Accounting Policies, by Policy (Policies)

12 Months Ended

Dec. 31, 2012

Description of Business [Policy Text Block]

Description of the Business:  Interphase Corporation (“Interphase” or the “Company”) is a diversified information and communications technology company, committed to innovation through the process of identifying, developing and introducing new products and services.  The Company provides its customers solutions for connectivity, interworking and packet processing.  Clients of the Company’s communications networking products include Alcatel-Lucent, Fujitsu Ltd., Genband, Hewlett Packard, Nokia Siemens Networks, Oracle, and Samsung. 

The Company also offers engineering design and manufacturing services to customers from a wide variety of industries within the electronics market. 

Interphase recently expanded its business to include penveu®, a handheld device that adds interactivity to the installed base of projectors and large screen displays, making any flat surface, from pull down screens to HDTVs, an interactive display system.  penveu is an affordable and portable solution that targets the education and enterprise markets.

The Company, founded in 1974, is headquartered in Plano, Texas, with manufacturing facilities in Carrollton, Texas, and sales offices in the United States and Europe.  See Note 14 for information regarding the Company’s revenues related to North America and foreign regions.

Consolidatio Policy and Basis of Presentation [Policy Text Block]

Principles of Consolidation and Basis of Presentation:  The accompanying consolidated financial statements include the accounts of Interphase Corporation and its wholly owned subsidiaries.  All intercompany accounts and transactions have been eliminated.  In the opinion of the Company, all material adjustments and disclosures necessary to fairly present the results of such periods have been made.  All such adjustments are of a normal, recurring nature.

Fair Value Measurement, Policy [Policy Text Block]

Fair Value of Financial Instruments:Accounting Standards Codification (“ASC”) Topic 820, “Fair Value Measurements and Disclosures,” defines fair value, establishes a framework for measuring fair value in accordance with accounting principles generally accepted in the United States, and expands disclosures about fair value measurements.  The Company follows ASC 820 in its valuation of its marketable securities.  ASC 820 defines fair value as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 classifies the levels used to measure fair value into the following hierarchy:

1. Level 1 – Valuations based on quoted prices in active markets for identical assets and liabilities that the reporting entity has the ability to obtain at the measurement date.  This level provides the most reliable evidence of fair value.

2. Level 2 – Valuations based on one or more quoted prices in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs that are observable other than quoted prices for the asset or the liability; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.

3. Level 3 – Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

Cash and Cash Equivalents, Policy [Policy Text Block]

Cash and Cash Equivalents:  The Company considers cash and temporary investments with original maturities of less than three months, as well as interest-bearing money market accounts, to be cash equivalents.  The Company maintains cash balances at various financial institutions with high credit ratings.  From time to time, the Company has had cash in financial institutions in excess of federally insured limits or in interest bearing accounts.

Marketable Securities, Policy [Policy Text Block]

Marketable Securities: The Company’s investments in marketable securities primarily consist of investments in debt securities, which are classified as available-for-sale and presented as current assets on the balance sheet. Earnings from debt securities are calculated on a yield to maturity basis and recorded in the results of operations. Unrealized gains or losses for the periods presented were included in other comprehensive loss. Realized gains and losses are computed based on the specific identification method and were not material for the periods presented. Marketable securities are used to secure the Company’s credit facility.

The fair values of marketable securities were estimated using the market approach.  As of December 31, 2012, the fair market value of marketable securities was approximately $4.9 million, of which approximately $4.7 million matures in one year or less, and approximately $200,000 matures after one year, but less than five years.  As of December 31, 2011, the fair market value of marketable securities was approximately $4.4 million, of which approximately $2.3 million matures in one year or less, and approximately $2.1 million matures after one year, but less than five years.  The Company recorded an unrealized gain with respect to certain available-for-sale securities in 2012 of $1,000.  The Company recorded an unrealized loss with respect to certain available-for-sale securities in 2011 of $20,000.

