##### 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 June 30, 2009
 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(Do not check if a smaller reporting company)
Smaller Reporting Company þ o þ
  Common Stock, par value $.10 per share
    
    11,512,436(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  June 30, 2009 (Unaudited) and December 31, 2008
    
    
    3Consolidated Statements of Operations  Three and Six Months Ended June 30, 2009
and 2008 (Unaudited)
    
    
    4Consolidated Statements of Cash Flows  Six Months Ended June 30, 2009 and 2008
(Unaudited)
    
    
    5Notes to Unaudited Consolidated Financial Statements
    
    
    7Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    18Item 4T.
    
    Controls and Procedures
    
    
    29PART II  OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    30Item 1A.
    
    Risk Factors
    
    
    30Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    31Item 3.
    
    Defaults Upon Senior Securities
    
    
    31Item 4.
    
    Submission of Matters to a Vote of Securityholders
    
    
    31Item 5.
    
    Other Information
    
    
    32Item 6.
    
    Exhibits
    
    
    32SIGNATURES
    
    
    38EX-10.24.2EX-10.24.3EX-10.39EX-10.40EX-10.41EX-10.42EX-10.43EX-10.44EX-10.45EX-10.46EX-31.1EX-31.2EX-32.1EX-32.2
  2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
  Item 1. FINANCIAL STATEMENTS
  
 June 30, 2009
    
    
    December 31, 2008(Unaudited)
    
    
    (Note 1)ASSETSCurrent AssetsCash and cash equivalents
    
    $
    414
    
    
    $
    598Trade accounts receivable, net
    
    
    18,357
    
    
    
    12,403Current portion of note receivable
    
    
    86
    
    
    
    86Other receivables
    
    
    721
    
    
    
    431Inventories
    
    
    12,406
    
    
    
    10,662Prepaids and other current assets
    
    
    759
    
    
    
    427Total current assets
    
    
    32,743
    
    
    
    24,607Property and equipment, net
    
    
    4,164
    
    
    
    3,607Long-term portion of note receivable
    
    
    172
    
    
    
    172Goodwill
    
    
    9,056
    
    
    
    9,034Intangible assets, net
    
    
    730
    
    
    
    790Deferred tax assets, net
    
    
    
    
    
    
    94Other assets
    
    
    991
    
    
    
    1,157Total assets
    
    $
    47,856
    
    
    $
    39,461LIABILITIES AND SHAREHOLDERS EQUITYCurrent LiabilitiesLines of credit
    
    $
    5,612
    
    
    $
    3,743Loans payable
    
    
    972
    
    
    
    719Current portion of long-term debt
    
    
    210
    
    
    
    193Current portion of foreign tax settlement
    
    
    473
    
    
    
    386Accounts payable
    
    
    10,944
    
    
    
    5,347Accrued expenses and other current liabilities
    
    
    4,644
    
    
    
    4,359Preferred stock dividends payable
    
    
    18
    
    
    
    16Total current liabilities
    
    
    22,873
    
    
    
    14,763Long-term debt and capital leases, net
    
    
    5,282
    
    
    
    5,149Foreign tax settlement, long-term
    
    
    480
    
    
    
    528Deferred tax liabilities, net
    
    
    108
    
    
    
    137Liability for uncertain tax positions
    
    
    297
    
    
    
    300Commitments and contingencies (Notes 6 and 7)Shareholders Equity and Noncontrolling InterestsSeries E Redeemable, Nonvoting, Convertible Preferred Stock, $.10 par value,
liquidation preference of $5,000 per share; 500 shares authorized; 80 shares
issued and outstanding at June 30, 2009, and December 31, 2008; 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; 600 shares authorized; 462 and 444
shares issued and outstanding at June 30, 2009, and December 31, 2008,
respectively; redeemable at the discretion of the Company after five years
from date of issuance.
    
    
    2,028
    
    
    
    1,938Series H Redeemable, Convertible Preferred Stock, $.10 par value,
liquidation preference of $5,000 per share; 600 shares authorized; 66 and 64
shares issued and outstanding at June 30, 2009, and December 31, 2008,
respectively; redeemable at the discretion of the Company after five years
from date of issuance.
    
    
    282
    
    
    
    272Series J Redeemable, Convertible Preferred Stock, $.10 par value,
liquidation preference of $5,000 per share; 250 shares authorized; 90 shares
issued and outstanding at June 30, 2009, and December 31, 2008; redeemable
at the discretion of the Company at any time.
    
    
    388
    
    
    
    388Series AAA Redeemable, Nonvoting, Convertible Preferred Stock, $.10 par value,
liquidation preference of $5,000 per share; 20,000 shares authorized; 166 shares
issued and outstanding at June 30, 2009, and December 31, 2008; redeemable at
the discretion of the Company at any time.
    
    
    830
    
    
    
    830Common stock, $.10 par value, 25,000,000 shares authorized; 11,512,436 and
11,466,606 shares issued and outstanding at June 30, 2009 and December 31,
2008, respectively.
    
    
    1,151
    
    
    
    1,147Additional paid-in capital
    
    
    32,433
    
    
    
    32,706Accumulated other comprehensive income  foreign currency translation
    
    
    849
    
    
    
    512Accumulated deficit
    
    
    (19,963
    )
    
    
    (20,398
    )Total DRI shareholders equity
    
    
    18,335
    
    
    
    17,732Noncontrolling interestsNoncontrolling interest  Mobitec Brazil Ltda.
    
    
    243
    
    
    
    596Noncontrolling interest  Castmaster Mobitec India Private Limited
    
    
    238
    
    
    
    256Total noncontrolling interests
    
    
    481
    
    
    
    852Total shareholders equity
    
    
    18,816
    
    
    
    18,584Total liabilities and shareholders equity
    
    $
    47,856
    
    
    $
    39,461
  3




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Three Months Ended June 30,
    
    
    Six Months Ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Net sales
    
    $
    21,514
    
    
    $
    19,103
    
    
    $
    34,779
    
    
    $
    36,128Cost of sales
    
    
    14,844
    
    
    
    12,560
    
    
    
    24,360
    
    
    
    23,553Gross profit
    
    
    6,670
    
    
    
    6,543
    
    
    
    10,419
    
    
    
    12,575Operating expensesSelling, general and administrative
    
    
    5,155
    
    
    
    4,814
    
    
    
    9,628
    
    
    
    9,123Research and development
    
    
    189
    
    
    
    237
    
    
    
    268
    
    
    
    524Total operating expenses
    
    
    5,344
    
    
    
    5,051
    
    
    
    9,896
    
    
    
    9,647Operating income
    
    
    1,326
    
    
    
    1,492
    
    
    
    523
    
    
    
    2,928Other income (loss)
    
    
    (106
    )
    
    
    (23
    )
    
    
    (112
    )
    
    
    69Foreign currency gain
    
    
    149
    
    
    
    1
    
    
    
    24
    
    
    
    164Interest expense
    
    
    (365
    )
    
