
    )
    
    
    (5
    )Payment of dividends on preferred stock
    
    
    (51
    )
    
    
    (53
    )Net cash provided by financing activities
    
    
    320
    
    
    
    522Effect of exchange rate changes on cash and cash equivalents
    
    
    15
    
    
    
    17Net increase (decrease) in cash and cash equivalents
    
    
    (14
    )
    
    
    47Cash and cash equivalents at beginning of period
    
    
    1,391
    
    
    
    1,800Cash and cash equivalents at end of period
    
    $
    1,377
    
    
    $
    1,847
 Three Months Ended March 31,2011
    
    
    2010(In thousands)Supplemental disclosures of non-cash investing and financing activities:Preferred stock issued for services
    
    $
    
    
    
    $
    120Preferred stock dividends
    
    $
    123
    
    
    $
    55
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DRI CORPORATION AND SUBSIDIARIES
 
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 (1) BASIS OF PRESENTATION AND DISCLOSURE
 ()
    Revenue Recognition
 Multiple-Deliverable Revenue Arrangements, Revenue Recognition.
   6




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Software Revenue Recognition
 Product Warranties
  Three Months Ended March 31,2011
    
    
    2010(In thousands)Balance at beginning of period
    
    $
    809
    
    
    $
    805Additions charged to costs and expenses
    
    
    1
    
    
    
    8Deductions
    
    
    (29
    )
    
    
    (32
    )Foreign exchange translation (gain) loss
    
    
    75
    
    
    
    (13
    )Balance at end of period
    
    $
    856
    
    
    $
    768
 Recent Accounting Pronouncements
  Fair Value of Assets and Liabilities
  Fair Value of Financial Instruments
  Non-monetary Transactions
  (2) GOODWILL AND OTHER INTANGIBLE ASSETS
  7




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WeightedAverage
    
    

March
31, 2011
    
    
    December 31, 2010Remaining
    
    
    Gross
    
    
    
    
    
    
    Net
    
    
    Gross
    
    
    
    
    
    
    NetLife
    
    
    Carrying
    
    
    Accumulated
    
    
    Carrying
    
    
    Carrying
    
    
    Accumulated
    
    
    Carrying(Years)
    
    
    Amount
    
    
    Amortization
    
    
    Amount
    
    
    Amount
    
    
    Amortization
    
    
    Amount(In thousands)Intangible assets subject to
amortization:Customer lists
    
    
    5.30
    
    
    $
    1,874
    
    
    $
    1,212
    
    
    $
    662
    
    
    $
    1,759
    
    
    $
    1,108
    
    
    $
    651
   (3) INVENTORIES
 March 31,
    
    
    December 31,2011
    
    
    2010(In thousands)Raw materials and system components
    
    $
    12,310
    
    
    $
    11,962Work in process
    
    
    18
    
    
    
    17Finished goods
    
    
    2,883
    
    
    
    3,155Total inventories, net
    
    $
    15,211
    
    
    $
    15,134
 (4) PROPERTY AND EQUIPMENT
 EstimatedDepreciable
    
    March 31,
    
    
    December 31,Lives (years)
    
    2011
    
    
    2010(In thousands)Leasehold improvements
    
    3-10
    
    $
    371
    
    
    $
    370Automobiles
    
    4-6
    
    
    385
    
    
    
    382Computer and telecommunications equipment
    
    2-5
    
    
    1,241
    
    
    
    1,223Test equipment
    
    3-7
    
    
    175
    
    
    
    180Furniture and fixtures
    
    2-10
    
    
    3,121
    
    
    
    2,9395,293
    
    
    
    5,094Less accumulated depreciation
    
    
    
    
    (3,915
    )
    
    
    (3,706
    )Total property and equipment, net
    
    
    
    $
    1,378
    
    
    $
    1,388
 (5) SOFTWARE
 EstimatedDepreciable
    
    
    March 31,
    
    
    December 31,Lives (years)
    
    
    2011
    
    
    2010(In thousands)Software
    
    
    5
    
    
    
    9,790
    
    
    
    9,335Software projects in progress
    
    
    
    
    
    
    2,274
    
    
    
    1,73212,064
    
    
    
    11,067Less accumulated amortization
    
    
    
    
    
    
    (5,850
    )
    
    
    (5,310
    )Total software, net
    
    
    
    
    
    $
    6,214
    
    
    $
    5,757
 (6) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
 March 31,
    
    
    December 31,2011
    
    
    2010(In thousands)Salaries, commissions, and benefits
    
    $
    2,262
    
    
    $
    2,516Taxes  payroll, sales, income, and other
    
    
    803
    
    
    
