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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTIONS 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1034
For the Quarter Ended April 30, 1995 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)-919-9000
(Registrant's telephone number, including area code)
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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 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 X No
--
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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 June 5, 1995
----- ---------------------------
Common Stock, No par value 4,541,950
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1
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INTERPHASE CORPORATION
INDEX
PART I -FINANCIAL INFORMATION
Item 1. Consolidated Interim Financial Statements
Consolidated Balance Sheets as of April 30, 1995
and October 31, 1994 3
Consolidated Statements of Operations for the three
months and six months ended April 30, 1995 and 1994 4
Consolidated Statements of Cash Flows for the six months
ended April 30, 1995 and 1994 5
Notes to Consolidated Interim Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II- OTHER INFORMATION
Item 4. Submission of Matters to a Vote of the Security Holders 9
Signature 10
2
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INTERPHASE CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except number of shares)
<TABLE>
<CAPTION>
ASSETS April 30, October 31,
- - - ------ 1995 1994
----------- ------------
(Unaudited)
<S> <C> <C>
Cash and cash equivalents $ 5,049 $ 3,814
Marketable securities 7,804 7,720
Trade accounts receivable, less allowances for uncollectible
accounts of $243 and $240, respectively 5,803 5,658
Inventories, net 8,305 6,577
Refundable income taxes 0 219
Prepaid expenses and other current assets 662 733
Deferred income taxes, net 579 1,019
----------- ------------
Total current assets 28,202 25,740
Machinery and equipment 9,026 10,801
Leasehold improvements 2,728 2,763
Furniture and fixtures 690 648
----------- ------------
12,444 14,212
Less-accumulated depreciation and amortization (7,679) (8,918)
----------- ------------
Total property and equipment, net 4,765 5,294
Capitalized software, net of accumulated amortization 578 804
Deferred income taxes, net 46 46
Other assets 158 59
----------- ------------
Total assets $33,749 $31,943
----------- ------------
----------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 3,164 $ 3,501
Accrued compensation 1,796 1,463
Income taxes payable 336 0
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Total current liabilities 5,296 4,964
Deferred lease obligations 128 130
----------- ------------
Total liabilities 5,424 5,094
Common stock, no par value; 100,000,000 shares authorized;
4,538,450 and 4,513,230 shares outstanding 23,621 23,493
Retained earnings 4,755 3,504
Unrealized holding period loss (51) (148)
----------- ------------
Total shareholders' equity 28,325 26,849
----------- ------------
Total liabilities and shareholders' equity $33,749 $31,943
----------- ------------
----------- ------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
3
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INTERPHASE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended April 30, Six Months Ended April 30,
-------------------------------- --------------------------------
1995 1994 1995 1994
---------- --------- --------- ----------
<C> <C> <S> <C> <C>
$11,473 $9,735 Revenues $22,495 $19,030
5,702 4,972 Cost of sales 11,304 9,807
---------- --------- --------- ----------
5,771 4,763 Gross profit 11,191 9,223
1,875 1,812 Research and development 3,575 4,243
2,061 1,702 Sales and marketing 3,889 3,648
1,004 968 General and administrative 2,071 2,179
-- -- Provision for strategic realignment -- 1,148
---------- --------- --------- ----------
4,940 4,482 Total operating expenses 9,535 11,218
---------- --------- --------- ----------
831 281 Operating income (loss) 1,656 (1,995)
144 60 Interest income 256 118
30 (8) Other, net 41 0
---------- --------- --------- ----------
1,005 333 Income (loss) before income taxes 1,953 (1,877)
360 114 Provision (benefit) for income taxes 702 (601)
---------- --------- --------- ----------
$645 $219 Net income (loss) $1,251 ($1,276)
---------- --------- --------- ----------
---------- --------- --------- ----------
Net income (loss) per common and
$0.13 $0.05 common equivalent share $0.25 ($0.29)
---------- --------- --------- ----------
---------- --------- --------- ----------
Weighted average common and common
4,973 4,576 equivalent shares 4,968 4,477
---------- --------- --------- ----------
---------- --------- --------- ----------
</TABLE>
4
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INTERPHASE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended April 30
---------------------------
1995 1994
------------ ------------
<S> <C> <C>
Cash flow from operating activities:
Net income (loss) $ 1,251 $ (1,276)
Adjustment to reconcile net income (loss) to net cash provided (used) by operating activities:
Provision for strategic realignment - 1,148
Depreciation and amortization 1,381 1,688