    
    (358
    )
    
    
    (701
    )
    
    
    (661
    )Total other income and expense
    
    
    (322
    )
    
    
    (380
    )
    
    
    (789
    )
    
    
    (428
    )Income (loss) before income tax expense
    
    
    1,004
    
    
    
    1,112
    
    
    
    (266
    )
    
    
    2,500Income tax (expense) benefit
    
    
    19
    
    
    
    (518
    )
    
    
    38
    
    
    
    (888
    )Net income (loss)
    
    
    1,023
    
    
    
    594
    
    
    
    (228
    )
    
    
    1,612Net (income) loss attributable to noncontrolling interests
    
    
    130
    
    
    
    (135
    )
    
    
    371
    
    
    
    (431
    )Net income attributable to DRI
    
    
    1,153
    
    
    
    459
    
    
    
    143
    
    
    
    1,181Provision for preferred stock dividends
    
    
    (78
    )
    
    
    (75
    )
    
    
    (154
    )
    
    
    (149
    )Net income (loss) applicable to common shareholders
    
    $
    1,075
    
    
    $
    384
    
    
    $
    (11
    )
    
    $
    1,032Net income (loss) per share applicable to common shareholdersBasic
    
    $
    0.09
    
    
    $
    0.03
    
    
    $
    (0.00
    )
    
    $
    0.09Diluted
    
    $
    0.09
    
    
    $
    0.03
    
    
    $
    (0.00
    )
    
    $
    0.09Weighted average number of common shares and common
share equivalents outstandingBasic
    
    
    11,498,254
    
    
    
    11,227,274
    
    
    
    11,485,806
    
    
    
    11,207,633Diluted
    
    
    13,228,690
    
    
    
    11,610,692
    
    
    
    11,485,806
    
    
    
    12,646,895
  4




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##### Table of Contents



Six Months Ended June 30,2009
    
    
    2008Cash flows from operating activitiesNet income (loss)
    
    $
    (228
    )
    
    $
    1,612Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activitiesDeferred income taxes
    
    
    62
    
    
    
    76Liability for uncertain tax positions
    
    
    (1
    )
    
    
    239Depreciation and amortization of property and equipment
    
    
    475
    
    
    
    476Amortization of intangible assets
    
    
    59
    
    
    
    79Amortization of deferred financing costs
    
    
    225
    
    
    
    127Amortization of debt discount
    
    
    55
    
    
    
    115Amortization of beneficial conversion feature
    
    
    
    
    
    
    54Change in fair value of warrant liability
    
    
    110
    
    
    
    Loan termination fee accrual
    
    
    123
    
    
    
    Bad debt expense
    
    
    83
    
    
    
    57Stock issued in lieu of cash compensation
    
    
    47
    
    
    
    41Stock-based compensation expense
    
    
    172
    
    
    
    46Write-down of inventory for obsolescence
    
    
    102
    
    
    
    4Loss on sale of fixed assets
    
    
    13
    
    
    
    2Other, primarily effect of foreign currency gain
    
    
    (76
    )
    
    
    (178
    )Changes in operating assets and liabilitiesIncrease in trade accounts receivable
    
    
    (5,306
    )
    
    
    (3,467
    )Increase in other receivables
    
    
    (227
    )
    
    
    (121
    )Increase in inventories
    
    
    (1,444
    )
    
    
    (1,607
    )Increase in prepaids and other current assets
    
    
    (317
    )
    
    
    (243
    )(Increase) decrease in other assets
    
    
    (21
    )
    
    
    4Increase in accounts payable
    
    
    5,338
    
    
    
    1,540Increase (decrease) in accrued expenses
    
    
    (42
    )
    
    
    1,588Decrease in foreign tax settlement
    
    
    (134
    )
    
    
    (174
    )Net cash provided by (used in) operating activities
    
    
    (932
    )
    
    
    270Cash flows from investing activitiesPurchases of property and equipment
    
    
    (74
    )
    
    
    (234
    )Investments in software development
    
    
    (912
    )
    
    
    (654
    )Net cash used in investing activities
    
    
    (986
    )
    
    
    (888
    )Cash flows from financing activitiesProceeds from bank borrowings and lines of credit
    
    
    36,584
    
    
    
    41,079Principal payments on bank borrowings and lines of credit
    
    
    (34,823
    )
    
    
    (39,404
    )Issuance of common stock
    
    
    
    
    
    
    3Payments related to new debt financing
    
    
    
    
    
    
    (163
    )Payment of dividends on Preferred stock
    
    
    (52
    )
    
    
    (55
    )Payment of dividends to noncontrolling interests
    
    
    
    
    
    
    (91
    )Net cash provided by financing activities
    
    
    1,709
    
    
    
    1,369Effect of exchange rate changes on cash and cash equivalents
    
    
    25
    
    
    
    (4
    )Net increase (decrease) in cash and cash equivalents
    
    
    (184
    )
    
    
    747Cash and cash equivalents at beginning of period
    
    
    598
    
    
    
    729Cash and cash equivalents at end of period
    
    $
    414
    
    
    $
    1,476
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Six Months Ended June 30,2009
    
    
    2008(In thousands)Supplemental disclosures of non-cash investing and financing activities:Increase in fair value of warrants due to modification
    
    $
    56
    
    
    $
    Preferred stock dividends
    
    $
    100
    
    
    $
    90Purchase of equipment under capital lease obligation
    
    $
    27
    
    
    $
    21Conversion of convertible subordinated debenture
    
    $
    
    
    
    $
    250Amortization of convertible subordinated debenture beneficial
conversion feature
    
    $
    
    
    
    $
    54Conversion of preferred stock to common stock
    
    $
    
    
    
    $
    55
  6




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DRI CORPORATION AND SUBSIDIARIES
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 ( )
  (1) BASIS OF PRESENTATION AND DISCLOSURE
   Product Warranties
  Six Months ended June 30,2009
    
    
    2008(In thousands)Balance at beginning of period
    
    $
    495
    
    
    $
    491Additions charged to costs and expenses
    
    
    117
    
    
    
    68Deductions
    
    
    (141
    )
    
    
    (116
    )Foreign exchange translation loss
    
    
    29
    
    
    
    23Balance at end of period
    
    $
    500
    
    
    $
    466
 Recent Accounting Pronouncements
   7




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
    
    The noncontrolling interests in Mobitec Brazil Ltda and Castmaster Mobitec India Private
Limited have been reclassified to shareholders equity.
    
    Consolidated net income (loss) has been adjusted to include the net income (loss)
attributed to the noncontrolling interest in Mobitec Brazil Ltda and Castmaster Mobitec India
Private Limited.
    
    Consolidated comprehensive income (loss) has been adjusted to include the comprehensive
income (loss) attributed to the noncontrolling interest in Mobitec Brazil Ltda and Castmaster
Mobitec India Private Limited.
    
