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| INPH > SEC Filings for INPH > Form 10-Q on 14-May-2009 | All Recent SEC Filings |
14-May-2009
Quarterly Report
Research and Development
Our investment in the development of new products through research and
development was $2.0 million and $2.9 million for the three months ended
March 31, 2009 and 2008, respectively. The decrease in research and development
expense is primarily due to the restructuring plan we undertook in the first
quarter of 2008. See Note 7 in the Notes to Condensed Consolidated Financial
Statements for more information. The reduced headcount and facility expense
resulted in a decrease in research and development expense of approximately
$310,000, compared to the same period in the prior year. Additionally, we had a
reduction in project related research and development expenses of approximately
$240,000 compared to the first quarter of 2008. Much of our research and
development resources are located in France and as such those costs are subject
to exchange rate fluctuations with the Euro and the Dollar. The Euro was
significantly weaker against the dollar in the first quarter of 2009 compared to
the first quarter of 2008. This exchange rate fluctuation resulted in a decrease
to research and development expense of approximately $180,000 compared to the
same period in the prior year. Finally, included in research and development
expenses in the first quarter of 2008 was a charge of approximately $70,000
related to software procured for a product that was subsequently discontinued.
There was no such charge during the first quarter of 2009. As a percentage of
total revenue, research and development expense was approximately 24% in the
first quarter of 2009 compared to approximately 38% for the same period in the
prior year. The decrease in research and development costs as a percentage of
total revenue is due to research and development expense decreasing and revenues
increasing during the period.
We will continue to take steps, when appropriate, to attempt to mitigate the
impact of currency exposure by strategically acquiring foreign exchange
contracts to purchase a fixed amount of Euros on a specific date in the future
at a predetermined rate established by contract (see Item 3 - Foreign Currency
Risk). In addition to our foreign exchange contracts, our total cost of
performing research and development activities in France is reduced by the
effect of a 30% research and development tax credit offered by the French tax
administration. See Note 6 in the Notes to the Condensed Consolidated Financial
Statements for more information. We will continue to monitor the level of our
investments in research and development concurrently with actual revenue
results.
Sales and Marketing
Sales and marketing expenses were $1.5 million for both the three months ended
March 31, 2009 and 2008. As a percentage of total revenue, sales and marketing
expense was approximately 18% in the first quarter of 2009, compared to
approximately 20% for the same period in the prior year. The decrease in sales
and marketing expense as a percentage of total revenue is due to revenues
increasing while sales and marketing expense for the period remained unchanged.
We will continue to monitor the level of sales and marketing costs concurrently
with actual revenue results.
General and Administrative
General and administrative expenses were $1.2 million and $908,000 for the three
months ended March 31, 2009 and 2008, respectively. The increase in general and
administrative expense is primarily driven by an increased utilization of
outside providers for accounting, consulting, and legal services, which
accounted for approximately $175,000 of the increase. The remaining driver of
the increase relates to the funding of potential variable compensation awards
that are being accrued for as it is more likely than not that we will achieve
certain targets outlined in the variable compensation plan for 2009. As a
percentage of total revenue, general and administrative expenses were
approximately 14% in the first quarter 2009 and 12% for the same period in the
prior year. The increase in general and administrative expenses as a percentage
of total revenue is primarily due to general and administrative expenses
increasing at a higher rate than revenue for the period. We will continue to
monitor the level of general and administrative costs concurrently with actual
revenue results.
Restructuring Charge
On March 27, 2008, we adopted a plan to restructure our United States based
business operations to balance our current spending with recent revenue trends.
The primary goal of the restructuring program was to improve our ability to
invest in future business opportunities that are designed to provide us with
increased growth potential and greater revenue diversification in the coming
years and better align our skills with our future direction. Under the
restructuring plan, we reduced our workforce by 14 employees. As a result of the
restructuring program, the Company recorded a restructuring charge of $365,000,
classified as operating expense, during the first quarter of 2008. See Note 7 in
the Notes to Condensed Consolidated Financial Statements for more information.
There were no such restructuring activities during 2009.
Interest Income, Net
Interest income, net of interest expense, decreased to $100,000 for the three
months ended March 31, 2009 from $163,000 in the comparable period in the prior
year. The decrease in interest income, net for the three month period is
primarily due to lower cash and investment balances as well as lower rates of
return on our investments resulting in decreased interest income in the first
quarter of 2009 compared to the same period in 2008.
Other (Loss) Income, Net
Other loss was $3,000 for the three months ended March 31, 2009, compared to
other income of $303,000 for the three months ended March 31, 2008. The decrease
in other income for the three months ended March 31, 2009 primarily relates to
the change in market value of our foreign exchange derivative financial
instruments during the three months ended March 31, 2008 which resulted in other
income of approximately $316,000. There were no foreign exchange contracts
outstanding during the three months ended March 31, 2009. See Note 5 in the
Notes to Condensed Consolidated Financial Statements for more information on
derivative financial instruments.
Income Taxes
Our tax benefit rate was 66% for the three months ended March 31, 2009, compared
to a tax benefit rate of 37% for the three months ended March 31, 2008.
