##### Table of Contents



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, 2010
 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
 Yes o No o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller Reporting Company þ
 o þ




---



##### 



INTERPHASE CORPORATION
 Index to Form 10-Q
Quarterly Period Ended March 31, 2010
 Part I  Financial InformationItem 1. Condensed Consolidated Financial Statements (unaudited)
    
    
    2Condensed Consolidated Balance Sheets as of March 31, 2010
and December 31, 2009
    
    
    2Condensed Consolidated Statements of Operations for the three
months ended March 31, 2010 and 2009
    
    
    3Condensed Consolidated Statements of Cash Flows for the three months
ended March 31, 2010 and 2009
    
    
    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
    
    
    15Item 1A. Risk Factors
    
    
    15Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    15Item 3. Defaults Upon Senior Securities
    
    
    15Item 4. Removed and Reserved
    
    
    16Item 5. Other Information
    
    
    16Item 6. Exhibits
    
    
    16Exhibit 31(a)Exhibit 31(b)Exhibit 32(a)Exhibit 32(b)




---



##### Table of Contents



PART I
FINANCIAL INFORMATION
 
 Item 1.
    
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 INTERPHASE CORPORATION
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 
 March 31,
    
    
    December 31,2010
    
    
    2009ASSETSCash and cash equivalents
    
    $
    6,478
    
    
    $
    8,115Marketable securities
    
    
    9,438
    
    
    
    9,724Trade accounts receivable, less allowances
of $65 and $76, respectively
    
    
    4,174
    
    
    
    5,106Inventories
    
    
    1,900
    
    
    
    1,699Prepaid expenses and other current assets
    
    
    2,119
    
    
    
    2,202Total current assets
    
    
    24,109
    
    
    
    26,846Machinery and equipment
    
    
    6,924
    
    
    
    6,993Leasehold improvements
    
    
    424
    
    
    
    430Furniture and fixtures
    
    
    576
    
    
    
    5877,924
    
    
    
    8,010Less-accumulated depreciation and amortization
    
    
    (7,308
    )
    
    
    (7,318
    )Total property and equipment, net
    
    
    616
    
    
    
    692Capitalized software, net
    
    
    787
    
    
    
    912Other assets
    
    
    359
    
    
    
    197Total assets
    
    $
    25,871
    
    
    $
    28,647LIABILITIES AND SHAREHOLDERS EQUITYLiabilitiesAccounts payable
    
    $
    1,018
    
    
    $
    1,257Deferred revenue
    
    
    288
    
    
    
    161Accrued liabilities
    
    
    2,346
    
    
    
    2,667Accrued compensation
    
    
    1,444
    
    
    
    1,504Total current liabilities
    
    
    5,096
    
    
    
    5,589Deferred lease obligations
    
    
    285
    
    
    
    296Long-term debt
    
    
    3,500
    
    
    
    3,500Total liabilities
    
    
    8,881
    
    
    
    9,385Commitments and ContingenciesShareholders EquityCommon stock, $0.10 par value; 100,000,000
shares authorized; 6,832,574 and
6,911,494 shares issued and outstanding,
respectively
    
    
    683
    
    
    
    691Additional paid in capital
    
    
    43,123
    
    
    
    43,022Retained deficit
    
    
    (26,147
    )
    
    
    (23,784
    )Cumulative other comprehensive loss
    
    
    (669
    )
    
    
    (667
    )Total shareholders equity
    
    
    16,990
    
    
    
    19,262Total liabilities and shareholders equity
    
    $
    25,871
    
    
    $
    28,647
 The accompanying notes are an integral part of these condensed consolidated financial statements.
  2




---



##### Table of Contents



INTERPHASE CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
 Three Months EndedMarch 31,2010
    
    
    2009Revenues
    
    $
    3,759
    
    
    $
    8,421Cost of sales
    
    
    1,900
    
    
    
    3,404Gross margin
    
    
    1,859
    
    
    
    5,017Research and development
    
    
    2,093
    
    
    