Financial assets, measured at fair value, by level within the fair value hierarchy were as follows (in thousands):

		December 31, 2012						December 31, 2011
	Fair Value Hierarchy	Cost		Unrealized Gain		Estimated Fair Value		Cost		Unrealized Gain		Estimated Fair Value
Asset Backed	Level 2	$	952	$	3	$	955	$	2,136	$	2	$	2,138
Corporate Bonds	Level 2		698		1		699		616		1		617
US Treasuries	Level 2		3,200		-		3,200		1,600		-		1,600
Total		$	4,850	$	4	$	4,854	$	4,352	$	3	$	4,355

Receivables, Policy [Policy Text Block]

Accounts Receivable and Allowance for Doubtful Accounts:  The Company records accounts receivable at their net realizable value, which requires management to estimate the collectability of the Company’s trade receivables.  A considerable amount of judgment is required in assessing the realization of these receivables, including the current creditworthiness of each customer and related aging of the past due balances.  Management evaluates all accounts periodically and a reserve is established based on the best facts available to management.  This reserve is also partially determined by using percentages applied to certain aged receivable categories based on historical results and is reevaluated and adjusted as additional information is received.  After all attempts to collect a receivable have failed, the receivable is written off against the allowance for doubtful accounts.

The activity in this account was as follows (in thousands):

Year Ended December 31:	Balance at Beginning of Period		Charged to Expense		(Write-offs) Net of Recoveries			Balance at End of Period
2012	$	18	$	1	$	(2	)	$	17
2011	$	23	$	-	$	(5	)	$	18
2010	$	41	$	-	$	(18	)	$	23

Revenue Recognition, Sales Returns [Policy Text Block]

Allowance for Returns:  The Company maintains an allowance for returns, based upon expected return rates, when such return rates are estimable.  The estimates of expected return rates are generally a factor of historical returns experience.  Changes in return rates could impact allowance for return estimates.  As of December 31, 2012, 2011 and 2010, the allowance for returns was $22,000, $25,000 and $47,000, respectively, and presented as a reduction to accounts receivable.

Inventory, Policy [Policy Text Block]

Inventories:  Inventories are valued at the lower of cost or market and include material, labor and manufacturing overhead.  Cost is determined on a first-in, first-out basis (in thousands):

	Years ended December 31,
	2012		2011
Raw Materials	$	1,616	$	1,231
Work-in-Process		462		214
Finished Goods		141		111
Total	$	2,219	$	1,556

Valuing inventory at the lower of cost or market involves an inherent level of risk and uncertainty due to technology trends in the industry and customer demand for the Company’s products.  Future events may cause significant fluctuations in the Company’s operating results. Inventories are written down when needed to ensure the Company carries inventory at the lower of cost or market. Writedowns in 2012, 2011 and 2010 were $57,000, $60,000 and $200,000, respectively.

Property, Plant and Equipment, Policy [Policy Text Block]

Property and Equipment:  Property and equipment are recorded at cost.  Depreciation is provided over the estimated useful lives of depreciable assets using the straight-line method.  When property and equipment are sold or otherwise retired, the cost and accumulated depreciation applicable to such assets are eliminated from the accounts, and any resulting gain or loss is reflected in current operations.  Related depreciation expense was as follows (in thousands):

Year ended December 31:	Depreciation Expense
2012	$	200
2011	$	217
2010	$	278

The depreciable lives of property and equipment are as follows:

Machinery and equipment (years)	3 -5
Leasehold improvements	Term of the respective leases
Furniture and fixtures (years)	3 -10

Research, Development, and Computer Software, Policy [Policy Text Block]

Capitalized Software:  Capitalized software represents various software licenses purchased by the Company and utilized in connection with the Company’s products as well as the general operations of the Company.  In addition, the Company capitalizes certain external direct costs incurred to create internal use software, principally related to applications, infrastructure and the development of its websites.  Capitalized software is amortized over three to five years utilizing the straight-line method.  Related amortization expense and accumulated amortization were as follows (in thousands):

Year ended December 31:	Amortization Expense		Accumulated Amortization
2012		$   177		$   3,401
2011		$   348		$   3,306
2010		$   447		$   2,945

Impairment or Disposal of Long-Lived Assets, Including Intangible Assets, Policy [Policy Text Block]

Long-Lived Assets:  Property and equipment and other long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.  All impairments are recognized in operating results when a permanent reduction in value occurs.  There was no such writedown during 2012 or 2011.  Due to the restructuring activities taken in 2010, there was no future use associated with certain furniture and fixtures and computer equipment, which resulted in writedowns of these long-lived assets of $29,000 during 2010.  The writedowns were recorded in operating expense as part of the restructuring charge.

Revenue Recognition, Policy [Policy Text Block]

Revenue Recognition:  Revenues consist of product and service revenues and are recognized in accordance with ASC Topic 605, “Revenue Recognition.”  Product revenues and electronic manufacturing services revenues are recognized upon shipment, provided fees are fixed and determinable, a customer purchase order is obtained (when applicable), and collection is probable.  Sales tax collected from customers and remitted to the applicable taxing authorities is accounted for on a net basis, with no impact to revenues.  Service revenue, other than electronic manufacturing services revenue, is recognized as the services are performed.  Deferred revenue consists primarily of service revenue not yet performed.