    We have disclosed for each reporting period the amounts of consolidated income (loss)
attributed to the Company and the noncontrolling interest in Mobitec Brazil Ltda and
Castmaster Mobitec India Private Limited. In addition, for each reporting period we have
presented a reconciliation at the beginning and end of the period of the carrying amount of
equity attributable to the Company and noncontrolling interest in Mobitec Brazil Ltda and
Castmaster Mobitec India Private Limited.
   .
 8




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##### Table of Contents



Fair Value of Assets and Liabilities
   Fair Value Measurement at June 30, 2009Total Carrying
    
    
    Quoted Prices in
    
    
    Significant Other
    

SignificantValue at June 30,
    
    
    Active Markets
    
    
    Observable Inputs
    

Unobservable2009
    
    
    (Level 1)
    
    
    (Level 2)
    

Inputs (Level 3)Derivative instruments
    
    $
    207
    
    
    $
    
    
    
    $
    207
    

$

  9




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##### Table of Contents



Fair Value of Financial Instruments
  (2) GOODWILL AND OTHER INTANGIBLE ASSETS
  (3) INVENTORIES
 June 30,
    
    
    December 31,2009
    
    
    2008(In thousands)Raw materials and system components
    
    $
    8,896
    
    
    $
    6,803Work in process
    
    
    25
    
    
    
    243Finished goods
    
    
    3,485
    
    
    
    3,616Total inventories
    
    $
    12,406
    
    
    $
    10,662
 (4) PROPERTY AND EQUIPMENT
 EstimatedDepreciable
    
    
    June 30,
    
    
    December 31,Lives (years)
    
    
    2009
    
    
    2008(In thousands)Leasehold improvements
    
    
    5 - 9
    
    
    $
    287
    
    
    $
    286Automobiles
    
    
    5
    
    
    
    13
    
    
    
    13Computer and telecommunications equipment
    
    
    3
    
    
    
    1,026
    
    
    
    976Software
    
    
    3 - 5
    
    
    
    5,729
    
    
    
    4,592Test equipment
    
    
    3 - 5
    
    
    
    125
    
    
    
    124Furniture and fixtures
    
    
    3 - 7
    
    
    
    2,579
    
    
    
    2,490Software projects in progress
    
    
    
    
    
    
    1,188
    
    
    
    1,39210,947
    
    
    
    9,873Less accumulated depreciation and amortization
    
    
    
    
    
    
    6,783
    
    
    
    6,266Total property and equipment, net
    
    
    
    
    
    $
    4,164
    
    
    $
    3,607
 10




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##### Table of Contents



(5) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
 June 30,
    
    
    December 31,2009
    
    
    2008(In thousands)Salaries, commissions, and benefits
    
    $
    1,698
    
    
    $
    1,428Taxes  payroll, sales, income, and other
    
    
    802
    
    
    
    817Warranties
    
    
    500
    
    
    
    495Current portion of capital leases
    
    
    15
    
    
    
    19Interest payable
    
    
    324
    
    
    
    281Deferred revenue
    
    
    302
    
    
    
    694Other
    
    
    1,003
    
    
    
    625Total accrued expenses
    
    $
    4,644
    
    
    $
    4,359
 (6) LINES OF CREDIT AND LOANS PAYABLE
 (a) Domestic line of credit and loans payable
    11




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Fiscal Quarter Ending:
    
    EBITDA:
    
    Leverage Ratio:March 31, 2009
    
    $
    3,000,000
    
    
    5.70 to 1.0June 30, 2009
    
    $
    2,500,000
    
    
    6.25 to 1.0September 30, 2009
    
    $
    4,000,000
    
    
    4.55 to 1.0
   b) International lines of credit and loans payable
     12




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##### Table of Contents



June 30,
    
    
    December 31,2009
    
    
    2008(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 6.28% in 2009 and 2008,
respectively.
    
    $
    3,350
    
    
    $
    1,601Line of credit with Handelsbanken; renews annually on a calendar-year basis;
secured by certain assets of the Swedish subsidiary, Mobitec AB; bears average
interest rate of 3.16% and 6.58% in 2009 and 2008, respectively.
    
    
    726
    
    
    
    732Line of credit with Handelsbanken; renews annually on a calendar-year basis;
secured by accounts receivable of the Swedish subsidiary, Mobitec AB; bears
average interest rate of 5.41% and 6.95% in 2009 and 2008, respectively.
    
    
    545
    
    
    
    573Line of credit with Handelsbanken dated June 23, 2004; open-ended term; secured
by accounts receivable and inventory of the German subsidiary, Mobitec GmbH;
bears average interest rate of 2.90% and 5.62% in 2009 and 2008, respectively.
    
    
    991
    
    
    
    837Total lines of credit
    
    $
    5,612
    
    
    $
    3,743
 13




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##### Table of Contents



(7) LONG-TERM DEBT
  June 30,
    
    
    December 31,2009
    
    
    2008(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%.
    
    $
    5,000
    
    
    $
    5,000Term loan with Svenska Handelsbanken AB, dated June 30,
2008; payable in quarterly installments of $48,000; secured
by accounts receivable and inventory of the Swedish
subsidiary, Mobitec AB; bears average interest rate of 5.93%
and 7.32% in 2009 and 2008, respectively.
    
    
    436
    
    
    
    483Total long-term debt
    
    
    5,436
    
    
    
    5,483Term loan termination fee accrual
    
    
    245
    
    
    
    123Less current portion
    
    
    210
    
    
    
    193Less debt discount
    
    
    222
    
    
    
    2785,249
    
    
    
    5,135Long-term portion of capital leases
    
    
    33
    
    
    
    14Total long-term debt and capital leases, less current portion
    
    $
    5,282
    
    
    $
    5,149
 (8) PREFERRED STOCK
   (9) PER SHARE AMOUNTS
  14




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##### Table of Contents



Three months ended June 30,
    
    
    Six months ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(Unaudited)(In thousands, except share amounts)Net income (loss) applicable to common shareholders
    
    $
    1,075
    
    
    $
    384
    
    
    $
    (11
    )
    
    $
    1,032Effect of dilutive securities on net income (loss):Convertible debt
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    10Convertible preferred stock
    
    
    78
    
    
    
    
    
    
    
    
    
    
    
    95Net income (loss) applicable to common
shareholders, assuming conversions
    
    $
    1,153
    
    
    $
    389
    
    
    $
    (11
    )
    
    $
    1,137Weighted
average shares outstanding  Basic
    
    
    11,498,254
    
    
    
    11,227,274
    
    
    
    11,485,806
    
    
    
    11,207,633Effect of dilutive securities on shares outstanding:Options
    
    
    391
    
    
    
    64,492
    
    
    
    
    
    
    
    48,256Warrants
    
    
    42,785
    
    
    
    94,151
    
    
    
    
    
    
    
    50,931Convertible debt
    
    
    
    
    
    
    224,775
    
    
    
    
    
    
    
    226,024Convertible preferred stock
    
    
    1,687,260
    
    
    
    
    
    
    
    
    
    
    
