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Thursday October 19, 4:32 pm Eastern Time
Press Release
Interphase Announces 3rd Quarter 2000 Results
Company Posts 12th Straight Profitable Quarter
DALLAS--(BUSINESS WIRE)--Oct. 19, 2000--Interphase Corporation (Nasdaq:INPH - news), an international supplier of next generation networking technologies, today reported financial results for its third quarter 2000.
Revenues for the third quarter were $13.3 million versus $20.5 million in the prior year`s quarter. Net income was $373,000, or $.06 per share, versus $1,278,000, or $.20 per share in the prior year. For the nine months ended September 30, 2000, net profits are up from the prior year. Interphase recorded revenues of $40.2 million, compared with revenues of $55.3 million during the first nine months of 1999. The company reported net income of $2,363,000 or $.38 per share for the nine-month period during 2000, compared with net income of $2,222,000, or $.37 per share, for the first nine months of 1999.
``While net income and earnings per share have increased over 1999 results, our revenue is down from the prior year`s third quarter,`` said Steve Kovac, Interphase Chief Financial Officer. ``The third quarter of 1999 was a historical high for Interphase, when a single customer accounted for over 50% of the Company`s revenues. In 2000, the revenue and customer base has been diversified, thus reducing our dependence on a single customer. Revenues from other customers grew 31% from the 1999 third quarter.``
The company`s gross margin increased to 53% from 48% in the third quarter of the prior year. Operating expenses were $6.4 million versus $7.1 million, a 10% decrease from the third quarter of 1999. The cash and marketable securities position at the end of the quarter was at an all time high of $20.8 million.
``In the third quarter we began shipping our new family of Fibre Channel HBA products, and landed our first major new OEM account. In addition, key equipment providers designing next generation Internet and wireless communication systems have embraced our Broadband telecommunication controllers with overwhelming enthusiasm. We have delivered our twelfth straight profitable quarter while continuing to build the foundation of our future,`` said Greg Kalush, Interphase president and CEO.
About Interphase Corporation
Interphase Corporation (Nasdaq:INPH - news), a leader in Fibre Channel and next-generation telecommunication technologies, designs and delivers high performance connectivity adapters for computer and telecommunication networks. The company`s products connect computer and telecommunication servers to storage area networks (SAN), wide area networks (WAN) and local area networks (LAN) utilizing Fibre Channel, Asynchronous Transfer Mode (ATM), SS7, Frame Relay and ISDN technologies. Headquartered in Dallas, with offices in Austin, Paris, London, and Bangkok, Interphase 1999 revenues were $73.5 million. Clients include Hewlett Packard, IBM, Compaq/Tandem, Motorola, Sun Microsystems, Lockheed Martin, and Raytheon. Additional information about Interphase and its products is available through the company`s web site at http://www.iphase.com.
Safe Harbor Statement
This press release contains forward-looking statements with respect to financial results and certain other matters. These statements are made under the ``safe harbor`` provisions of the Private Securities Litigation Reform Act of 1995 and involve a number of risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Such risks and uncertainties include, without limitation, fluctuations in demand, the quality and price of similar or comparable networking products, access to sources of capital, general economic conditions in the company`s market areas, and that future sales and growth rates for the industry and the company could be lower than anticipated.
The Interphase logo is a registered trademark of Interphase Corporation.
Interphase Corporation
Condensed Consolidated Statement of Operations
(amounts in thousands, except per-share amounts)
Three Months Ended Nine Months Ended
Sep. 30, Sep. 30,
2000 1999 2000 1999
------ ------- ------- -------
Revenues $13,260 $20,511 $40,177 $55,337
Pre-tax income 675 2,387 3,078 4,983
Net Income 373 1,278 2,363 2,222
Net income per common and common
equivalent share (diluted) 0.06 0.20 0.38 0.37
Weighted average common and
common equivalent shares
outstanding 6,278 6,288 6,292 5,984
Selected Condensed Balance Sheet Information
(amounts in thousands)
30-Sep-00 31-Dec-99
---------- ----------
Cash and Marketable securities $ 20,841 $ 16,276
Accounts receivable 10,290 14,005
Inventory 13,286 11,678
Net property, plant and equipment 2,009 2,197
Total Assets 54,936 54,671
Total Liabilities 13,367 14,536
Redeemable stock 2,034 2,796
Total stockholders` equity 39,535 37,339
--------------------------------------------------------------------------------
Press Release
Interphase Announces 3rd Quarter 2000 Results
Company Posts 12th Straight Profitable Quarter
DALLAS--(BUSINESS WIRE)--Oct. 19, 2000--Interphase Corporation (Nasdaq:INPH - news), an international supplier of next generation networking technologies, today reported financial results for its third quarter 2000.
Revenues for the third quarter were $13.3 million versus $20.5 million in the prior year`s quarter. Net income was $373,000, or $.06 per share, versus $1,278,000, or $.20 per share in the prior year. For the nine months ended September 30, 2000, net profits are up from the prior year. Interphase recorded revenues of $40.2 million, compared with revenues of $55.3 million during the first nine months of 1999. The company reported net income of $2,363,000 or $.38 per share for the nine-month period during 2000, compared with net income of $2,222,000, or $.37 per share, for the first nine months of 1999.
``While net income and earnings per share have increased over 1999 results, our revenue is down from the prior year`s third quarter,`` said Steve Kovac, Interphase Chief Financial Officer. ``The third quarter of 1999 was a historical high for Interphase, when a single customer accounted for over 50% of the Company`s revenues. In 2000, the revenue and customer base has been diversified, thus reducing our dependence on a single customer. Revenues from other customers grew 31% from the 1999 third quarter.``
The company`s gross margin increased to 53% from 48% in the third quarter of the prior year. Operating expenses were $6.4 million versus $7.1 million, a 10% decrease from the third quarter of 1999. The cash and marketable securities position at the end of the quarter was at an all time high of $20.8 million.
``In the third quarter we began shipping our new family of Fibre Channel HBA products, and landed our first major new OEM account. In addition, key equipment providers designing next generation Internet and wireless communication systems have embraced our Broadband telecommunication controllers with overwhelming enthusiasm. We have delivered our twelfth straight profitable quarter while continuing to build the foundation of our future,`` said Greg Kalush, Interphase president and CEO.