    2,025Sales and marketing
    
    
    1,260
    
    
    
    1,474General and administrative
    
    
    1,004
    
    
    
    1,188Total operating expenses
    
    
    4,357
    
    
    
    4,687(Loss) income from operations
    
    
    (2,498
    )
    
    
    330Interest income, net
    
    
    46
    
    
    
    100Other loss, net
    
    
    (78
    )
    
    
    (3
    )(Loss) income before income tax
    
    
    (2,530
    )
    
    
    427Income tax benefit
    
    
    (167
    )
    
    
    (280
    )Net (loss) income
    
    $
    (2,363
    )
    
    $
    707Net (loss) income per share:Basic EPS
    
    $
    (0.34
    )
    
    $
    0.11Diluted EPS
    
    $
    (0.34
    )
    
    $
    0.11Weighted average common shares
    
    
    6,871
    
    
    
    6,714Weighted average common and dilutive
shares
    
    
    6,871
    
    
    
    6,714
 The accompanying notes are an integral part of these condensed consolidated financial statements.
  3




---



##### Table of Contents



INTERPHASE CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 Three Months EndedMarch 31,2010
    
    
    2009Cash flows from operating activities:Net (loss) income
    
    $
    (2,363
    )
    
    $
    707Adjustments to reconcile net (loss) income to net cash used in
operating activities:Provision for uncollectible accounts and returns
    
    
    (10
    )
    
    
    14Provision for excess and obsolete inventories
    
    
    100
    
    
    
    100Depreciation and amortization
    
    
    203
    
    
    
    213Amortization of restricted stock
    
    
    93
    
    
    
    113Write-off of impaired capitalized software
    
    
    2
    
    
    
    Change in assets and liabilities:Trade accounts receivable
    
    
    942
    
    
    
    (3,069
    )Inventories
    
    
    (301
    )
    
    
    (365
    )Prepaid expenses and other current assets
    
    
    (24
    )
    
    
    (617
    )Other assets
    
    
    (176
    )
    
    
    1Accounts payable, deferred revenue and accrued liabilities
    
    
    (306
    )
    
    
    717Accrued compensation
    
    
    13
    
    
    
    538Deferred lease obligations
    
    
    (11
    )
    
    
    107Net cash used in operating activities
    
    
    (1,838
    )
    
    
    (1,541
    )Cash flows from investing activities:Purchase of property and equipment
    
    
    (14
    )
    
    
    (21
    )Purchase of capitalized software
    
    
    (5
    )
    
    
    (30
    )Proceeds from the sale of marketable securities
    
    
    1,917
    
    
    
    4,013Purchase of marketable securities
    
    
    (1,641
    )
    
    
    (2,310
    )Net cash provided by investing activities
    
    
    257
    
    
    
    1,652Cash flows from financing activities:Borrowings under credit facility
    
    
    3,500
    
    
    
    3,500Payments on credit facility
    
    
    (3,500
    )
    
    
    (3,500
    )Proceeds from the exercise of stock options
    
    
    
    
    
    
    Net cash provided by financing activities
    
    
    
    
    
    
    Effect of exchange rate changes on cash and cash equivalents
    
    
    (56
    )
    
    
    (41
    )Net (decrease) increase in cash and cash equivalents
    
    
    (1,637
    )
    
    
    70Cash and cash equivalents at beginning of period
    
    
    8,115
    
    
    
    7,383Cash and cash equivalents at end of period
    
    $
    6,478
    
    
    $
    7,453
 The accompanying notes are an integral part of these condensed consolidated financial statements.
  4




---



##### Table of Contents



INTERPHASE CORPORATION
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited)
 NOTE 1.    BASIS OF PRESENTATION
 ®
  NOTE 2.    STOCK-BASED COMPENSATION
   Three months endedMarch 31,
    
    
    March 31,2010
    
    
    2009Weighted average risk free interest rates
    
    
    3.87
    %
    
    
    N/AWeighted average life (in years)
    
    
    10
    
    
    