    1,375Warranties
    
    
    856
    
    
    
    809Current portion of capital leases
    
    
    17
    
    
    
    17Interest payable
    
    
    130
    
    
    
    135Deferred revenue
    
    
    854
    
    
    
    639Customer rebates and credits
    
    
    128
    
    
    
    320Other
    
    
    601
    
    
    
    543Total accrued expenses and other current liabilities
    
    $
    5,651
    
    
    $
    6,354
 (7) LINES OF CREDIT AND LOANS PAYABLE
 (a) Domestic line of credit and loan payable
 8




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b) International lines of credit and loans payable
   9




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March 31,
    
    
    December 31,2011
    
    
    2010(In thousands)Line of credit with PNC Bank,
National Association dated June 30,
2008; payable in full the earlier of
(a) April 30, 2012 or (b) five days
prior to the maturity date of the
BHC Agreement; secured by all
tangible and intangible U.S. assets
of the Company; bears average
interest rate of 5.00% and 5.00% in
2011 and 2010, respectively.
    
    $
    3,321
    
    
    $
    2,841Line 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 5.88% and
4.48% in 2011 and 2010,
respectively.
    
    
    2,481
    
    
    
    2,301Line 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 6.02% and
4.59% in 2011 and 2010,
respectively.
    
    
    2,855
    
    
    
    2,575Line 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 4.40%
and 4.39% in 2011 and 2010,
respectively.
    
    
    1,054
    
    
    
    737Total lines of credit
    
    $
    9,711
    
    
    $
    8,454
 (8) LONG-TERM DEBT
 March 31,
    
    
    December 31,2011
    
    
    2010(In thousands)Term loan with BHC Interim Funding III, L.P., dated June 30, 2008;
payable in full April 30, 2012; 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 $59,000; secured by accounts receivable
and inventory of the Swedish subsidiary, Mobitec AB; bears average
interest rate of 7.05% and 6.24% in 2011 and 2010, respectively.
    
    
    237
    
    
    
    277Term loan with Roberto Demore, dated August 31, 2009; payable in
quarterly installments of $162,500; unsecured; bears interest rate of
5.0%, with 9.0% on deferred installments (see Note 7).
    
    
    1,300
    
    
    
    1,463Term loan with HDFC Bank, dated October 5, 2009; payable in monthly
installments of $4,605, inclusive of interest at 8.0%.
    
    
    78
    
    
    
    90Term loan with HDFC Bank, dated November 14, 2009; payable in monthly
installments of $497, inclusive of interest at 9.51%.
    
    
    18
    
    
    
    19Term loan with Banco Finesa, dated May 28, 2010; payable in monthly
installments of $1,939, inclusive of interest at 20.10%.
    
    
    41
    
    
    
    44Total long-term debt
    
    
    6,424
    
    
    
    6,643Term loan termination fee accrual
    
    
    640
    
    
    
    581Less current portion
    
    
    (961
    )
    
    
    (944
    )Less debt discount
    
    
    (28
    )
    
    
    (55
    )6,075
    
    
    
    6,225Long-term portion of capital leases
    
    
    10
    
    
    
    14Total long-term debt and capital leases, less current portion
    
    $
    6,085
    
    
    $
    6,239
 (9) PREFERRED STOCK
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(10) PER SHARE AMOUNTS
  Three Months Ended March 31,2011
    
    
    2010(Unaudited)Weighted average shares outstanding  basic and diluted
    
    
    11,851,804
    
    
    
    11,753,359
  (11) SHAREHOLDERS EQUITY, COMPREHENSIVE INCOME (LOSS) AND NONCONTROLLING INTEREST
  DRI Shareholders EquityAccumulatedAdditional
    
    
    Accum-
    
    
    Other
    
    
    Total DRI
    
    
    
    
    
    
    Compre-
    
    
    TotalPreferred
    
    
    Common
    
    
    Paid-in
    
    
    ulated
    
    
    Comprehensive
    
    
    Shareholders
    
    
    Noncontrolling
    
    
    hensive
    
    
    ShareholdersStock
    
    
    Stock
    
    
    Capital
    
    
    Deficit
    
    
    Income
    
    
    Equity
    
    
    Interest
    
    
    Income (loss)
    
    
    EquityBalance as of December 31, 2010
    
    $
    5,854
    
    
    $
    1,184
    
    
    $
    30,374
    
    
    $
    (20,121
    )
    
    $
    3,180
    
    
    $
    20,471
    
    
    $
    847
    
    
    
    
    
    
    $
    21,318Issuance of common stock
    
    
    
