-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MMrDfoGgfd51trM2ou4mrM2B2cCoCnwitx5Cx6eyiW4s83TXjS32giQXyKnV0PWW 59mJjyVeT8pjyWSHjl3yXA== 0000912057-96-026297.txt : 19961118 0000912057-96-026297.hdr.sgml : 19961118 ACCESSION NUMBER: 0000912057-96-026297 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERPHASE CORP CENTRAL INDEX KEY: 0000728249 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER COMMUNICATIONS EQUIPMENT [3576] IRS NUMBER: 751549797 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-13071 FILM NUMBER: 96663345 BUSINESS ADDRESS: STREET 1: 13800 SENLAC DR CITY: DALLAS STATE: TX ZIP: 75234 BUSINESS PHONE: 2146545000 MAIL ADDRESS: STREET 1: 13800 SENLAC DR STREET 2: 13800 SENLAC DR CITY: DALLAS STATE: TX ZIP: 75234 10-Q 1 FORM 10-Q - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended September 30, 1996 Commission File Number 0-13071 INTERPHASE CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) TEXAS 75-1549797 (STATE OF INCORPORATION) (IRS EMPLOYER IDENTIFICATION NO.) 13800 SENLAC, DALLAS, TEXAS 75234 (Address of principal executive offices) (214)-654-5000 (Registrant's telephone number, including area code) - -------------------------------------------------------------------------------- Indicate by check mark whether the registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for a much 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 X No ------- ------- - -------------------------------------------------------------------------------- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at November 12, 1996 ----- -------------------------------- Common Stock, No par value 5,489,948 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 1 INTERPHASE CORPORATION INDEX PART I - FINANCIAL INFORMATION Item 1. Consolidated Interim Financial Statements Consolidated Balance Sheets as of September 30, 1996 and October 31, 1995 3 Consolidated Statements of Operations for the three months and nine months ended September 30, 1996 and October 31, 1995 4 Consolidated Statements of Cash Flows for the nine months ended September 30, 1996 and October 31, 1995 5 Supplemental Schedule of Cash Flows 6 Notes to Consolidated Interim Financial Statements 7-9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10-11 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on From 8-K 12 Signature 13 2 INTERPHASE CORPORATION CONSOLIDATED BALANCE SHEETS (in thousands, except number of shares)
September 30, October 31, ASSETS 1996 1995 - ------ ------------- ----------- (Unaudited) Cash and cash equivalents $ 1,114 $ 3,320 Marketable securities 4,069 9,366 Trade accounts receivable, less allowances for uncollectible accounts of $232 and $238, respectively 15,197 7,521 Inventories, net 12,402 7,486 Prepaid expenses and other current assets 1,372 957 Deferred income taxes, net 678 594 -------- ------- Total current assets 34,832 29,244 Machinery and equipment 13,192 10,920 Leasehold improvements 2,844 2,758 Furniture and fixtures 295 351 -------- ------- 16,331 14,029 Less-accumulated depreciation and amortization (10,880) (8,820) -------- ------- Total property and equipment, net 5,451 5,209 Capitalized software, net of accumulated amortization 486 524 Deferred income taxes, net 217 301 Investments in unconsolidated subsidiaries 1,525 - Acquired developed technology 6,244 - Goodwill 3,275 - Other assets 974 152 -------- ------- Total assets $ 53,004 $35,430 -------- ------- -------- ------- LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ Accounts payable and accrued liabilities $ 8,215 $ 3,193 Accrued compensation 3,401 1,357 Income taxes payable - 366 Current portion of debt 1,147 - -------- ------- Total current liabilities 12,763 4,916 Deferred lease obligations 78 103 Other liabilities 607 - Long term debt 10,580 - Other debt 303 - -------- ------- Total liabilities 24,331 5,019 Common stock, no par value 34,385 24,177 Retained earnings (5,658) 6,263 Unrealized holding period loss (54) (29) -------- ------- Total shareholders' equity 28,673 30,411 -------- ------- Total liabilities and shareholders' equity $ 53,004 $35,430 -------- ------- -------- -------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. 3 INTERPHASE CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands except per share amounts) (Unaudited) Three Months Ended Nine Months Ended - ---------------------- ---------------------- 30-Sep-96 31-Oct-95 30-Sep-96 31-Oct-95 - --------- --------- --------- --------- $16,370 $12,517 Revenues $ 39,565 $36,346 8,499 6,244 Cost of sales 19,915 18,219 ------- ------- -------- ------- 7,871 6,273 Gross profit 19,650 18,127 3,205 2,008 Research and development 7,759 5,628 2,874 2,351 Sales and marketing 7,194 6,754 1,475 984 General and administrative 3,460 2,937 - - Acquired in-process R&D 11,646 - ------- ------- -------- ------- 7,554 5,343 Total operating expenses 30,059 15,319 ------- ------- -------- ------- 317 930 Operating income (loss) (10,409) 2,808 ------- ------- -------- ------- ------- ------- -------- ------- 116 174 Interest income 333 474 (248) - Interest expense (248) - 7 (1) Other, net (3) (8) ------- ------- -------- ------- 192 1,103 Income (loss) before income taxes (10,327) 3,274 25 340 Provision for income taxes 427 1,121 ------- ------- -------- ------- $ 167 $ 763 Net income (loss) $(10,754) $ 2,153 ------- ------- -------- ------- ------- ------- -------- ------- Net income (loss) per common and $ 0.03 $ 0.15 common equivalent share $ (2.19) $ 0.43 ------- ------- -------- ------- ------- ------- -------- ------- Weighted average common and common 5,709 5,220 equivalent shares 4,920 5,051 ------- ------- -------- ------- ------- ------- -------- -------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. 