<PAGE>
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 July 31, 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)
________________________________________________________________________________
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
________________________________________________________________________________
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 September 1, 1995
----- --------------------------------
Common Stock, No par value 4,620,860
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INTERPHASE CORPORATION
INDEX
PART I -FINANCIAL INFORMATION
ITEM 1. Colidated Interim Financial Statements
Consolidated Balance Sheets as of July 31, 1995 and
October 31,1994 3
Consolidated Statements of Operations for the three months
and nine months ended July 31, 1995 and 1994 4
Consolidated Statements of Cash Flows for the nine months ended
July 31, 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
SIGNATURE 9
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<TABLE>
<CAPTION>
INTERPHASE CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except number of shares)
ASSETS July 31, October 31,
1995 1994
------------ -----------
(Unaudited)
<S> <C> <C>
Cash and cash equivalents $2,013 $3,814
Marketable securities 9,082 7,720
Trade accounts receivable, less allowances for uncollectible
accounts of $241 and $240, respectively 7,240 5,658
Inventories, net 7,796 6,577
Refundable income taxes 219
Prepaid expenses and other current assets 976 733
Deferred income taxes, net 625 1,019
-------- --------
Total current assets 27,732 25,740
Machinery and equipment 9,568 10,801
Leasehold improvements 2,787 2,763
Furniture and fixtures 710 648
-------- -------
13,065 14,212
Less-accumulated depreciation and amortization (8,335) (8,918)
-------- --------
Total property and equipment, net 4,730 5,294
Capitalized software, net of accumulated amortization 495 804
Deferred income taxes, net 46 46
Other assets 176 59
-------- --------
Total assets $33,179 $31,943
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued liabilities $2,617 $3,501
Accrued compensation 1,251 1,463
-------- --------
Total current liabilities 3,868 4,964
Deferred lease obligations 128 130
-------- --------
Total liabilities 3,996 5,094
Common stock, no par value; 100,000,000 shares authorized;
4,560,540 and 4,513,230 shares outstanding 23,735 23,493
Retained earnings 5,499 3,504
Unrealized holding period loss (51) (148)
-------- -------
Total shareholders' equity 29,183 26,849
-------- --------
Total liabilities and shareholders' equity $33,179 $31,943
-------- --------
-------- --------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.
3
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<TABLE>
<CAPTION>
INTERPHASE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(Unaudited)
Three Months Ended July 31, Nine Months Ended July 31,
------------------------------ -----------------------------
1995 1994 1995 1994
------- ------- ------- -------
<C> <C> <S> <C> <C>
$12,356 $9,986 Revenues $34,851 $29,016
6,273 5,010 Cost of sales 17,577 14,817
------- ------- ------- -------
6,083 4,976 Gross profit 17,274 14,199
1,745 1,595 Research and development 5,320 5,838
2,343 1,903 Sales and marketing 6,233 5,551
948 905 General and administrative 3,019 3,084
- - Provision for strategic realignment - 1,148
------- ------- ------- -------
5,036 4,403 Total operating expenses 14,572 15,621
------- ------- ------- -------
1,047 573 Operating income (loss) 2,702 (1,422)
156 68 Interest income 412 187
(37) (68) Other, net 4 (69)
------ ------- ------- -------
1,166 573 Income (loss) before income taxes 3,118 (1,304)
0
421 184 Provision (benefit) for income taxes 1,123 (417)
------- ------- ------- -------
$745 $389 Net income (loss) $1,995 ($887)
------- ------- ------- -------
------- ------- ------- -------
Net income (loss) per common and
$0.14 $0.08 common equivalent share $0.38 ($0.20)
------- ------- ------- -------
------- ------- ------- -------
Weighted average common and common
5,294 4,658 equivalent shares 5,264 4,480
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.
4
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<TABLE>
<CAPTION>
INTERPHASE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Nine Months Ended July 31
-------------------------
1995 1994
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,995 $ (887)
Adjustment to reconcile net income (loss) to net cash provided (used) by operating activities:
Provision for strategic realignment - 1,148
Depreciation and amortization 2,066 2,507
Change in assets and liabilities, excluding effect from provision for strategic realignment:
Trade accounts receivable (1,582) 1,298
Inventories (1,218) 93
Refundable income taxes 219 787
Prepaid expenses and other current assets (244) 127
Accounts payable and accrued liabilities (582) (1,769)
Accrued compensation (212) (521)
Deferred income taxes payable 394 (29)
Deferred lease obligations (2) 19
-------- -------
Net adjustments (1,161) 3,660
-------- -------
Net cash provided (used) by operating activities 834 2,773
Cash flows from investing activities:
Additions to property, equipment and leasehold improvements (1,356) (924)
Additions to capitalized software (139) (250)
Decrease (Increase) in other assets (117) 21
Decrease (Increase) in marketable securities (1,362) (339)
Change in unrealized holding period loss on marketable securities 97 -
-------- -------
Net cash provided (used) by investing activities (2,877) (1,492)
Cash flows from financing activities:
Principal payments on capital lease obligations - (90)
Increase in common stock 242 39
------- -------
Net cash provided (used) by financing activities 242 (51)
------- -------
Net increase (decrease) in cash and cash equivalents (1,801) 1,230
Cash and cash equivalents at beginning of year 3,814 2,703
------- -------
Cash and cash equivalents at end of period $ 2,013 $ 3,933
------- -------
------- -------
Supplemental Disclosure of Cash Flow Information
Interest paid - 5
Taxes refunded 237 -
Taxes paid 1,013 -
</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 Nine Months Ended
July 31, July 31,
-----------------------------------------
<S> <C> <C> <C> <C>
(IN THOUSANDS) 1995 1994 1995 1994
---- ----- ----- ----
Outstanding 4,550 4,658 4,536 4.480
Stock options 744 ---- 728 ----
----- ----- ----- -----
Total 5,294 4,658 5,264 4,480
----- ----- ----- -----
</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 July 31, 1995 increased $2,370,000 or
