UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2012
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 1-35267
INTERPHASE CORPORATION
(Exact name of registrant as specified in its charter)
Texas | 75-1549797 | |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
Parkway Centre I
2901 North Dallas Parkway, Suite 200
Plano, Texas 75093
(Address of Principal Executive Offices and Zip Code)
(214) 654-5000
(Registrant’s Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒x No ¨☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒x No ¨☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer☐ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐¨ No x☒
As of August 1, 2012,July 28, 2013, shares of common stock outstanding totaled 7,000,335.
INTERPHASE CORPORATION
Index to Form 10-Q
Quarterly Period Ended June 30, 2012
Part I - Financial Information | ||||
Item 1. | Condensed Consolidated Financial Statements (Unaudited) | |||
CondensedConsolidated | 2 | |||
Condensed | ||||
3 | ||||
Condensed Consolidated Statements of Comprehensive Income for thethree months and six months ended June 30, 2013 and 2012 | 4 | |||
Condensed Consolidated Statements of Cash Flows for the six | 5 | |||
Notes to Condensed Consolidated Financial Statements | 6 | |||
Item 2. | Management’s Discussion and Analysis ofFinancial Condition and Results of Operations | 13 | ||
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 18 | ||
Item 4. | Controls and Procedures | 19 | ||
Part II - Other Information | ||||
Item 1. | Legal Proceedings | 19 | ||
Item | Risk Factors | 20 | ||
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 21 | ||
Item 3. | Defaults Upon Senior Securities | 21 | ||
Item 4. | Mine Safety Disclosures | 21 | ||
Item 5. | Other Information | 21 | ||
Item 6. | Exhibits | 21 | ||
PART I
FINANCIAL INFORMATION
Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
INTERPHASE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)
June 30, 2012 | December 31, 2011 | |||||||
| ASSETS | ||||||||
| Cash and cash equivalents | $ | 5,230 | $ | 7,470 | ||||
| Marketable securities | 4,933 | 4,355 | ||||||
Trade accounts receivable, less allowances of $42 and $43, respectively | 2,789 | 2,998 | ||||||
| Inventories | 2,406 | 1,556 | ||||||
| Prepaid expenses and other current assets | 411 | 414 | ||||||
| Total current assets | 15,769 | 16,793 | ||||||
| Machinery and equipment | 6,028 | 6,233 | ||||||
| Leasehold improvements | 332 | 327 | ||||||
| Furniture and fixtures | 400 | 400 | ||||||
| 6,760 | 6,960 | |||||||
| Less-accumulated depreciation and amortization | (6,342 | ) | (6,591 | ) | ||||
| Total property and equipment, net | 418 | 369 | ||||||
| Capitalized software, net | 181 | 225 | ||||||
| Other assets | 450 | 431 | ||||||
| Total assets | $ | 16,818 | $ | 17,818 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Liabilities | ||||||||
| Accounts payable | $ | 999 | $ | 1,008 | ||||
| Deferred revenue | 149 | 164 | ||||||
| Accrued liabilities | 1,230 | 1,231 | ||||||
| Accrued compensation | 342 | 393 | ||||||
| Total current liabilities | 2,720 | 2,796 | ||||||
| Deferred lease obligations | 143 | 180 | ||||||
| Long-term debt | 3,500 | 3,500 | ||||||
| Total liabilities | 6,363 | 6,476 | ||||||
| Commitments and Contingencies | ||||||||
| Shareholders’ Equity | ||||||||
| Common stock, $0.10 par value; 100,000,000 shares authorized; 6,999,085 and 6,895,085 shares issued and outstanding, respectively | 700 | 690 | ||||||
| Additional paid in capital | 45,374 | 44,232 | ||||||
| Retained deficit | (34,759 | ) | (32,708 | ) | ||||
| Cumulative other comprehensive loss | (860 | ) | (872 | ) | ||||
| Total shareholders' equity | 10,455 | 11,342 | ||||||
| Total liabilities and shareholders' equity | $ | 16,818 | $ | 17,818 | ||||
June 30, | December 31, | |||||||
2013 | 2012 | |||||||
ASSETS | ||||||||
Cash and cash equivalents | $ | 3,276 | $ | 3,949 | ||||
Marketable securities | 4,035 | 4,854 | ||||||
Trade accounts receivable, less allowancesof $48 and $39, respectively | 3,179 | 2,781 | ||||||
Inventories | 2,429 | 2,219 | ||||||
Prepaid expenses and other current assets | 804 | 350 | ||||||
Total current assets | 13,723 | 14,153 | ||||||
Machinery and equipment | 6,055 | 6,036 | ||||||
Leasehold improvements | 332 | 332 | ||||||
Furniture and fixtures | 400 | 400 | ||||||
| 6,787 | 6,768 | |||||||
Less-accumulated depreciation and amortization | (6,500 | ) | (6,434 | ) | ||||
Total property and equipment, net | 287 | 334 | ||||||
Capitalized software, net | 127 | 175 | ||||||
Other assets | 522 | 516 | ||||||
Total assets | $ | 14,659 | $ | 15,178 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Liabilities | ||||||||
Accounts payable | $ | 1,441 | $ | 777 | ||||
Deferred revenue | 761 | 375 | ||||||
Accrued liabilities | 1,471 | 1,149 | ||||||
Accrued compensation | 303 | 221 | ||||||
Total current liabilities | 3,976 | 2,522 | ||||||
Deferred lease obligations | 60 | 103 | ||||||
Long-term debt | 3,500 | 3,500 | ||||||
Total liabilities | 7,536 | 6,125 | ||||||
Commitments and Contingencies | ||||||||
Shareholders’ Equity | ||||||||
Common stock, $0.10 par value; 100,000,000 shares authorized; 6,996,146 and 7,006,310 shares issued and outstanding, respectively | 700 | 701 | ||||||
Additional paid in capital | 46,102 | 45,730 | ||||||
Retained deficit | (38,798 | ) | (36,493 | ) | ||||
Cumulative other comprehensive loss | (881 | ) | (885 | ) | ||||
Total shareholders' equity | 7,123 | 9,053 | ||||||
Total liabilities and shareholders' equity | $ | 14,659 | $ | 15,178 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
INTERPHASE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2012 | 2011 | 2012 | 2011 | |||||||||||||
| Revenues: | ||||||||||||||||
| Product | $ | 2,762 | $ | 5,658 | $ | 5,995 | $ | 11,981 | ||||||||
| Service | 708 | 519 | 1,489 | 884 | ||||||||||||
| Total revenues | 3,470 | 6,177 | 7,484 | 12,865 | ||||||||||||
| Cost of sales: | ||||||||||||||||
| Product | 1,358 | 2,664 | 2,976 | 5,801 | ||||||||||||
| Service | 535 | 266 | 1,082 | 565 | ||||||||||||
| Total cost of sales | 1,893 | 2,930 | 4,058 | 6,366 | ||||||||||||
| Gross margin | 1,577 | 3,247 | 3,426 | 6,499 | ||||||||||||
| Research and development | 854 | 1,016 | 1,786 | 2,048 | ||||||||||||
| Sales and marketing | 1,128 | 872 | 2,042 | 1,876 | ||||||||||||
| General and administrative | 731 | 1,029 | 1,671 | 2,014 | ||||||||||||
| Total operating expenses | 2,713 | 2,917 | 5,499 | 5,938 | ||||||||||||
| (Loss) income from operations | (1,136 | ) | 330 | (2,073 | ) | 561 | ||||||||||
| Interest income, net | 6 | 8 | 15 | 11 | ||||||||||||
| Other income (loss), net | 3 | (6 | ) | (2 | ) | (1 | ) | |||||||||
| (Loss) income before income tax | (1,127 | ) | 332 | (2,060 | ) | 571 | ||||||||||
| Income tax (benefit) expense | (5 | ) | 15 | (9 | ) | 23 | ||||||||||
| Net (loss) income | $ | (1,122 | ) | $ | 317 | $ | (2,051 | ) | $ | 548 | ||||||
| Net (loss) income per share: | ||||||||||||||||
| Basic | $ | (0.16 | ) | $ | 0.05 | $ | (0.30 | ) | $ | 0.08 | ||||||
| Diluted | $ | (0.16 | ) | $ | 0.04 | $ | (0.30 | ) | $ | 0.08 | ||||||
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
Revenues: | ||||||||||||||||
Product | $ | 2,815 | $ | 2,762 | $ | 5,373 | $ | 5,995 | ||||||||
Service | 1,003 | 708 | 1,725 | 1,489 | ||||||||||||
