-----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, NT+35lyr1bE3zvDaE5OEEbxbb9+al4TKb3y5pOavnoRJG73kV9xguwiy41UnXD/J CY8dLs3NBq9Ozow4LnwFYg== /in/edgar/work/0000926236-00-000138/0000926236-00-000138.txt : 20001114 0000926236-00-000138.hdr.sgml : 20001114 ACCESSION NUMBER: 0000926236-00-000138 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERPHASE CORP CENTRAL INDEX KEY: 0000728249 STANDARD INDUSTRIAL CLASSIFICATION: [3576 ] IRS NUMBER: 751549797 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-13071 FILM NUMBER: 762220 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 0001.txt QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000 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, 2000 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 1, 2000 ---------------------------- ----------------------------- Common Stock, $.10 par value 5,801,081 INTERPHASE CORPORATION INDEX Part I -Financial Information Item 1. Consolidated Interim Financial Statements Consolidated Balance Sheets as of September 30, 2000 and December 31, 1999 3 Consolidated Statements of Operations for the three months and nine months ended September 30, 2000 and 1999 4 Consolidated Statements of Cash Flows for the nine months ended September 30, 2000 and 1999 5 Notes to Consolidated Interim Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Part II- Other Information Item 6. Reports on Form 8-K and Exhibits 13 Signature 13 INTERPHASE CORPORATION CONSOLIDATED BALANCE SHEETS (in thousands, except number of share data) (unaudited) Sep. 30, Dec. 31, ASSETS 2000 1999 ---------------------- Cash and cash equivalents $ 13,593 $ 10,988 Marketable securities 7,248 5,288 Trade accounts receivable, less allowances for uncollectible accounts of $319 and $260, respectively 10,290 14,005 Inventories, net 13,286 11,678 Prepaid expenses and other current assets 629 1,383 Deferred income taxes, net 1,075 774 ---------------------- Total current assets 46,121 44,116 ---------------------- Machinery and equipment 9,790 9,149 Leasehold improvements 2,950 2,907 Furniture and fixtures 500 475 ---------------------- 13,240 12,531 Less-accumulated depreciation and amortization (11,231) (10,334) ---------------------- Total property and equipment, net 2,009 2,197 Capitalized software, net 576 684 Deferred income taxes, net 1,458 1,458 Acquired developed technology, net 1,830 2,280 Goodwill, net 2,650 2,830 Other assets 292 1,106 ---------------------- Total assets $ 54,936 $ 54,671 ====================== LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable $ 1,086 $ 2,129 Accrued liabilities 4,368 2,156 Accrued compensation 1,350 2,131 Income taxes payable 852 754 Current portion of debt 2,192 2,202 ---------------------- Total current liabilities 9,848 9,372 Long term debt 3,519 5,164 ---------------------- Total liabilities 13,367 14,536 Commitments and contingencies Common stock redeemable; 325,331 and 447,332 shares, respectively 2,034 2,796 SHAREHOLDERS' EQUITY Common stock, $.10 par value; 100,000,000 shares authorized; 5,475,350 and 5,391,296 shares issued and outstanding, respectively 547 539 Additional paid in capital 36,621 35,998 Retained earnings 2,570 207 Cumulative other comprehensive income (203) 595 ---------------------- Total shareholders' equity 39,535 37,339 ---------------------- Total liabilities and shareholders' equity $ 54,936 $ 54,671 ====================== The accompanying notes are an integral part of these consolidated financial statements.