4 INTERPHASE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (Unaudited) Nine Months Ended --------------------- 30-Sep-96 31-Oct-95 --------- --------- CASH FLOW FROM OPERATING ACTIVITIES: Net income (loss) $(10,754) $ 2,153 Adjustment to reconcile net income to net cash provided (used) by operating activities: Depreciation and amortization 2,938 2,136 Write off of acquired in-process research and development 11,646 - Change in assets and liabilities: -net of Synaptel acquisition Trade accounts receivable (8,599) (937) Inventories (1,148) 15 Prepaids expenses and other current assets 154 (339) Accounts payable and accrued liabilities 1,195 4 Accrued compensation 181 (122) Income taxes payable - 1 Deferred income taxes payable 77 165 Deferred lease obligations (99) (26) -------- ------- Net adjustments 6,345 897 -------- ------- Net cash provided (used) by operating activities (4,409) 3,050 CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property, equipment and leasehold improvements (2,542) (2,057) Additions to capitalized software (1,088) (227) Decrease (Increase) in other assets (153) (8) (Increase) in acquired developed technology (2,500) - Decrease (Increase) in marketable securities 5,298 (1,687) Cash acquired in Synaptel acquisition 11 - Change in holding period gain/loss on marketable securities (25) 110 -------- ------- Net cash provided (used) by investing activities (999) (3,869) CASH FLOWS FROM FINANCING ACTIVITIES: Increase in current debt payable (27) - Increase in long term debt payable 2,580 - Increase in common stock 992 612 -------- ------- Net cash provided (used) by financing activities 3,545 612 -------- ------- Net increase (decrease) in cash and cash equivalents (1,863) (207) Cash and cash equivalents at beginning of period 2,977 3,527 -------- ------- Cash and cash equivalents at end of period $ 1,114 $ 3,320 -------- ------- -------- ------- Supplemental Disclosure of Cash Flow Information: Income taxes paid 478 1,013 Income taxes refunded 8 189
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. 5 INTERPHASE CORPORATION SUPPLEMENTAL SCHEDULE OF CASH FLOWS (in thousands) Supplemental schedule of noncash investing and financing activities The Company purchased all of the capital stock of Synaptel. Fair value of assets acquired $(26,676) Liabilities assumed 7,687 Acquisition debt 8,000 Common stock issuable 9,200 Accrued aquisition costs 1,800 -------- Cash acquired in Synaptel acquisition $ 11 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. 6 INTERPHASE CORPORATION NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The accompanying consolidated interim financial statements include the accounts of Interphase Corporation and its wholly owned subsidiaries. Significant inter-company accounts and transactions have been eliminated. Effective January 1, 1996 the Company changed its fiscal year end from October 31 to December 31. For comparison purposes, results for the quarter ended September 30, 1996, are being compared with results from the prior year quarter ended October 31, 1995. The Company has not recast the prior year financial information presented herein to conform to the new fiscal quarter ends, as management does not believe such recasting would be as meaningful for comparative purposes, as the October 31, 1995 information presented herein. Management believes the October 31, 1995 results are the most comparable to the quarter ended September 30, 1996 results, particularly for comparing trends in operations. While the accompanying interim financial statements are unaudited, they have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of the Company, all material adjustments and disclosures necessary to fairly present the results of such periods have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended October 31, 1995. 2. NET INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE Net income (loss) per common and common equivalent share is computed using the weighted average number of outstanding shares and common equivalent shares. The dilutive impact of outstanding stock options have been considered under the treasury stock method using the greater of the average bid price or closing bid price for the period. Weighted average common and common equivalent shares: Three Months Ended Nine Months Ended ------------------------------------------- SEP 30, OCT 31, SEP 30, OCT 31, (IN THOUSANDS) 1996 1995 1996 1995 -------------- ------- ------- ------- ------- Outstanding 5,348 4,627 4,920 4,561 Stock options 361 593 --- 490 ----- ----- ----- ----- Total 5,709 5,220 4,920 5,051 ----- ----- ----- ----- ----- ----- ----- ----- 7 3. ACQUISITIONS SYNAPTEL Effective June 29, 1996 the Company acquired all the capital stock of Synaptel, S.A., ("Synaptel"), a French company, for