    N/AExpected volatility
    
    
    66.48
    %
    
    
    N/AExpected dividend yield
    
    
    
    
    
    
    N/AWeighted average grant-date fair value per share
of options granted
    
    $
    1.95
    
    
    
    N/A
  5




---



##### Table of Contents



INTERPHASE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
  Number of
    
    
    Weighted AverageOptions
    
    
    Option PriceBalance, December 31, 2009
    
    
    1,449,771
    
    
    $
    8.16Granted
    
    
    1,200
    
    
    
    2.56Exercised
    
    
    
    
    
    
    Canceled
    
    
    (12,200
    )
    
    
    20.67Balance, March 31, 2010
    
    
    1,438,771
    
    
    $
    8.04
   WeightedRestricted Stock
    
    
    Average GrantShares
    
    
    Date ValueNonvested restricted stock at December 31, 2009
    
    
    484,258
    
    
    $
    2.84Granted
    
    
    
    
    
    
    Vested
    
    
    (35,465
    )
    
    
    3.83Cancelled/Forefeited
    
    
    (76,670
    )
    
    
    1.82Nonvested restricted stock at March 31, 2010
    
    
    372,123
    
    
    $
    2.96
 NOTE 3.    MARKETABLE SECURITIES
  1.
    
    Level 1  Valuations based on quoted prices in active markets for identical
assets and liabilities. This level provides the most reliable evidence of fair value.
 2.
    
    Level 2  Valuation 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.
 3.
    
    Level 3  Valuations based on inputs that are unobservable and significant to
the overall fair value measurement.
  6




---



##### Table of Contents



INTERPHASE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 
   March 31, 2010
    
    
    December 31, 2009Estimated
    
    
    
    
    
    
    
    
    
    
    EstimatedFair Value
    
    
    
    
    
    Unrealized
    
    
    Fair
    
    
    
    
    
    
    Unrealized
    
    
    FairHierarchy
    
    Cost
    
    
    Gain
    
    
    Value
    
    
    Cost
    
    
    Gain
    
    
    ValueAgencies
    
    Level 2
    
    $
    2,172
    
    
    $
    14
    
    
    $
    2,186
    
    
    $
    3,350
    
    
    $
    29
    
    
    $
    3,379Asset Backed
    
    Level 2
    
    
    2,342
    
    
    
    14
    
    
    
    2,356
    
    
    
    2,065
    
    
    
    17
    
    
    
    2,082Corporate Bonds
    
    Level 2
    
    
    1,609
    
    
    
    1
    
    
    
    1,610
    
    
    
    976
    
    
    
    1
    
    
    
    977Municipal Bonds and US Treasuries
    
    Level 2
    
    
    3,273
    
    
    
    13
    
    
    
    3,286
    
    
    
    3,276
    
    
    
    10
    
    
    
    3,286Total
    
    
    
    $
    9,396
    
    
    $
    42
    
    
    $
    9,438
    
    
    $
    9,667
    
    
    $
    57
    
    
    $
    9,724
 NOTE 4.    INVENTORIES
  March 31,
    
    
    December 31,2010
    
    
    2009Raw materials
    
    $
    1,410
    
    
    $
    1,399Work-in-process
    
    
    366
    
    
    
    218Finished goods
    
    
    124
    
    
    
    82Total
    
    $
    1,900
    
    
    $
    1,699
  NOTE 5.    DERIVATIVE FINANCIAL INSTRUMENTS
    7




---



##### Table of Contents



INTERPHASE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 NOTE 6.    INCOME TAXES
   NOTE 7.    RESTRUCTURING CHARGE
   Cash payments, netof currencyCash payments and
    
    
    translation
    
    
    Remainingnon-cash charges
    
    
    adjustments, during
    
    
    liability as ofRestructuring
    
    
    during quarter ended
    
    
    quarter ended
    
    
    March 31,Description
    
    charge
    
    
    December 31, 2009
    
    
    March 31, 2010
    
    
    2010Severance & Fringe Benefits
    
    $
    1,063
    
    
    $
    84
    
    
    $
    530
    
    
    $
    449Non-Utilized Fixed Assets
    
    
    173
    
    
    