The Company’s long-term engineering design services are typically provided on a fixed-fee basis.  The revenues for such projects that require significant customization and integration are recognized using the percentage-of-completion method.  In using the percentage-of-completion method, revenues are generally recorded based on the percentage of effort incurred to date on a contract relative to the estimated total expected contract effort.  Significant judgment is required when estimating total contract effort and progress to completion on the arrangements as well as whether a loss is expected to be incurred on the contract.  Management uses historical experience, project plans and an assessment of the risks and uncertainties inherent in the arrangement to establish these estimates.  Uncertainties include implementation delays or performance issues that may or may not be within the Company’s control.  Changes in these estimates could result in a material impact on revenues and net earnings (loss).  If the Company is unable to develop reasonably dependable cost or revenue estimates, the completed contract method is applied under which all revenues and related costs are deferred until the contract is completed.  The Company had unbilled revenues of $77,000 and $90,000 included in trade accounts receivable on the Company’s balance sheet at December 31, 2012 and 2011, respectively.

Standard Product Warranty, Policy [Policy Text Block]

Warranty Reserve:  The Company offers to its customers a limited warranty that its products will be free from defect in the materials and workmanship for a specified period.  The Company has established a warranty reserve of $15,000 and $35,000 at December 31, 2012 and 2011, respectively, as a component of accrued liabilities, for any potential claims.  The Company estimates its warranty reserve based upon an analysis of all identified or expected claims and an estimate of the cost to resolve those claims.

Research and Development Expense, Policy [Policy Text Block]

Research and Development:  Research and development costs are charged to expense as incurred.

Interest Income and Expense, Net [Policy Text Block]

Interest Income, Net: Interest income from investments in securities and cash balances was $34,000, $46,000 and $141,000 for the years ended December 31, 2012, 2011 and 2010, respectively.  Interest expense related to the Company’s credit facility was $9,000, $24,000 and $39,000 for the years ended December 31, 2012, 2011 and 2010, respectively.

Advertising Costs, Policy [Policy Text Block]

Advertising Expense:  Advertising costs are charged to expense as incurred.  Advertising expense was $9,000, $6,000 and $9,000 for the years ended December 31, 2012, 2011 and 2010, respectively.

Foreign Currency Transactions and Translations Policy [Policy Text Block]

Foreign Currency Translation: Assets and liabilities of the Company’s French subsidiary, whose functional currency is other than the U.S. Dollar, are translated at year-end rates of exchange, and revenues and expenses are translated at average exchange rates prevailing during the year.  Realized foreign currency transaction gains and losses are recognized in the Consolidated Statements of Operations as incurred.

Unrealized gains or losses are accumulated in shareholders’ equity as a component of other comprehensive income.

Income Tax, Policy [Policy Text Block]

Income Taxes:  The Company determines its deferred taxes using the liability method.  Deferred tax assets and liabilities are based on the estimated future tax effects of differences between the financial statement basis and tax basis of assets and liabilities given the provisions of enacted tax law.  The Company’s consolidated financial statements include deferred income taxes arising from the recognition of revenues and expenses in different periods for income tax and financial reporting purposes.

The Company records a valuation allowance to reduce its deferred income tax assets to the amount that is believed to be realizable.  The Company considers recent historical losses, future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance.  Management is continuously assessing the realizability of deferred tax assets.

The Company recognizes the impact of uncertain tax positions taken or expected to be taken on an income tax return in the financial statements at the amount that is more likely than not to be sustained upon audit by the relevant taxing authority.  An uncertain income tax position will not be recognized in the financial statements unless it is more likely than not of being sustained.

Comprehensive Income, Policy [Policy Text Block]

Other Comprehensive Loss:  Other comprehensive loss is presented on the Consolidated Statements of Comprehensive Income and is comprised of unrealized gains and losses excluded from the Consolidated Statements of Operations.  These unrealized gains and losses consist of holding period gains and losses related to marketable securities, net of income taxes, and foreign currency translation, which are not adjusted for income taxes since they relate to indefinite investments in a non-U.S. subsidiary.

Use of Estimates, Policy [Policy Text Block]

Use of Estimates:  The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and disclosures.  Actual results could differ from those estimates.  Areas involving estimates include the allowance for doubtful accounts and returns, warranties, inventory impairment charges, accrued liabilities, income tax accounts and revenues.