-----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, DcM0u4M6g75M4J91fOxslAffVj570JN71H3eHBRcZAPJrZJ/koSL6SXbp5hRj5bY Nx/AQL3iOjFUermCxuvIjA== 0001047469-97-004151.txt : 19971113 0001047469-97-004151.hdr.sgml : 19971113 ACCESSION NUMBER: 0001047469-97-004151 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971113 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: SEC FILE NUMBER: 000-13071 FILM NUMBER: 97715176 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 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, 1997 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 3, 1997 Common Stock, No par value 5,497,178 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 1 INTERPHASE CORPORATION INDEX PART I -FINANCIAL INFORMATION Item 1. Consolidated Interim Financial Statements Consolidated Balance Sheets as of September 30, 1997 and December 31, 1996 3 Consolidated Statements of Operations for the three months and nine months ended September 30, 1997 and 1996 4 Consolidated Statements of Cash Flows for the nine months ended September 30, 1997 and 1996 5 Supplemental Schedule of Cash Flows 6 Notes to Consolidated Interim Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 PART II- OTHER INFORMATION Item 6. Reports on form 8-K and exhibits Signature 11 2 INTERPHASE CORPORATION CONSOLIDATED BALANCE SHEETS (in thousands, except number of shares) September 30, December 31, ASSETS 1997 1996 - ------ --------------------------- (Unaudited) Cash and cash equivalents $ 3,119 $ 2,271 Marketable securities 3,211 3,579 Trade accounts receivable, less allowances for uncollectible accounts of $514 and $503, respectively 9,092 15,182 Inventories, net 16,610 12,599 Prepaid expenses and other current assets 923 1,221 Deferred income taxes, net 874 886 ---------------------- Total current assets 33,829 35,738 Machinery and equipment 13,929 12,340 Leasehold improvements 2,924 2,863 Furniture and fixtures 433 278 ---------------------- 17,286 15,481 Less-accumulated depreciation and amortization (13,279) (10,394) ---------------------- Total property and equipment, net 4,007 5,087 Capitalized software, net 283 400 Deferred income taxes, net 392 392 Acquired developed technology, net 4,501 5,819 Goodwill, net 3,698 3,902 Other assets 2,260 2,586 ---------------------- Total assets $ 48,970 $ 53,924 ---------------------- ---------------------- LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ Accounts payable $ 3,058 $ 4,279 Accrued liabilities 2,790 3,097 Accrued compensation 1,883 2,962 Income taxes payable - 93 Current portion of debt 2,465 2,471 ---------------------- Total current liabilities 10,196 12,902 Deferred lease obligations 52 72 Other liabilities 1,800 1,120 Long term debt 8,219 9,444 ---------------------- Total liabilities 20,267 23,538 Common stock, no par value 35,222 35,195 Retained deficit (6,616) (4,959) Cumulative foreign currency translation adjustment 123 164 Unrealized holding period loss (26) (14) ---------------------- Total shareholders' equity 28,703 30,386 ---------------------- Total liabilities and shareholders' equity $ 48,970 $ 53,924 ---------------------- ----------------------
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-97 30-Sep-96 30-Sep-97 30-Sep-96 - --------- --------- --------- --------- $13,611 $16,370 Revenues $48,848 $ 39,565 7,402 8,499 Cost of sales 25,391 19,915 ------- ------- ------- -------- 6,209 7,871 Gross profit 23,457 19,650 3,795 3,205 Research and development 10,537 7,759 2,986 2,874 Sales and marketing 8,814 7,194 1,585 1,475 General and administrative 4,548 3,460 - - Acquired in-process R&D - 11,646 ------- ------- ------- -------- 8,366 7,554 Total operating expenses 23,899 30,059 ------- ------- ------- -------- (2,157) 317 Operating income (loss) (442) (10,409) ------- ------- ------- -------- 120 116 Interest income 332 333 (294) (248) Interest expense (861) (248) (227) 7 Other, net (635) (3) ------- ------- ------- -------- (2,558) 192 Income (loss) before income taxes (1,606) (10,327) (367) 25 Provision (benefit) for income taxes 51 427 ------- ------- ------- -------- $(2,191) $ 167 Net income (loss) $(1,657) $(10,754) ------- ------- ------- -------- ------- ------- ------- -------- Net income (loss) per common and $ (0.40) $ 0.03 common equivalent share $ (0.30) $ (2.19) ------- ------- ------- -------- ------- ------- ------- -------- Weighted average common and common 5,494 5,709 equivalent shares 5,493 4,920 ------- ------- ------- -------- ------- ------- ------- --------