Total revenues | 3,818 | 3,470 | 7,098 | 7,484 | ||||||||||||
Cost of sales: | ||||||||||||||||
Product | 1,631 | 1,358 | 3,151 | 2,976 | ||||||||||||
Service | 792 | 535 | 1,282 | 1,082 | ||||||||||||
Total cost of sales | 2,423 | 1,893 | 4,433 | 4,058 | ||||||||||||
Gross margin | 1,395 | 1,577 | 2,665 | 3,426 | ||||||||||||
Research and development | 857 | 854 | 1,687 | 1,786 | ||||||||||||
Sales and marketing | 732 | 1,128 | 1,408 | 2,042 | ||||||||||||
General and administrative | 691 | 731 | 1,579 | 1,671 | ||||||||||||
Restructuring benefit | - | - | (67 | ) | - | |||||||||||
Total operating expenses | 2,280 | 2,713 | 4,607 | 5,499 | ||||||||||||
Loss from operations | (885 | ) | (1,136 | ) | (1,942 | ) | (2,073 | ) | ||||||||
Other (loss) income, net | (2 | ) | 9 | (343 | ) | 13 | ||||||||||
Loss before income tax | (887 | ) | (1,127 | ) | (2,285 | ) | (2,060 | ) | ||||||||
Income tax expense (benefit) | 8 | (5 | ) | 20 | (9 | ) | ||||||||||
Net loss | $ | (895 | ) | $ | (1,122 | ) | $ | (2,305 | ) | $ | (2,051 | ) | ||||
Net loss per share: | ||||||||||||||||
Basic | $ | (0.13 | ) | $ | (0.16 | ) | $ | (0.33 | ) | $ | (0.30 | ) | ||||
Diluted | $ | (0.13 | ) | $ | (0.16 | ) | $ | (0.33 | ) | $ | (0.30 | ) | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
INTERPHASE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2012 | 2011 | 2012 | 2011 | |||||||||||||
| Net (loss) income | $ | (1,122 | ) | $ | 317 | $ | (2,051 | ) | $ | 548 | ||||||
| Other comprehensive income (loss): | ||||||||||||||||
| Foreign currency translation adjustment | 21 | 1 | 11 | (43 | ) | |||||||||||
| Unrealized holding (loss) gain arising during period, net of tax | (2 | ) | (3 | ) | 1 | (16 | ) | |||||||||
| Other comprehensive income (loss) | 19 | (2 | ) | 12 | (59 | ) | ||||||||||
| Comprehensive (loss) income | $ | (1,103 | ) | $ | 315 | $ | (2,039 | ) | $ | 489 | ||||||
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
Net loss | $ | (895 | ) | $ | (1,122 | ) | $ | (2,305 | ) | $ | (2,051 | ) | ||||
Other comprehensive (loss) income: | ||||||||||||||||
Foreign currency translation adjustment | (11 | ) | 21 | 8 | 11 | |||||||||||
Unrealized holding (loss) gain arisingduring period, net of tax | (2 | ) | (2 | ) | (4 | ) | 1 | |||||||||
Other comprehensive (loss) income | (13 | ) | 19 | 4 | 12 | |||||||||||
Comprehensive loss | $ | (908 | ) | $ | (1,103 | ) | $ | (2,301 | ) | $ | (2,039 | ) | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
INTERPHASE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Six Months Ended June 30, | ||||||||
| 2012 | 2011 | |||||||
| Cash flows from operating activities: | ||||||||
| Net (loss) income | $ | (2,051 | ) | $ | 548 | |||
Adjustments to reconcile net (loss) income to net cash used in operating activities: | ||||||||
| (Recovery of)/provision for uncollectible accounts and returns | (2 | ) | 3 | |||||
| Provision for excess and obsolete inventories | 20 | - | ||||||
| Depreciation and amortization | 224 | 280 | ||||||
| Amortization of stock-based compensation | 331 | 191 | ||||||
| Change in assets and liabilities: | ||||||||
| Trade accounts receivable | 211 | (415 | ) | |||||
| Inventories | (870 | ) | 121 | |||||
| Prepaid expenses and other current assets | 1 | 146 | ||||||
| Other assets | (29 | ) | 140 | |||||
| Accounts payable, deferred revenue and accrued liabilities | (1 | ) | (920 | ) | ||||
| Accrued compensation | (51 | ) | 4 | |||||
| Deferred lease obligations | (37 | ) | (31 | ) | ||||
| Net cash (used in) provided by operating activities | (2,254 | ) | 67 | |||||
| Cash flows from investing activities: | ||||||||
| Purchase of property and equipment | (157 | ) | (93 | ) | ||||
| Purchase of capitalized software | (72 | ) | (64 | ) | ||||
| Proceeds from the sale of marketable securities | 4,180 | 4,052 | ||||||
| Purchase of marketable securities | (4,756 | ) | (1,050 | ) | ||||
| Net cash (used in) provided by investing activities | (805 | ) | 2,845 | |||||
| Cash flows from financing activities: | ||||||||
| Borrowings under credit facility | 7,000 | 3,500 | ||||||
| Payments on credit facility | (7,000 | ) | (3,500 | ) | ||||
| Proceeds from the exercise of stock options | 821 | 469 | ||||||
| Net cash provided by financing activities | 821 | 469 | ||||||
| Effect of exchange rate changes on cash and cash equivalents | (2 | ) | 99 | |||||
| Net (decrease) increase in cash and cash equivalents | (2,240 | ) | 3,480 | |||||
| Cash and cash equivalents at beginning of period | 7,470 | 4,772 | ||||||
| Cash and cash equivalents at end of period | $ | 5,230 | $ | 8,252 | ||||
| Six Months Ended | ||||||||
June 30, | ||||||||
2013 | 2012 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (2,305 | ) | $ | (2,051 | ) | ||
Adjustments to reconcile net loss to net cash used inoperating activities: | ||||||||
Provision for/(recovery of) uncollectible accounts and returns | 9 | (2 | ) | |||||
Provision for excess and obsolete inventories | 80 | 20 | ||||||
Depreciation and amortization | 116 | 224 | ||||||
Stock-based compensation expense | 371 | 331 | ||||||
Change in assets and liabilities: | ||||||||
Trade accounts receivable | (407 | ) | 211 | |||||
Inventories | (290 | ) | (870 | ) | ||||
Prepaid expenses and other current assets | (456 | ) | 1 | |||||
Other assets | (12 | ) | (29 | ) | ||||
Accounts payable, deferred revenue and accrued liabilities | 1,391 | (1 | ) | |||||
Accrued compensation | 82 | (51 | ) | |||||
Deferred lease obligations | (43 | ) | (37 | ) | ||||
Net cash used in operating activities | (1,464 | ) | (2,254 | ) | ||||
Cash flows from investing activities: | ||||||||
Purchases of property and equipment | (21 | ) | (157 | ) | ||||
Purchases of capitalized software | - | (72 | ) | |||||
Proceeds from the sale of marketable securities | 7,678 | 4,180 | ||||||
Purchases of marketable securities | (6,862 | ) | (4,756 | ) | ||||
Net cash provided by (used in) investing activities | 795 | (805 | ) | |||||
Cash flows from financing activities: | ||||||||
Borrowings under credit facility | 7,000 | 7,000 | ||||||
Payments on credit facility | (7,000 | ) | (7,000 | ) | ||||
Proceeds from the exercise of stock options | - | 821 | ||||||
Net cash provided by financing activities | - | 821 | ||||||
Effect of exchange rate changes on cash and cash equivalents | (4 | ) | (2 | ) | ||||
Net decrease in cash and cash equivalents | (673 | ) | (2,240 | ) | ||||
Cash and cash equivalents at beginning of period | 3,949 | 7,470 | ||||||
Cash and cash equivalents at end of period | $ | 3,276 | $ | 5,230 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
INTERPHASE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1. - BASIS OF PRESENTATION
Interphase Corporation and its subsidiaries (“Interphase” or the “Company”) is a diversified information and communications technology company, committed to innovation through the process of identifying, developing and introducing new products and services. The Company is known in the industry as a premier provider ofprovides its customers solutions for connectivity, interworking and packet processing, electronic manufacturing services, and electronic engineering design services.processing. Clients of the Company’s communications networking products include Alcatel-Lucent, Emerson Network Power, Fujitsu Ltd., Genband, Hewlett Packard, Nokia Siemens Networks, Oracle, and Samsung.
