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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

Commission file number 000-32967

HPL TECHNOLOGIES, INC.
(Exact Name of Registrant as Specified in its Charter)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days YES o    NO ý.

As of October 31, 2002, there were 31,084,167 shares of Common Stock outstanding.

HPL Technologies, Inc.
Table of Contents

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PART I—FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

HPL Technologies, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
(unaudited)

(1)

Excludes the following stock-based compensation charges:

The accompanying notes are an integral part of these condensed consolidated financial statements.

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HPL Technologies, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except per share data)
(unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

HPL Technologies, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

HPL Technologies, Inc.
Notes to the unaudited Condensed Consolidated Financial Statements

NOTE 1. GENERAL

        The unaudited condensed consolidated financial statements have been prepared by HPL Technologies, Inc., a Delaware corporation (the "Company"), pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto for the year ended March 31, 2002 included in the Company's Annual Report on Form 10-K/A filed with the SEC. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary to present a fair statement of financial position as of September 30, 2002 and 2001, and results of operations for the three months and six months ended September 30, 2002 and 2001, and cash flows for the six-month period ended September 30, 2002 and 2001, have been made. The results of operations for the three and six months ended September 30, 2002 are not necessarily indicative of the operating results for the full fiscal year or any future periods. Certain amounts for prior periods have been restated and reclassified to conform to the current period presentation. See Note 2.

        The preparation of condensed consolidated financial statements in conformity with generally accepted accounting principles in the United Stated States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements. These estimates may affect the amounts of assets and liabilities reported in the balance sheet, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the periods presented. Actual results may differ from those estimates.

        The Company has funded its losses from operations principally through its July 2001 initial public offering and debt financing. Management believes the Company has sufficient cash, cash equivalents and short-term investments to fund its operations through at least March 31, 2003. Future capital requirements will be affected by slow or diminished revenue growth, additional research and development and sales and marketing costs, and higher general and administrative costs, including costs related to the litigation matters described in Note 3. In the event the Company needs to raise capital, there is no assurance that funds would be available to the Company or, if available, under terms that would be acceptable to the Company. The Company does not believe it will be able to raise additional capital until the litigation and other uncertainties described in Note 3 are resolved.

NOTE 2. RESTATEMENT

        On July 19, 2002, the Company announced that the Audit Committee had initiated an investigation into a number of accounting irregularities involving revenue reported during prior periods. The purpose of this investigation was to determine the scope and magnitude of these accounting irregularities and identify any necessary corrections to be made to the Company's previously issued consolidated financial statements. The Company also announced a number of changes to its executive management team. As a result of the internal accounting investigation, the Company's consolidated balance sheets as of March 31, 2002 and 2001 and consolidated statements of operations, cash flows and stockholders' equity (deficit) for the years ended March 31, 2002 and 2001were presented on a restated basis in the Company's Annual Report on Form 10-K/A filed on November 8, 2002 with the restatement for the quarterly period ended September 30, 2001 contained herein.

        The Audit Committee's investigation into financial and accounting irregularities involving revenue reported identified a number of fictitious transactions for which the Company previously recorded revenue in the years ended March 31, 2002 and 2001. In addition, the investigation uncovered that

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documents initially considered by the Company in determining the appropriate accounting for transactions were altered from their original form to exclude certain terms and conditions. These terms and conditions provided customers with rights of return and commitments with respect to integration and installation of the Company's products and the delivery of future functionality. The Company has reviewed these transactions in light of these additional terms and conditions and the Company's revenue recognition policy, and either revised the periods for which revenue was recognized in these financial statements or deferred the recognition of revenue to future periods.

        As a result of the items noted above, the Company has identified that the previously reported revenues for the three and six months ended September 30, 2001 were overstated by approximately $6.5 million and $11.0 million related to fictitious transactions, and $1.2 million and $1.7 million related to improper revenue recognition due to altered supporting documents used to support the previous timing of revenue recognition, respectively. As a result of the adjustments necessary to correct the above irregularities, the Company has also deferred previously expensed costs of goods sold directly related to revenue deferred. The Company also revised the provisions for income taxes that were previously recorded in the consolidated financial statements. The tax related adjustments affected various asset and liability accounts.

        During the three months ended September 30, 2001, the Company sold $3.2 million of software to its Japanese distributor and then immediately repurchased the software through its Japanese subsidiary for $3.2 million. In addition, the Company entered into an agreement to pay its Japanese distributor $950,000 related to this transaction. The restated financial statements reflect the reversal of the software sale and a further reduction to revenue of $950,000 and increase in accrued liabilities relating to the payment to its Japanese distributor, which was made in December 2001.

        The Company's investigation identified approximately $3.2 million, purported to represent proceeds from the collection of accounts receivable related to fictitious sales transactions, recorded as cash during the three months ended September 30, 2001. These amounts were determined to be fictitious and therefore eliminated from cash in the September 30, 2001 balance sheet.

        During the three months ended June 30, 2002, the former Chief Executive Officer of the Company deposited approximately $1.3 million into the Company's bank accounts which was purported to have represented proceeds for the payment of accounts receivable related to a fictitious sales transaction which occurred in the year ended March 31, 2002. The revenue on this transaction has been eliminated in the appropriate periods and the amount received has been reflected in accrued liabilities.

        During the year ended March 31, 2001, the Company sold certain software and maintenance to a related party for approximately $300,000 and recognized the revenue on this transaction. On or about the same time as agreeing to sell software to this company, HPL agreed to buy software from that company. During September 2001, the Company purchased $500,000 of software from this same company and capitalized the cost of this software. The Company believes the sale of software to the company, and the purchase of software in September 2001 from the company were negotiated at approximately the same time. As such, the financial statements reflect no revenue on this transaction in the year ended March 31, 2001. The restated financial statements for the three and six months ended September 30, 2001 reflect a net expense in selling, general and administrative expense of $200,000 for the software purchase.

        During the three months ended September 30, 2001, the Company entered a transaction with Selastar Corporation ("Selastar"), a Japanese company owned by former employees of the Company's Japanese subsidiary and a former member of the Company's board of directors. The Company paid Selastar approximately $600,000 of which $545,000 was paid back to the Company and recorded as payment on a fictious sale transaction and the payment of $600,000 was recorded as sales and marketing expenses. The restated financial statements reflect the reversal of this revenue and this expense in the three months ended September 30, 2001.

        The following are the reconciliations of the Company's results of operations, financial position and cash flows from financial statements previously filed to these restated and reclassified financial statements:

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HPL Technologies, Inc.
Condensed Consolidated Statement of Operations
(in thousands, except per share data)

Three Months Ended September 30, 2001

(1)

Excludes the following stock-based compensation charges:

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HPL Technologies, Inc.
Condensed Consolidated Statement of Operations
(in thousands, except per share data)

Six Months Ended September 30, 2001