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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2008
 OR
 o
    
    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: 0-13071
 INTERPHASE CORPORATION
  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
 (214) 654-5000
 þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



INTERPHASE CORPORATION
 Index to Form 10-Q
Quarterly Period Ended March 31, 2008
 Part I -Financial InformationItem 1. Condensed Consolidated Financial Statements (unaudited)Condensed Consolidated Balance Sheets as of March 31, 2008
and December 31, 2007
    
    
    2Condensed Consolidated Statements of Operations for the three
months ended March 31, 2008 and 2007
    
    
    3Condensed Consolidated Statements of Cash Flows for the three months
ended March 31, 2008 and 2007
    
    
    4Notes to Condensed Consolidated Financial Statements
    
    
    5Item 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations
    
    
    11Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    14Item 4. Controls and Procedures
    
    
    15Part II  Other InformationItem 1. Legal Proceedings
    
    
    16Item 1A. Risk Factors
    
    
    16Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    16Item 3. Defaults Upon Senior Securities
    
    
    16Item 4. Submission of Matters to a Vote of Security Holders
    
    
    16Item 5. Other Information
    
    
    16Item 6. Exhibits
    
    
    16Rule 13(a)-14(a)/15d-14(a) CertificationRule 13(a)-14(a)/15d-14(a) CertificationSection 1350 CertificationSection 1350 Certification




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PART I
FINANCIAL INFORMATION
 
 Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 INTERPHASE CORPORATION
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
   March 31,
    
    December 31,ASSETS
    
    2008
    
    2007Cash and cash equivalents
    
    $
    5,816
    
    
    $
    6,384Marketable securities
    
    
    13,617
    
    
    
    14,185Trade accounts receivable, less allowances
of $140 and $173, respectively
    
    
    6,938
    
    
    
    7,550Inventories
    
    
    2,680
    
    
    
    2,886Prepaid expenses and other current assets
    
    
    1,264
    
    
    
    1,391Total current assets
    
    
    30,315
    
    
    
    32,396Machinery and equipment
    
    
    7,120
    
    
    
    6,962Leasehold improvements
    
    
    435
    
    
    
    427Furniture and fixtures
    
    
    588
    
    
    
    5748,143
    
    
    
    7,963Less-accumulated depreciation and amortization
    
    
    (7,075
    )
    
    
    (6,879
    )Total property and equipment, net
    
    
    1,068
    
    
    
    1,084Capitalized software, net
    
    
    1,704
    
    
    
    1,817Other assets
    
    
    1,256
    
    
    
    883Total assets
    
    $
    34,343
    
    
    $
    36,180LIABILITIES AND SHAREHOLDERS EQUITYLiabilitiesAccounts payable
    
    $
    1,123
    
    
    $
    2,304Deferred revenue
    
    
    50
    
    
    
    30Accrued liabilities
    
    
    1,220
    
    
    
    1,387Accrued compensation
    
    
    1,517
    
    
    
    1,645Total current liabilities
    
    
    3,910
    
    
    
    5,366Deferred lease obligations
    
    
    39
    
    
    
    52Long-term debt
    
    
    3,500
    
    
    
    3,500Total liabilities
    
    
    7,449
    
    
    
    8,918Commitments and ContingenciesShareholders EquityCommon stock, $0.10 par value; 100,000,000
shares authorized; 6,523,204 and
6,500,294 shares issued and outstanding,
respectively
    
    
    652
    
    
    
    650Additional paid in capital
    
    
    42,318
    
    
    
    42,267Retained deficit
    
    
    (15,732
    )
    
    
    (15,204
    )Cumulative other comprehensive loss
    
    
    (344
    )
    
    
    (451
    )Total shareholders equity
    
    
    26,894
    
    
    
    27,262Total liabilities and shareholders equity
    
    $
    34,343
    
    
    $
    36,180
 The accompanying notes are an integral part of these condensed consolidated financial statements.
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INTERPHASE CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
   Three Months EndedMarch 31,2008
    
    2007Revenues
    
    $
    7,471
    
    
    $
    5,104Cost of sales
    
    
    3,134
    
    
    
    2,405Gross margin
    
    
    4,337
    
    
    