The Company also offers engineering design and manufacturing services to customers from a wide variety of industries within the electronics market.
Interphase recently expanded its business to include penveu™penveu®, a handheld device that enhancesadds interactivity to the functionalityinstalled base of installed projectors and large screen displays;displays, making any flat surface, from pull down screens to HDTVs, an interactive display system. penveu is an affordable and portable solution that targets the education and enterprise markets.
The Company, founded in 1974, is headquartered in Plano, Texas, with manufacturing facilities in Carrollton, Texas, and sales offices throughoutin the AmericasUnited States and Europe. See Note 10 for information regarding the Company’s revenues related to North America and foreign regions.
The accompanying condensed consolidated financial statements include the accounts of Interphase Corporation and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated. While the accompanying condensed consolidated 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. All such adjustments are of a normal, recurring nature. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. Operating results for the three and six months ended June 30, 20122013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012.2013. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2011.
NOTE 2. -STOCK-BASED COMPENSATION
Stock Options:Options
During the six months ended June 30, 2013, the Company issued 11,000 stock options that vest over a four year period and expire ten years from date of grant. The weighted average exercise price of these stock options is $2.47. During the six months ended June 30, 2012, the Company issued 136,000 stock options that vest over a one to four year period and expire ten years from the date of grant. The weighted average exercise price of these stock options is $5.27. Compensation expense related to stock options without performance-based vesting conditions was $85,000 and $104,000 for the three months ended June 30, 2013 and 2012, respectively. Compensation expense related to stock options without performance-based vesting conditions was $203,000 and $177,000 for the six months ended June 30, 2013 and 2012, respectively.
During the six months ended June 30, 2011,2013, the Company issued 215,000no stock options that vest over a three to four year period and expire ten years from the date of grant. The weighted average exercise price of these stock options is $2.00. Compensation expense related to these stock options was $104,000 and $46,000 for the three months ended June 30, 2012 and 2011, respectively. Compensation expense related to these stock options was $177,000 and $71,000 for the six months ended June 30, 2012 and 2011, respectively.
INTERPHASE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The weighted-average remaining contractual life of stock options outstanding and exercisable at June 30, 2013 and 2012 was 5.77 years and 2011 is 3.28 years, and 1.65 years, respectively.
The following table summarizes the combined stock option activity under all of the plans:
| Number of Options | Weighted Average Option Price | |||||||
| Balance, December 31, 2011 | 1,332,473 | $ | 4.21 | |||||
| Granted | 584,000 | 4.88 | ||||||
| Exercised | (167,165 | ) | 4.87 | |||||
| Cancelled | (130,450 | ) | 3.81 | |||||
| Balance, June 30, 2012 | 1,618,858 | $ | 4.42 | |||||
Number of Options Weighted Average Option Price Balance, December 31, 2012 Granted Exercised Cancelled Balance, June 30, 2013 2,052,783 $ 4.06 11,000 2.47 - - (397,054 ) 4.71 1,666,729 $ 3.90
Option Valuation:Valuation
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with weighted-average assumptions based on the grant date.
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
Weighted average risk free interest rates | 1.86 | % | 1.96 | % | 2.00 | % | 1.93 | % | ||||||||
Weighted average life (in years) | 10 | 10 | 10 | 10 | ||||||||||||
Volatility | 66.10 | % | 66.19 | % | 66.23 | % | 65.90 | % | ||||||||
Expected dividend yield | - | - | - | - | ||||||||||||
Weighted average grant-date fair value per share of options granted | $ | 1.80 | $ | 4.18 | $ | 1.80 | $ | 3.56 | ||||||||
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2012 | 2011 | 2012 | 2011 | |||||||||||||
| Weighted average risk free interest rates | 1.96 | % | 3.39 | % | 1.93 | % | 3.60 | % | ||||||||
| Weighted average life (in years) | 10 | 10 | 10 | 10 | ||||||||||||
| Volatility | 66.19 | % | 65.47 | % | 65.90 | % | 63.79 | % | ||||||||
| Expected dividend yield | - | - | - | - | ||||||||||||
| Weighted average grant-date fair value per share of options granted | $ | 4.18 | $ | 4.33 | $ | 3.56 | $ | 1.63 | ||||||||
INTERPHASE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Restricted Stock:Stock
The Interphase Corporation 2004 Long-Term Stock Incentive Plan provides for grants of bonus stock awards (“restricted stock”) to its directors and certain employees at no cost to the recipient. Holders of restricted stock are entitled to cash dividends, if declared, and to vote their respective shares. Restrictions limit the sale or transfer of these shares during a predefined vesting period, currently ranging from three to sixfour years, and in some cases vesting is subject to the achievement of certain performance conditions. There were no shares of restricted stock issued during the six months ended June 30, 2013. During the six months ended June 30, 2012, the Company issued 9,000 shares of restricted stock. During the six months ended June 30, 2011, the Company issued 72,000 shares of restricted stock. Upon issuance of restricted stock under the plan, unearned compensation equivalent to the market value at the date of grant is recorded as a reduction to shareholders’ equity and subsequently amortized to expense over the respective restriction periods. Compensation expense related to restricted stock was $36,000$25,000 and $50,000$36,000 for the three months ended June 30, 20122013 and 2011,2012, respectively. Compensation expense related to restricted stock was $69,000$56,000 and $106,000$69,000 for the six months ended June 30, 20122013 and 2011,2012, respectively. As of June 30, 2012,2013, there was $330,000$171,000 of total unamortized compensation cost related to unvested restricted stock remaining to be recognized. The expense is expected to be recognized over a weighted-average period of 2.51.7 years. As of December 31, 2011,2012, there was $479,000$261,000 of total unamortized compensation cost related to unvested restricted stock which was expected to be recognized over a weighted-average period of 3.02.1 years. The following table summarizes the restricted stock activity for the six months ended June 30, 2012:
| Restricted Stock Shares | Weighted Average Grant Date Value | |||||||
| Nonvested restricted stock at December 31, 2011 | 225,941 | $ | 2.67 | |||||
| Granted | 9,000 | 5.72 | ||||||
| Vested | (42,570 | ) | 3.38 | |||||
| Cancelled/Forfeited | (72,165 | ) | 1.82 | |||||
| Nonvested restricted stock at June 30, 2012 | 120,206 | $ | 3.16 | |||||
Restricted Stock Shares Weighted Average Grant Date Value Nonvested restricted stock at December 31, 2012 Granted Vested Cancelled/Forfeited Nonvested restricted stock at June 30, 2013 112,015 $ 3.17 - - (40,195 ) 3.08 (10,164 ) 3.35 61,656 $ 3.21
NOTE 3. - MARKETABLE SECURITIES
Accounting Standards Codification (“ASC”) Topic 820,Fair Value Measurements and Disclosures, defines fair value, establishes a framework for measuring fair value in accordance with accounting principles generally accepted in the United States, and expands disclosures about fair value measurements. The Company follows ASC 820 in its valuation of its marketable securities. ASC 820 defines fair value as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 classifies the levels used to measure fair value into the following hierarchy:
Level 1 – Valuations based on quoted prices in active markets for identical assets and liabilities that the reporting entity has the ability to obtain at the measurement date. This level provides the most reliable evidence of fair value.
Level 2 – Valuations based on one or more quoted prices in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs that are observable other than quoted prices for the asset or the liability; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.
Level 3 – Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
The Company’s investments in marketable securities primarily consist of investments in debt securities, which are classified as available for sale and presented as current assets on the accompanying condensed consolidated balance sheets. Earnings from debt securities are calculated on a yield to maturity basis and recorded in the results of operations. Unrealized gains or losses for the periods presented were included in other comprehensive income (loss). income. Realized gains and losses are computed based on the specific identification method and were not material for the periods presented. Marketable securities are used to secure the Company’s credit facility. The fair values of marketable securities were estimated using the market approach.approach using prices and other relevant information generated by market transactions involving identical or comparable assets. The Company uses quoted market prices in active markets or quoted market prices in markets that are not active to measure fair value. When developing fair value estimates, the Company maximizes the use of observable inputs and minimizes the use of unobservable inputs.