Change in assets and liabilities, excluding effect from provision for strategic realignment:
Trade accounts receivable (145) 581
Inventories (1,728) (27)
Refundable income taxes 219 (604)
Prepaid expenses and other current assets 71 (23)
Accounts payable and accrued liabilities (117) (1,630)
Accrued compensation 333 5
Income taxes payable 336 10
Deferred income taxes payable 440 -
Deferred lease obligations (2) (48)
----------- -----------
Net adjustments 788 1,100
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Net cash provided (used) by operating activities 2,039 (176)
Cash flows from investing activities:
Additions to property, equipment and leasehold improvements (737) (822)
Additions to capitalized software (109) (169)
Increase in other assets (99) (8)
Decrease (Increase) in marketable securities (84) 1,034
Change in unrealized holding period loss on marketable securities 97 -
----------- -----------
Net cash provided (used) by investing activities (932) 35
Cash flows from financing activities:
Increase in common stock 128 (46)
----------- -----------
Net cash provided (used) by financing activities 128 (46)
----------- -----------
Net increase (decrease) in cash and cash equivalents 1,235 (187)
Cash and cash equivalents at beginning of year 3,814 2,703
----------- -----------
Cash and cash equivalents at end of period $5,049 $2,516
----------- -----------
----------- -----------
Supplemental Disclosure of Cash Flow Information:
Interest paid - 5
Taxes refunded 237 -
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
5
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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 subsidiary. 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 October 31, 1994.
2. NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
Net income 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. In 1994, the impact of outstanding stock options and warrants was
antidilutive and therefore, has been excluded from the computation of net loss
per share in 1994.
Weighted average common and common equivalent shares:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
April 30, April 30,
--------------------------------------
(IN THOUSANDS) 1995 1994 1995 1994
-------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Outstanding 4,535 4,576 4,529 4.477
Stock options 438 ---- 439 ----
----- ----- ------ ------
Total 4,973 4,576 4,968 4,477
</TABLE>
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Revenues for the three months ended April 30, 1995 increased $1,738,000 or
approximately 18% to $11,473,000 as compared to $9,735,000 for the same period
in 1994. The 21% growth in networking products revenues included 53% growth in
FDDI product revenues, partially offset by a 34% decline in older ethernet
product revenues. Asynchronous Transfer Mode ("ATM") products represent the
fastest growing product line for the Company, although they comprised only
approximately 4% of total revenues for the second quarter of 1995. The company
recorded its first ATM product revenues during the second quarter of 1994. FDDI
revenues approximated 48% of total revenues in the second quarter of 1995.
Networking products in total comprised 64% of total revenue for the second
quarter of 1995, a slight increase over the same period in 1994. Mass storage
product revenues increased approximately 5% in the second quarter of 1995
compared to 1994. The growth in the mass storage product revenues is
attributable to the resurgence in SCSI adapter cards revenues, which increased
approximately 23%, and more than offset the decline in older storage product
revenues during the same period. Mass storage product revenues comprised
approximately 30% of total revenues in the second quarter of 1995 compared to
34% of total revenues in the second quarter of 1994. Geographically, domestic
revenues comprised 87% of consolidated revenues. European revenues comprised
9% of consolidated revenues in the second quarter of 1995 compared to 16% in the
second quarter of 1994.
Revenues for the six months ended April 30, 1995 increased $3,465,000 or 18% to
$22,495,000 as compared to $19,030,000 for the same period in fiscal 1994.
Revenues from networking products comprised 58% of consolidated revenue for the
six month ended April 30, 1995, as compared to 59% of consolidated revenues for
the same period in fiscal 1994. Revenue from mass storage products were
unchanged, comprising 37% for the six month ending April 30, 1995 and comprising
37% for the same period in fiscal 1994.
The gross margin percentage for the three months ended April 30, 1995 was
approximately 50% as compared to approximately 49% during the same period in
1994. The gross margin percentage for the six months ended April 30, 1995 was
approximately 50% as compared to approximately 48% during the same period in
1994. The improvement in gross margins are primarily attributable to higher
production volumes.
Operating expenses for the three months ended April 30, 1995 were $4,940,000,
representing approximately 43% of consolidated revenue, as compared to 46% for
the same period in 1994. Operating expenses increased 10% over the same
period in 1994, due primarily to additional volume related selling expenses.