    1,114,051Weighted average shares outstanding  Diluted
    
    
    13,228,690
    
    
    
    11,610,692
    
    
    
    11,485,806
    
    
    
    12,646,895
  (10) SHAREHOLDERS EQUITY, COMPREHENSIVE INCOME (LOSS) AND NONCONTROLLING INTERESTS
  15




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##### Table of Contents



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
    
    
    Interests
    
    
    Income (Loss)
    
    
    EquityBalance as of January 1, 2009
    
    $
    3,765
    
    
    $
    1,147
    
    
    $
    32,706
    
    
    $
    (20,398
    )
    
    $
    512
    
    
    $
    17,732
    
    
    $
    852
    
    
    
    
    
    
    $
    18,584Cumulative effect of reclassification
of warrants (EITF 07-5)
    
    
    
    
    
    
    
    
    
    
    (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
    
    
    
    
    
    
    4
    
    
    
    42
    
    
    
    
    
    
    
    
    
    
    
    46
    
    
    
    
    
    
    
    
    
    
    
    46Issuance of Series G Preferred Stock
dividend
    
    
    90
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    90
    
    
    
    
    
    
    
    
    
    
    
    90Issuance of Series H Preferred Stock
dividend
    
    
    10
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    
    
    
    
    
    
    
    
    10Preferred stock dividends
    
    
    
    
    
    
    
    
    
    
    (154
    )
    
    
    
    
    
    
    
    
    
    
    (154
    )
    
    
    
    
    
    
    
    
    
    
    (154
    )Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    172
    
    
    
    
    
    
    
    
    
    
    
    172
    
    
    
    
    
    
    
    
    
    
    
    172Comprehensive Income:Net income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    143
    
    
    
    
    
    
    
    143
    
    
    
    (371
    )
    
    $
    (228
    )
    
    
    (228
    )Translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    337
    
    
    
    337
    
    
    
    
    
    
    
    337
    
    
    
    337Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    109Balance as of June 30, 2009
    
    $
    3,865
    
    
    $
    1,151
    
    
    $
    32,433
    
    
    $
    (19,963
    )
    
    $
    849
    
    
    $
    18,335
    
    
    $
    481
    
    
    
    
    
    
    $
    18,816
 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
    
    
    Interests
    
    
    Income (Loss)
    
    
    EquityBalance as of January 1, 2008
    
    $
    3,618
    
    
    $
    1,119
    
    
    $
    32,079
    
    
    $
    (21,894
    )
    
    $
    4,570
    
    
    $
    19,492
    
    
    $
    422
    
    
    
    
    
    
    $
    19,914Issuance of common stock
    
    
    
    
    
    
    2
    
    
    
    42
    
    
    
    
    
    
    
    
    
    
    
    44
    
    
    
    
    
    
    
    
    
    
    
    44Issuance of Series G Preferred Stock
dividend
    
    
    80
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    80
    
    
    
    
    
    
    
    
    
    
    
    80Issuance of Series H Preferred Stock
dividend
    
    
    10
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    
    
    
    
    
    
    
    
    10Conversion of Series E Preferred stock
    
    
    (18
    )
    
    
    1
    
    
    
    17
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Conversion of Series AAA Preferred stock
    
    
    (30
    )
    
    
    
    
    
    
    29
    
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    (1
    )Conversion of Convertible Subordinated
Debenture
    
    
    
    
    
    
    23
    
    
    
    227
    
    
    
    
    
    
    
    
    
    
    
    250
    
    
    
    
    
    
    
    
    
    
    
    250Amortization of convertible subordinated
debenture beneficial conversion feature
    
    
    
    
    
    
    
    
    
    
    54
    
    
    
    
    
    
    
    
    
    
    
    54
    
    
    
    
    
    
    
    
    
    
    
    54Preferred stock dividends
    
    
    
    
    
    
    
    
    
    
    (149
    )
    
    
    
    
    
    
    
    
    
    
    (149
    )
    
    
    
    
    
    
    
    
    
    
    (149
    )Dividends paid to noncontrolling interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (91
    )
    
    
    
    
    
    
    (91
    )Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    46
    
    
    
    
    
    
    
    
    
    
    
    46
    
    
    
    
    
    
    
    
    
    
    
    46Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,181
    
    
    
    
    
    
    
    1,181
    
    
    
    431
    
    
    $
    1,612
    
    
    
    1,612Translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,128
    
    
    
    1,128
    
    
    
    
    
    
    
    1,128
    
    
    
    1,128Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    2,740Balance as of June 30, 2008
    
    $
    3,660
    
    
    $
    1,145
    
    
    $
    32,345
    
    
    $
    (20,713
    )
    
    $
    5,698
    
    
    $
    22,135
    
    
    $
    762
    
    
    
    
    
    
    $
    22,897
 (11) SEGMENT AND GEOGRAPHIC INFORMATION
  16




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Three Months Ended June,
    
    
    Six Months Ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(Unaudited)
    
    
    (Unaudited)(In thousands)
    
    
    (In thousands)Net salesNorth America
    
    $
    8,654
    
    
    $
    7,697
    
    
    $
    16,053
    
    
    $
    14,455Europe
    
    
    9,302
    
    
    
    5,908
    
    
    
    13,267
    
    
    
    11,059Asia-Pacific
    
    
    1,520
    
    
    
    2,313
    
    
    
    2,447
    
    
    
    4,687Middle East
    
    
    58
    
    
    
    377
    
    
    
    100
    
    
    
    602South America
    
    
    1,980
    
    
    
    2,808
    
    
    
    2,912
    
    
    
    5,325$
    21,514
    
    
    $
    19,103
    
    
    $
    34,779
    
    
    $
    36,128
 June 30,2009
    
    
    December 31,(Unaudited)
    
    
    2008(In thousands)Long-lived assetsNorth America
    
    $
    3,207
    
    
    $
    2,982Europe
    
    
    1,644
    
    
    
    1,527Asia-Pacific
    
    
    81
    
    
    
    46South America
    
    
    223
    
    
    
    209$
    5,155
    
    
    $
    4,764
 (12) INCOME TAXES
    (13) SUBSEQUENT EVENTS
   §


Permit Mobitec AB to create, become and remain liable with respect to the indebtedness represented
by that certain promissory note, issued by Mobitec AB to the Sellers in connection with the
acquisition of the Interests by Mobitec EP, in the principal amount of US$1,950,000;§

Allow the Loan Parties and their Subsidiaries (as defined in the BHC Agreement) to become
liable upon the obligations or liabilities of guarantees in an aggregate amount not to
exceed 2,000,000 Brazilian Reais made by Mobitec Brazil or Mobitec EP for purposes of
asset-based working capital and capital lease financing of Mobitec Brazil;§

Permit Mobitec EP to purchase the Interests from the Sellers as set forth in the Purchase Agreement;§

Permit Mobitec AB to acquire Mobitec EP for the purpose of acquiring the Interests
and to contribute the Mobitec AB Shares to Mobitec EP;§

Consent to the merger of Mobitec EP with and into Mobitec Brazil, so long as Mobitec
Brazil is the successor company to such merger;§

Allow Mobitec Brazil to change its Organizational Documents (as defined in the BHC Agreement) in
connection with the contribution of the Mobitec AB Shares to Mobitec EP and related changes to
the Mobitec AB Pledge (as defined in the Loan Amendment); and§

Allow each of Mobitec Brazil and Mobitec EP to change its Organizational Documents
solely in connection with the merger of Mobitec EP with and into Mobitec
Brazil, so long as Mobitec Brazil is the successor company to such merger.
 17




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Business  General
 ® ® ®
  18




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##### Table of Contents



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
   19




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##### Table of Contents




    
    The noncontrolling interests in Mobitec Brazil Ltda and Castmaster Mobitec India Private
Limited have been reclassified to shareholders equity.
    