INTERPHASE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Financial assets, measured at fair value, by level within the fair value hierarchy were as follows (in thousands):
| June 30, 2012 | December 31, 2011 | ||||||||||||||||||||||||
| Fair Value Hierarchy | Cost | Unrealized Gain | Estimated Fair Value | Cost | Unrealized Gain | Estimated Fair Value | |||||||||||||||||||
| Asset Backed | Level 2 | $ | 1,614 | $ | 4 | $ | 1,618 | $ | 2,136 | $ | 2 | $ | 2,138 | ||||||||||||
| Corporate Bonds | Level 2 | 615 | - | 615 | 616 | 1 | 617 | ||||||||||||||||||
| US Treasuries | Level 2 | 2,700 | - | 2,700 | 1,600 | - | 1,600 | ||||||||||||||||||
| Total | $ | 4,929 | $ | 4 | $ | 4,933 | $ | 4,352 | $ | 3 | $ | 4,355 | |||||||||||||
June 30, 2013 | December 31, 2012 | ||||||||||||||||||||||||
Fair Value Hierarchy | Cost | Unrealized Gain | Estimated Fair Value | Cost | Unrealized Gain | Estimated Fair Value | |||||||||||||||||||
Asset Backed | Level 2 | $ | 596 | $ | - | $ | 596 | $ | 952 | $ | 3 | $ | 955 | ||||||||||||
Corporate Bonds | Level 2 | 239 | - | 239 | 698 | 1 | 699 | ||||||||||||||||||
US Treasuries | Level 2 | 3,200 | - | 3,200 | 3,200 | - | 3,200 | ||||||||||||||||||
Total | $ | 4,035 | $ | - | $ | 4,035 | $ | 4,850 | $ | 4 | $ | 4,854 | |||||||||||||
NOTE 4. - INVENTORIES
Inventories are valued at the lower of cost or market and include material, labor and manufacturing overhead. Cost, determined on a first-in, first-out basis, is as follows (in thousands):
| June 30, 2012 | December 31, 2011 | |||||||
| Raw Materials | $ | 1,833 | $ | 1,231 | ||||
| Work-in-Process | 525 | 214 | ||||||
| Finished Goods | 48 | 111 | ||||||
| Total | $ | 2,406 | $ | 1,556 | ||||
June 30, 2013 | December 31, 2012 | |||||||
Raw Materials | $ | 1,798 | $ | 1,616 | ||||
Work-in-Process | 569 | 462 | ||||||
Finished Goods | 62 | 141 | ||||||
Total | $ | 2,429 | $ | 2,219 | ||||
Valuing inventory at the lower of cost or market involves an inherent level of risk and uncertainty due to technology trends in the industry and customer demand for the Company’s products. Future events may cause significant fluctuations in the Company’s operating results. Inventories are written down when needed to ensure the Company carries inventory at the lower of cost or market. The Company increased reserve requirements by $64,000 and decreased reserve requirements by $5,000 during the three months ended June 30, 2012. There were no writedowns during the three months ended June 30, 2011. Writedowns2013 and 2012, respectively. The Company increased reserve requirements by $80,000 and $20,000 during the six months ended June 30, 2013 and 2012, were $20,000. There were no writedowns during the six months ended June 30, 2011.
NOTE 5. - INCOME TAXES
The Company records a valuation allowance when it is “more likely than not” that all or a portion of a deferred tax asset will not be realized. Management reviews all available positive and negative evidence, including the Company’s current and past performance, the market environment in which the Company operates, the utilization of past tax credits, length of carry back and carry forward periods, existing contracts or sales backlog that will result in future profits, as well as other factors. The Company continues to maintain a valuation allowance on all of the net deferred tax assets for the periods presented. Until an appropriate level of profitability is sustained, the Company expects to continue to record a full valuation allowance on future tax benefits except for those that may be generated in foreign jurisdictions. The effective income tax rates for the periods presented differ from the U.S. statutory rate as the Company continues to provide a full valuation allowance for the net deferred tax assets at June 30, 20122013 and 2011.2012.
INTERPHASE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 6. - RESTRUCTURING CHARGE
On September 30, 2010,October 19, 2012, the Company initiatedcommitted to a restructuring plan intended to mitigate gross margin erosion by reducing manufacturing and procurement costs, streamline research and development expense and focus remaining resources on key strategic growth areas, and reduce selling and administrativeimprove the balance between the Company’s telecommunications product expenses throughwith the reduced revenue levels of this product rationalization and consolidation of support functions.line. Under the 20102012 restructuring plan, the Company reduced its worldwide work forceworkforce by 39 employees, including the closure of its European engineering and support center located in Chaville, France.10 regular full-time positions. As a result of the 20102012 restructuring plan, the Company recorded a restructuring charge of approximately $3.3 million,$253,000, classified as an operating expense, in the thirdfourth quarter of 20102012 related to future cash expenditures to cover employee severance and benefits and other related costs. Cash payments, net of currency translation adjustments, duringbenefits. During the three and six months ended June 30, 2011 were approximately $141,000March 31, 2013, the Company reduced its restructuring charge by $67,000 related to reduced future cash expenditures related to severance and $1.2 million, respectively.benefits for a former employee. The remaining liability asformer employee’s accepting other employment in April 2013 reduced the amount of June 30, 2011 was $29,000. These amounts were paid outseverance and benefit payouts by the Company. The following table summarizes the timing of payments under the restructuring plan by the end of 2011.
Description | Severance & Fringe 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 | ) | ||
Cash payments during quarter ended June 30, 2013 | (23 | ) | ||
Remaining liability as of June 30, 2013 | $ | - | ||
NOTE 7. - CREDIT FACILITY
The Company maintains a $5.0 million revolving bank credit facility maturing December 19, 2013.2015. The applicable interest rate on outstanding balances is LIBOR plus 1.0% to 1.5% based on certain factors included in the credit agreement. At June 30, 20122013 and December 31, 2011,2012, the Company’s interest rate on the $3.5 million outstanding balance was 2.0%1.7% and 1.8%1.2%, respectively. The unused portion of the credit facility is subject to an unused facility fee ranging from .25% to .75% depending on total deposits with the creditor. All borrowings under this facility are secured by marketable securities. The outstanding balance of $3.5 million as of June 30, 20122013 and December 31, 20112012 is classified as long-term debt on the Company’s condensed consolidated balance sheets. Subsequent to June 30, 20122013 and prior to the Company’s filing of the condensed consolidated financial statements, the outstanding balance on the credit facility was repaid.
