Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
INPH > SEC Filings for INPH > Form 10-Q on 9-May-2013All Recent SEC Filings

Show all filings for INTERPHASE CORP | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for INTERPHASE CORP


9-May-2013

Quarterly Report


Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

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, 2012.

FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements about the business, financial condition and prospects of the Company. These statements are made under the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. The actual results of the Company could differ materially from those indicated by the forward-looking statements because of various risks and uncertainties, including (without limitation) effects of the ongoing issues in global credit and financial markets, our reliance on a limited number of customers, the lack of spending improvements in the telecommunications and computer networking industries, significant changes in product demand, the development and introduction of new products and services, changes in competition, various inventory risks due to changes in market conditions and other risks and uncertainties indicated in Item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, 2012 and in the Company's other filings and reports with the Securities and Exchange Commission. All of the foregoing risks and uncertainties are beyond the ability of the Company to control, and in many cases, the Company cannot predict the risks and uncertainties that could cause its actual results to differ materially from those indicated by the forward-looking statements. When used in this report, the words "believes", "plans", "expects", "will", "intends," and "anticipates" and similar expressions as they relate to the Company or its management are intended to identify forward-looking statements.

RESULTS OF OPERATIONS

Revenue

Total revenue decreased 18% to $3.3 million for the three months ended March 31, 2013, compared to $4.0 million for the same period in the prior year. Our telecommunications and enterprise product revenue decreased to $2.5 million for the three months ended March 31, 2013, compared to $3.2 million in the comparable period in the prior year. This decrease was primarily driven by a telecommunications product that went end-of-life in 2012, and therefore there was no revenue from this product in the first quarter of 2013. Our services revenues decreased slightly to $722,000 for the three months ended March 31, 2013, compared to $781,000 for the same period in the previous year. These revenues were limited by an unanticipated supply chain issue related to a single-source part (see Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2012 regarding risk factors related to single-source suppliers) that impacted our ability to produce and ship a large order. However, we will be able to fulfill this order in the second quarter of 2013, and we have received a second larger order from the customer that we expect to fulfill during the second and third quarters of 2013. All other revenues decreased to $14,000, compared to $23,000 in the comparable period last year.

During the first quarter of 2013, sales to three customers individually accounted for approximately 25%, 19% and 16% of total revenues, respectively. During the first quarter of 2012, sales to two customers individually accounted for approximately 37% and 16% of total revenues, respectively. No other customers individually accounted for more than 10% of our consolidated revenues in the periods presented.

Included in accounts receivable at March 31, 2013 was $870,000, $633,000 and $256,000 due individually from three customers, respectively. Included in accounts receivable at December 31, 2012 was $721,000, $401,000, $387,000 and $312,000, due individually from four customers, respectively. No other customers individually accounted for more than 10% of our accounts receivable in the periods presented.

Gross Margin

Gross margin as a percentage of revenue was 39% and 46% for the three months ended March 31, 2013 and 2012, respectively. The decrease in gross margin percentage in the first quarter of 2013 compared to the same period in the prior year was primarily due to a revenue mix shift toward lower margin products and services and decreased utilization of our manufacturing facility.


We believe that pricing pressures in the industry and our anticipated future product mix may further reduce our gross margin percentage in future periods.

Research and Development

Our investment in research and development was $830,000 and $932,000 for the three months ended March 31, 2013 and 2012, respectively. The decrease in research and development expense was primarily due to a decrease in personnel-related expenses as a result of the 2012 restructuring plan. See Note 6 in the notes to condensed consolidated financial statements for more information on the plan. As a percentage of revenue, research and development expenses were approximately 25% in the first quarter of 2013 compared to approximately 23% for the same period in the prior year. The increase in research and development expenses as a percentage of total revenue was due to revenue decreasing at a higher rate than research and development expenses. 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 $676,000 and $914,000 for the three months ended March 31, 2013 and 2012, respectively. Approximately 65% of the decrease in sales and marketing expense was due to a decrease in personnel-related expenses. The remaining decrease in sales and marketing expense was primarily due to a decrease in marketing and tradeshow related expenses. As a percentage of revenue, sales and marketing expenses were approximately 21% for the first quarter of 2013, compared to approximately 23% for the same period in the prior year. The decrease in sales and marketing expenses as a percentage of total revenue was due to sales and marketing expenses decreasing at a higher rate than revenue. 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 $888,000 and $940,000 for the three months ended March 31, 2013 and 2012, respectively. The decrease in general and administrative expense was primarily due to a decrease in depreciation and amortization expense. As a percentage of revenue, general and administrative expenses were approximately 27% for the first quarter of 2013 and 23% for the same period in the prior year. The increase in general and administrative expenses as a percentage of total revenue was due to revenue decreasing at a higher rate than general and administrative expenses. We will continue to monitor the level of general and administrative costs concurrently with actual revenue results.

Restructuring Charge

On October 19, 2012, we committed to a plan intended to improve the balance between our telecommunications product expenses with the reduced revenue levels of this product line. Under the 2012 restructuring plan, we reduced our workforce by 10 regular full-time positions. As a result of the 2012 restructuring plan, we recorded a restructuring charge of $253,000, classified as an operating expense, in the fourth quarter of 2012 related to future cash expenditures to cover employee severance and benefits. This plan is expected to result in savings of approximately $1.0 million to $1.6 million in annualized operating costs. During the three months ended March 31, 2013, we reduced our restructuring charge by $67,000 related to reduced future cash expenditures related to severance and benefits for a former employee. The former employee's accepting other employment in April 2013 reduced the amount of severance and benefit payouts by us. The remaining liability as of March 31, 2013 will be paid out under the restructuring plan during the second quarter of 2013. See Note 6 in the notes to the consolidated financial statements for more information regarding the 2012 restructuring plan.