    Consolidated net income (loss) has been adjusted to include the net income (loss)
attributed to the noncontrolling interest in Mobitec Brazil Ltda and Castmaster Mobitec India
Private Limited.
    
    Consolidated comprehensive income (loss) has been adjusted to include the comprehensive
income (loss) attributed to the noncontrolling interest in Mobitec Brazil Ltda and Castmaster
Mobitec India Private Limited.
    
    We have disclosed for each reporting period the amounts of consolidated income (loss)
attributed to the Company and the noncontrolling interest in Mobitec Brazil Ltda and
Castmaster Mobitec India Private Limited. In addition, for each reporting period we have
presented a reconciliation at the beginning and end of the period of the carrying amount of
equity attributable to the Company and noncontrolling interest in Mobitec Brazil Ltda and
Castmaster Mobitec India Private Limited.
   .
  20




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##### Table of Contents



Results of Operations
  Three Months Ended June 30,
    
    Six Months Ended June 30,2009
    
    2008
    
    2009
    
    2008Net sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    69.0
    
    
    
    65.7
    
    
    
    70.0
    
    
    
    65.2Gross profit
    
    
    31.0
    
    
    
    34.3
    
    
    
    30.0
    
    
    
    34.8Operating expenses:Selling, general and administrative
    
    
    24.0
    
    
    
    25.2
    
    
    
    27.7
    
    
    
    25.3Research and development
    
    
    0.9
    
    
    
    1.2
    
    
    
    0.8
    
    
    
    1.5Total operating expenses
    
    
    24.9
    
    
    
    26.4
    
    
    
    28.5
    
    
    
    26.8Operating income
    
    
    6.1
    
    
    
    7.9
    
    
    
    1.5
    
    
    
    8.0Other income and expense
    
    
    (1.5
    )
    
    
    (2.0
    )
    
    
    (2.3
    )
    
    
    (1.2
    )Income (loss) before income tax (expense) benefit
    
    
    4.6
    
    
    
    5.9
    
    
    
    (0.8
    )
    
    
    6.8Income tax (expense) benefit
    
    
    0.1
    
    
    
    (2.7
    )
    
    
    0.1
    
    
    
    (2.4
    )Net income (loss)
    
    
    4.7
    
    
    
    3.2
    
    
    
    (0.7
    )
    
    
    4.4Net (income) loss attributable to noncontrolling interests
    
    
    0.6
    
    
    
    (0.7
    )
    
    
    1.1
    
    
    
    (1.2
    )Net income attributable to DRI
    
    
    5.3
    %
    
    
    2.5
    %
    
    
    0.4
    %
    
    
    3.2
    %
 COMPARISON OF OUR RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 2009 AND 2008
 Net Sales and Gross Profit.
  21




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Selling, General and Administrative.
 Research and Development Expenses .
 22




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##### Table of Contents



Operating Income (Loss).
 Other Income (Loss), Foreign Currency Gain (Loss), and Interest Expense.
 Income Tax (Expense) Benefit.
 Net Income (Loss) Applicable to Common Shareholders.
 COMPARISON OF OUR RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 2009 AND 2008
 Net Sales and Gross Profit.
    23




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##### Table of Contents



Selling, General and Administrative.
 Research and Development Expenses .
 Operating Income (Loss).
 24




---



##### Table of Contents



Other Income (Loss), Foreign Currency Gain (Loss), and Interest Expense.
 Income Tax (Expense) Benefit.
 Net Income (Loss) Applicable to Common Shareholders.
 Industry and Market Overview
    25




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##### Table of Contents



OUR LIQUIDITY AND CAPITAL RESOURCES
 Cash Flows for the Six Months Ended June 30, 2009 and 2008
    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 (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 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, 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
 26




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##### Table of Contents



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. We were in
compliance with all covenants of the PNC Agreement at June 30, 2009. At June 30, 2009, the
outstanding principal balance on the revolving credit facility was approximately $3.4 million
and remaining borrowing availability under the revolving credit facility was approximately
$2.8 million.
    
    Mobitec AB, the Companys 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 27.5 million krona, or approximately US$3.5 million (based
on exchange rates at June 30, 2009). At June 30, 2009, borrowings due and outstanding under
these credit facilities totaled 3.8 million krona (approximately US$1.3 million, based on
exchange rates at June 30, 2009). Additional borrowing availability under these agreements at
June 30, 2009 amounted to approximately US$2.2 million. These credit agreements renew annually
on a calendar-year basis.
    
    Mobitec GmbH, the Companys wholly-owned subsidiary in Germany, has a credit facility in
place under an agreement with Handelsbanken pursuant to which it may currently borrow up to a
maximum of approximately 1.4 million Euro (approximately US$2.0 million, based on exchange
rates at June 30, 2009). At June 30, 2009, borrowings due and outstanding under this credit
facility totaled 706,000 Euro (approximately US$991,000, based on exchange rates at June 30,
2009). Additional borrowing availability under this credit facility at June 30, 2009 amounted
to approximately US$1.0 million. The agreement under which this credit facility is extended
has an open-ended term.
   Fiscal Quarter Ending:
    
    EBITDA:
    
    Leverage Ratio:March 31, 2009
    
    $
    3,000,000
    
    
    
    5.70 to 1.0June 30, 2009
    
    $
    2,500,000
    
    
    
    6.25 to 1.0September 30, 2009
    
    $
    4,000,000
    
    
    
    4.55 to 1.0
   i.e
   27




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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;
    
    the sufficiency of our liquidity and capital resources to support current operations for
the remainder of 2009;
    
    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 likelihood of current transit funding legislation being extended through current
resolutions or future legislation;
    
    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.
   28




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##### Table of Contents



ITEM 4T. CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
  Internal Control- Integrated Framework
  Material Weakness  Mobitec Brazil Ltda.
  Material Weakness  Revenue Recognition.
  29




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##### Table of Contents



Changes in Internal Control over Financial Reporting
  
    
    Proper documentation of all multiple deliverable transactions is prepared and maintained to
support accounting for these types of transactions in accordance with GAAP.
    