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-97 30-Sep-96 --------- --------- CASH FLOW FROM OPERATING ACTIVITIES: Net loss $(1,657) $(10,754) Adjustment to reconcile net income to net cash provided (used) by operating activities: Depreciation and amortization 3,642 2,938 Write off of acquired in-process research and development - 11,646 Change in assets and liabilities, net of Synaptel acquisition; Trade accounts receivable 6,090 (8,599) Inventories (4,011) (1,148) Prepaid expenses and other current assets 298 154 Accounts payable and accrued liabilities (1,630) 1,195 Accrued compensation (1,079) 181 Deferred income taxes payable 12 77 Other long term liabilities 680 - Deferred lease obligations (20) (99) ------- -------- Net adjustments 3,982 6,345 ------- -------- Net cash provided (used) by operating activities 2,325 (4,409) CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property, equipment and leasehold improvements (808) (2,542) Additions to capitalized software (106) (1,088) Decrease in other assets 326 (153) Cash acquired in Synaptel acquisition - 11 (Increase) in acquired developed technology - (2,500) Decrease in marketable securities 368 5,298 Change in holding period gain/loss on marketable securities (12) (25) ------- -------- Net cash provided (used) by investing activities (232) (999) CASH FLOWS FROM FINANCING ACTIVITIES: Payment on debt (1,731) (27) Proceeds from debt 500 2,580 Change in cumulative foreign currency translation (41) - Increase in common stock 27 992 ------- -------- Net cash provided (used) by financing activities (1,245) 3,545 ------- -------- Net increase (decrease) in cash and cash equivalents 848 (1,863) Cash and cash equivalents at beginning of period 2,271 2,977 ------- -------- Cash and cash equivalents at end of period $ 3,119 $ 1,114 ------- -------- ------- -------- Supplemental Disclosure of Cash Flow Information: Income taxes paid 302 478 Income taxes refunded 2 8 Interest paid 770 -
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 In June 1996, 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 issued 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 intercompany accounts and transactions have been eliminated. 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, 1996. 2. 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 $11,600,000 of in-process research and development, $4,230,000 of developed technology and $415,000 related to Synaptel's assembled workforce. Acquired in-process research and development activities had no alternative future use and had not achieved technological feasibility and were expensed in June 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. In 1996 and 1997, no additional consideration was paid. ACQUIRED PRODUCT RIGHTS In June 1996, the Company acquired the rights to manufacture, market, and sell certain FDDI products from Cisco Systems, Inc. for a purchase price of $2,500,000. The acquired product rights are included in acquired developed technology in the accompanying consolidated balance sheets. 7 3. 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, Sep 30, ------------------ ----------------- (IN THOUSANDS) 1997 1996 1997 1996 ----- ----- ----- ----- Outstanding 5,494 5,348 5,493 4,920 Stock options ---- 361 ---- --- ----- ----- ----- ----- Total 5,494 5,709 5,493 4,920 ----- ----- ----- ----- ----- ----- ----- ----- There is no material difference between primary diluted and fully diluted EPS for the periods presented. The Company will adopt SFAS No. 128, Earnings per Share, for its December 31, 1997 consolidated financial statements. As a result, the Company's reported earnings per share for 1996 and each of the quarters in 1997, will be restated. Upon the adoption of SFAS No. 128, basic earnings per common share will be computed by dividing net income by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per common share will be computed by dividing net income by the weighted average of common stock and common stock equivalents outstanding during the year. The following pro-forma information is presented in accordance with the provisions of SFAS No. 128: Three Months Ended Nine Months Ended Sep 30, Sep 30, PRIMARY EPS 1997 1996 1997 1996 ----------- -------------------------------------- Per share amounts Primary EPS as reported $ (0.40) $.03 $ (0.30) $(2.19) Effect of SFAS No. 128 - - - - ------------- --------------- Pro-forma basic EPS as restated $ (0.40) $.03 $ (0.30) $(2.19) Three Months Ended Nine Months Ended Sep 30, Sep 30, FULLY DILUTED EPS 1997 1996 1997 1996 ----------------- ------------- ---------------- Per share amounts Fully diluted EPS as reported $ (0.40) $.03 $ (0.30) $(2.19) Effect of SFAS No. 128 - - - - ------------- --------------- Pro-forma diluted EPS as restated $ (0.40) $.03 $ (0.30) $(2.19) ------------- --------------- 8 1. CREDIT FACILITY Prior to and in conjunction with the Synaptel acquisition discussed in Note 2, 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 subject to 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 which commenced on November 30, 1996 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 is due June 30, 1999. The credit facility is collateralized by marketable securities, assignment of accounts receivable and equipment. 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, 1997, total availability under this credit facility was $1,812,000. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Revenues for the three months ended September 30, 1997 ("third quarter") decreased $2,759,000 or approximately 17% to $13,611,000 as compared to $16,370,000 for the same period in 1996 ("comparative period"). In the third quarter 1997 local area networking ("LAN") product revenue decreased 5% over the comparative period. The decline in LAN revenue was the result of lower FDDI and older ethernet/token ring product revenues, partially offset by increases in both ATM and fast ethernet product revenues. FDDI product revenues decreased 44%, older ethernet/token ring product revenues decreased 57% while ATM increased 48% and fast ethernet increased 200%, over the comparative period. LAN products in total comprised 78% of total revenues for the third quarter, and 68% for the comparative period. FDDI, ATM, fast ethenet and older ethernet/token ring products represented 28%, 11%, 33% and 6% of total revenues, respectively for the third quarter. In the third quarter wide area networking ("WAN") product revenues decreased 79% over the comparable period and comprised 5% of revenues. Mass storage product revenues, primarily SCSI and Fibre channel adapter cards, increased 26% in the third quarter 1997 from the comparative period. Mass storage products comprised 13% of total revenues in the third quarter 1997 and 9% in the comparative period. SCSI and Fibre channel product revenues were 9% and 5% of revenues, respectively for the third quarter. Geographically, North America revenues comprised 77% of consolidated revenues in the third quarter 1997 compared to 68% in the comparative period. European revenues comprised 20% of consolidated revenues in the third quarter 1997 and 30% in the comparative period. Pacific Rim revenues comprised 3% of consolidated revenues in the third quarter 1997 and 2% in the comparative period. The Company's current marketing strategy is to increase market penetration through sales to major OEM customers. One of these customers accounted for approximately 41% of the Company's revenue for the third quarter. Revenues for the nine months ended September 30, 1997 increased $9,283,000 or 23% to $48,848,000 as compared to $39,565,000 for the same period in 1996. The growth in revenue is due to increased revenue from fast-ethernet products and the inclusion of WAN products due to the acquisition of Synaptel S.A. in June 1996. Revenues from LAN, Mass Storage and WAN products comprised 77%, 11% and 9% respectively, of consolidated revenues for the nine month period ended September 30, 1997. 9 The gross margin percentage for the three month period ended September 30, 1997 was approximately 46% as compared to approximately 48% for the comparable period. The gross margin percentage for the nine month period ended September 30, 1997 was approximately 48% as compared to approximately 50% for the same period in 1996. The decrease in gross margin percentages in 1997 compared to 1996 reflect the increases in fast ethernet and ATM product revenues, which produce lower gross margin percentages, as well as the decreases in FDDI, SCSI and older ethernet product revenues, which typically produce higher gross margin percentages. Operating expenses for the three month period ended September 30, 1997 were $8,366,000 as compared to $7,554,000 for the comparable period. The increased operating expenses reflects increased levels of research and development activities in 1997 compared to 1996. Operating expenses for the nine month period ended September 30, 1997 were $23,899,000 as compared to $18,413,000 for the same period in 1996 (excluding $11,646,000 related to acquired in-process R&D in the quarter ended June 30, 1996). The increased operating expenses reflect the addition of the Synaptel operations as well as increased levels of research and development activities in 1997 compared to 1996. LIQUIDITY AND CAPITAL RESOURCES The Company's cash, cash equivalents and marketable securities aggregated $6,330,000 at September 30, 1997, and $5,850,000 at December 31, 1996. In the third quarter of 1997, the Company invested approximately $250,000 in plant and equipment. The improved cash position is primarily due to a decrease in accounts receivable partially off set by an increase in inventory and decreases in accrued liabilities and accrued compensation. In the next twelve months, scheduled debt payments on the Company's credit facility are approximately $2,192,000. 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. NEW ACCOUNTING PRONOUNCEMENTS Effective July 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 130, Reporting Comprehensive Income, and SFAS No. 131 Disclosures about Segments of an Enterprise and Related Information. SFAS No. 130 requires the Company to report comprehensive income in the financial statements. SFAS No. 131 requires the Company to disclose revenues, profit and loss, and assets for business and geographical segments similar to disclosures required under current standards. These statements are effective for fiscal years beginning after December 15, 1997, with earlier adoption permitted. The Company will consider adopting SFAS No. 130 and SFAS No. 131 in its December 31, 1997 consolidated financial statements and anticipates no material impact on the financial statements or footnotes to the financial statements. 10 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 11, 1997 /s/ Robert L. Drury --------------------------------- Robert L. Drury Chief Financial Officer and Vice President Finance (Principal Financial and Accounting officer) 11 EX-27 2 EXHIBIT 27 FDS
5 1,000 U.S. DOLLARS 9-MOS DEC-31-1997 JUL-01-1997 SEP-30-1997 1 3,119 3,211 9,606 514 16,610 33,829 17,286 (13,279) 48,970 10,196 0 0 0 35,222 (6,519) 48,970 48,848 48,848 25,391 23,899 303 0 861 (1,606) 51 (1,657) 0 0 0 (1,657) (.30) (.30)
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