NOTE 8. - EARNINGS PER SHARE
Basic earnings per share are computed by dividing reported earnings available to common shareholders by weighted average common shares outstanding. Diluted earnings per share give effect to dilutive potential common shares. Earnings per share are calculated as follows (in thousands, except per share data):
Three months ended | Six months ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
Basic net loss per share: | ||||||||||||||||
Net loss | $ | (895 | ) | $ | (1,122 | ) | $ | (2,305 | ) | $ | (2,051 | ) | ||||
Weighted average common shares outstanding | 7,000 | 6,982 | 7,003 | 6,948 | ||||||||||||
Basic net loss per share | $ | (0.13 | ) | $ | (0.16 | ) | $ | (0.33 | ) | $ | (0.30 | ) | ||||
Diluted net loss per share: | ||||||||||||||||
Net loss | $ | (895 | ) | $ | (1,122 | ) | $ | (2,305 | ) | $ | (2,051 | ) | ||||
Weighted average common shares outstanding | 7,000 | 6,982 | 7,003 | 6,948 | ||||||||||||
Dilutive stock options | - | - | - | - | ||||||||||||
Weighted average common shares outstanding – assuming dilution | 7,000 | 6,982 | 7,003 | 6,948 | ||||||||||||
Diluted net loss per share | $ | (0.13 | ) | $ | (0.16 | ) | $ | (0.33 | ) | $ | (0.30 | ) | ||||
Outstanding stock options that were not included in the diluted calculation because their effect would be anti-dilutive | 664 | 752 | 666 | 752 | ||||||||||||
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2012 | 2011 | 2012 | 2011 | |||||||||||||
| Basic net (loss) income per share: | ||||||||||||||||
| Net (loss) income | $ | (1,122 | ) | $ | 317 | $ | (2,051 | ) | $ | 548 | ||||||
| Weighted average common shares outstanding | 6,982 | 6,852 | 6,948 | 6,819 | ||||||||||||
| Basic net (loss) income per share | $ | (0.16 | ) | $ | 0.05 | $ | (0.30 | ) | $ | 0.08 | ||||||
| Diluted net (loss) income per share: | ||||||||||||||||
| Net (loss) income | $ | (1,122 | ) | $ | 317 | $ | (2,051 | ) | $ | 548 | ||||||
| Weighted average common shares outstanding | 6,982 | 6,852 | 6,948 | 6,819 | ||||||||||||
| Dilutive stock options | - | 287 | - | 278 | ||||||||||||
| Weighted average common shares outstanding – assuming dilution | 6,982 | 7,139 | 6,948 | 7,097 | ||||||||||||
| Diluted net (loss) income per share | $ | (0.16 | ) | $ | 0.04 | $ | (0.30 | ) | $ | 0.08 | ||||||
| Outstanding stock options that were not included in the diluted calculation because their effect would be anti-dilutive | ||||||||||||||||
| 752 | 658 | 752 | 759 | |||||||||||||
INTERPHASE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 9. - SHAREHOLDERS’ EQUITY
The Board of Directors adopted a Shareholder Rights Plan (the “Plan”) and, under the Plan, declared a non-taxable dividend, paid at the close of business on August 9, 2011 (the “Record Date”), of one common share purchase right (a “Right”) for each outstanding share of Common Stock. From the Record Date until the Rights become exercisable, the Rights will be attached to all outstanding shares of Common Stock and, therefore, will be represented by the certificates evidencing the shares of Common Stock and transferrable only with the shares of Common Stock. A Right will be exercisable, upon certain conditions, to purchase one share of Common Stock from the Company at a price of $39, subject to adjustment. The Rights will become exercisable, and separate from the shares of Common Stock, upon the earlier of:
(1) | ten business days following the date of the first public announcement (the “Stock Acquisition Date”) that a person or a group of affiliated or associated persons has acquired, or obtained the right to acquire, beneficial ownership of 15% or more of the outstanding shares of Common Stock (an “Acquiring Person”), or |
(2) | ten business days (or such later date as the Board of Directors may determine) following the commencement of a tender or exchange offer that, if consummated, would result in a person or group of persons becoming an Acquiring Person. |
Upon a Stock Acquisition Date, each holder of a Right (other than an Acquiring Person) will be entitled to receive, upon exercise of the Right, shares of Common Stock at a 50% discount. Also, if, at any time following a Stock Acquisition Date, the Company is acquired in a merger or business combination and its Common Stock is exchanged or converted, or if 50% or more of the Company’s assets, cash flow or earning power is sold or transferred, then each holder of a Right (other than an Acquiring Person) will be entitled to receive, upon exercise of the Right, shares of the acquirer’s common stock at a 50% discount. Further, at any time after a person or group of persons becomes an Acquiring Person, but before any person or group of persons becomes the beneficial owner of 50% or more of the outstanding shares of Common Stock, the Company may cause each exercisable Right to be exchanged for one share of Common Stock. The Rights will expire at the close of business on July 29, 2021, or such other date as the Board of Directors may determine under certain circumstances. The Board of Directors may terminate the Plan or cause the Company to redeem the Rights, at a price of $0.001 per Right, at any time before the earlier of a Stock Acquisition Date or the expiration of the Rights. The Company has reserved 90,315,210 shares of Common Stock for possible issuance upon exercise of Rights under the Plan.
NOTE 10. - SEGMENT INFORMATION
Interphase is a diversified information and communications technology company, committed to innovation through the process of identifying, developing and introducing new products and services. The Company is principally engaged in delivering embedded communications networkingprovides its customers solutions for connectivity, interworking and computing solutions, interworking gateways, packet processing, network connectivity,processing. The Company also offers engineering design and security for key applications formanufacturing services to customers from a wide variety of industries within the communicationselectronics market. Interphase recently expanded its business to include penveu®, a handheld device that adds interactivity to the installed base of projectors and enterprise markets.large screen displays, making any flat surface, from pull down screens to HDTVs, an interactive display system. Except for revenues, which are monitored by product line, the chief operating decision-makers review financial information presented on a consolidated basis for purposes of making operating decisions and assessing financial performance. Accordingly, the Company considers itself to have only a single reporting segment.
INTERPHASE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited
Geographic revenue related to North America and foreign regions is as follows (in thousands):
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2012 | 2011 | 2012 | 2011 | |||||||||||||
| Revenues: | ||||||||||||||||
| North America | $ | 2,098 | $ | 2,155 | $ | 3,897 | $ | 3,853 | ||||||||
| Europe | 689 | 1,166 | 1,341 | 4,129 | ||||||||||||
| Pacific Rim | 683 | 2,856 | 2,246 | 4,883 | ||||||||||||
| Total | $ | 3,470 | $ | 6,177 | $ | 7,484 | $ | 12,865 | ||||||||
Three months ended | Six months ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
Revenues: | ||||||||||||||||
North America | $ | 2,039 | $ | 2,098 | $ | 3,741 | $ | 3,897 | ||||||||
Pacific Rim | 1,198 | 683 | 1,762 | 2,246 | ||||||||||||
Europe | 581 | 689 | 1,595 | 1,341 | ||||||||||||
Total | $ | 3,818 | $ | 3,470 | $ | 7,098 | $ | 7,484 | ||||||||
Additional information regarding revenue by product line is as follows (in thousands):
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2012 | 2011 | 2012 | 2011 | |||||||||||||
| Product Revenues: | ||||||||||||||||
| Telecommunications | $ | 2,649 | $ | 5,256 | $ | 5,756 | $ | 10,715 | ||||||||
| Services | 708 | 519 | 1,489 | 884 | ||||||||||||
| Enterprise | 85 | 361 | 188 | 1,201 | ||||||||||||
| Other | 28 | 41 | 51 | 65 | ||||||||||||
| Total | $ | 3,470 | $ | 6,177 | $ | 7,484 | $ | 12,865 | ||||||||
Three months ended | Six months ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
Product Revenues: | ||||||||||||||||
Telecommunications and enterprise | $ | 2,774 | $ | 2,734 | $ | 5,318 | $ | 5,944 | ||||||||
Services | 1,003 | 708 | 1,725 | 1,489 | ||||||||||||
Other | 41 | 28 | 55 | 51 | ||||||||||||
Total | $ | 3,818 | $ | 3,470 | $ | 7,098 | $ | 7,484 | ||||||||
NOTE 11. - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In December 2011,February 2013, the Financial Accounting Standards Board (“FASB”)FASB issued Accounting Standards Update (“ASU”) 2011-12, ASU 2013-02,Comprehensive Income (Topic(Topic 220), Deferral: Reporting of the Effective Date for Amendments to the Presentation of Reclassifications of ItemsAmounts Reclassified Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. This ASU deferredIncome. The amendments require an entity to provide information about the ASU 2011-05 requirement that companies present reclassification adjustments for each componentamounts reclassified out of accumulated other comprehensive income (“AOCI”) in both net income and other comprehensive incomeby component. In addition, an entity is required to present, either on the face of the financial statements. Companies are still required to present reclassifications out of AOCI on the face of the financial statementsstatement where net income is presented or disclose those amounts in the notes, tosignificant amounts reclassified out of accumulated other comprehensive income by the financial statements. This ASU also defers the requirement to report reclassification adjustments in interim periods.respective line items of net income. This ASU is effective prospectively for interim and annual periods beginning after December 15, 2011 and is to be applied retrospectively.2012. The Company’s adoption of this update did not have a material impact on the consolidated financial statements.
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, 2011.
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 44%increased 10% to $3.5$3.8 million for the three months ended June 30, 2012,2013, compared to $6.2$3.5 million for the same period in the prior year. Our telecommunications and enterprise product revenue decreasedincreased slightly to $2.6$2.8 million for the three months ended June 30, 2012,2013, compared to $2.7 million in the comparable period in the prior year. Our services revenues increased 42% to $1 million for the three months ended June 30, 2013, compared to $708,000 for the same period in the previous year. This increase was primarily related to a large order from an electronic contract manufacturing customer. We expect to continue to fulfill large orders from this customer going forward. All other revenues increased to $41,000, compared to $28,000 in the comparable period last year.
Total revenue decreased 5% to $7.1 million for the six months ended June 30, 2013, compared to $7.5 million for the same period in the prior year. Our telecommunications and enterprise product revenue decreased 11% to $5.3 million for the six months ended June 30, 2013, compared to $5.9 million in the comparable period in the prior year. This decrease was primarily driven by two factors. First, the slowdown in telecommunications equipment spending worldwide, including Europe and the Pacific Rim, has had a negative impact on our major customers and has impacted their purchase volume from us. Second, we experiencedproducts that are end-of-life, which led to significantly reduced sales of an interworking product whererevenue from these products in the primary customer has delayed, until the secondfirst half of 2012, the launch of its product.2013. Our services revenues increased 16% to $708,000 for the three months ended June 30, 2012, compared to $519,000 for the same period in the previous year, because of increases in electronic manufacturing services and, to a lesser degree, increases in electronic engineering design services. As expected, our enterprise product revenue decreased to $85,000 for the three months ended June 30, 2012 compared to $361,000 for the same period in the previous year because the major customer roll-out driving this product line has been completed. All other revenues decreased to $28,000, compared to $41,000 in the comparable period last year.