    173
    
    
    
    
    
    
    
    Total
    
    $
    1,236
    
    
    $
    257
    
    
    $
    530
    
    
    $
    449
 NOTE 8.    CREDIT FACILITY
   8




---



##### Table of Contents



INTERPHASE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 NOTE 9.    COMPREHENSIVE (LOSS) INCOME
  Three months endedMarch 31,2010
    
    
    2009Net (loss) income
    
    $
    (2,363
    )
    
    $
    707Other comprehensive income:Unrealized holding (loss) gain arising
during period, net of tax
    
    
    (14
    )
    
    
    46Foreign currency translation adjustment
    
    
    12
    
    
    
    (115
    )Comprehensive (loss) income
    
    $
    (2,365
    )
    
    $
    638
 NOTE 10.    EARNINGS PER SHARE
  Three months endedMarch 31,2010
    
    
    2009Basic net (loss) income per share:Net (loss) income
    
    $
    (2,363
    )
    
    $
    707Weighted average common shares outstanding
    
    
    6,871
    
    
    
    6,714Basic net (loss) income per share
    
    $
    (0.34
    )
    
    $
    0.11Diluted net (loss) income per share:Net (loss) income
    
    $
    (2,363
    )
    
    $
    707Weighted average common shares outstanding
    
    
    6,871
    
    
    
    6,714Dilutive stock options
    
    
    
    
    
    
    Weighted average common shares outstanding
 assuming dilution
    
    
    6,871
    
    
    
    6,714Diluted net (loss) income per share
    
    $
    (0.34
    )
    
    $
    0.11Outstanding stock options that were not
included in the diluted calculation because
their effect would be anti-dilutive
    
    
    1,336
    
    
    
    1,598
 NOTE 11.    SEGMENT INFORMATION
   9




---



##### Table of Contents



INTERPHASE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
  Three months endedMarch 31,2010
    
    
    2009Revenues:Europe
    
    $
    1,650
    
    
    $
    2,134North America
    
    
    1,367
    
    
    
    2,057Pacific Rim
    
    
    742
    
    
    
    4,230Total
    
    $
    3,759
    
    
    $
    8,421
  Three months endedMarch 31,2010
    
    
    2009Product Revenues:Broadband telecom
    
    $
    3,210
    
    
    $
    7,990Enterprise
    
    
    217
    
    
    
    89Professional services
    
    
    160
    
    
    
    249Other
    
    
    172
    
    
    
    93Total
    
    $
    3,759
    
    
    $
    8,421
 NOTE 12.    RECENTLY ISSUED ACCOUNTING PROUNOUCEMENTS
   10




---



##### Table of Contents



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




---



##### Table of Contents



Sales and Marketing
  General and Administrative
  Interest Income, Net
  Other Loss, Net
  Income Taxes
   Net (Loss) Income
   12




---



##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES
 Consolidated Cash Flows
  Operating Activities
   Investing Activities
  Financing Activities
  Commitments
 Commitments
   13




---



##### Table of Contents



Off-Balance Sheet Arrangements
  Other
    
 Item 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Foreign Currency Risk
   Market Price Risk
  Interest Rate Risk
   14




---



##### Table of Contents



Item 4.
    
    CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Controls
  
 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
   15




---



##### Table of Contents



Item 4.
    
    (REMOVED AND RESERVED)
 
 Item 5.
    
    OTHER INFORMATION
  
 Item 6.
    