About Interphase Corporation
Interphase Corporation (Nasdaq:INPH - news), a leader in Fibre Channel and next-generation telecommunication technologies, designs and delivers high performance connectivity adapters for computer and telecommunication networks. The company`s products connect computer and telecommunication servers to storage area networks (SAN), wide area networks (WAN) and local area networks (LAN) utilizing Fibre Channel, Asynchronous Transfer Mode (ATM), SS7, Frame Relay and ISDN technologies. Headquartered in Dallas, with offices in Austin, Paris, London, and Bangkok, Interphase 1999 revenues were $73.5 million. Clients include Hewlett Packard, IBM, Compaq/Tandem, Motorola, Sun Microsystems, Lockheed Martin, and Raytheon. Additional information about Interphase and its products is available through the company`s web site at http://www.iphase.com.
Safe Harbor Statement
This press release contains forward-looking statements with respect to financial results and certain other matters. These statements are made under the ``safe harbor`` provisions of the Private Securities Litigation Reform Act of 1995 and involve a number of risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Such risks and uncertainties include, without limitation, fluctuations in demand, the quality and price of similar or comparable networking products, access to sources of capital, general economic conditions in the company`s market areas, and that future sales and growth rates for the industry and the company could be lower than anticipated.
The Interphase logo is a registered trademark of Interphase Corporation.
Interphase Corporation
Condensed Consolidated Statement of Operations
(amounts in thousands, except per-share amounts)
Three Months Ended Nine Months Ended
Sep. 30, Sep. 30,
2000 1999 2000 1999
------ ------- ------- -------
Revenues $13,260 $20,511 $40,177 $55,337
Pre-tax income 675 2,387 3,078 4,983
Net Income 373 1,278 2,363 2,222
Net income per common and common
equivalent share (diluted) 0.06 0.20 0.38 0.37
Weighted average common and
common equivalent shares
outstanding 6,278 6,288 6,292 5,984
Selected Condensed Balance Sheet Information
(amounts in thousands)
30-Sep-00 31-Dec-99
---------- ----------
Cash and Marketable securities $ 20,841 $ 16,276
Accounts receivable 10,290 14,005
Inventory 13,286 11,678
Net property, plant and equipment 2,009 2,197
Total Assets 54,936 54,671
Total Liabilities 13,367 14,536
Redeemable stock 2,034 2,796
Total stockholders` equity 39,535 37,339
--------------------------------------------------------------------------------
Nachbörslich in den USA auf 9 1/8 na vielen Dank.
Hallo zusammen,
vielleicht hat der Kursanstieg damit zu tun:Quarterly Report(SEC form 10-Q).Nachzulesen auf Yahoo finance.
ca.biz.yahoo.com/e/1113/inph.html.
vielleicht hat der Kursanstieg damit zu tun:Quarterly Report(SEC form 10-Q).Nachzulesen auf Yahoo finance.
ca.biz.yahoo.com/e/1113/inph.html.
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 2000 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)-654-5000
(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 a much 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 November 1, 2000
---------------------------- -----------------------------
Common Stock, $.10 par value 5,801,081
INTERPHASE CORPORATION
INDEX
Part I -Financial Information
Item 1. Consolidated Interim Financial Statements
Consolidated Balance Sheets as of September 30, 2000
and December 31, 1999 3
Consolidated Statements of Operations for the three
months and nine months ended September 30, 2000 and 1999 4
Consolidated Statements of Cash Flows for the nine
months ended September 30, 2000 and 1999 5
Notes to Consolidated Interim Financial Statements 6
Item 2. Management`s Discussion and Analysis of
Financial Condition and Results of Operations 10
Part II- Other Information
Item 6. Reports on Form 8-K and Exhibits 13
Signature 13
INTERPHASE CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except number of share data) (unaudited)
Sep. 30, Dec. 31,
ASSETS 2000 1999
----------------------
Cash and cash equivalents $ 13,593 $ 10,988
Marketable securities 7,248 5,288
Trade accounts receivable, less allowances
for uncollectible accounts of $319 and
$260, respectively 10,290 14,005
Inventories, net 13,286 11,678
Prepaid expenses and other current assets 629 1,383
Deferred income taxes, net 1,075 774
----------------------
Total current assets 46,121 44,116
----------------------
Machinery and equipment 9,790 9,149
Leasehold improvements 2,950 2,907
Furniture and fixtures 500 475
----------------------
13,240 12,531
Less-accumulated depreciation and amortization (11,231) (10,334)
----------------------
Total property and equipment, net 2,009 2,197
Capitalized software, net 576 684
Deferred income taxes, net 1,458 1,458
Acquired developed technology, net 1,830 2,280
Goodwill, net 2,650 2,830
Other assets 292 1,106
----------------------
Total assets $ 54,936 $ 54,671
======================
LIABILITIES AND SHAREHOLDERS` EQUITY
Accounts payable $ 1,086 $ 2,129
Accrued liabilities 4,368 2,156
Accrued compensation 1,350 2,131
Income taxes payable 852 754
Current portion of debt 2,192 2,202
----------------------
Total current liabilities 9,848 9,372
Long term debt 3,519 5,164
----------------------
Total liabilities 13,367 14,536
Commitments and contingencies
Common stock redeemable; 325,331 and 447,332
shares, respectively 2,034 2,796
SHAREHOLDERS` EQUITY
Common stock, $.10 par value; 100,000,000 shares
authorized; 5,475,350 and 5,391,296 shares
issued and outstanding, respectively 547 539
Additional paid in capital 36,621 35,998
Retained earnings 2,570 207
Cumulative other comprehensive income (203) 595
----------------------
Total shareholders` equity 39,535 37,339
----------------------
Total liabilities and shareholders` equity $ 54,936 $ 54,671
======================
The accompanying notes are an integral part of these consolidated financial
statements.