During the second quarter of 2013, sales to three customers individually accounted for approximately 30%, 19% and 10% of total revenues, continue at these levels, we will work to improve our execution and financial performance and to align our cost structure with this revenue and margin profile. All efforts will be designed to enable us to invest in our business to respond to industry shifts and capitalize on emerging opportunities and to better serve our customers and partners in both the short- and long-term.
Included in accounts receivable at June 30, 20122013 was $944,000, $566,000,$1.1 million and $339,000$814,000 due individually from Alcatel-Lucent, Samsung, and Nokia Siemens Networks,two customers, respectively. Included in accounts receivable at December 31, 20112012 was $786,000$721,000, $401,000, $387,000 and $734,000,$312,000, due individually from Alcatel-Lucent and Nokia Siemens Networks,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 45%37% and 53%45% for the three months ended June 30, 20122013 and 2011,2012, respectively. The decrease in gross margin percentage in the second quarter of 20122013 compared to the same period in the prior year was primarily due to decreaseda revenue mix shift toward lower margin products and services and an increase of $69,000 in excess and obsolete inventory charges, partially offset by increased utilization of our manufacturing facility, partially offset by a shift in product mix toward higher margin products.
Gross margin as a percentage of revenue was 46%38% and 51%46% for the six months ended June 30, 20122013 and 2011,2012, respectively. The decrease in gross margin percentage was primarily due to decreaseda revenue mix shift toward lower margin products and services and an increase of $60,000 in excess and obsolete inventory charges, partially offset by increased utilization of our manufacturing facility, partially offset by a shift in product mix toward higher margin products.
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 $854,000$857,000 and $1.0 million$854,000 for the three months ended June 30, 20122013 and 2011,2012, respectively. During the quarter,three months ended June 30, 2013, there was an increasea decrease in professional services activity,activities, which resulted in an increasea decrease in services revenues. Engineering costs associated with these professional services activities generate revenue; as such,therefore, the related expenses are recorded as cost of sales rather than research and development operating expenses thus causing the primaryexpenses. The decrease in professional services activities resulted in an increase in research and development expenses during the quarter.period of approximately $275,000. This increase in research and development expense was offset by several items. A decrease in personnel-related expenses, as a result of the 2012 restructuring plan, represents approximately 44% of the offsetting items and a decrease in other personnel-related expenses, not associated with the 2012 restructuring plan, represents approximately 33% of the offsetting items. The remaining offsetting items are made up of variable project related expenses. See Note 6 in the notes to condensed consolidated financial statements for more information on the restructuring plan. As a percentage of revenue, research and development expenses were approximately 25%22% in the second quarter of 20122013 compared to approximately 16%25% for the same period in the prior year. The increasedecrease in research and development expenses as a percentage of total revenue was due to revenue decreasingincreasing at a higher rate than research and development expenses.
Our investment in research and development was $1.8$1.7 million and $2.0$1.8 million for the six months ended June 30, 2013 and 2012, respectively. This decrease in research and 2011, respectively. Duringdevelopment expense was made up of several items. A decrease in personnel-related expenses, as a result of the first six months2012 restructuring plan, represents approximately 35% of the decrease and a decrease in other personnel-related expenses, not associated with the 2012 thererestructuring plan, represents approximately 29% of the decrease. The remaining decrease was an increasemade up of variable project related expenses. These decreases in research and development expense were partially offset by a decrease in professional services activity, which resulted in an increase in services revenues.activities. Engineering costs associated with these professional services activities generate revenue; as such,therefore, the related expenses are recorded as cost of sales rather than research and development operating expenses thus causing the primaryexpenses. The decrease in professional services activities resulted in an increase in research and development expenses during the this period.period of approximately $545,000. See Note 6 in the notes to condensed consolidated financial statements for more information on the restructuring plan. As a percentage of revenue, research and development expenses were approximately 24% for the six months ended June 30, 2012 compared to approximately 16% for the same period in the prior year. The increase in research2013 and development expenses as a percentage of total revenue was due to revenue decreasing at a higher rate than research and development expenses.2012. 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 $732,000 and $1.1 million and $872,000 for the three months ended June 30, 2013 and 2012, respectively. Approximately 48% of the decrease in sales and 2011, respectively.marketing expense was due to a decrease in personnel-related expenses. The increaseremaining decrease in sales and marketing expense was primarily due to an increasea decrease in marketing public relations and tradeshow activities related to the introduction of our new product, penveu™.expenses. As a percentage of revenue, sales and marketing expenses were approximately 33%19% for the second quarter of 2012,2013, compared to approximately 14%33% for the same period in the prior year. The increasedecrease in sales and marketing expenses as a percentage of total revenue was due to sales and marketing expenses increasingdecreasing while revenue decreased.
Sales and marketing expenses were $2.0$1.4 million and $1.9$2.0 million for the six months ended June 30, 2013 and 2012, respectively. Approximately 54% of the decrease in sales and 2011, respectively.marketing expense was due to a decrease in personnel-related expenses. The increaseremaining decrease in sales and marketing expense was primarily due to an increase in marketing, public relations and tradeshow activities related to the introduction of our new product, penveu™, partially offset by a decrease in variable compensation attributable to lower revenue year over year.marketing and tradeshow related expenses. As a percentage of revenue, sales and marketing expenses were approximately 27%20% for the six months ended June 30, 2012,2013, compared to approximately 15%27% for the same period in the prior year. The increasedecrease in sales and marketing expenses as a percentage of total revenue was due to sales and marketing expenses increasing while revenue decreased.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 $731,000$691,000 and $1.0 million$731,000 for the three months ended June 30, 2013 and 2012, and 2011, respectively. The decrease in general and administrative expenses was primarily due to a decrease in legal services expense of $170,000 and a decrease in variable compensation expense of $95,000. As a percentage of revenue, general and administrative expenses were approximately 21% in18% for the second quarter 2012of 2013 and 17%21% for the same period in the prior year. The increasedecrease 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.
General and administrative expenses were $1.7$1.6 million and $2.0$1.7 million for the six months ended June 30, 20122013 and 2011,2012, respectively. The decrease in general and administrative expensesexpense was primarily due to a decrease in variable compensation expense of $180,000depreciation and a decrease in legal services expense of $70,000.amortization expense. As a percentage of revenue, general and administrative expenses were approximately 22% for the six months ended June 30, 20122013 and 16% 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.2012. 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. These amounts were paid out under the restructuring plan by June 30, 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 of interest expense, decreased to $6,000was $2,000 for the three months ended June 30, 2012 from $8,000 in the comparable period in the prior year. Interest income, net of interest expense, increased to $15,000 for the six months ended June 30, 2012 from $11,000 in the comparable period in the prior year.
Income Taxes
Our tax expense rate was 0.9% for the six months ended June 30, 2013, compared to a tax benefit rate wasof 0.4% for the six months ended June 30, 2012, compared to a tax expense rate of 4.0% for the six months ended June 30, 2011.2012. 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 June 30, 20122013 and June 30, 2011.2012. The tax benefitexpense and tax expensebenefit in the periods presented primarily relatesrelate to tax in a foreign jurisdiction.
Net (Loss) Income
We reported a net loss of $895,000 for the three months ended June 30, 2013 and a net loss of approximately $1.1 million for the three months ended June 30, 2012 and a net income of $317,0002012. Basic loss per share for the three months ended June 30, 2011.2013 was ($0.13). Basic loss per share for the three months ended June 30, 2012 was ($0.16). Basic earnings per share for the three months ended June 30, 2011 was $0.05. Diluted earnings per share for the three months ended June 30, 2011 was $0.04.
We reported a net loss of approximately $2.3 million for the six months ended June 30, 2013 and a net loss of approximately $2.1 million for the six months ended June 30, 2012 and a net income of $548,0002012. Basic loss per share for the six months ended June 30, 2011.2013 was ($0.33). Basic loss per share for the six months ended June 30, 2012 was ($0.30). Basic and diluted earnings per share for the six months ended June 30, 2011 was $0.08.