INTERPHASE CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands except per share amounts) (unaudited) Three Months Ended Nine Months Ended Sep 30, Sep 30, --------------------- -------------------- 2000 1999 2000 1999 --------------------- -------------------- $ 13,260 $ 20,511 Revenues $ 40,177 $ 55,337 6,193 10,666 Cost of sales 18,349 29,401 --------------------- -------------------- 7,067 9,845 Gross profit 21,828 25,936 2,694 2,590 Research and development 7,764 7,892 2,612 2,850 Sales and marketing 8,063 7,814 1,051 1,673 General and administrative 3,258 4,278 --------------------- -------------------- 6,357 7,113 Total operating expenses 19,085 19,984 --------------------- -------------------- 710 2,732 Operating income 2,743 5,952 --------------------- -------------------- 287 114 Interest income 755 309 (155) (235) Interest expense (422) (604) (167) (224) Other, net 2 (674) --------------------- -------------------- Income from continuing 675 2,387 operations before income taxes 3,078 4,983 302 997 Provision for income taxes 1,286 1,894 --------------------- -------------------- Income from continuing 373 1,390 operations 1,792 3,089 --------------------- -------------------- Discontinued Operations Gain on disposal of VOIP - 140 business, net of tax 571 326 Operating losses from VOIP - (252) business, net of tax - (1,193) --------------------- -------------------- $ 373 $ 1,278 Net income $ 2,363 $ 2,222 ===================== ==================== Income from continuing operations per share $ 0.06 $ 0.24 Basic EPS $ 0.31 $ 0.56 --------------------- -------------------- $ 0.06 $ 0.22 Diluted EPS $ 0.28 $ 0.52 --------------------- -------------------- Net income per share $ 0.06 $ 0.22 Basic EPS $ 0.41 $ 0.40 --------------------- -------------------- $ 0.06 $ 0.20 Diluted EPS $ 0.38 $ 0.37 --------------------- -------------------- 5,805 5,709 Weighted average common shares 5,817 5,522 --------------------- -------------------- Weighted average common and 6,278 6,288 dilutive shares 6,292 5,984 --------------------- -------------------- The accompanying notes are an integral part of these consolidated financial statements.
INTERPHASE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) Nine Months ended Sep. 30, -------------------------- 2000 1999 ---------------------- Cash flow from operating activities: Income from continuing operations $ 1,792 $ 3,089 Gain on disposal of VOIP business 571 326 Operating loss from VOIP business - (1,193) Adjustment to reconcile income from continuing operations to net cash provided by operating activities: Depreciation and amortization 1,941 2,940 Deferred income tax benefit (301) - Change in assets and liabilities: Trade accounts receivable 3,715 (740) Inventories (1,608) (1,500) Prepaid expenses and other current assets 754 (56) Accounts payable and accrued liabilities 1,169 70 Accrued compensation (781) 366 Income taxes payable 98 (183) ---------------------- Net adjustments 4,987 897 ---------------------- Net cash provided by operating activities 7,350 3,119 Cash flows from investing activities: Additions to property, equipment, leasehold improvements and capitalized software (1,015) (1,748) Decrease in other assets 814 253 Cash received in sale of VOIP - 600 Increase in marketable securities (1,960) (401) ---------------------- Net cash used by investing activities (2,161) (1,296) Cash flows from financing activities: Payments on debt (1,655) (1,693) Change in comprehensive income (798) (104) Purchase of redeemable common stock (762) (763) Proceeds from the exercise of stock options 631 3,258 ---------------------- Net cash (used) provided by financing activities (2,584) 698 ---------------------- Net increase in cash and cash equivalents 2,605 2,521 Cash and cash equivalents at beginning of period 10,988 4,531 ---------------------- Cash and cash equivalents at end of period $ 13,593 $ 7,052 ====================== Supplemental Disclosure of Cash Flow Information: Income taxes paid $ 1,539 $ 16 Interest paid $ 468 $ 531 The accompanying notes are an integral part of these consolidated financial statements.