The effective tax rate differed from the U.S. statutory rate as we continued to
provide a full valuation allowance for our net deferred tax assets at March 31,
2009 and March 31, 2008. During each of the three months ended March 31, 2009
and March 31, 2008, we recorded a tax benefit related to our operations in
France. This benefit was primarily the result of a 30% research and development
tax credit.
Net Income (loss)
We reported a net income of $707,000 for the three months ended March 31, 2009
and a net loss of $528,000 for the three months ended March 31, 2008. Basic and
diluted earnings per share for the three months ended March 31, 2009 was $0.11.
Basic loss per share for the three months ended March 31, 2008 was ($0.08).
LIQUIDITY AND CAPITAL RESOURCES
Consolidated Cash Flows
Cash and cash equivalents increased approximately $70,000 for the three months
ended March 31, 2009. Cash and cash equivalents decreased approximately $568,000
for the three months ended March 31, 2008. Cash flows are impacted by operating,
investing and financing activities.
Operating Activities
Trends in cash flows from operating activities for the three months ended
March 31, 2009 and 2008 are generally similar to the trends in our earnings
except for provision for uncollectible accounts and returns, provision for
excess and obsolete inventories, depreciation and amortization, amortization of
restricted stock and write-off of impaired capitalized software. Cash used in
operating activities totaled $1.5 million for the three months ended March 31,
2009, compared to net income of $707,000. Provision for uncollectible accounts
and returns increased $46,000 for the three months ended March 31, 2009 compared
to the same period in 2008. Provision for excess and obsolete inventories
increased by $100,000 for the three months ended March 31, 2009, compared to the
same period in 2008. Depreciation and amortization decreased slightly for the
three months ended March 31, 2009, compared to the same period in 2008.
Amortization of restricted stock increased by $63,000 for the three months ended
March 31, 2009, compared to the three months ended March 31, 2008. Write-off of
impaired capitalized software decreased by $69,000 for the three months ended
March 31, 2009, compared to the same period in 2008. See Note 2 in the Notes to
Condensed Consolidated Financial Statements for more information on restricted
stock.
Changes in assets and liabilities result primarily from the timing of
production, sales, purchases and payments. Such changes in assets and
liabilities generally tend to even out over time and result in trends in cash
flows from operating activities generally reflecting earnings trends.
Investing Activities
Cash provided by investing activities totaled $1.7 million and $515,000 for the
three months ended March 31, 2009 and March 31, 2008, respectively. Cash
provided by investing activities in each of the periods related principally to
proceeds from the sale of marketable securities, disbursements for additions to
property and equipment, capitalized software and our investments in marketable
securities. Additions to property and equipment and capitalized software were
$51,000 for the three months ended March 31, 2009, compared to $141,000 for the
three months ended March 31, 2008. The additions for the three months ended
March 31, 2009 primarily related to enhancements to our enterprise performance
management system. The additions for the three months ended March 31, 2008,
primarily related to software and equipment purchases for our engineering and
manufacturing functions. Purchases of marketable securities decreased to
$2.3 million for the three months ended March 31, 2009, compared to $2.4 million
for the three months ended March 31, 2008. Proceeds from the sale of marketable
securities increased to $4.0 million for the three months ended March 31, 2009,
compared to $3.1 million for the three months ended March 31, 2008.
Financing Activities
There was no net cash provided by or used in financing activities for the three
months ended March 31, 2009. Net cash provided by financing activities totaled
$2,000 for the three months ended March 31, 2008 related to proceeds from
employees exercising stock options.
Commitments
Commitments
At March 31, 2009, we had no material commitments to purchase capital assets;
however, planned capital expenditures for the remainder of 2009 are estimated at
approximately $425,000, a significant portion of which relates to engineering
equipment and tools. The remaining planned purchases relate to enhancements to
our manufacturing and general office equipment. Our significant long-term
obligations as of March 31, 2009, are our operating leases on facilities and
future debt payments related to our credit facility. To date, we have not paid
any dividends and do not anticipate paying any dividends in 2009.
Off-Balance Sheet Arrangements
At March 31, 2009 and December 31, 2008, we did not have any off-balance sheet
arrangements including foreign exchange contracts.
Other
Management believes that cash generated from operations and borrowing
availability under the revolving credit facility, together with cash on hand,
will be sufficient to meet our liquidity needs for working capital, capital
expenditures and debt service. To the extent that our actual operating results
or other developments differ from our expectations, our liquidity could be
adversely affected.
We periodically evaluate our liquidity requirements, alternative uses of
capital, capital needs and available resources in view of, among other things,
our capital expenditure requirements and estimated future operating cash flows.
As a result of this process, we have in the past, and may in the future, seek to
raise additional capital, refinance or restructure indebtedness, issue
additional securities, repurchase shares of our common stock or take a
combination of such steps to manage our liquidity and capital resources. In the
normal course of business, we may review opportunities for acquisitions, joint
ventures or other business combinations. In the event of any such transaction,
we may consider using available cash, issuing additional equity securities or
increasing our indebtedness or our subsidiaries' indebtedness.
Management's Discussion and Analysis of Financial Condition and Results of
Operations in this Form 10-Q should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations and
other material included in the Company's Annual Report on Form 10-K for the year
ended December 31, 2008.
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