On April 18, 2012 we announced the debut of penveuTM. penveu is a handheld device that enhances the functionality of installed projectors and large screen displays; making any flat surface, from pull down screens to HDTVs, an interactive display system. Using embedded computer vision technology, penveu works with any device with a VGA connection and requires no software or driver installation, no particular operating system, and no periodic calibration. penveu is targeted at the education and enterprise markets. An independent source estimates the interactive whiteboard market to grow to approximately $1.8 billion in revenue in 2012. However, penveu also has the unique ability to turn the estimated over 80 million projectors and 10 million large screen displays that are currently installed worldwide into interactive display devices. The retail price of penveu will be less than 25% of the average price of a typical interactive whiteboard and, unlike an interactive whiteboard, penveu will not require the time and expense of installation. penveu will be offered and sold through our website, other online retailers and catalogs. During the three months ended June 30, 2012, we made significant investments in development, marketing and infrastructure associated with penveu to position this important product for a successful launch.
Consolidated Cash Flows
Cash and cash equivalents decreased $673,000 from December 31, 2012 to June 30, 2013 and decreased approximately $2.2 million from December 31, 2011 to June 30, 2012 and increased $3.5 million from December 31, 2010 to June 30, 2011.2012. Cash flows are impacted by operating, investing and financing activities.
Operating Activities
Trends in cash flows from operating activities for the six months ended June 30, 20122013 and 20112012 are generally similar to the trends in our earnings except for the (recovery of)/provision for uncollectible accounts and returns, provision for excess and obsolete inventories, depreciation and amortization and amortization of stock-based compensation.compensation expense. Cash used in operating activities totaled $2.3$1.5 million for the six months ended June 30, 2012,2013, compared to a net loss of $2.1 million.$2.3 million for that period. Provision for uncollectible accounts and returns decreased $5,000increased $11,000 for the six months ended June 30, 20122013 compared to the same period in 2011.2012. Provision for excess and obsolete inventories increased $20,000$60,000 for the six months ended June 30, 20122013 compared to the same period in 2011.2012. Depreciation and amortization decreased $56,000$108,000 for the six months ended June 30, 20122013 compared to the same period in 2011.2012. Amortization of stock-based compensation increased $140,000$40,000 for the six months ended June 30, 20122013 compared to the six months ended June 30, 2011 primarily due to stock options issued during the first and second quarter ofsame period in 2012. See Note 2 in the notes to condensed consolidated financial statements for more information on stock-based compensation.
Changes in assets and liabilities result primarily from the timing of production, sales, purchases and payments except for the increase in inventory during the quarter which was primarily due to the purchase of parts for penveu and parts associated with an interworking product where the primary customer has delayed the launch of its product.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 $795,000 and cash used in investing activities totaled $805,000 and cash provided by investing activities totaled $2.8 million for the six months ended June 30, 20122013 and 2011,2012, respectively. Cash provided by or used in or provided by investing activities in each of the periods related principally to our investments in marketable securities additions toand purchases of property and equipment and capitalized software purchases.software. Additions to property and equipment and capitalized software were $21,000 for the six months ended June 30, 2013, compared to $229,000 for the six months ended June 30, 2012, compared to $157,0002012. The additions for the six months ended June 30, 2011.2013 primarily related to equipment purchases for our manufacturing function. The additions for the six months ended June 30, 2012 primarily related to software and equipment purchases for our newly announced product, penveu™,penveu® and equipment purchases for our manufacturing function. The additions for the six months ended June 30, 2011 primarily related to software and equipment purchases for our manufacturing, engineering and administrative functions. Purchases of marketable securities were $4.8$6.9 million and $1.1$4.8 million for the six months ended June 30, 20122013 and 2011,2012, respectively. Proceeds from the sale of marketable securities increased to $7.7 million for the six months ended June 30, 2013, compared to $4.2 million for the six months ended June 30, 2012, compared to $4.1 million2012.
Financing Activities
There was no net cash provided by or used in financing activities for the six months ended June 30, 2011.
Restructuring Charge
On September 30, 2010,October 19, 2012, we initiatedcommitted to a restructuring plan intended to mitigate gross margin erosion by reducing manufacturing and procurement costs, streamline research and development expense and focus remaining resources on key strategic growth areas, and reduce selling and administrativeimprove the balance between our telecommunications product expenses throughwith the reduced revenue levels of this product rationalization and consolidation of support functions.line. Under the 20102012 restructuring plan, we reduced our worldwide work forceworkforce by 39 employees, including the closure of our European engineering and support center located in Chaville, France.10 regular full-time positions. As a result of the 20102012 restructuring plan, we recorded a restructuring charge of approximately $3.3 million,$253,000, classified as an operating expense, in the thirdfourth quarter of 20102012 related to future cash expenditures to cover employee severance and benefits and other related costs. Cash payments, net of currency translation adjustments, duringbenefits. During the three and six months ended June 30, 2011 were approximately $141,000March 31, 2013, we reduced our restructuring charge by $67,000 related to reduced future cash expenditures related to severance and $1.2 million, respectively.benefits for a former employee. The remaining liability asformer employee’s accepting other employment in April 2013 reduced the amount of June 30, 2011 was $29,000. These amounts were paid outseverance and benefit payouts by us. The following table summarizes the timing of payments under the restructuring plan by the end of 2011.
Description | Severance & Fringe 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 | ) | ||
Cash payments during quarter ended June 30, 2013 | (23 | ) | ||
Remaining liability as of June 30, 2013 | $ | - | ||
Commitments
At June 30, 2012,2013, we had no material commitments to purchase capital assets; however, planned capital expenditures for the remainder of 20122013 are estimated at approximately $150,000, a significant portion of$180,000, which primarily relates to enhancements to our manufacturing equipment and tools.equipment. At June 30, 2012,2013, we had $6,000approximately $270,000 of non-cancelable purchase commitments for product tooling and testinginventory 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 and future debt payments.system. We have not paid any dividends since our inception and do not anticipate paying any dividends in 2012.
Other
Management believes that borrowing availability under the revolving credit facility, together with cash on hand and marketable securities, will be sufficient to meet our liquidity needs for working capital, capital expenditures, debt service and debt service.other obligations for the next twelve months. 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 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, 2011.2012.
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.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Currency Risk
We are exposed to adverse movements in foreign currency exchange rates because we conduct business on a global basis and, in some cases, in foreign currencies. The Company’s operations in France were transacted in the local currency and converted into U.S. Dollars based on published exchange rates for the periods reported and were therefore subject to risk of exchange rate fluctuations. The Euro to U.S. Dollar translation accounted for charges of $1,000 and $15,000 for the three months ended June 30, 20122013 and 2011, respectively.2012. The Euro to U.S. Dollar translation accounted for charges of $12,000$4,000 and $18,000$12,000 for the six months ended June 30, 2013 and 2012, and 2011, respectively. This risk was significantly reduced due to the closure of our French operations at the end of 2010.
Market Price Risk
We had no equity hedge contracts outstanding as of June 30, 20122013 or December 31, 2011.
Interest Rate Risk
Our investments are subject to interest rate risk. Interest rate risk is the risk that our financial condition and results of operations could be adversely affected due to movements in interest rates. We invest our cash in a variety of interest-earning financial instruments, including bank time deposits, money market funds, and variable rate and fixed rate obligations of corporations and national governmental entities and agencies. Due to the demand nature of our money market funds and the short-term nature of our time deposits and debt securities portfolio, these assets are particularly sensitive to changes in interest rates. We manage this risk through investments with shorter-term maturities and varying maturity dates.
A hypothetical 50 basis point increase in interest rates would result in an approximate decrease of less than 1% in the fair value of our available-for-sale securities at June 30, 2012.2013. This potential change is based on sensitivity analyses performed on our marketable securities at June 30, 2012.2013. Actual results may differ materially. The same hypothetical 50 basis point increase in interest rates would have resulted in an approximate decrease of less than 1% in the fair value of our available-for-sale securities at December 31, 2011.
We maintain a $5.0 million revolving bank credit facility maturing December 19, 20132015 with an applicable interest rate on any outstanding balances under the credit facility based on London Interbank Offered Rate (“LIBOR”) plus 1.0% to 1.5% applicable margin rate based on certain factors included in our credit agreement. The interest rate on the borrowings under the revolving credit facility was 2.0%1.7% and 1.8%1.2% at June 30, 20122013 and December 31, 2011,2012, respectively. The unused portion of the credit facility is subject to an unused facility fee ranging from .25% to .75% depending on total deposits with the creditor. A hypothetical 50 basis point increase in LIBOR would increase annual interest expense on this credit facility by $17,500. All$17,500.All borrowings under this facility are secured by marketable securities. Subsequent to June 30, 20122013 and prior to the Company’s filing of the condensed consolidated financial statements, the outstanding balance on the credit facility was repaid.