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 (the "Company"). Significant intercompany accounts and transactions have been eliminated. The Company has completed the sale of its Voice over Internet Protocol ("VOIP") businesses; accordingly, the Company's Consolidated financial statements and notes included herein, for all periods presented reflect the VOIP business as discontinued operations in accordance with Accounting Principles Board Opinion No. 30. See further discussion of sale in Footnote 6. 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 December 31, 1999. 2. NET INCOME PER COMMON AND COMMON DILUTIVE SHARE The following table shows the calculations of the Company's weighted average common and dilutive equivalent shares outstanding (in thousands): Three months ended Nine months ended Sep. 30, Sep. 30, ------------------ ---------------- 2000 1999 2000 1999 -------------------------------------- Weighted average shares outstanding 5,805 5,709 5,817 5,522 Dilutive impact of stock options 473 579 475 462 -------------------------------------- Total weighted average common and common equivalent shares outstanding 6,278 6,288 6,292 5,984 -------------------------------------- Anti-dilutive weighted shares excluded from shares outstanding 378 - 289 48
3. CREDIT FACILITY The Company maintains a credit facility with BankOne Texas NA that 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 two-year facility with an annual renewal provision, and bears interest at the bank's base rate (currently 8.5%). The term loan is payable in equal quarterly installments of $548,000 plus accrued interest with final payment due November 30, 2001. The Company has the ability to satisfy the quarterly payments on the term notes through borrowings under the revolving credit component of the credit facility. The revolving portion of the loan has been renewed and is due June 30, 2002. Marketable securities, accounts receivable and equipment collateralize the credit facility. The credit facility includes certain restrictive financial covenants including, among others, tangible net worth, total liabilities to tangible net worth, interest coverage, quick ratio, debt service coverage, and is subject to a borrowing base calculation. At September 30, 2000, the Company had borrowings of $5,711,000 and availability under the revolving credit facility was $1,500,000. 4. COMPREHENSIVE INCOME The following table shows the Company's comprehensive income (in thousands): Three months ended Nine months ended Sep. 30, Sep. 30, ------------------ ---------------- 2000 1999 2000 1999 -------------------------------------- Net income $ 373 $ 1,278 $ 2,363 $ 2,222 Other comprehensive income Unrealized holding gains (losses) 128 12 (581) (65) arising during period, net of tax Foreign currency translation adjustment (135) 42 (217) (39) -------------------------------------- Comprehensive income $ 366 $ 1,332 $ 1,565 $ 2,118 ======================================
5. STOCK REPURCHASE Effective October 1998, the Company approved a stock repurchase agreement with Motorola, Inc. to purchase all of the shares owned by Motorola for $4,125,000, ratably from October 1998 to July 2002. Under the terms of the agreement, Motorola retains the right as an equity owner and has assigned its voting rights to the Company. The Company plans to cancel the stock upon each repurchase. Prior to the repurchase agreement, Motorola owned approximately 12% of the Company's outstanding common stock. The future scheduled payments are classified as redeemable common stock in the accompanying consolidated Balance Sheet. As of September 30, 2000, 334,669 shares have been repurchased for $2,091,681 and retired. 6. DISPOSITION OF ASSETS In June 1999, the Company sold an 80% interest in part of its VOIP business, Quescom, for $1,172,000 to the former owner of Interphase's Paris Operation. The sales proceeds consisted of $300,000 due at closing with a $830,000 technology license fee. In January 2000, the remaining $830,000 due for the technology license fee was collected and recorded as a gain on disposal of discontinued operations. In addition, the Company sold the remainder of its 20% interest in Quescom for $400,000, resulting in a gain of $91,000. In September 1999, the Company sold the remainder of its VOIP business, Zirca Corporation ("Zirca") along with the technologies developed by Zirca for $300,000 cash and stock valued at $517,680 to UniView Technologies, resulting in a gain of $140,000, net of $86,000 tax. The UniView securities received as part of the agreement are included on the Balance Sheet in Marketable Securities, and accounted for as available-for-sale securities. During the first quarter of 2000, the Company completed the sale of its VOIP business; accordingly the Company's consolidated financial statements and notes included herein, for all periods presented reflect the VOIP business as a discontinued operation in accordance with Accounting Principles Board Opinion No. 30. The following are the results of operations for the discontinued operations for the periods presented: (in thousands) Three months ended Nine months ended Sep. 30, Sep. 30, ------------------ ---------------- 2000 1999 2000 1999 -------------------------------------- Gain (loss) from Discontinued operations before tax - $ (406) $ 921 $ (1,924) Income tax provision (benefit) - (154) 350 (731) -------------------------------------- Net gain (loss) from discontinued operations - $ (252) $ 571 $ (1,193) ======================================