    
    
    
    2
    
    
    
    29
    
    
    
    
    
    
    
    
    
    
    
    31
    
    
    
    
    
    
    
    
    
    
    
    31Preferred stock dividends
    
    
    
    
    
    
    
    
    
    
    (174
    )
    
    
    
    
    
    
    
    
    
    
    (174
    )
    
    
    
    
    
    
    
    
    
    
    (174
    )Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    91
    
    
    
    
    
    
    
    
    
    
    
    91
    
    
    
    
    
    
    
    
    
    
    
    91Comprehensive income (loss):Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (506
    )
    
    
    
    
    
    
    (506
    )
    
    
    (66
    )
    
    $
    (572
    )
    
    
    (572
    )Translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,264
    
    
    
    1,264
    
    
    
    
    
    
    
    1,264
    
    
    
    1,264Total
comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    692Balance as of March 31, 2011
    
    $
    5,854
    
    
    $
    1,186
    
    
    $
    30,320
    
    
    $
    (20,627
    )
    
    $
    4,444
    
    
    $
    21,177
    
    
    $
    781
    
    
    
    
    
    
    $
    21,958
 DRI Shareholders EquityAccumulatedAdditional
    
    
    Accum-
    
    
    Other
    
    
    Total DRI
    
    
    
    
    
    
    Compre-
    
    
    TotalPreferred
    
    
    Common
    
    
    Paid-in
    
    
    ulated
    
    
    Comprehensive
    
    
    Shareholders
    
    
    Noncontrolling
    
    
    hensive
    
    
    ShareholdersStock
    
    
    Stock
    
    
    Capital
    
    
    Deficit
    
    
    Income (Loss)
    
    
    Equity
    
    
    Interest
    
    
    Income (loss)
    
    
    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
    )
    
    
    (785
    )Translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (105
    )
    
    
    (105
    )
    
    
    
    
    
    
    (105
    )
    
    
    (105
    )Total
comprehensive loss

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (890
    )Balance as of March 31, 2010
    
    $
    5,143
    
    
    $
    1,176
    
    
    $
    30,402
    
    
    $
    (19,163
    )
    
    $
    1,871
    
    
    $
    19,429
    
    
    $
    857
    
    
    
    
    
    
    $
    20,286
 12




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##### Table of Contents



COMPREHENSIVE INCOME (LOSS)
 Three Months Ended March 31,2011
    
    
    2010(In thousands)Net loss
    
    $
    (572
    )
    
    $
    (785
    )Other comprehensive income (loss), net of tax:Foreign currency translation adjustment, net of tax
    
    
    1,264
    
    
    
    (105
    )Total other comprehensive income (loss), net of tax
    
    
    1,264
    
    
    
    (105
    )Comprehensive income (loss)
    
    
    692
    
    
    
    (890
    )Comprehensive (income) loss attributable to the noncontrolling interest
    
    
    5
    
    
    
    (93
    )Comprehensive income (loss) attributable to DRI Corporation
    
    $
    697
    
    
    $
    (983
    )
 (12) SEGMENT AND GEOGRAPHIC INFORMATION
  Three Months Ended March 31,2011
    
    
    2010(Unaudited)(In thousands)Net salesNorth America
    
    $
    7,872
    
    
    $
    7,058Europe
    
    
    5,646
    
    
    
    4,663Asia-Pacific
    
    
    2,391
    
    
    
    8,014Middle East
    
    
    192
    
    
    
    223South America
    
    
    2,988
    
    
    
    2,171$
    19,089
    
    
    $
    22,129
 March 31,2011
    
    
    December 31,(Unaudited)
    
    
    2010(In thousands)Long-lived assetsNorth America
    
    $
    4,228
    
    
    $
    4,105Europe
    
    
    2,799
    
    
    
    2,619Asia-Pacific
    
    
    942
    
    
    
    957South America
    
    
    541
    
    
    
    509$
    8,510
    
    
    $
    8,190
 (13) INCOME TAXES
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##### Table of Contents



(14) SOFTWARE DEVELOPMENT
  (15) NON-MONETARY TRANSACTION  ADVERTISING RIGHTS
     
 ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  14




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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.
   Recent Accounting Pronouncements
  Results of Operations
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##### Table of Contents



Three Months Ended March 31,2011
    
    
    2010Net sales
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    67.9
    
    
    
    75.9Gross profit
    
    
    32.1
    
    
    
    24.1Operating expenses:Selling, general and administrative
    
    
    31.6
    
    
    
    27.0Research and development
    
    
    0.8
    
    
    
    0.5Total operating expenses
    
    
    32.4
    
    
    