    EXHIBITS
 Exhibits3

    (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. (3)4

    (a)
    
    Rights Agreement dated as of December 7, 2000 by and between the Company and
Computershare Investor Services, LLC as Rights Agent. (4)10

    (a)
    
    Lease on Facility at Parkway Center, Phase I, Plano, Texas. (5)10

    (b)
    
    Second Amendment to lease on Facility at Parkway Center, Phase 1, Plano, Texas (6)10

    (c)
    
    Lease on Facility at 2105 Luna Road, Carrollton, Texas. (7)10

    (d)
    
    Note and Credit Agreement between Interphase Corporation and Texas Capital Bank. (8)10

    (e)
    
    First Amendment to Loan Agreement between Interphase Corporation and Texas Capital Bank. (9)10

    (f)
    
    Amended and Restated Employment, Confidentiality, and Non-Competition Agreement with
Gregory B. Kalush, dated December 30, 2008. *(10)10

    (g)
    
    Amended and Restated Employment, Confidentiality, and Non-Competition Agreement with
Thomas N. Tipton, Jr. dated December 30, 2008. *(10)10

    (h)
    
    Amended and Restated Employment, Confidentiality, and Non-Competition Agreement with
Randall E. McComas, dated December 30, 2008. *(10)10

    (i)
    
    Amended and Restated Employment, Confidentiality, and Non-Competition Agreement with
Deborah A. Shute, dated December 30, 2008. *(10)10

    (j)
    
    Amended and Restated Employment, Confidentiality, and Non-Competition Agreement with
James W. Gragg, dated December 30, 2008. *(10)10

    (k)
    
    Amended and Restated Employment, Confidentiality, and Non-Competition Agreement with
Marc E. DeVinney, dated December 30, 2008. *(10)10

    (l)
    
    Amended and Restated Employment, Confidentiality, and Non-Competition Agreement with
Yoram Solomon, dated December 30, 2008. *(10)10

    (m)
    
    Employment, Confidentiality, and Non-Competition Agreement with Yoram Solomon, dated
November 17, 2008* (11)10

    (n)
    
    Employment, Confidentiality, and Non-Competition Agreement with H. Keith Seawright, dated
April 6, 2010* (12)10

    (o)
    
    Interphase Corporation 2004 Long-Term Stock Incentive Plan *(13)31

    (a)
    
    Rule 13a-14(a)/15d-14(a) Certification. (14)31

    (b)
    
    Rule 13a-14(a)/15d-14(a) Certification. (14)32

    (a)
    
    Section 1350 Certification. (14)32

    (b)
    
    Section 1350 Certification. (14)
 
 (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 Annual Report on Form 10-K for the year ended December 31, 1999, and
incorporated herein by reference.(3)
    
    Filed as an exhibit to Current Report on Form 8-K on July 31, 2007, and incorporated herein by
reference.(4)
    
    Filed as an exhibit to Current Report on Form 8-K on January 9, 2001, and incorporated herein
by reference.(5)
    
    Filed as an exhibit to Quarterly Report on Form 10-Q for the quarter ended September 30, 2002,
and incorporated herein by reference.(6)
    
    Filed as an exhibit to Annual Report on Form 10-K for the year ended December 31, 2008, and
incorporated herein by reference.(7)
    
    Filed as an exhibit to Current Report on Form 8-K on December 10, 2008, and incorporated herein
by reference.(8)
    
    Filed as an exhibit to Current Report on Form 8-K on December 24, 2008, and incorporated
herein by reference.(9)
    
    Filed as an exhibit to Quarterly Report on Form 10-Q for the quarter ended March 31, 2009,
and incorporated herein by reference(10)
    
    Filed as an exhibit to Current Report on Form 8-K on December 31, 2008, and incorporated
herein by reference.(11)
    
    Filed as an exhibit to Current Report on Form 8-K on November 17, 2008, and incorporated
herein by reference.(12)
    
    Filed as an exhibit to Current Report on Form 8-K on April 7, 2010, and incorporated herein
by reference.(13)
    
    Filed as an exhibit to Schedule 14a on March 31, 2004 and incorporated herein by reference.(14)
    
    Filed herewith*
    
    Management contract or compensatory plan or arrangement.  16




---



##### Table of Contents



SIGNATURE
  INTERPHASE CORPORATION
(Registrant)Date: May 12, 2010
    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