approximately $19,000,000. The purchase consideration consisted of $8,000,000 in cash, 594,595 shares of the Company's common stock, valued at approximately $9,200,000 and $1,800,000 of accrued acquisition costs. The Company financed the cash portion of the consideration through a credit facility with a financial institution. This acquisition has been accounted for using the purchase method of accounting from the effective date of the acquisition. The total purchase consideration in excess of the fair value of the tangible and identified intangible assets acquired is included in goodwill. Identified intangibles acquired included approximately $11,645,000 of in-process research and development, $4,230,000 of developed technology and $390,000 related to Synaptel's assembled workforce. Goodwill, developed technologies and assembled workforce will be amortized using the straight-line method. Acquired in-process research and development activities have no alternative future use and have not achieved technological feasibility; accordingly, the amounts have been expensed in the accompanying consolidated statement of operations for the periods ended June 30, 1996. In addition to the purchase consideration discussed above, the purchase agreement included provisions for additional consideration of $3,500,000 cash and 450,000 options to purchase the Company's common stock at an exercise price of $18.50 per share if Synaptel attains certain revenue and operating income targets through 1998. The actual cash earn-out and number of employee stock options may increase or decrease depending upon performance against targets. The cash payments pursuant to these provisions will be accounted for as additional purchase consideration when payment is probable. The compensatory elements, if any, for these stock options will be expensed over the exercise periods. ACQUIRED PRODUCT RIGHTS In June, 1996, the Company acquired the rights to manufacture, market, and sell certain FDDI products from Cisco Systems Inc. The acquired product rights are included in acquired developed technology and the accompanying June 30, 1996, balance sheet will be amortized ratably over the anticipated revenue stream of such products sold. 4. CREDIT FACILITY Prior to the Synaptel acquisition discussed in Note 3, the Company entered into a credit facility with BankOne Texas NA. The credit facility consists of an $8,500,000 acquisition term loan, a $2,500,000 equipment financing facility and a $5,000,000 revolving credit facility. The facility is a 2 year facility, with interest at the banks base rate (currently 8.5%). The term loan is payable in equal quarterly installments of $529,000 plus accrued interest commencing on November 30, 1996 with final payment due April 30, 1998. The Company has the ability to satisfy the quarterly payments on the term notes through borrowing under the revolving credit component of the credit facility. The credit facility is collateralized by marketable securities held by Banc One, Trust, assignment of accounts receivable and equipment. The credit facility includes certain restrictive financial covenants and is subject to a borrowing base calculation. 8 5. PRO FORMA FINANCIAL INFORMATION The pro forma financial information is presented for the nine month period ended September 30, 1996. This pro forma financial information give effect to the purchase of Synaptel as if such transaction had occurred as of January 1, 1996. Such information for the nine month period ended October 31, 1995 is not presented since that information is not available and would not be cost beneficial in obtaining. Net Sales; $42,658,000, net loss before extraordinary items; $2,019,000 and net loss per common and common equivalent share; $.38. The Pro Forma Statements do not purport to represent what the results of operations of the Company would actually have been if the aforementioned transactions in fact had occurred on January 1, 1996, or to project the results of operations or financial position for any future periods or at any future date. 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SYNAPTEL ACQUISITION The Company acquired all the capital stock of Synaptel S.A., a Paris, France based company, effective June 29, 1996. Synaptel designs, manufactures and distributes a broad line of remote access, X.25 and ISDN (Integrated Services Digital Network) products which are primarily used in wide area network ("WAN") applications. As a result of the acquisition, the Company recognized an $11,646,000 expense in the quarter ended June 30, 1996 for acquired in-process research and development. The quarter ended September 30, 1996 is the first quarter to include Synaptel in the Company's consolidated results of operations for the Company. RESULTS OF OPERATIONS Revenues for the three months ended September 30, 1996 ("third quarter 1996") increased $3,853,000 or approximately 31% to $16,370,000 as compared to $12,517,000 for the three month period ended October 31, 1995 ("comparative period"). In the third quarter 1996 local area networking ("LAN") products grew 32% over the comparative period. FDDI product revenues increased 20%, older ethernet/token ring product revenues increased 6% and ATM product revenues increased 37% over the comparative period. LAN