    27.5Operating loss
    
    
    (0.3
    )
    
    
    (3.4
    )Total other income and expense
    
    
    (3.5
    )
    
    
    (1.2
    )Loss before income tax benefit
    
    
    (3.8
    )
    
    
    (4.6
    )Income tax benefit
    
    
    0.8
    
    
    
    1.1Net loss
    
    
    (3.0
    )
    
    
    (3.5
    )Net (income) loss attributable to noncontrolling interest
    
    
    0.3
    
    
    
    (0.5
    )Net loss attributable to DRI Corporation
    
    
    (2.7
    )%
    
    
    (4.0
    )%
 COMPARISON OF OUR RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010
 Net Sales and Gross Profit.
      16




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##### Table of Contents



Selling, General and Administrative.
 Research and Development .
 Operating Loss.
 Other Income and Expense.
 Income Tax Benefit.
 Net Loss Applicable to Common Shareholders.
 17




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##### Table of Contents



Industry and Market Overview
     LIQUIDITY AND CAPITAL RESOURCES
 Cash Flows for the Three Months Ended March 31, 2011 and 2010
  18




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##### Table of Contents



Significant Financing Arrangements
  
    
    Our wholly-owned U.S. subsidiaries, Digital Recorders, Inc. and TwinVision of
North America, Inc. (collectively, the Borrowers), have in place an 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
Eurodollar Rate Loans 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, 2011, the
outstanding principal balance on the revolving credit facility was approximately $3.3 million
and remaining borrowing availability under the revolving credit facility was approximately
$2.0 million.
 
    
    Mobitec AB, our wholly-owned Swedish subsidiary, has credit facilities in place
under agreements with Svenska Handelsbanken AB (Handelsbanken) pursuant to which it may
currently borrow up to a maximum of 38.0 million SEK, or approximately $6.0 million (based on
exchange rates at March 31, 2011) through May 31, 2011, on which date, under terms of the
credit agreements, the maximum borrowing capacity will be reduced by 7.0 million SEK, or
approximately $1.1 million (based on exchange rates at March 31, 2011). At March 31, 2011,
borrowings due and outstanding under these credit facilities totaled 33.8 million SEK
(approximately $5.3 million, based on exchange rates at March 31, 2011). Additional borrowing
availability under these agreements at March 31, 2011 amounted to approximately $664,000.
These credit agreements renew annually on a calendar-year basis.
 
    
    Mobitec GmbH, our wholly-owned German subsidiary, has a credit facility in place
under an agreement with Handelsbanken pursuant to which it may currently borrow up to a
maximum of 912,000 EUR (approximately $1.3 million, based on exchange
rates at March 31, 2011). At March 31, 2011, borrowings due and outstanding under this credit
facility totaled 748,000 EUR (approximately $1.1 million based on exchange rates at March 31,
2011) and additional borrowing availability amounted to approximately $220,000. The agreement
under which this credit facility is extended has an open-ended term and allows Handelsbanken to
terminate the credit facility at any time.
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Management Conclusion
  Impact of Inflation
  Foreign currency translation
  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 2011;
    
    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 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;
 
    
    the impact of past and current credit and economic issues in the markets we serve; and
 
    
    our future outlook with respect to the domestic and international markets for our products.
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##### Table of Contents



ITEM 4.
    
    CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
   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.
 
    
    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;
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##### Table of Contents




    
    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 6.
    
    EXHIBITS
  ExhibitNo.
    
    Document10.1
    
    Contract A Supplementary Overdraft Facility, dated as of February 25,
2011, by and between Mobitec AB and Svenska Handelsbanken AB
(incorporated by reference to the Companys
current report on Form 8-K, filed with the SEC on March 3, 2011).10.2
    
    Contract A Account with Overdraft Facility, dated as of February 25, 2011,
by and between Mobitec AB and Svenska Handelsbanken AB (incorporated
by reference to the Companys current
report on Form 8-K, filed with the SEC on March 3, 2011).31.1
    
    Section 302 Certification of David L. Turney (filed herewith).31.2
    
    Section 302 Certification of Kathleen B. Oher (filed herewith).32.1
    
    Section 906 Certification of David L. Turney (filed herewith).32.2
    
    Section 906 Certification of Kathleen B. Oher (filed herewith).
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##### Table of Contents



SIGNATURES
  DRI CORPORATION
 Signature: 
By:
    
    /s/ Kathleen B. Oher

Kathleen B. OherTitle:
    
    Chief Financial Officer (Principal Financial and Accounting Officer)Date:
    
    May 16, 2011
 23