INTERPHASE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except
per share amounts)
(unaudited)
Three Months Ended Nine Months Ended
Sep 30, Sep 30,
--------------------- --------------------
2000 1999 2000 1999
--------------------- --------------------
$ 13,260 $ 20,511 Revenues $ 40,177 $ 55,337
6,193 10,666 Cost of sales 18,349 29,401
--------------------- --------------------
7,067 9,845 Gross profit 21,828 25,936
2,694 2,590 Research and development 7,764 7,892
2,612 2,850 Sales and marketing 8,063 7,814
1,051 1,673 General and administrative 3,258 4,278
--------------------- --------------------
6,357 7,113 Total operating expenses 19,085 19,984
--------------------- --------------------
710 2,732 Operating income 2,743 5,952
--------------------- --------------------
287 114 Interest income 755 309
(155) (235) Interest expense (422) (604)
(167) (224) Other, net 2 (674)
--------------------- --------------------
Income from continuing
675 2,387 operations before income taxes 3,078 4,983
302 997 Provision for income taxes 1,286 1,894
--------------------- --------------------
Income from continuing
373 1,390 operations 1,792 3,089
--------------------- --------------------
Discontinued Operations
Gain on disposal of VOIP
- 140 business, net of tax 571 326
Operating losses from VOIP
- (252) business, net of tax - (1,193)
--------------------- --------------------
$ 373 $ 1,278 Net income $ 2,363 $ 2,222
===================== ====================
Income from continuing
operations per share
$ 0.06 $ 0.24 Basic EPS $ 0.31 $ 0.56
--------------------- --------------------
$ 0.06 $ 0.22 Diluted EPS $ 0.28 $ 0.52
--------------------- --------------------
Net income per share
$ 0.06 $ 0.22 Basic EPS $ 0.41 $ 0.40
--------------------- --------------------
$ 0.06 $ 0.20 Diluted EPS $ 0.38 $ 0.37
--------------------- --------------------
5,805 5,709 Weighted average common shares 5,817 5,522
--------------------- --------------------
Weighted average common and
6,278 6,288 dilutive shares 6,292 5,984
--------------------- --------------------
The accompanying notes are an integral part of these
consolidated financial statements.
INTERPHASE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited) Nine Months ended Sep. 30,
--------------------------
2000 1999
----------------------
Cash flow from operating activities:
Income from continuing operations $ 1,792 $ 3,089
Gain on disposal of VOIP business 571 326
Operating loss from VOIP business - (1,193)
Adjustment to reconcile income from continuing
operations to net cash provided by operating
activities:
Depreciation and amortization 1,941 2,940
Deferred income tax benefit (301) -
Change in assets and liabilities:
Trade accounts receivable 3,715 (740)
Inventories (1,608) (1,500)
Prepaid expenses and other current assets 754 (56)
Accounts payable and accrued liabilities 1,169 70
Accrued compensation (781) 366
Income taxes payable 98 (183)
----------------------
Net adjustments 4,987 897
----------------------
Net cash provided by operating activities 7,350 3,119
Cash flows from investing activities:
Additions to property, equipment, leasehold
improvements and capitalized software (1,015) (1,748)
Decrease in other assets 814 253
Cash received in sale of VOIP - 600
Increase in marketable securities (1,960) (401)
----------------------
Net cash used by investing activities (2,161) (1,296)
Cash flows from financing activities:
Payments on debt (1,655) (1,693)
Change in comprehensive income (798) (104)
Purchase of redeemable common stock (762) (763)
Proceeds from the exercise of stock options 631 3,258
----------------------
Net cash (used) provided by financing activities (2,584) 698
----------------------
Net increase in cash and cash equivalents 2,605 2,521
Cash and cash equivalents at beginning of period 10,988 4,531
----------------------
Cash and cash equivalents at end of period $ 13,593 $ 7,052
======================
Supplemental Disclosure of Cash Flow Information:
Income taxes paid $ 1,539 $ 16
Interest paid $ 468 $ 531
The accompanying notes are an integral part of these
consolidated financial statements.
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 subsidiaries (the "Company"). Significant intercompany accounts and transactions have been eliminated.
The Company has completed the sale of its Voice over Internet Protocol ("VOIP") businesses; accordingly, the Company`s Consolidated financial statements and notes included herein, for all periods presented reflect the VOIP business as discontinued operations in accordance with Accounting Principles Board Opinion No. 30. See further discussion of sale in Footnote 6.
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 December 31, 1999.
2. NET INCOME PER COMMON AND COMMON DILUTIVE SHARE
The following table shows the calculations of the Company`s weighted average
common and dilutive equivalent shares outstanding (in thousands):
Three months ended Nine months ended
Sep. 30, Sep. 30,
------------------ ----------------
2000 1999 2000 1999
--------------------------------------
Weighted average shares outstanding 5,805 5,709 5,817 5,522
Dilutive impact of stock options 473 579 475 462
--------------------------------------
Total weighted average common and
common equivalent shares outstanding 6,278 6,288 6,292 5,984
--------------------------------------
Anti-dilutive weighted shares
excluded from shares outstanding 378 - 289 48
--------------------------------------------------------------------------------
3. CREDIT FACILITY
The Company maintains a credit facility with BankOne Texas NA that consists of an $8,500,000 acquisition term loan, a $2,500,000 equipment financing facility and a $5,000,000 revolving credit facility. The facility is a two-year facility with an annual renewal provision, and bears interest at the bank`s base rate (currently 8.5%). The term loan is payable in equal quarterly installments of $548,000 plus accrued interest with final payment due November 30, 2001. The Company has the ability to satisfy the quarterly payments on the term notes through borrowings under the revolving credit component of the credit facility. The revolving portion of the loan has been renewed and is due June 30, 2002. Marketable securities, accounts receivable and equipment collateralize the credit facility. The credit facility includes certain restrictive financial covenants including, among others, tangible net worth, total liabilities to tangible net worth, interest coverage, quick ratio, debt service coverage, and is subject to a borrowing base calculation. At September 30, 2000, the Company had borrowings of $5,711,000 and availability under the revolving credit facility was $1,500,000.
4. COMPREHENSIVE INCOME
The following table shows the Company`s comprehensive income (in thousands):
Three months ended Nine months ended
Sep. 30, Sep. 30,
------------------ ----------------
2000 1999 2000 1999
--------------------------------------
Net income $ 373 $ 1,278 $ 2,363 $ 2,222
Other comprehensive income
Unrealized holding gains (losses) 128 12 (581) (65)
arising during period, net of tax
Foreign currency translation
adjustment (135) 42 (217) (39)
--------------------------------------
Comprehensive income $ 366 $ 1,332 $ 1,565 $ 2,118
======================================
5. STOCK REPURCHASE
Effective October 1998, the Company approved a stock repurchase agreement with Motorola, Inc. to purchase all of the shares owned by Motorola for $4,125,000, ratably from October 1998 to July 2002. Under the terms of the agreement, Motorola retains the right as an equity owner and has assigned its voting rights to the Company. The Company plans to cancel the stock upon each repurchase. Prior to the repurchase agreement, Motorola owned approximately 12% of the Company`s outstanding common stock. The future scheduled payments are classified as redeemable common stock in the accompanying consolidated Balance Sheet. As of September 30, 2000, 334,669 shares have been repurchased for $2,091,681 and retired.