    An evaluation of multiple deliverable transactions is performed by management with the
proper skill and experience levels necessary to ensure revenue is recognized and accounted for
in accordance with GAAP.
   
 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;
    
    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;
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##### Table of Contents




    
    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. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS
 The annual meeting of shareholders was held June 2, 2009, at which matters were voted on as
follows:
  Against orVotes for
    
    WitheldHuelon Andrew Harrison
    
    
    10,553,052
    
    
    
    1,230,657John D. Higgins
    
    
    10,436,614
    
    
    
    1,347,095C. James Meese Jr.
    
    
    10,438,365
    
    
    
    1,345,344Stephanie L. Pinson
    
    
    10,503,764
    
    
    
    1,279,945John K. Pirotte
    
    
    10,487,653
    
    
    
    1,296,056Juliann Tenney
    
    
    10,554,803
    
    
    
    1,228,906David L. Turney
    
    
    10,472,463
    
    
    
    1,311,246
  For
    
    
    11,602,503Against
    
    
    51,900Abstain
    
    
    129,306
 31




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##### Table of Contents



ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
  Exhibit No.
    
    Document3.1
    
    Amended and Restated Articles of Incorporation of the Company
(incorporated herein by reference from the Companys
Registration Statement on Form S-3, filed with the SEC on
December 23, 2003)3.2
    
    Articles of Amendment to Articles of Incorporation of the
Company containing Certificate of Designation of Series E
Redeemable Nonvoting Convertible Stock (incorporated herein
by reference from the Companys Report on Form 8-K, filed
with the SEC on November 12, 2003)3.3
    
    Articles of Amendment to Articles of Incorporation of the
Company containing Amended and Restated Certificate of
Designation of Series F Convertible Preferred Stock
(incorporated herein by reference from the Companys Report
on Form 8-K, filed with the SEC on April 14, 2004)3.4
    
    Articles of Amendment to the Articles of Incorporation of the
Company containing Series AAA Preferred Stock Change in
Quarterly Dividend Accrual and Conversion Price (incorporated
herein by reference to the Companys Report on Form 10-K for
the year ended December 31, 2004)3.5
    
    Articles of Amendment to Articles of Incorporation of the
Company containing Amended and Restated Certificate of
Designation of Series G Redeemable Convertible Preferred
Stock (incorporated herein by reference to the Companys
Report on Form 8-K filed on June 28, 2005)3.6
    
    Articles of Correction of Articles of Amendment to the
Articles of Incorporation of the Company containing a
correction to an error in the Amended Certificate of
Designation of Series G Redeemable Convertible Preferred
Stock (incorporated herein by reference to the Companys
Report on Form 10-Q for the quarter ended June 30, 2005)3.7
    
    Articles of Amendment to the Articles of Incorporation of the
Company containing an amendment to eliminate a staggered
election of Board members (incorporated herein by reference
to the Companys Report on Form 10-Q for the quarter ended
June 30, 2005)3.8
    
    Articles of Amendment to Articles of Incorporation of the
Company containing Amended and Restated Certificate of
Designation of Series H Convertible Preferred Stock
(incorporated herein by reference to the Companys Report on
Form 8-K filed on November 4, 2005)3.9
    
    Articles of Amendment to Articles of Incorporation of the
Company containing Certificate of Designation of Series I
Convertible Preferred Stock (incorporated herein by reference
to the Companys Report on Form 8-K filed on March 23, 2006)3.10
    
    Amended and Restated Bylaws of the Company (incorporated
herein by reference from the Companys Registration Statement
on Form SB-2)3.11
    
    Amendment to Amended and Restated Bylaws of the Company
(incorporated herein by reference from the Companys Proxy
Statement for the Annual Meeting of Shareholders for fiscal
year 2000, filed with the SEC on June 6, 2001)3.12
    
    Amended and Restated Bylaws of the Company (incorporated
herein by reference to the Companys Report on Form 8-K filed
on September 18, 2006)3.13
    
    Amendment No. 1 to the Companys Certificate of Designation
with respect to its Series D Junior Participating Preferred
Stock (incorporated herein by reference to the Companys
Report on Form 8-K filed with the SEC on September 28, 2006)
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##### Table of Contents



Exhibit No.
    
    Document3.14
    
    Amendment to Bylaws of DRI Corporation, dated as of September
12, 2007 (incorporated herein by reference to the Companys
Report on Form 8-K filed with the SEC on September 14, 2007)4.5
    
    Rights Agreement, dated as of September 22, 2006, between the
Company and American Stock Transfer & Trust Company, as
Rights Agent, together with the following exhibits thereto:
Exhibit A  Certificate of Designation of Series D Junior
Participating Preferred Stock of Digital Recorders, Inc. and
the Amendment to Certificate of Designation of Series D
Junior Participating Preferred Stock of Digital Recorders,
Inc.; Exhibit B  Form of Right Certificate; and Exhibit C
 Summary of Rights to Purchase Shares (incorporated herein
by reference to the Companys Registration Statement on Form
8-A filed with the SEC on October 2, 2006)4.6
    
    Omnibus Amendment dated as of January 10, 2007, effective
December 31, 2006, by and among the Company, TwinVision of
North America, Inc., Digital Audio Corporation,
Robinson-Turney International, Inc., and Laurus Master Fund,
Ltd. (incorporated herein by reference to the Companys
report on Form 8-K filed with the SEC on January 16, 2007)4.7
    
    Amended and Restated Secured Term Note dated as of January
10, 2007, effective December 31, 2006, by and between the
Company, TwinVision of North America, Inc., Digital Audio
Corporation, Robinson-Turney International, Inc., and Laurus
Master Fund, Ltd. (incorporated herein by reference to the
Companys Report on Form 8-K filed with the SEC on January
16, 2007)4.8
    
    Second Amended and Restated Registration Rights Agreement
dated as of January 10, 2007, effective December 31, 2006, by
and between the Company and Laurus Master Fund, Ltd.
(incorporated herein by reference to the Companys Report on
Form 8-K filed with the SEC on January 16, 2007)4.9
    
    Certificate of Designation of Series J Convertible Preferred
Stock of Digital Recorders, Inc. (incorporated herein by
reference to the Companys Report on Form 10-Q for the
quarter ended June 30, 2007)4.10
    
    Warrant, dated as of June 30, 2008, issued by DRI Corporation
to BHC Interim Funding III, L.P. (incorporated herein by
reference to the Companys Report on Form 8-K/A filed with
the SEC on August 14, 2008)10.1
    
    Secured Non-Convertible Revolving Note between the Company
and Laurus Master Fund, Ltd., dated March 15, 2006
(incorporated herein by reference to the Companys Report on
Form 8-K filed on March 21, 2006)10.2
    
    Security Agreement (with Schedules) between the Company and
Laurus Master Fund, Ltd. dated March 15, 2006 (incorporated
herein by reference to the Companys Report on Form 8-K filed
on March 21, 2006)10.3
    
    Grant of Security Interest in Patents and Trademarks (with
Schedules) between the Company and Laurus Master Fund, Ltd.,
dated March 15, 2006 (incorporated herein by reference to the
Companys Report on Form 8-K filed on March 21, 2006)10.4
    
    Stock Pledge Agreement (with Schedules) between the Company
and Laurus Master Fund, Ltd., dated March 15, 2006
(incorporated herein by reference to the Companys Report on
Form 8-K filed on March 21, 2006)10.5
    
    Registration Rights Agreement between the Company and Laurus
Master Fund, Ltd., dated March 15, 2006 (incorporated herein
by reference to the Companys Report on Form 8-K filed on
March 21, 2006)10.6
    
    Common Stock Purchase Warrant between the Company and Laurus
Master Fund, Ltd., dated March 15, 2006 (incorporated herein
by reference to the Companys Report on Form 8-K filed on
March 21, 2006)
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##### Table of Contents



Exhibit No.
    