Operating expenses for the six months ended April 30, 1995 were $9,535,000,
representing approximately 42% of consolidated revenue and decreased $535,000
from the same period in 1994, excluding the provision for strategic realignment
recorded in the first quarter 1994. As a percentage of revenues operating
expenses for the six months ended April 30, 1995 decreased from 53% in 1994 to
42% in 1995. The decreased spending is primarily the result of cost reduction
actions initiated in early 1994.
7
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The company reported a net income of $645,000 for the three months ended April
30, 1995 as compared to $219,000 for the same period in fiscal 1994. The
company reported a net income of $1,251,000 for the six months ended April 30,
1995 as compared to a net loss of ($1,276,000) for this same period in fiscal
1994. The increase in profitability in 1995 compared to 1994 is primarily due
to higher sales volumes, improved gross margins and lower operating expenses
relative to revenue levels. In addition, the six month ended April 30, 1994
included a before tax provision for strategic realignment of $1,148,000.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash , cash equivalents and marketable securities aggregated
$12,853,000 at April 30, 1995, $11,534,000 at October 31, 1994 and $6,977,000 at
April 30, 1994. The improvement in cash position from April 30, 1994 to April
30, 1995 is primarily the result of increased revenues and profitability since
the second quarter of 1994.
8
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On March 22, 1995, The Annual Meeting of Shareholders of Interphase Corporation
was held at the Company's office in Dallas, Texas. The following three matters
were voted upon and approved at the meeting.
MATTER 1
An election of directors of the Company to serve until the next annual meeting
for the Company was held. The following seven individuals were elected as
Directors of the Company:
Votes Cast Votes
For Withheld
Michael E. Cope 3,680,123 252,291
Dale Crane 3,682,223 250,191
Paul N. Hug 3,682,223 250,191
Robert H. Lyon 3,648,773 283,641
R. Stephen Polley 3,681,523 250,891
David H. Segrest 3,682,223 250,191
S. Thomas Thawley 3,682,123 250,291
To be elected a director each individual must have received a plurality of all
votes cast at the meeting of election of directors.
MATTER 2
Also approved at the meeting by the following vote was a proposal to amend and
restate the Company's incentive stock option plan to (i) increase the maximum
term for which options, other than incentive options granted to employees who
own in excess of 10% of the combined voting power of all classes of the
Company's stock, may be granted under the plan to ten years, (ii) allow the
grant of nonqualified stock options under the plan, (iii) change the termination
date of the plan to November 8, 2004, and (iv) change the name of the plan to
Interphase Corporation Amended and Restated Stock Option Plan.
Votes Cast Votes Cast Brocker
For Against Abstentions Non-Votes
3,437,113 445,352 7,600 42,349
Approval of the plan required the affirmative vote of the holders of a majority
of the outstanding shares of Common Stock present in person or by proxy at the
meeting.
MATTER 3
Also approved at the meeting by the following vote was a proposal to adapt a
directors stock option plan for the granting of stock options for up to 500,000
shares of Interphase Common Stock to the Board of Directors of the Company.
Votes Cast Votes Cast Brocker
For Against Abstentions Non-Votes
--------- ---------- ------------ ---------
2,608,544 465,452 8,100 850,318
Approval of the plan required the affirmative vote of the holders of a majority
of the outstanding shares of Common Stock present in person or by proxy at the
meeting.
9
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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: June 9, 1995
/s/ Robert L. Drury
Robert L. Drury
Chief Financial Officer and
Vice President Finance
(Principal Financial and
Accounting Officer)
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000728249
<NAME> INTERPHASE
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> APR-30-1995
<CASH> 5,049
<SECURITIES> 7,804
<RECEIVABLES> 6,046
<ALLOWANCES> (243)
<INVENTORY> 8,305
<CURRENT-ASSETS> 28,202
<PP&E> 12,444
<DEPRECIATION> (7,679)
<TOTAL-ASSETS> 33,749
<CURRENT-LIABILITIES> 5,296
<BONDS> 0
<COMMON> 23,621
0
0
<OTHER-SE> 4,704
<TOTAL-LIABILITY-AND-EQUITY> 33,749
<SALES> 11,473
<TOTAL-REVENUES> 11,473
<CGS> 5,702
<TOTAL-COSTS> 5,702
<OTHER-EXPENSES> 4,940
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 174
<INCOME-PRETAX> 1,005
<INCOME-TAX> 360
<INCOME-CONTINUING> 645
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 645
<EPS-PRIMARY> 0
<EPS-DILUTED> .13
</TABLE>