    2,699Research and development
    
    
    2,870
    
    
    
    2,538Sales and marketing
    
    
    1,499
    
    
    
    1,412General and administrative
    
    
    908
    
    
    
    957Restructuring charge
    
    
    365
    
    
    
    Total operating expenses
    
    
    5,642
    
    
    
    4,907Loss from operations
    
    
    (1,305
    )
    
    
    (2,208
    )Interest income, net
    
    
    163
    
    
    
    201Other income, net
    
    
    303
    
    
    
    95Loss before income tax
    
    
    (839
    )
    
    
    (1,912
    )Income tax benefit
    
    
    (311
    )
    
    
    (60
    )Net loss
    
    $
    (528
    )
    
    $
    (1,852
    )Net loss per share:Basic EPS
    
    $
    (0.08
    )
    
    $
    (0.30
    )Diluted EPS
    
    $
    (0.08
    )
    
    $
    (0.30
    )Weighted average common shares
    
    
    6,295
    
    
    
    6,076Weighted average common and
dilutive shares
    
    
    6,295
    
    
    
    6,076
 The accompanying notes are an integral part of these condensed consolidated financial statements.
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INTERPHASE CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
   Three Months EndedMarch 31,2008
    
    2007Cash flows from operating activities:Net loss
    
    $
    (528
    )
    
    $
    (1,852
    )Adjustments to reconcile net loss to net cash used in
operating activities:Provision for uncollectible accounts and returns
    
    
    (32
    )
    
    
    (8
    )Provision for excess and obsolete inventories
    
    
    
    
    
    
    100Depreciation and amortization
    
    
    219
    
    
    
    185Amortization of restricted stock
    
    
    50
    
    
    
    77Write-off of impaired capitalized software
    
    
    69
    
    
    
    Change in assets and liabilities:Trade accounts receivable
    
    
    644
    
    
    
    1,850Inventories
    
    
    206
    
    
    
    (53
    )Prepaid expenses and other current assets
    
    
    218
    
    
    
    2Other assets
    
    
    (296
    )
    
    
    Accounts payable, deferred revenue and accrued liabilities
    
    
    (1,343
    )
    
    
    (474
    )Accrued compensation
    
    
    (213
    )
    
    
    (789
    )Deferred lease obligations
    
    
    (13
    )
    
    
    (8
    )Net cash used in operating activities
    
    
    (1,019
    )
    
    
    (970
    )Cash flows from investing activities:Purchase of property and equipment
    
    
    (84
    )
    
    
    (75
    )Purchase of capitalized software
    
    
    (57
    )
    
    
    (84
    )Proceeds from the sale of marketable securities
    
    
    3,076
    
    
    
    2,445Purchase of marketable securities
    
    
    (2,420
    )
    
    
    (4,595
    )Net cash provided by (used in) investing activities
    
    
    515
    
    
    
    (2,309
    )Cash flows from financing activities:Proceeds from the exercise of stock options
    
    
    2
    
    
    
    104Net cash provided by financing activities
    
    
    2
    
    
    
    104Effect of exchange rate changes on cash and cash equivalents
    
    
    (66
    )
    
    
    (12
    )Net decrease in cash and cash equivalents
    
    
    (568
    )
    
    
    (3,187
    )Cash and cash equivalents at beginning of period
    
    
    6,384
    
    
    
    9,061Cash and cash equivalents at end of period
    
    $
    5,816
    
    
    $
    5,874
 The accompanying notes are an integral part of these condensed consolidated financial statements.
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INTERPHASE CORPORATION
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited)
 NOTE 1.    BASIS OF PRESENTATION
 ®
  NOTE 2.    STOCK-BASED COMPENSATION
   Number of
    
    
    Weighted AverageOptions
    
    
    Option PriceBalance, December 31, 2007
    
    
    1,698,801
    
    
    $
    9.67Granted
    
    
    
    
    
    
    Exercised
    
    
    (500
    )
    
    
    4.12Canceled
    
    
    (1,500
    )
    
    
    7.36Balance, March 31, 2008
    
    
    1,696,801
    
    
    $
    9.67
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INTERPHASE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
   WeightedRestricted Stock
    