--------------------------------------------------------------------------------
6. DISPOSITION OF ASSETS
In June 1999, the Company sold an 80% interest in part of its VOIP business, Quescom, for $1,172,000 to the former owner of Interphase`s Paris Operation. The sales proceeds consisted of $300,000 due at closing with a $830,000 technology license fee. In January 2000, the remaining $830,000 due for the technology license fee was collected and recorded as a gain on disposal of discontinued operations. In addition, the Company sold the remainder of its 20% interest in Quescom for $400,000, resulting in a gain of $91,000.
In September 1999, the Company sold the remainder of its VOIP business, Zirca Corporation ("Zirca") along with the technologies developed by Zirca for $300,000 cash and stock valued at $517,680 to UniView Technologies, resulting in a gain of $140,000, net of $86,000 tax. The UniView securities received as part of the agreement are included on the Balance Sheet in Marketable Securities, and accounted for as available-for-sale securities.
During the first quarter of 2000, the Company completed the sale of its VOIP business; accordingly the Company`s consolidated financial statements and notes included herein, for all periods presented reflect the VOIP business as a discontinued operation in accordance with Accounting Principles Board Opinion No. 30. The following are the results of operations for the discontinued operations for the periods presented: (in thousands)
Three months ended Nine months ended
Sep. 30, Sep. 30,
------------------ ----------------
2000 1999 2000 1999
--------------------------------------
Gain (loss) from Discontinued
operations before tax - $ (406) $ 921 $ (1,924)
Income tax provision (benefit) - (154) 350 (731)
--------------------------------------
Net gain (loss) from discontinued
operations - $ (252) $ 571 $ (1,193)
======================================
--------------------------------------------------------------------------------
7. SEGMENT DATA
Revenue related to North America and other foreign countries for the three
month and nine month period ended September 30, 2000 and 1999 are as
follows. (in thousands)
Three months ended Sep. 30: Nine months ended Sep. 30:
Revenue 2000 1999 2000 1999
-------------------------------------------------
North America $ 11,005 $ 17,990 $ 33,552 $ 45,211
Europe 1,253 1,426 4,612 8,551
Pac Rim 1,002 1,095 2,013 1,575
-------------------------------------------------
Total $ 13,260 $ 20,511 $ 40,177 $ 55,337
=================================================
Long lived assets related to North America and other foreign countries as of September 30, 2000 and December 31, 1999 are as follows. (in thousands)
Long lived assets Sep. 30, 2000 Dec. 31, 1999
North America $ 2,383 $ 2,658
Europe 202 223
Pacific Rim - -
-----------------------
Total $ 2,585 $ 2,881
=======================
8. SHAREHOLDERS` EQUITY
At the annual meeting of Shareholders on May 3, 2000, the Shareholders of the Company ratified and approved an amendment to the Company`s Articles of Incorporation to change the par value of the Company`s Common Stock from no par value to a par value of $.10 per share. As such, the financial statements have been changed to reflect this amendment for all periods presented.
9. RECENTLY ISSUED ACCOUNTING POLICIES
In June 1998, the Financial Accounting Standards Board, issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 establishes new standards of accounting and reporting for derivative instruments and hedging activities. SFAS 133 requires that all derivatives be recognized at fair value in the balance sheet, and the corresponding gains or losses be reported either in the statement of operations or as a components of comprehensive income, depending on the type of hedge relationship that exists. SFAS 133 as amended by SFAS 137 will be effective for fiscal years beginning after June 15, 2000. The Company does not expect SFAS 133 to have a material effect on our financial position or results of operations.
--------------------------------------------------------------------------------
In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements." SAB 101 provides guidance on applying generally accepted accounting principles to revenue recognition issues in financial statements. The Company will adopt SAB 101 as required in the fourth quarter of fiscal 2000. The Company believes that SAB 101 will not have a significant effect on its consolidated financial position or results of operations
Item 2. MANAGEMENT`S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
During the first quarter 2000, the Company completed the sale of its VOIP business; accordingly the Company`s consolidated financial statements and notes included herein, for all periods presented reflect the VOIP business as a discontinued operation in accordance with Accounting Principles Board Opinion No. 30.
Revenue from product sales is recorded when the earnings process has been completed, as evidenced by a delivery, a fixed and determinable price and when collectibility is reasonably assured.
Revenues for the three months ended September 30, 2000 ("third quarter 2000") were $13,260,000. Revenues for the same period in 1999 ("comparative period") were $20,511,000. While the Company`s Storage product revenues have declined in the third quarter of 2000 as compared to the comparative period, the Networking product revenues and Broadband Telecommunication controller revenues have increased. The decrease in revenue is primarily attributable to the effects of the transitional period where the Company is refocusing its efforts on its new Fibre Channel and Broadband Telecommunication controller products. In addition, the Company developed a strategy to end-of-life many of its legacy products, which began in the second quarter 2000. Further more, 44% of the revenues for the comparable period were from Hewlett Packard`s purchase of a Fiber Channel card, that the Company announced in December 1999 would be going away by the end of 1999.
Networking product revenues, consisting of FDDI, Ethernet, ATM, Fast Ethernet and WAN, represented 56% of total revenues for the third quarter 2000, as compared to 31% for the comparative period. FDDI product revenues increased 119%, Ethernet product revenues decreased 100%, ATM product revenues decreased 15%, Fast Ethernet product revenues declined 44%, and WAN product revenues decreased 37% as compared to the comparative period. FDDI, Ethernet, ATM, Fast Ethernet and WAN product revenues represented 39%, 0%, 6%, 9% and 2% of total Networking revenues, respectively for the third quarter 2000.
Mass storage product revenues, consisting of SCSI and Fibre Channel adapter cards, represented 27% of total revenues for the third quarter 2000, as compared to 62% for the comparative period. SCSI product revenues increased 147% while Fibre Channel product revenues decreased 79% over the comparative period.
Broadband telecommunication controller revenues represented 14% of total revenues for the third quarter 2000, as compared to 6% for the comparative period. Broadband telecommunication controller revenues grew 58% from the comparative period.
--------------------------------------------------------------------------------
Revenues for the nine-month period ended September 30, 2000 were $40,177,000 as compared to $55,337,000 for the nine-month period ended September 30, 1999. Revenues from Networking LAN, Mass storage, Networking Broadband Telecommunication controller and Networking WAN were 36%, 40%, 18%, and 3% of total revenues respectively, for the nine-month period ended September 30, 2000.
The Company will continue to focus on revenues from Fibre Channel adapter and Broadband Telecommunication controller products, which are expected to offset revenue declines in older technologies such as FDDI and Ethernet.