Item 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company’s management, under the supervision of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), performed an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this quarterly report.report using the “Internal Control – Integrated Framework (1992)” created by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) framework. Based on that evaluation, the CEO and CFO concluded that the Company’s disclosure controls and procedures are designed, and are effective, to give reasonable assurance that the information required to be disclosed by the Company in reports that it files under the Securities Exchange Act of 1934 is accumulated and communicated to management, including the CEO and CFO, to allow timely decisions regarding disclosure and that information is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.
Changes in Internal Controls
The Company maintains a system of internal controls that is designed to provide reasonable assurance that its books and records accurately reflect, in all material respects, the transactions of the Company and that its established policies and procedures are adhered to. From time to time the Company may experience changes to its internal controls due, for example, to employee turnover, re-balancing of workloads, extended absences and promotions of employees. However, there were no changes in our internal controls over financial reporting during the quarter ended June 30, 20122013 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
PART II
OTHER INFORMATION
French Restructuring Litigation:Item 1. LEGAL PROCEEDINGS
Twenty-five former employees (“Plaintiffs”) of Interphase SAS, a subsidiary of Interphase Corporation, brought suit in France against Interphase SAS alleging various causes of action and rights to damages relating to claims of wrongful dismissal of employment, specific French employment indemnities, general economic losses, and contractual claims relating specifically to their employment relationship and contracts entered into between the individual and Interphase SAS. The lawsuits were filed between November 2010 and April 2011 and are pending inwere filed before the Labor Court of Boulogne-Billancourt, France and the Administrative Court of Cergy-Pontoise, France. The various claims and assertions arise from, and relate to, the Plaintiffs’ release from employment as part of the restructuring actions taken during the third quarter of 2010. See Note 6 in the notes to the condensed consolidated financial statements for more information regarding the restructuring plan. The updated statement of claim is for an aggregate payment of approximately €3.1€2.1 million, which translated to approximately $3.9$2.7 million at June 30, 2012,2013, related to these claims. The Company believesbelieved that the Plaintiffs’ claims arewere without merit and plans to continue to vigorously defenddefended itself in this lawsuit.
On March 22, 2012, a hearing was conducted withbefore the Labor Court of Boulogne-Billancourt,ofBoulogne-Billancourt, France related to the claims of twenty-three of the twenty-five former employees. On May 31, 2012, the Court reported that the four judges’ votes were split; therefore, another hearing ofbefore the Labor Court will be scheduled.took place on January 25, 2013. The same four judges will hearheard the case again, along with a professional judge from another court to ensure that a majority decision will be reached. A date
The decision of the Labor Court regarding the claims of twenty-two former employees was rendered on March 22, 2013. All employee claims were rejected, because the Labor Court ruled that the redundancy procedure was regular and that redundancies were based on valid reasons, except claims from four plaintiffs based on non-competition indemnity (amounting in total to €265,000, which translated to approximately $340,000 at March 31, 2013). During the three months ended March 31, 2013, the Company recorded a charge of approximately $340,000 classified as other loss on its condensed consolidated statements of operations and as a current liability on its condensed consolidated balance sheets. Related to the claims of four plaintiffs based on non-competition indemnity, one of these plaintiffs has filed an appeal; therefore, related to this plaintiff, the Company is currently evaluating its appeal options. The Company is not yet been scheduled for this hearing.filing an appeal related to the other three plaintiffs claims based on non-competition indemnity. Fourteen other former employees filed an appeal. The Company intends to defend itself against these appeals.
On May 22, 2012, a hearing was conducted withbefore the Labor Court of Boulogne-Billancourt,ofBoulogne-Billancourt, France related to the claims of one of the twenty-five former employees.employees with non-executive status. On July 31, 2012, the Court reported that the four judges’ votes were split; therefore, another hearingthe Labor Court decided to join this case to the cases of the other twenty-three former employees described above in order to be heard again at the same hearing. Therefore, this casewas heard again at the hearing on January 25, 2013 before the Labor Court. On March 22, 2013, the Labor Court will be scheduled. The same four judges willrejected this former employee's claims.
Among the twenty-five cases described above, two former employees were made redundant related to a decision of the Labor Inspector to authorize their redundancy. Because of their protected status as employee representatives, their redundancy required the prior authorization of the French administration. Each of those former employees also filed a claim before the Administrative Tribunal in order to challenge the decision of the Labor Inspector which authorized their redundancy. Although each such claim or action is directed against the State, Interphase is also a party to these proceedings. These cases are still pending before the Administrative Tribunal, and the date of the hearing has not been scheduled since additional briefs and evidence are still being communicated.
For one of the twenty-five former employees, who was an employee representative, the Labor Court granted the Company’s motion at the January 25, 2013 hearing; the Labor Court rejected the plaintiff’s claim to hear the case again, along with a professional judge from another courton the merits, regarding the alleged irregularity of the information and consultation procedure, and postponed this case in deference to ensure that a majority decisionthe pending case before the Administrative Tribunal as described above. This case will be reached. A date has not yet been scheduled for this hearing.
On June 12, 2012, a hearing was conducted with the Labor Court of Boulogne-Billancourt,ofBoulogne-Billancourt, France related to the claims of one of the twenty-five former employees.employees, who was also an employee representative. The Labor Court granted the Company’s motion and rejected the plaintiff’s claim to hear the case on the merits, regarding the alleged irregularity of the information and consultation procedure, and decided to postpone this case in deference to the pending case before the Administrative Tribunal as described above. This case was heard again on May 28, 2013. The Labor Court rendered the same decision and again postponed the hearing on this case until May 28, 2013 or until the Administrative Court rulesTribunal makes its decision; therefore, this case will be heard again on this case.
Item 1A. RISK FACTORS
There have been no material changes from the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2011.
The common stock is now listed on the Nasdaq Capital Market. If the stock does not continue to be traded on an established exchange, an active trading market may not exist and the trading price of the stock may decline.
On April 11, 2013, the Company received notification from the Listing Qualifications Department of the Nasdaq Stock Market LLC (“Nasdaq”) that the Company’s application to list its common stock on the Nasdaq Capital Market was approved and that the listing of the Company’s securities was transferred from the Nasdaq Global Market to the Nasdaq Capital Market at the opening of business on April 15, 2013. The Nasdaq Capital Market is one of the three markets for Nasdaq-listed securities and generally operates in the same manner as the Nasdaq Global Market. Companies listed on the Nasdaq Capital Market must meet certain financial requirements and adhere to Nasdaq’s corporate governance standards. The Company’s common stock will continue to trade under the symbol “INPH”.
The Company currently anticipates that it will be able to satisfy the continuing listing standards for the Nasdaq Capital Market. Nevertheless, there can be no assurance that it will be able to do so. If there were a failure to satisfy the continued listing requirements and the deficiency could not be corrected or resolved, the Company's common stock could be delisted by the Nasdaq Capital Market. In that event, the common stock may be eligible to be trade on the OTC Bulletin Board or the Pink OTC Markets. In such an event, it may become more difficult to dispose of, or obtain accurate quotations for the price of, our common stock, and there would also likely be a reduction in our coverage by the news media, which could cause the price of the common stock to decline further.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. MINE SAFETY DISCLOSURES
None.
Item 5.OTHER INFORMATION
None.
Item 6. EXHIBITS
Exhibits
31 (a) Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.
31 (b) Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.
32 (a) Section 1350 Certification of Chief Executive Officer.
32 (b) Section 1350 Certification of Chief Financial Officer.
101.INS XBRL Instance Document. *
101.SCH XBRL Taxonomy Extension Schema Document. *
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document. *
101.LAB XBRL Taxonomy Extension Label Linkbase Document. *
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document. *
101.DEF XBRL Taxonomy Extension Definition Linkbase Document. *
* Furnished electronically herewith, but (in accordance with Rule 406T of Regulation S-T) not deemed “filed”.
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: August | By: | /s/ Thomas N. Tipton Jr. | |
| Thomas N. Tipton Jr. | |||
| Chief Financial Officer, Secretary, | |||
| Vice President of Finance and Treasurer | |||
| (Principal Financial and Accounting Officer) | |||
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