    Document10.7
    
    Share Purchase Agreement between the Company and Transit
Vehicle Technology Investments, Inc., dated March 21, 2006
(incorporated herein by reference to the Companys Report on
Form 8-K filed on March 23, 2006)10.8
    
    Stock Purchase Warrant between the Company and Transit
Vehicle Technology Investments, Inc., dated March 21, 2006
(incorporated herein by reference to the Companys Report on
Form 8-K filed on March 23, 2006)10.9
    
    Registration Rights Agreement between the Company and Transit
Vehicle Technology Investments, Inc., dated March 21, 2006
(incorporated herein by reference to the Companys Report on
Form 8-K filed on March 23, 2006)10.10
    
    Securities Purchase Agreement dated as of April 28, 2006, by
and between Digital Recorders, Inc., TwinVision of North
America, Inc., Digital Audio Corporation, and Robinson-Turney
International, Inc., and Laurus Master Fund, Ltd.
(incorporated herein by reference to the Companys Report on
Form 8-K filed on May 4, 2006)10.11
    
    Secured Term Note by Digital Recorders, Inc., TwinVision of
North America, Inc., Digital Audio Corporation, and
Robinson-Turney International, Inc., issued to Laurus Master
Fund, Ltd., in the original principal amount of $1,600,000
(incorporated herein by reference to the Companys Report on
Form 8-K filed on May 4, 2006)10.12
    
    Common Stock Purchase Warrant issued by the Company to Laurus
Master Fund, Ltd., dated as of April 28, 2006 (incorporated
herein by reference to the Companys Report on Form 8-K filed
on May 4, 2006)10.13
    
    Amended and Restated Registration Rights Agreement dated as
of April 28, 2006, by and between Digital Recorders, Inc. and
Laurus Master Fund, Ltd. (incorporated herein by reference to
the Companys Report on Form 8-K filed on May 4, 2006)10.14
    
    Share Purchase Agreement, dated as of April 30, 2007, entered
into by and among Dolphin Direct Equity Partners, LP, Digital
Audio Corporation and Digital Recorders, Inc. (incorporated
herein by reference to the Companys Report on Form 10-Q for
the quarter ended March 31, 2007)10.15
    
    Waiver and Consent, dated as of April 30, 2007, entered into
by and between Digital Recorders, Inc., TwinVision of North
America, Inc., Digital Audio Corporation, Robinson-Turney
International, Inc. and Laurus Master Fund, Ltd.
(incorporated herein by reference to the Companys Report on
Form 10-Q for the quarter ended March 31, 2007)10.16
    
    Form of Share Purchase Agreement, dated June 11, 2007,
between Digital Recorders, Inc. and buyer of Series J
Convertible Preferred Stock of Digital Recorders, Inc. with
Schedule of Differences (incorporated herein by reference to
the Companys Report on Form 10-Q for the quarter ended June
30, 2007)10.17
    
    Form of Registration Rights Agreement, dated June 11, 2007,
between Digital Recorders, Inc. and holder of Series J
Convertible Preferred Stock of Digital Recorders, Inc.
(incorporated herein by reference to the Companys Report on
Form 10-Q for the quarter ended June 30, 2007)10.18
    
    Promissory Note, dated April 30, 2007, by Dolphin Direct
Equity Partners, LP issued to Digital Recorders, Inc. in the
principal sum of $285,000 (incorporated herein by reference
to the Companys Report on Form 10-Q for the quarter ended
June 30, 2007)10.19
    
    Executive Employment Agreement, effective July 1, 2007, by
and between Mobitec GmbH and Mobitec AB and Oliver Wels
(incorporated herein by reference to the Companys Report on
Form 10-Q for the quarter ended March 31, 2008)10.20
    
    Extension Agreement, dated as of April 30, 2008 by and
between DRI Corporation and Digital Audio Corporation.
(incorporated herein by reference to the Companys Report on
Form 8-K filed on May 6, 2008)
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##### Table of Contents



Exhibit No.
    
    Document10.20.1
    
    Second Extension Agreement, dated as of April 30, 2009, by
and between DRI Corporation and Digital Audio Corporation
(incorporated herein by reference to the Companys Report on
Form 8-K filed with the SEC on May 6, 2009)10.20.1
    
    Second Extension Agreement, dated as of April 30, 2009, 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 May 6, 2009)10.21
    
    Agreement, dated as of June 30, 2008, by and between DRI
Corporation and John D. Higgins (incorporated herein by
reference to the Companys current report on Form 8-K/A filed
with the SEC on August 14, 2008)10.22
    
    Revolving Credit and Security Agreement, dated as of June 30,
2008, by and among, PNC Bank, National Association, and
Digital Recorders, Inc., TwinVision of North America, Inc.
and DRI Corporation (incorporated herein by reference to the
Companys current report on Form 8-K/A filed with the SEC on
August 14, 2008)10.22.1
    
    Amendment No. 2 to Revolving Credit and Security Agreement,
dated as of September 29, 2008, by and between, PNC Bank,
National Association, and Digital Recorders, Inc., TwinVision
of North America, Inc. and DRI Corporation (incorporated
herein by reference to the Companys Report on Form 10-Q for
the quarter ended September 30, 2008)10.22.2
    
    Amendment No. 4 to Revolving Credit and Security Agreement,
dated as of July 30, 2009, by and between Digital Recorders,
Inc., TwinVision of North America, Inc., DRI Corporation, the
financial institutions party thereto and PNC Bank, National
Association (incorporated herein by reference to the
Companys Report on Form 8-K filed with the SEC on August 5,
2009)10.23
    
    Revolving Credit Note, dated as of June 30, 2008, issued by
Digital Recorders, Inc., TwinVision of North America, Inc.
and DRI Corporation to PNC Bank, National Association
(incorporated herein by reference to the Companys current
report on Form 8-K/A filed with the SEC on August 14, 2008)10.24
    
    Loan and Security Agreement, dated as of June 30, 2008, by
and among Digital Recorders, Inc., TwinVision of North
America, Inc. and DRI Corporation, and BHC Interim Funding
III, L.P. (incorporated herein by reference to the Companys
current report on Form 8-K/A filed with the SEC on August 14,
2008)10.24.1
    