One customer accounted for 11% and 56% of the Company`s revenue in the third quarter of 2000 and 1999, respectively.
The gross margin percentage for the third quarter 2000 was 53% and 48% for the comparative period. The gross margin percentage for the nine-month period ended September 30, 2000 and 1999 was 54% and 47% respectively. The increase in gross margin is primarily due to a continued focus on product cost improvements, selling a higher percentage of products with a greater gross margin than the comparative period, and a reduction in product sales to certain OEM`s at a lower gross margin related to volume discounts. Since the Company is in a migration of older products to new Fibre Channel and Broadband Telecommunication controller products, the gross margin is expected to be between 48% to 50% in subsequent quarters, as these new products are expected to be priced competitively.
Operating expenses for the third quarter 2000 were $6,357,000 as compared to $7,113,000 for the comparative period. Operating expenses for the nine-month period ended September 30, 2000 and 1999 were $19,085,000 and $19,984,000 respectively. Operating expenses have decreased slightly compared to a year ago, with an increase in sales and marketing activities, offset by decreases in general and administrative expenses. Operating expenses are expected to remain consistent as a percentage of revenues.
Interest income increased during the third quarter 2000 as compared to the comparative period, attributable to an increase in interest income earned on larger cash balances deposited in interest bearing accounts.
Interest expense decreased during the third quarter 2000 as compared to the comparative period, attributable to a continued reduction of interest bearing debt.
Other income increased $676,000 for the nine-month period ending September 30, 2000, primarily as a result of a hedging transaction on certain marketable securities received in the sale of the Company`s VOIP business. As of June 30, 2000 these hedging transactions resulted in a gain of approximately $613,000.
LIQUIDITY AND CAPITAL RESOURCES
The Company`s cash, cash equivalents and marketable securities aggregated $20,841,000 at September 30, 2000, and $16,276,000 at December 31, 1999. The Company`s increased cash position is primarily due to the collection of cash related to the disposition of Quescom (see note 6), and the collection of accounts receivable, offset by the purchase of inventory, fixed assets, payment on debt, tax payments and purchase of common stock. In the next twelve months, scheduled debt payments on the Company`s credit facility are approximately $2,192,000.
--------------------------------------------------------------------------------
Effective October 1998, the Company approved a stock repurchase agreement with Motorola, Inc. to purchase all of the shares owned by Motorola for $4,125,000, ratably from October 1998 to July 2002. Under the terms of the agreement, Motorola retains the right as an equity owner and has assigned its voting rights to the Company. The Company plans to cancel the stock upon each repurchase. Prior to the repurchase agreement, Motorola owned approximately 12% of the Company`s outstanding common stock. The future scheduled payments are classified as redeemable common stock in the accompanying consolidated Balance Sheet. As of September 30, 2000, 334,669 shares have been repurchased for $2,091,681 and retired.
The Company expects that its cash, cash equivalents, marketable securities and proceeds from its credit facility will be adequate to meet foreseeable cash needs for the next 12 months.
PART II
OTHER INFORMATION
Item 6. Reports on form 8-K
None
Exhibits
Exhibit 27 Financial Data Schedule
--------------------------------------------------------------------------------
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: November 13, 2000
/s/ Steven P. Kovac
------------------------------
Steven P. Kovac
Chief Financial Officer,
Vice President of Finance and
Treasurer
(Principal Financial and
Accounting Officer)
--------------------------------------------------------------------------------
ARTICLE 5
MULTIPLIER: 1,000
PERIOD TYPE 9 MOS
FISCAL YEAR END DEC 31 2000
PERIOD END SEP 30 2000
CASH 13,593
SECURITIES 7,248
RECEIVABLES 10,609
ALLOWANCES 319
INVENTORY 13,286
CURRENT ASSETS 46,121
PP&E 13,240
DEPRECIATION 11,231
TOTAL ASSETS 54,936
CURRENT LIABILITIES 9,848
BONDS 0
PREFERRED MANDATORY 0
PREFERRED 0
COMMON 39,202
OTHER SE 2,367
TOTAL LIABILITY AND EQUITY 54,936
SALES 40,177
TOTAL REVENUES 40,177
CGS 18,349
TOTAL COSTS 8,063
OTHER EXPENSES 11,022
LOSS PROVISION 0
INTEREST EXPENSE 422
INCOME PRETAX 3,078
INCOME TAX 1,286
INCOME CONTINUING 1,792
DISCONTINUED 571
EXTRAORDINARY 0
CHANGES 0
NET INCOME 2,363
EPS BASIC 0.41
EPS DILUTED 0.38
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 2000 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)-654-5000
(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 a much 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 November 1, 2000
---------------------------- -----------------------------
Common Stock, $.10 par value 5,801,081
INTERPHASE CORPORATION
INDEX
Part I -Financial Information
Item 1. Consolidated Interim Financial Statements
Consolidated Balance Sheets as of September 30, 2000
and December 31, 1999 3
Consolidated Statements of Operations for the three
months and nine months ended September 30, 2000 and 1999 4
Consolidated Statements of Cash Flows for the nine
months ended September 30, 2000 and 1999 5
Notes to Consolidated Interim Financial Statements 6
Item 2. Management`s Discussion and Analysis of
Financial Condition and Results of Operations 10
Part II- Other Information
Item 6. Reports on Form 8-K and Exhibits 13
Signature 13
INTERPHASE CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except number of share data) (unaudited)
Sep. 30, Dec. 31,
ASSETS 2000 1999
----------------------
Cash and cash equivalents $ 13,593 $ 10,988
Marketable securities 7,248 5,288
Trade accounts receivable, less allowances
for uncollectible accounts of $319 and
$260, respectively 10,290 14,005
Inventories, net 13,286 11,678
Prepaid expenses and other current assets 629 1,383
Deferred income taxes, net 1,075 774
----------------------
Total current assets 46,121 44,116
----------------------
Machinery and equipment 9,790 9,149
Leasehold improvements 2,950 2,907
Furniture and fixtures 500 475
----------------------
13,240 12,531
Less-accumulated depreciation and amortization (11,231) (10,334)
----------------------
Total property and equipment, net 2,009 2,197
Capitalized software, net 576 684
Deferred income taxes, net 1,458 1,458
Acquired developed technology, net 1,830 2,280
Goodwill, net 2,650 2,830
Other assets 292 1,106
----------------------
Total assets $ 54,936 $ 54,671
======================
LIABILITIES AND SHAREHOLDERS` EQUITY
Accounts payable $ 1,086 $ 2,129
Accrued liabilities 4,368 2,156
Accrued compensation 1,350 2,131
Income taxes payable 852 754
Current portion of debt 2,192 2,202
----------------------
Total current liabilities 9,848 9,372
Long term debt 3,519 5,164
----------------------
Total liabilities 13,367 14,536
Commitments and contingencies
Common stock redeemable; 325,331 and 447,332
shares, respectively 2,034 2,796
SHAREHOLDERS` EQUITY
Common stock, $.10 par value; 100,000,000 shares
authorized; 5,475,350 and 5,391,296 shares
issued and outstanding, respectively 547 539
Additional paid in capital 36,621 35,998
Retained earnings 2,570 207
Cumulative other comprehensive income (203) 595
----------------------
Total shareholders` equity 39,535 37,339
----------------------
Total liabilities and shareholders` equity $ 54,936 $ 54,671
======================
The accompanying notes are an integral part of these consolidated financial
statements.