approximately 24% to $12,356,000 as compared to $9,986,000 for the same period
in 1994. Networking products represented a growth of 24% over the same period
in 1994. Which consisted of a 33% growth in FDDI product revenues, partially
offset by a 18% decline in older ethernet product revenues. Asynchronous
Transfer Mode ("ATM") products continued to grow as compared to the respective
quarter in 1994, and comprised approximately 4% of total revenues for the third
quarter of 1995. FDDI revenues approximated 46% of total revenues in the third
quarter of 1995. Networking products in total comprised 62% of total revenue
for the third quarter of 1995. Mass storage product revenues increased
approximately 21% in the third quarter of 1995 compared to 1994. The growth in
the mass storage product revenues is attributable to the increase in SCSI
adapter cards revenues, which increased approximately 32%, and more than offset
the decline in older storage product revenues during the same period. Mass
storage product revenues comprised approximately 34% of total revenues in the
third quarter of 1995, compared to 35% of total revenues in the third quarter of
1994. Geographically, domestic revenues comprised 89% of consolidated revenues.
European revenues comprised 7% of consolidated revenues in the third quarter of
1995 compared to 10% in the third quarter of 1994.
Revenues for the nine months ended July 31, 1995 increased $5,835,000 or 20% to
$34,851,000 as compared to $29,016,000 for the same period in fiscal 1994.
Revenues from networking products comprised 59% of consolidated revenue for the
nine months ended July 31, 1995, as compared to 60% of consolidated revenues for
the same period in fiscal 1994. Revenue from mass storage products were
unchanged, comprising 36% for the nine months ending July 31, 1995 and
comprising 36% for the same period in fiscal 1994.
The gross margin percentage for the three months ended July 31, 1995 was
approximately 49% as compared to approximately 50% during the same period in
1994. The gross margin percentage for the nine months ended July 31, 1995 was
approximately 50% as compared to approximately 49% during the same period in
1994.
Operating expenses for the three months ended July 31, 1995 were $5,036,000,
representing approximately 41% of consolidated revenue, as compared to 44% for
the same period in 1994. Operating expenses increased 14% over the same
period in 1994, due primarily to expenses associated with reorganizing the
European operations, volume related selling expenses and incremental development
engineering expenses. Operating expenses for the nine months ended July 31,
1995 were $14,572,000, representing approximately 42% of consolidated
revenue excluding the provision for strategic realignment recorded in the
first quarter 1994, and increased $99,000 from the same period in 1994. As a
percentage of revenues operating expenses for the nine months ended July 31,
1995 decreased from 54% in 1994 to 42% in 1995. The decreased spending
relative to sales is primarily the result of cost reduction actions initiated
in early 1994 and management's continued focus on controlling operating
expenses.
The company reported a net income of $745,000 for the three months ended July
31, 1995 as compared to $389,000 for the same period in fiscal 1994. The
company reported a net income of $1,995,000 for the nine months ended July 31,
1995 as compared to a net loss of ($887,000) for this same period in fiscal
1994. The increase in profitability in 1995 compared to 1994 is primarily due
to higher sales volumes and lower operating expenses relative to revenue
levels. In addition, the nine month ended July 31, 1994 included a before tax
provision for strategic realignment of $1,148,000.
7
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LIQUIDITY AND CAPITAL RESOURCES
The Company's cash , cash equivalents and marketable securities aggregated
$11,095,000 at July 31, 1995, $11,534,000 at October 31, 1994 and $9,860,000 at
July 31, 1994. The improvement in cash position from July 31, 1994 to July 31,
1995 is primarily the result of increased profitability since the third quarter
of 1994. The company expects that its cash, cash equivalents and marketable
securities will be adequate to meet foreseeable needs for the next 12 months.
8
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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: September 12, 1995
/s/ Robert L. Drury
---------------------------
Robert L. Drury
Chief Financial Officer and
Vice President Finance
(Principal Financial and
Accounting Officer)
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> MAY-01-1995
<PERIOD-END> JUL-31-1995
<CASH> 2,013
<SECURITIES> 9,082
<RECEIVABLES> 7,481
<ALLOWANCES> (241)
<INVENTORY> 7,796
<CURRENT-ASSETS> 27,732
<PP&E> 13,065
<DEPRECIATION> (8,335)
<TOTAL-ASSETS> 33,179
<CURRENT-LIABILITIES> 3,868
<BONDS> 0
<COMMON> 23,735
0
0
<OTHER-SE> 5,448
<TOTAL-LIABILITY-AND-EQUITY> 33,179
<SALES> 34,851
<TOTAL-REVENUES> 34,851
<CGS> 17,577
<TOTAL-COSTS> 17,577
<OTHER-EXPENSES> 14,572
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,118
<INCOME-TAX> 1,123
<INCOME-CONTINUING> 1,995
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,995
<EPS-PRIMARY> 0
<EPS-DILUTED> .38
</TABLE>