    
    Average GrantShares
    
    
    Date ValueNonvested restricted stock at December 31, 2007
    
    
    207,560
    
    
    $
    8.53Granted
    
    
    82,700
    
    
    
    8.96Vested
    
    
    (4,835
    )
    
    
    11.06Cancelled/Forefeited
    
    
    (60,290
    )
    
    
    10.13Nonvested restricted stock at March 31, 2008
    
    
    225,135
    
    
    $
    8.21
 NOTE 3.    INVENTORIES
  March 31, 2008
    
    December 31, 2007Raw materials
    
    $
    1,933
    
    
    $
    2,038Work-in-process
    
    
    455
    
    
    
    594Finished goods
    
    
    292
    
    
    
    254Total
    
    $
    2,680
    
    
    $
    2,886
  NOTE 4.    DERIVATIVE FINANCIAL INSTRUMENTS
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INTERPHASE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 NOTE 5.    INCOME TAXES
      NOTE 6.    RESTRUCTURING CHARGE
  7




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INTERPHASE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
  Cash payments
    
    RemainingRestructuring
    
    during quarter ended
    
    Liability as ofDescription
    
    Charge
    
    March 31, 2008
    
    March 31, 2008Severance & Fringe Benefits
    
    $

    365

    
    $

    7

    
    $

    358Lease Obligation
    
    

    

    
    

    

    
    

    Total
    
    $

    365

    
    $

    7

    
    $

    358
 NOTE 7.    CREDIT FACILITY
  NOTE 8.    COMPREHENSIVE INCOME
  Three months endedMarch 31,2008
    
    2007Net loss
    
    $
    (528
    )
    
    $
    (1,852
    )Other comprehensive income:Unrealized holding gain arising
during period, net of tax
    
    
    42
    
    
    
    12Foreign currency translation adjustment
    
    
    65
    
    
    
    15Comprehensive loss
    
    $
    (421
    )
    
    $
    (1,825
    )
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INTERPHASE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 NOTE 9.    EARNINGS PER SHARE
  Three months endedMarch 31,2008
    
    2007Basic loss per share:Net loss
    
    $
    (528
    )
    
    $
    (1,852
    )Weighted average common shares outstanding
    
    
    6,295
    
    
    
    6,076Basic loss per share
    
    $
    (0.08
    )
    
    $
    (0.30
    )Diluted loss per share:Net loss
    
    $
    (528
    )
    
    $
    (1,852
    )Weighted average common shares outstanding
    
    
    6,295
    
    
    
    6,076Dilutive stock options and restricted stock
    
    
    
    
    
    
    Weighted average common shares outstanding
- assuming dilution
    
    
    6,295
    
    
    
    6,076Diluted loss per share
    
    $
    (0.08
    )
    
    $
    (0.30
    )Outstanding stock options and unvested
restricted stock that were not included in
the diluted calculation because their
effect would be anti - dilutive
    
    
    1,271
    
    
    
    1,467
 NOTE 10.    SEGMENT INFORMATION
   Three months endedMarch 31,2008
    
    2007Revenues:Pacific Rim
    
    $
    3,065
    
    
    $
    1,864North America
    
    
    2,507
    
    
    
    2,998Europe
    
    
    1,899
    
    
    
    242Total
    
    $
    7,471
    
    
    $
    5,104
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INTERPHASE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
  Three months endedMarch 31,2008
    
    2007Product Revenues:Broadband telecom
    
    $
    5,779
    
    
    $
    4,042Enterprise
    
    
    433
    
    
    
    727Professional services
    
    
    117
    
    
    
    41Other
    
    
    1,142
    
    
    
    294Total
    
    $
    7,471
    
    
    $
    5,104
 NOTE 11.    RECENTLY ISSUED ACCOUNTING PROUNOUCEMENTS
     10




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Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 FORWARD-LOOKING STATEMENTS
  RESULTS OF OPERATIONS
 Revenue
   Gross Margin
  Research and Development
  11




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Sales and Marketing
  General and Administrative
  Restructuring Charge
  Interest Income, Net
  Other Income, Net
  12




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Income Taxes
   Net Loss
  LIQUIDITY AND CAPITAL RESOURCES
 Consolidated Cash Flows
  Operating Activities
   Investing Activities
  13