INTERPHASE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except
per share amounts)
(unaudited)
Three Months Ended Nine Months Ended
Sep 30, Sep 30,
--------------------- --------------------
2000 1999 2000 1999
--------------------- --------------------
$ 13,260 $ 20,511 Revenues $ 40,177 $ 55,337
6,193 10,666 Cost of sales 18,349 29,401
--------------------- --------------------
7,067 9,845 Gross profit 21,828 25,936
2,694 2,590 Research and development 7,764 7,892
2,612 2,850 Sales and marketing 8,063 7,814
1,051 1,673 General and administrative 3,258 4,278
--------------------- --------------------
6,357 7,113 Total operating expenses 19,085 19,984
--------------------- --------------------
710 2,732 Operating income 2,743 5,952
--------------------- --------------------
287 114 Interest income 755 309
(155) (235) Interest expense (422) (604)
(167) (224) Other, net 2 (674)
--------------------- --------------------
Income from continuing
675 2,387 operations before income taxes 3,078 4,983
302 997 Provision for income taxes 1,286 1,894
--------------------- --------------------
Income from continuing
373 1,390 operations 1,792 3,089
--------------------- --------------------
Discontinued Operations
Gain on disposal of VOIP
- 140 business, net of tax 571 326
Operating losses from VOIP
- (252) business, net of tax - (1,193)
--------------------- --------------------
$ 373 $ 1,278 Net income $ 2,363 $ 2,222
===================== ====================
Income from continuing
operations per share
$ 0.06 $ 0.24 Basic EPS $ 0.31 $ 0.56
--------------------- --------------------
$ 0.06 $ 0.22 Diluted EPS $ 0.28 $ 0.52
--------------------- --------------------
Net income per share
$ 0.06 $ 0.22 Basic EPS $ 0.41 $ 0.40
--------------------- --------------------
$ 0.06 $ 0.20 Diluted EPS $ 0.38 $ 0.37
--------------------- --------------------
5,805 5,709 Weighted average common shares 5,817 5,522
--------------------- --------------------
Weighted average common and
6,278 6,288 dilutive shares 6,292 5,984
--------------------- --------------------
The accompanying notes are an integral part of these
consolidated financial statements.
INTERPHASE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited) Nine Months ended Sep. 30,
--------------------------
2000 1999
----------------------
Cash flow from operating activities:
Income from continuing operations $ 1,792 $ 3,089
Gain on disposal of VOIP business 571 326
Operating loss from VOIP business - (1,193)
Adjustment to reconcile income from continuing
operations to net cash provided by operating
activities:
Depreciation and amortization 1,941 2,940
Deferred income tax benefit (301) -
Change in assets and liabilities:
Trade accounts receivable 3,715 (740)
Inventories (1,608) (1,500)
Prepaid expenses and other current assets 754 (56)
Accounts payable and accrued liabilities 1,169 70
Accrued compensation (781) 366
Income taxes payable 98 (183)
----------------------
Net adjustments 4,987 897
----------------------
Net cash provided by operating activities 7,350 3,119
Cash flows from investing activities:
Additions to property, equipment, leasehold
improvements and capitalized software (1,015) (1,748)
Decrease in other assets 814 253
Cash received in sale of VOIP - 600
Increase in marketable securities (1,960) (401)
----------------------
Net cash used by investing activities (2,161) (1,296)
Cash flows from financing activities:
Payments on debt (1,655) (1,693)
Change in comprehensive income (798) (104)
Purchase of redeemable common stock (762) (763)
Proceeds from the exercise of stock options 631 3,258
----------------------
Net cash (used) provided by financing activities (2,584) 698
----------------------
Net increase in cash and cash equivalents 2,605 2,521
Cash and cash equivalents at beginning of period 10,988 4,531
----------------------
Cash and cash equivalents at end of period $ 13,593 $ 7,052
======================
Supplemental Disclosure of Cash Flow Information:
Income taxes paid $ 1,539 $ 16
Interest paid $ 468 $ 531
The accompanying notes are an integral part of these
consolidated financial statements.
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 subsidiaries (the "Company"). Significant intercompany accounts and transactions have been eliminated.
The Company has completed the sale of its Voice over Internet Protocol ("VOIP") businesses; accordingly, the Company`s Consolidated financial statements and notes included herein, for all periods presented reflect the VOIP business as discontinued operations in accordance with Accounting Principles Board Opinion No. 30. See further discussion of sale in Footnote 6.
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 December 31, 1999.
2. NET INCOME PER COMMON AND COMMON DILUTIVE SHARE
The following table shows the calculations of the Company`s weighted average
common and dilutive equivalent shares outstanding (in thousands):
Three months ended Nine months ended
Sep. 30, Sep. 30,
------------------ ----------------
2000 1999 2000 1999
--------------------------------------
Weighted average shares outstanding 5,805 5,709 5,817 5,522
Dilutive impact of stock options 473 579 475 462
--------------------------------------
Total weighted average common and
common equivalent shares outstanding 6,278 6,288 6,292 5,984
--------------------------------------
Anti-dilutive weighted shares
excluded from shares outstanding 378 - 289 48
--------------------------------------------------------------------------------
3. CREDIT FACILITY
The Company maintains a credit facility with BankOne Texas NA that consists of an $8,500,000 acquisition term loan, a $2,500,000 equipment financing facility and a $5,000,000 revolving credit facility. The facility is a two-year facility with an annual renewal provision, and bears interest at the bank`s base rate (currently 8.5%). The term loan is payable in equal quarterly installments of $548,000 plus accrued interest with final payment due November 30, 2001. The Company has the ability to satisfy the quarterly payments on the term notes through borrowings under the revolving credit component of the credit facility. The revolving portion of the loan has been renewed and is due June 30, 2002. Marketable securities, accounts receivable and equipment collateralize the credit facility. The credit facility includes certain restrictive financial covenants including, among others, tangible net worth, total liabilities to tangible net worth, interest coverage, quick ratio, debt service coverage, and is subject to a borrowing base calculation. At September 30, 2000, the Company had borrowings of $5,711,000 and availability under the revolving credit facility was $1,500,000.