7. SEGMENT DATA Revenue related to North America and other foreign countries for the three month and nine month period ended September 30, 2000 and 1999 are as follows. (in thousands) Three months ended Sep. 30: Nine months ended Sep. 30: Revenue 2000 1999 2000 1999 ------------------------------------------------- North America $ 11,005 $ 17,990 $ 33,552 $ 45,211 Europe 1,253 1,426 4,612 8,551 Pac Rim 1,002 1,095 2,013 1,575 ------------------------------------------------- Total $ 13,260 $ 20,511 $ 40,177 $ 55,337 =================================================
Long lived assets related to North America and other foreign countries as of September 30, 2000 and December 31, 1999 are as follows. (in thousands) Long lived assets Sep. 30, 2000 Dec. 31, 1999 ----------------------- North America $ 2,383 $ 2,658 Europe 202 223 Pacific Rim - - ----------------------- Total $ 2,585 $ 2,881 ======================= 8. SHAREHOLDERS' EQUITY At the annual meeting of Shareholders on May 3, 2000, the Shareholders of the Company ratified and approved an amendment to the Company's Articles of Incorporation to change the par value of the Company's Common Stock from no par value to a par value of $.10 per share. As such, the financial statements have been changed to reflect this amendment for all periods presented. 9. RECENTLY ISSUED ACCOUNTING POLICIES In June 1998, the Financial Accounting Standards Board, issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 establishes new standards of accounting and reporting for derivative instruments and hedging activities. SFAS 133 requires that all derivatives be recognized at fair value in the balance sheet, and the corresponding gains or losses be reported either in the statement of operations or as a components of comprehensive income, depending on the type of hedge relationship that exists. SFAS 133 as amended by SFAS 137 will be effective for fiscal years beginning after June 15, 2000. The Company does not expect SFAS 133 to have a material effect on our financial position or results of operations. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements." SAB 101 provides guidance on applying generally accepted accounting principles to revenue recognition issues in financial statements. The Company will adopt SAB 101 as required in the fourth quarter of fiscal 2000. The Company believes that SAB 101 will not have a significant effect on its consolidated financial position or results of operations Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS During the first quarter 2000, the Company completed the sale of its VOIP business; accordingly the Company's consolidated financial statements and notes included herein, for all periods presented reflect the VOIP business as a discontinued operation in accordance with Accounting Principles Board Opinion No. 30. Revenue from product sales is recorded when the earnings process has been completed, as evidenced by a delivery, a fixed and determinable price and when collectibility is reasonably assured. Revenues for the three months ended September 30, 2000 ("third quarter 2000") were $13,260,000. Revenues for the same period in 1999 ("comparative period") were $20,511,000. While the Company's Storage product revenues have declined in the third quarter of 2000 as compared to the comparative period, the Networking product revenues and Broadband Telecommunication controller revenues have increased. The decrease in revenue is primarily attributable to the effects of the transitional period where the Company is refocusing its efforts on its new Fibre Channel and Broadband Telecommunication controller products. In addition, the Company developed a strategy to end-of-life many of its legacy products, which began in the second quarter 2000. Further more, 44% of the revenues for the comparable period were from Hewlett Packard's purchase of a Fiber Channel card, that the Company announced in December 1999 would be going away by the end of 1999. Networking product revenues, consisting of FDDI, Ethernet, ATM, Fast Ethernet and WAN, represented 56% of total revenues for the third quarter 2000, as compared to 31% for the comparative period. FDDI product revenues increased 119%, Ethernet product revenues decreased 100%, ATM product revenues decreased 15%, Fast Ethernet product revenues declined 44%, and WAN product revenues decreased 37% as compared to the comparative period. FDDI, Ethernet, ATM, Fast Ethernet and WAN product revenues represented 39%, 0%, 6%, 9% and 2% of total Networking revenues, respectively for the third quarter 2000. Mass storage product revenues, consisting of SCSI and Fibre Channel adapter cards, represented 27% of total revenues for the third quarter 2000, as compared to 62% for the