Other (Loss) Income, Net

Other loss, net was $341,000 for the three months ended March 31, 2013. Other income, net was $4,000 for the three months ended March 31, 2012. The loss for the three months ended March 31, 2013 was primarily related to the decision of the Labor Court of Boulogne-Billancourt, France on March 22, 2013 related to specific French employment indemnity claims of four former employees. The Court ruled in our favor regarding all other claims brought by the twenty-two former employees. See Part II, Item 1. "Legal Proceedings" below for more information.


Income Taxes

Our tax expense rate was 0.9% for the three months ended March 31, 2013, compared to a tax benefit rate of 0.4% for the three months ended March 31, 2012. The effective income tax rates for the periods presented differ from the U.S. statutory rate as we continue to provide a full valuation allowance for our net deferred tax assets at March 31, 2013 and March 31, 2012. The tax expense and benefit in the periods primarily relate to tax in a foreign jurisdiction.

Net Loss

We reported a net loss of approximately $1.4 million for the three months ended March 31, 2013 and a net loss of $929,000 for the three months ended March 31, 2012. Basic loss per share for the three months ended March 31, 2013 was ($0.20). Basic loss per share for the three months ended March 31, 2012 was ($0.13).

LIQUIDITY AND CAPITAL RESOURCES

Consolidated Cash Flows

Cash and cash equivalents decreased $158,000 from December 31, 2012 to March 31, 2013 and decreased approximately $1.2 million from December 31, 2011 to March 31, 2012. 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, 2013 and 2012 are generally similar to the trends in our earnings except for the recovery of uncollectible accounts and returns, provision for excess and obsolete inventories, depreciation and amortization and stock-based compensation expense. Cash used in operating activities totaled $459,000 for the three months ended March 31, 2013, compared to net loss of $1.4 million for that period. Recovery of uncollectible accounts and returns decreased $1,000 for the three months ended March 31, 2013 compared to the same period in 2012. Provision for excess and obsolete inventories decreased $9,000 for the three months ended March 31, 2013 compared to the same period in 2012. Depreciation and amortization decreased $78,000 for the three months ended March 31, 2013 compared to the same period in 2012. Amortization of stock-based compensation increased $54,000 for the three months ended March 31, 2013 compared to the same period in 2012.

Changes in assets and liabilities result primarily from the timing of production, sales, purchases and payments. 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 $308,000 and cash used in investing activities totaled $202,000 for the three months ended March 31, 2013 and 2012, respectively. Cash provided by or used in investing activities in each of the periods related principally to our investments in marketable securities and purchases of property and equipment and capitalized software. Additions to property and equipment and capitalized software were $15,000 for the three months ended March 31, 2013, compared to $126,000 for the three months ended March 31, 2012. The additions for the three months ended March 31, 2013 primarily related to equipment purchases for our manufacturing function. The additions for the three months ended March 31, 2012 primarily related to software and equipment purchases for penveuŽ and equipment purchases for our manufacturing function. Purchases of marketable securities were $3.5 million and $2.1 million for the three months ended March 31, 2013 and 2012, respectively. Proceeds from the sale of marketable securities increased to $3.8 million for the three months ended March 31, 2013, compared to $2.0 million for the three months ended March 31, 2012.

Financing Activities

There was no net cash provided by or used in financing activities for the three months ended March 31, 2013. Net cash provided by financing activities totaled $508,000 for the three months ended March 31, 2012, consisting solely of proceeds from the exercise of stock options.


Restructuring Charge

On October 19, 2012, we committed to a plan intended to improve the balance between our telecommunications product expenses with the reduced revenue levels of this product line. Under the 2012 restructuring plan, we reduced our workforce by 10 regular full-time positions. As a result of the 2012 restructuring plan, we recorded a restructuring charge of $253,000, classified as an operating expense, in the fourth quarter of 2012 related to future cash expenditures to cover employee severance and benefits. During the three months ended March 31, 2013, we reduced our restructuring charge by $67,000 related to reduced future cash expenditures related to severance and benefits for a former employee. The former employee's accepting other employment in April 2013 reduced the amount of severance and benefit payouts by us. The remaining liability as of March 31, 2013 will be paid out under the restructuring plan during the second quarter of 2013. The following table summarizes the timing of payments under the restructuring plan (in thousands):

                                                                         Severance & Fringe
Description                                                                   Benefits
Restructuring charge                                                    $                253
Cash payments during quarter ended December 31, 2012                                     (91 )
Reduction of restructuring charge during quarter ended March 31, 2013                    (67 )
Cash payments during quarter ended March 31, 2013                                        (72 )
Remaining liability as of March 31, 2013                                $                 23

Commitments

At March 31, 2013, we had no material commitments to purchase capital assets; however, planned capital expenditures for the remainder of 2013 are estimated at approximately $180,000, which primarily relates to manufacturing equipment. At March 31, 2013, we had $105,000 of non-cancelable purchase commitments for inventory as part of the normal course of business. Our significant long-term obligations are future debt payments, operating leases on facilities and our phone system. We have not paid any dividends since our inception and do not anticipate paying any dividends in 2013.

Other

Management believes 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 for the next twelve months. To the extent 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 the indebtedness of the Company or its subsidiaries.

Critical Accounting Policies

There have been no significant changes to our critical accounting policies from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2012.

Recently Issued Accounting Pronouncements

See Note 11 in the notes to the condensed consolidated financial statements for more information regarding recently issued accounting pronouncements, including the dates of adoption and estimated effects on our condensed consolidated financial statements.


  Add INPH to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for INPH - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial      Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.