4. COMPREHENSIVE INCOME
The following table shows the Company`s comprehensive income (in thousands):
Three months ended Nine months ended
Sep. 30, Sep. 30,
------------------ ----------------
2000 1999 2000 1999
--------------------------------------
Net income $ 373 $ 1,278 $ 2,363 $ 2,222
Other comprehensive income
Unrealized holding gains (losses) 128 12 (581) (65)
arising during period, net of tax
Foreign currency translation
adjustment (135) 42 (217) (39)
--------------------------------------
Comprehensive income $ 366 $ 1,332 $ 1,565 $ 2,118
======================================
5. STOCK REPURCHASE
Effective October 1998, the Company approved a stock repurchase agreement with Motorola, Inc. to purchase all of the shares owned by Motorola for $4,125,000, ratably from October 1998 to July 2002. Under the terms of the agreement, Motorola retains the right as an equity owner and has assigned its voting rights to the Company. The Company plans to cancel the stock upon each repurchase. Prior to the repurchase agreement, Motorola owned approximately 12% of the Company`s outstanding common stock. The future scheduled payments are classified as redeemable common stock in the accompanying consolidated Balance Sheet. As of September 30, 2000, 334,669 shares have been repurchased for $2,091,681 and retired.
--------------------------------------------------------------------------------
6. DISPOSITION OF ASSETS
In June 1999, the Company sold an 80% interest in part of its VOIP business, Quescom, for $1,172,000 to the former owner of Interphase`s Paris Operation. The sales proceeds consisted of $300,000 due at closing with a $830,000 technology license fee. In January 2000, the remaining $830,000 due for the technology license fee was collected and recorded as a gain on disposal of discontinued operations. In addition, the Company sold the remainder of its 20% interest in Quescom for $400,000, resulting in a gain of $91,000.
In September 1999, the Company sold the remainder of its VOIP business, Zirca Corporation ("Zirca") along with the technologies developed by Zirca for $300,000 cash and stock valued at $517,680 to UniView Technologies, resulting in a gain of $140,000, net of $86,000 tax. The UniView securities received as part of the agreement are included on the Balance Sheet in Marketable Securities, and accounted for as available-for-sale securities.
During the first quarter of 2000, the Company completed the sale of its VOIP business; accordingly the Company`s consolidated financial statements and notes included herein, for all periods presented reflect the VOIP business as a discontinued operation in accordance with Accounting Principles Board Opinion No. 30. The following are the results of operations for the discontinued operations for the periods presented: (in thousands)
Three months ended Nine months ended
Sep. 30, Sep. 30,
------------------ ----------------
2000 1999 2000 1999
--------------------------------------
Gain (loss) from Discontinued
operations before tax - $ (406) $ 921 $ (1,924)
Income tax provision (benefit) - (154) 350 (731)
--------------------------------------
Net gain (loss) from discontinued
operations - $ (252) $ 571 $ (1,193)
======================================
--------------------------------------------------------------------------------
7. SEGMENT DATA
Revenue related to North America and other foreign countries for the three
month and nine month period ended September 30, 2000 and 1999 are as
follows. (in thousands)
Three months ended Sep. 30: Nine months ended Sep. 30:
Revenue 2000 1999 2000 1999
-------------------------------------------------
North America $ 11,005 $ 17,990 $ 33,552 $ 45,211
Europe 1,253 1,426 4,612 8,551
Pac Rim 1,002 1,095 2,013 1,575
-------------------------------------------------
Total $ 13,260 $ 20,511 $ 40,177 $ 55,337
=================================================
Long lived assets related to North America and other foreign countries as of September 30, 2000 and December 31, 1999 are as follows. (in thousands)
Long lived assets Sep. 30, 2000 Dec. 31, 1999
North America $ 2,383 $ 2,658
Europe 202 223
Pacific Rim - -
-----------------------
Total $ 2,585 $ 2,881
=======================
8. SHAREHOLDERS` EQUITY
At the annual meeting of Shareholders on May 3, 2000, the Shareholders of the Company ratified and approved an amendment to the Company`s Articles of Incorporation to change the par value of the Company`s Common Stock from no par value to a par value of $.10 per share. As such, the financial statements have been changed to reflect this amendment for all periods presented.
9. RECENTLY ISSUED ACCOUNTING POLICIES
In June 1998, the Financial Accounting Standards Board, issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 establishes new standards of accounting and reporting for derivative instruments and hedging activities. SFAS 133 requires that all derivatives be recognized at fair value in the balance sheet, and the corresponding gains or losses be reported either in the statement of operations or as a components of comprehensive income, depending on the type of hedge relationship that exists. SFAS 133 as amended by SFAS 137 will be effective for fiscal years beginning after June 15, 2000. The Company does not expect SFAS 133 to have a material effect on our financial position or results of operations.
--------------------------------------------------------------------------------
In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements." SAB 101 provides guidance on applying generally accepted accounting principles to revenue recognition issues in financial statements. The Company will adopt SAB 101 as required in the fourth quarter of fiscal 2000. The Company believes that SAB 101 will not have a significant effect on its consolidated financial position or results of operations
Item 2. MANAGEMENT`S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
During the first quarter 2000, the Company completed the sale of its VOIP business; accordingly the Company`s consolidated financial statements and notes included herein, for all periods presented reflect the VOIP business as a discontinued operation in accordance with Accounting Principles Board Opinion No. 30.
Revenue from product sales is recorded when the earnings process has been completed, as evidenced by a delivery, a fixed and determinable price and when collectibility is reasonably assured.
Revenues for the three months ended September 30, 2000 ("third quarter 2000") were $13,260,000. Revenues for the same period in 1999 ("comparative period") were $20,511,000. While the Company`s Storage product revenues have declined in the third quarter of 2000 as compared to the comparative period, the Networking product revenues and Broadband Telecommunication controller revenues have increased. The decrease in revenue is primarily attributable to the effects of the transitional period where the Company is refocusing its efforts on its new Fibre Channel and Broadband Telecommunication controller products. In addition, the Company developed a strategy to end-of-life many of its legacy products, which began in the second quarter 2000. Further more, 44% of the revenues for the comparable period were from Hewlett Packard`s purchase of a Fiber Channel card, that the Company announced in December 1999 would be going away by the end of 1999.