    First Amendment to the Loan and Security Agreement, dated as
of July 30, 2008, by and among Digital Recorders, Inc.,
TwinVision of North America, Inc. and DRI Corporation, and
BHC Interim Funding III, L.P. (incorporated herein by
reference to the Companys current report on Form 8-K/A filed
with the SEC on August 14, 2008)10.24.2
    
    Letter Agreement, dated as of July 21, 2009, by and among DRI
Corporation, Digital Recorders, Inc., TwinVision of North
America, Inc. and BHC Interim Funding III, L.P. (filed
herewith)10.24.3
    
    Letter of Amendment to Letter Agreement, dated as of July 31,
2009, by and among Digital Recorders, Inc. and TwinVision of
North America, Inc., as Borrowers, DRI Corporation, as
Guarantor, and BHC Interim Funding III, L.P., as Lender
(filed herewith)10.25
    
    Senior Secured Term Note, dated as of June 30, 2008, issued
by Digital Recorders, Inc. and TwinVision of North America,
Inc. to BHC Interim Funding III, L.P. (incorporated herein by
reference to the Companys current report on Form 8-K/A filed
with the SEC on August 14, 2008)10.26
    
    Continuing Unconditional Guaranty, dated as of June 30, 2008,
granted by DRI Corporation in favor of BHC Interim Funding
III, L.P. (incorporated herein by reference to the Companys
current report on Form 8-K/A filed with the SEC on August 14,
2008)10.27
    
    Stock Pledge Agreement, dated as of June 30, 2008, by and
between DRI Corporation and BHC Interim Funding III, L.P.
(incorporated herein by reference to the Companys current
report on Form 8-K/A filed with the SEC on August 14, 2008)
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##### Table of Contents



Exhibit No.
    
    Document10.28
    
    Trademark Security Agreement, dated as of June 30, 2008, by
and between DRI Corporation and BHC Interim Funding III, L.P.
(incorporated herein by reference to the Companys current
report on Form 8-K/A filed with the SEC on August 14, 2008)10.29
    
    Trademark Security Agreement, dated as of June 30, 2008, by
and between Digital Recorders, Inc. and BHC Interim Funding
III, L.P. (incorporated herein by reference to the Companys
current report on Form 8-K/A filed with the SEC on August 14,
2008)10.30
    
    Trademark Security Agreement, dated as of June 30, 2008, by
and between TwinVision of North America, Inc. and BHC Interim
Funding III, L.P. (incorporated herein by reference to the
Companys current report on Form 8-K/A filed with the SEC on
August 14, 2008)10.31
    
    Copyright Security Agreement, dated as of June 30, 2008, by
and between Digital Recorders, Inc. and BHC Interim Funding
III, L.P. (incorporated herein by reference to the Companys
current report on Form 8-K/A filed with the SEC on August 14,
2008)10.32
    
    Copyright Security Agreement, dated as of June 30, 2008, by
and between TwinVision of North America, Inc. and BHC Interim
Funding III, L.P. (incorporated herein by reference to the
Companys current report on Form 8-K/A filed with the SEC on
August 14, 2008)10.33
    
    Patent Security Agreement, dated as of June 30, 2008, by and
between Digital Recorders, Inc. and BHC Interim Funding III,
L.P. (incorporated herein by reference to the Companys
current report on Form 8-K/A filed with the SEC on August 14,
2008)10.34
    
    Undertaking Concerning Loan Payment for purposes other than
personal consumption, by and between Handelsbanken and
Mobitec AB (English translation) (incorporated herein by
reference to the Companys current report on Form 8-K/A filed
with the SEC on August 14, 2008)10.35
    
    Instrument for Debt A  Loan for purposes other than personal
consumption, by and between Handelsbanken and Mobitec AB
(English translation) (incorporated herein by reference to
the Companys current report on Form 8-K/A filed with the SEC
on August 14, 2008)10.36
    
    Factoring Agreement by and between Handelsbanken and Mobitec
AB (English translation) (incorporated herein by reference to
the Companys current report on Form 8-K/A filed with the SEC
on August 14, 2008)10.37
    
    EURO Short Term Loan Facility by and between Handelsbanken
and Mobitec GmbH (incorporated herein by reference to the
Companys current report on Form 8-K/A filed with the SEC on
August 14, 2008)10.38
    
    EURO Short Term Loan Facility by and between Handelsbanken
and Mobitec GmbH, dated as of June 25, 2009 (incorporated
herein by reference to the Companys Report on Form 8-K filed
with the SEC on July 1, 2009)10.39
    
    Undertaking Concerning Loan Payment for purposes other than
personal consumption, dated June 16, 2009, by and between
Handelsbanken and Mobitec AB (English translation) (filed
herewith)10.40
    
    Undertaking Concerning Loan Payment for purposes other than
personal consumption, dated June 16, 2009, by and between
Handelsbanken and Mobitec AB (English translation) (filed
herewith)10.41
    
    General Pledging, dated June 16, 2009, by and between
Handelsbanken and Mobitec AB (English translation) (filed
herewith)10.42
    
    Contract A Supplementary Overdraft Facility for purposes
other than personal consumption, dated June 16, 2009, by and
between Handelsbanken and Mobitec AB (English translation)
(filed herewith)10.43
    
    Quota Purchase Agreement, dated as of July 22, 2009, by and
among Mobitec AB, Mobitec Empreendimientos e
Participações Ltda., Mobitec Brasil Ltda, Roberto Juventino
Demore, Lorena Giusti Demore, and JADI Itinerários
Eletrônicos Ltda (Confidential treatment requested for specific portions thereof)  (filed herewith)
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##### Table of Contents



Exhibit No.
    
    Document10.44
    
    Promissory Note, dated July 22, 2009, by Mobitec
Empreendimientos e Participações Ltda., as Maker, and Mobitec
AB, as Guarantor, issued to Roberto Juventino Demore and
Lorena Giusti Demore, in the principal amount of $1,000,000
(English translation) (Confidential treatment requested for specific portions thereof) (filed herewith)10.45
    
    Promissory Note, dated July 22, 2009, by Mobitec AB issued to
Roberto Juventino Demore and Lorena Giusti Demore, in the
principal amount of $1,950,000 (Confidential treatment requested for specific portions thereof) (filed herewith)10.46
    
    Third amendment to Loan and Security Agreement, dated as of August
7, 2009, by and among Digital Recorders, Inc. and TwinVision of North
America, Inc., as Borrowers, DRI Corporation, as Guarantor, and BHC
Interim Funding III, L.P., as Lender (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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##### Table of Contents



SIGNATURES
  DRI CORPORATION
 Signature:
    /s/ Stephen P. SlayBy:

    Stephen P. SlayTitle:
    Chief Financial Officer (Principal Financial and Accounting Officer)Date:
    August 13, 2009 38