comparative period. SCSI product revenues increased 147% while Fibre Channel product revenues decreased 79% over the comparative period. Broadband telecommunication controller revenues represented 14% of total revenues for the third quarter 2000, as compared to 6% for the comparative period. Broadband telecommunication controller revenues grew 58% from the comparative period. Revenues for the nine-month period ended September 30, 2000 were $40,177,000 as compared to $55,337,000 for the nine-month period ended September 30, 1999. Revenues from Networking LAN, Mass storage, Networking Broadband Telecommunication controller and Networking WAN were 36%, 40%, 18%, and 3% of total revenues respectively, for the nine-month period ended September 30, 2000. The Company will continue to focus on revenues from Fibre Channel adapter and Broadband Telecommunication controller products, which are expected to offset revenue declines in older technologies such as FDDI and Ethernet. One customer accounted for 11% and 56% of the Company's revenue in the third quarter of 2000 and 1999, respectively. The gross margin percentage for the third quarter 2000 was 53% and 48% for the comparative period. The gross margin percentage for the nine-month period ended September 30, 2000 and 1999 was 54% and 47% respectively. The increase in gross margin is primarily due to a continued focus on product cost improvements, selling a higher percentage of products with a greater gross margin than the comparative period, and a reduction in product sales to certain OEM's at a lower gross margin related to volume discounts. Since the Company is in a migration of older products to new Fibre Channel and Broadband Telecommunication controller products, the gross margin is expected to be between 48% to 50% in subsequent quarters, as these new products are expected to be priced competitively. Operating expenses for the third quarter 2000 were $6,357,000 as compared to $7,113,000 for the comparative period. Operating expenses for the nine-month period ended September 30, 2000 and 1999 were $19,085,000 and $19,984,000 respectively. Operating expenses have decreased slightly compared to a year ago, with an increase in sales and marketing activities, offset by decreases in general and administrative expenses. Operating expenses are expected to remain consistent as a percentage of revenues. Interest income increased during the third quarter 2000 as compared to the comparative period, attributable to an increase in interest income earned on larger cash balances deposited in interest bearing accounts. Interest expense decreased during the third quarter 2000 as compared to the comparative period, attributable to a continued reduction of interest bearing debt. Other income increased $676,000 for the nine-month period ending September 30, 2000, primarily as a result of a hedging transaction on certain marketable securities received in the sale of the Company's VOIP business. As of June 30, 2000 these hedging transactions resulted in a gain of approximately $613,000. LIQUIDITY AND CAPITAL RESOURCES The Company's cash, cash equivalents and marketable securities aggregated $20,841,000 at September 30, 2000, and $16,276,000 at December 31, 1999. The Company's increased cash position is primarily due to the collection of cash related to the disposition of Quescom (see note 6), and the collection of accounts receivable, offset by the purchase of inventory, fixed assets, payment on debt, tax payments and purchase of common stock. In the next twelve months, scheduled debt payments on the Company's credit facility are approximately $2,192,000. Effective October 1998, the Company approved a stock repurchase agreement with Motorola, Inc. to purchase all of the shares owned by Motorola for $4,125,000, ratably from October 1998 to July 2002. Under the terms of the agreement, Motorola retains the right as an equity owner and has assigned its voting rights to the Company. The Company plans to cancel the stock upon each repurchase. Prior to the repurchase agreement, Motorola owned approximately 12% of the Company's outstanding common stock. The future scheduled payments are classified as redeemable common stock in the accompanying consolidated Balance Sheet. As of September 30, 2000, 334,669 shares have been repurchased for $2,091,681 and retired. The Company expects that its cash, cash equivalents, marketable securities and proceeds from its credit facility will be adequate to meet foreseeable cash needs for the next 12 months. PART II OTHER INFORMATION Item 6. Reports on form 8-K None Exhibits Exhibit 27 Financial Data Schedule 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, 2000 /s/ Steven P. Kovac ------------------------------ Steven P. Kovac Chief Financial Officer, Vice President of Finance and Treasurer (Principal Financial and Accounting Officer) EX-27 2 0002.txt
5 1,000 9-MOS DEC-31-2000 SEP-30-2000 13,593 7,248 10,609 319 13,286 46,121 13,240 11,231 54,936 9,848 0 0 0 39,202 2,367 54,936 40,177 40,177 18,349 8,063 11,022 0 422 3,078 1,286 1,792 571 0 0 2,363 0.41 0.38
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