Networking product revenues, consisting of FDDI, Ethernet, ATM, Fast Ethernet and WAN, represented 56% of total revenues for the third quarter 2000, as compared to 31% for the comparative period. FDDI product revenues increased 119%, Ethernet product revenues decreased 100%, ATM product revenues decreased 15%, Fast Ethernet product revenues declined 44%, and WAN product revenues decreased 37% as compared to the comparative period. FDDI, Ethernet, ATM, Fast Ethernet and WAN product revenues represented 39%, 0%, 6%, 9% and 2% of total Networking revenues, respectively for the third quarter 2000.
Mass storage product revenues, consisting of SCSI and Fibre Channel adapter cards, represented 27% of total revenues for the third quarter 2000, as compared to 62% for the comparative period. SCSI product revenues increased 147% while Fibre Channel product revenues decreased 79% over the comparative period.
Broadband telecommunication controller revenues represented 14% of total revenues for the third quarter 2000, as compared to 6% for the comparative period. Broadband telecommunication controller revenues grew 58% from the comparative period.
--------------------------------------------------------------------------------
Revenues for the nine-month period ended September 30, 2000 were $40,177,000 as compared to $55,337,000 for the nine-month period ended September 30, 1999. Revenues from Networking LAN, Mass storage, Networking Broadband Telecommunication controller and Networking WAN were 36%, 40%, 18%, and 3% of total revenues respectively, for the nine-month period ended September 30, 2000.
The Company will continue to focus on revenues from Fibre Channel adapter and Broadband Telecommunication controller products, which are expected to offset revenue declines in older technologies such as FDDI and Ethernet.
One customer accounted for 11% and 56% of the Company`s revenue in the third quarter of 2000 and 1999, respectively.
The gross margin percentage for the third quarter 2000 was 53% and 48% for the comparative period. The gross margin percentage for the nine-month period ended September 30, 2000 and 1999 was 54% and 47% respectively. The increase in gross margin is primarily due to a continued focus on product cost improvements, selling a higher percentage of products with a greater gross margin than the comparative period, and a reduction in product sales to certain OEM`s at a lower gross margin related to volume discounts. Since the Company is in a migration of older products to new Fibre Channel and Broadband Telecommunication controller products, the gross margin is expected to be between 48% to 50% in subsequent quarters, as these new products are expected to be priced competitively.
Operating expenses for the third quarter 2000 were $6,357,000 as compared to $7,113,000 for the comparative period. Operating expenses for the nine-month period ended September 30, 2000 and 1999 were $19,085,000 and $19,984,000 respectively. Operating expenses have decreased slightly compared to a year ago, with an increase in sales and marketing activities, offset by decreases in general and administrative expenses. Operating expenses are expected to remain consistent as a percentage of revenues.
Interest income increased during the third quarter 2000 as compared to the comparative period, attributable to an increase in interest income earned on larger cash balances deposited in interest bearing accounts.
Interest expense decreased during the third quarter 2000 as compared to the comparative period, attributable to a continued reduction of interest bearing debt.
Other income increased $676,000 for the nine-month period ending September 30, 2000, primarily as a result of a hedging transaction on certain marketable securities received in the sale of the Company`s VOIP business. As of June 30, 2000 these hedging transactions resulted in a gain of approximately $613,000.
LIQUIDITY AND CAPITAL RESOURCES
The Company`s cash, cash equivalents and marketable securities aggregated $20,841,000 at September 30, 2000, and $16,276,000 at December 31, 1999. The Company`s increased cash position is primarily due to the collection of cash related to the disposition of Quescom (see note 6), and the collection of accounts receivable, offset by the purchase of inventory, fixed assets, payment on debt, tax payments and purchase of common stock. In the next twelve months, scheduled debt payments on the Company`s credit facility are approximately $2,192,000.
--------------------------------------------------------------------------------
Effective October 1998, the Company approved a stock repurchase agreement with Motorola, Inc. to purchase all of the shares owned by Motorola for $4,125,000, ratably from October 1998 to July 2002. Under the terms of the agreement, Motorola retains the right as an equity owner and has assigned its voting rights to the Company. The Company plans to cancel the stock upon each repurchase. Prior to the repurchase agreement, Motorola owned approximately 12% of the Company`s outstanding common stock. The future scheduled payments are classified as redeemable common stock in the accompanying consolidated Balance Sheet. As of September 30, 2000, 334,669 shares have been repurchased for $2,091,681 and retired.
The Company expects that its cash, cash equivalents, marketable securities and proceeds from its credit facility will be adequate to meet foreseeable cash needs for the next 12 months.
PART II
OTHER INFORMATION
Item 6. Reports on form 8-K
None
Exhibits
Exhibit 27 Financial Data Schedule
--------------------------------------------------------------------------------
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: November 13, 2000
/s/ Steven P. Kovac
------------------------------
Steven P. Kovac
Chief Financial Officer,
Vice President of Finance and
Treasurer
(Principal Financial and
Accounting Officer)
--------------------------------------------------------------------------------
ARTICLE 5
MULTIPLIER: 1,000
PERIOD TYPE 9 MOS
FISCAL YEAR END DEC 31 2000
PERIOD END SEP 30 2000
CASH 13,593
SECURITIES 7,248
RECEIVABLES 10,609
ALLOWANCES 319
INVENTORY 13,286
CURRENT ASSETS 46,121
PP&E 13,240
DEPRECIATION 11,231
TOTAL ASSETS 54,936
CURRENT LIABILITIES 9,848
BONDS 0
PREFERRED MANDATORY 0
PREFERRED 0
COMMON 39,202
OTHER SE 2,367
TOTAL LIABILITY AND EQUITY 54,936
SALES 40,177
TOTAL REVENUES 40,177
CGS 18,349
TOTAL COSTS 8,063
OTHER EXPENSES 11,022
LOSS PROVISION 0
INTEREST EXPENSE 422
INCOME PRETAX 3,078
INCOME TAX 1,286
INCOME CONTINUING 1,792
DISCONTINUED 571
EXTRAORDINARY 0
CHANGES 0
NET INCOME 2,363
EPS BASIC 0.41
EPS DILUTED 0.38
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