products in total comprised 68% of total revenues for both the third quarter of 1996, and the comparative period. FDDI, older ethernet/token ring) and ATM products represented 41%, 12% and 6% of total revenues, respectively for the third quarter. In addition, the Company made its initial shipments of its fast ethernet based product during 1996 and these products represented 8% of total revenues for the third quarter during 1996. WAN products comprised 21% of revenues for the third quarter 1996. Mass storage product revenues, primarily SCSI adapter cards, decreased 58% in the third quarter 1996 from the comparative period. During the third quarter 1996 the Company made its initial shipments of products based upon the new, emerging fibre channel technology. Although the actual fibre channel product revenues were insignificant, products based upon this technology are expected to provide the next generation mass storage connectivity solutions. Mass storage products comprised 9% of total revenues in the third quarter 1996 and 27% in the comparative period. Geographically, North America revenues comprised 74% of consolidated revenues in the third quarter 1996 compared to 88% in the comparative period. European revenues comprised 24% of consolidated revenues in the third quarter 1996 and 5% in the comparative period. Pacific Rim revenues comprised 2% of consolidated revenues in the third quarter 1996 and 7% in the comparative period . Revenues for the nine months ended September 30, 1996 increased $3,219,000 or 9% to $39,565,000 as compared to $36,346,000 for the nine month period ended October 31, 1995. Revenues from LAN products comprised 72% of consolidated revenue for the nine months ended September 30, 1996, as compared to 64% of consolidated revenues for the nine month period ended October 31, 1995 Revenue from WAN products comprised 9% for the nine months ended September 30, 1996. Revenue from mass storage products comprised 16% for the nine months ended September 30, 1996 and comprised 31% for the nine month period ended October 31, 1995. 10 The gross margin percentage for the three month period ended September 30, 1996 was approximately 48% as compared to approximately 50% for the three month period ended October 31, 1995. The gross margin percentage for each of the nine months ended September 30, 1996 and October 31, 1995 was approximately 50%. Operating expenses for the three month period ended September 30, 1996 were $7,554,000 as compared to $5,343,000 for the three month period ended October 31, 1995. Operating expenses for the nine months ended September 30, 1996 (excluding $11,646,000 related to acquired in-process R&D in the quarter ended June 30, 1996) were $18,413,000, as compared to $15,319,000 for the nine months ended October 31, 1995. The increased operating expenses reflect the addition of the Synaptel operations as well as increased levels of research and development activities in 1996 compared to 1995. LIQUIDITY AND CAPITAL RESOURCES The Company's cash, cash equivalents and marketable securities aggregated $5,183,000 at September 30, 1996, and $12,686,000 at October 31, 1995. The decrease in cash position is primarily the result of the Cisco FDDI adapter card product line and Synaptel acquisitions, increases in accounts receivable due to sales growth and increased capital equipment and capitalized software purchase activities during 1996. The Company expects that its cash, cash equivalents, marketable securities and proceeds from its credit facility will be adequate to meet foreseeable needs for the next 12 months. 11 PART II OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits required by Item 601 of Regulation S-K 2.1 Stock Purchase Agreement, dated as of June 29, 1996, among Interphase Corporation, Synaptel and Philippe Oros, Xavier Sutter, Francois Lecerf, Schroder Ventures French Enterprise Fund LPI (USA), Schroder Ventures French Enterprise Fund UKLP (UK) and Schroder Ventures Holding Limited (UK). Filed as Exhibit 2.1 to the Company's current report on Form 8-K on August 6, 1996 and incorporated herein by reference. 2.2 Loan agreement dated as of June 26, 1996 between Interphase Corporation and Bank One Texas, N.A. Filed as Exhibit 10 to the Company's current report on Form 8-KA on October 4, 1996 and incorporated herein by reference. (b) Reports on Form 8-K and 8KA The Company filed the following reports on Form 8-K and 8-KA, for the quarter ended September 30, 1996: DATE OF FILING ITEM REPORTED SUBJECT OF REPORT -------------- ------------- ----------------- August 5, 1996 2 Announcing Synaptel acquisition October 4, 1996 7 Financial statements, pro forma financial information and exhibits for Synaptel 12 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. INTERPHASE CORPORATION (Registrant) Date: November 13, 1996 /s/ ROBERT L. DRURY ----------------------------------- Robert L. Drury Chief Financial Officer and Vice President Finance (Principal Financial and Accounting officer) 13 EX-27 2 EXHIBIT 27
5 9-MOS DEC-31-1996 JUL-01-1996 SEP-30-1996 1,114 4,069 15,429 232 12,402 34,832 16,331 (10,880) 53,004 12,763 0 0 0 34,385 (5,712) 28,673 39,565 39,565 19,915 18,413 11,646 0 248 (10,327) 427 (10,754) 0 0 0 (10,754) 0 (2.19)
-----END PRIVACY-ENHANCED MESSAGE-----