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Financing Activities
  Commitments
 Commitments
  Off-Balance Sheet Arrangements
  Other
    
 Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Foreign Currency Risk
   14




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Market Price Risk
  Interest Rate Risk
    
 Item 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Controls
  15




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PART II
OTHER INFORMATION
 
 Item 1. LEGAL PROCEEDINGS
  
 Item 1A. RISK FACTORS
  
 Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 Item 3. DEFAULTS UPON SENIOR SECURITIES
  
 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 Item 5. OTHER INFORMATION
  
 Item 6. EXHIBITS
 Exhibits
 3 (a)
    
    Certificate of Incorporation of the registrant. (1)3 (b)
    
    Amendment to Articles of Incorporation of the registrant. (2)3 (c)
    
    Amended and Restated Bylaws of the registrant adopted on July 27, 2007. (4)4 (a)
    
    Rights Agreement dated as of December 7, 2000 by and between the Company and
Computershare Investor Services, LLC as Rights Agent. (3)10 (a)
    
    Lease on Facility at Parkway Center, Phase I, Plano, Texas. (5)10 (b)
    
    Lease on Facility at 2105 Luna Road, Carrollton, Texas. (5)10 (c)
    
    Note and Credit Agreement between Interphase Corporation and Comerica Bank, including
Amendment dated November 5, 2004. (6)10 (d)
    
    Employment Agreement with Gregory B. Kalush, dated March 12, 1999. *(8)10 (e)
    
    Employment, Confidentiality, and Non-Competition Agreement with Thomas N. Tipton, Jr.,
dated December 19, 2005. *(8)10 (f)
    
    Employment, Confidentiality, and Non-Competition Agreement with Randall E. McComas,
dated February 15, 2002. *(8)10 (g)
    
    Employment Agreement with Deborah A. Shute, dated November 24, 1999. *(8)10 (h)
    
    Employment, Confidentiality, and Non-Competition Agreement with James W. Gragg,
dated November 1, 2004. *(8)10 (i)
    
    Employment, Confidentiality, and Non-Competition Agreement with Prasad Kallur,
dated May 23, 2005. *(8)10 (j)
    
    Interphase Corporation 2004 Long-Term Stock Incentive Plan *(7)10 (k)
    
    Employment, Confidentiality, and Non-Competition Agreement with Marc E. DeVinney dated
August 31, 2007. *(9)31 (a)
    
    Rule 13a-14(a)/15d-14(a) Certification. (10)31 (b)
    
    Rule 13a-14(a)/15d-14(a) Certification. (10)32 (a)
    
    Section 1350 Certification. (10)32 (b)
    
    Section 1350 Certification. (10)
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(1)
    
    Filed as an exhibit to Registration Statement No. 2-86523 on Form S-1 and incorporated
herein by reference.(2)
    
    Filed as an exhibit to Report on Form 10-K for the year ended December 31, 1999, and
incorporated herein by reference.(3)
    
    Filed as an exhibit to Form 8-K on January 9, 2001, and incorporated herein by reference.(4)
    
    Filed as an exhibit to Report on Form 8-K on July 31, 2007, and incorporated herein by reference.(5)
    
    Filed as an exhibit to Report on Form 10-Q for the quarter ended September 30, 2002, and
incorporated herein by reference.(6)
    
    Filed as an exhibit to Report on Form 10-K for the year ended December 31, 2004, and
incorporated herein by reference.(7)
    
    Filed as an exhibit to Schedule 14a on March 31, 2005 and incorporated herein by reference.(8)
    
    Filed as an exhibit to Report on Form 10-K for the year ended December 31, 2005, and
incorporated herein by reference.(9)
    
    Filed as an exhibit to Report on Form 8-K on August 31, 2007, and incorporated herein by
reference.(10)
    
    Filed herewith
 
 *
    
    Management contract or compensatory plan or arrangement. 
 SIGNATURE
  INTERPHASE CORPORATION
(Registrant)Date: May 13, 2008
    By:
    /s/ Thomas N. Tipton Jr.Thomas N. Tipton Jr.Chief Financial Officer,

Vice President of Finance and

Treasurer


(Principal Financial and

Accounting Officer) 17