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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, 2009
 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
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller Reporting Company þ
 o þ




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##### 



INTERPHASE CORPORATION
 Index to Form 10-Q
Quarterly Period Ended March 31, 2009
 Part I  Financial InformationItem 1. Condensed Consolidated Financial Statements (unaudited)Condensed Consolidated Balance Sheets as of March 31, 2009
and December 31, 2008
    
    
    2Condensed Consolidated Statements of Operations for the three
months ended March 31, 2009 and 2008
    
    
    3Condensed Consolidated Statements of Cash Flows for the three months
ended March 31, 2009 and 2008
    
    
    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
    
    
    15Item 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
    
    
    16Exhibit 10.3(e)Exhibit 31(a)Exhibit 31(b)Exhibit 32(a)Exhibit 32(b)




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PART I
 FINANCIAL INFORMATION
 
 Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 INTERPHASE CORPORATION
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 March 31,
    
    
    December 31,2009
    
    
    2008ASSETSCash and cash equivalents
    
    $
    7,453
    
    
    $
    7,383Marketable securities
    
    
    9,905
    
    
    
    11,563Trade accounts receivable, less allowances
of $173 and $159, respectively
    
    
    7,813
    
    
    
    4,758Inventories
    
    
    2,594
    
    
    
    2,329Prepaid expenses and other current assets
    
    
    3,222
    
    
    
    2,729Total current assets
    
    
    30,987
    
    
    
    28,762Machinery and equipment
    
    
    6,866
    
    
    
    6,929Leasehold improvements
    
    
    416
    
    
    
    422Furniture and fixtures
    
    
    568
    
    
    
    5807,850
    
    
    
    7,931Less-accumulated depreciation and amortization
    
    
    (7,061
    )
    
    
    (7,056
    )Total property and equipment, net
    
    
    789
    
    
    
    875Capitalized software, net
    
    
    1,308
    
    
    
    1,408Other assets
    
    
    194
    
    
    
    203Total assets
    
    $
    33,278
    
    
    $
    31,248LIABILITIES AND SHAREHOLDERS EQUITYLiabilitiesAccounts payable
    
    $
    1,812
    
    
    $
    1,328Deferred revenue
    
    
    26
    
    
    
    28Accrued liabilities
    
    
    1,145
    
    
    
    942Accrued compensation
    
    
    1,650
    
    
    
    1,163Total current liabilities
    
    
    4,633
    
    
    
    3,461Deferred lease obligations
    
    
    108
    
    
    
    1Long-term debt
    
    
    3,500
    
    
    
    3,500Total liabilities
    
    
    8,241
    
    
    
    6,962Commitments and ContingenciesShareholders EquityCommon stock, $0.10 par value; 100,000,000
shares
authorized; 6,905,994 and
6,573,294 shares issued and outstanding,
respectively
    
    
    690
    
    
    
    657Additional paid in capital
    
    
    42,732
    
    
    
    42,652Retained deficit
    
    
    (17,523
    )
    
    
    (18,230
    )Cumulative other comprehensive loss
    
    
    (862
    )
    
    
    (793
    )Total shareholders equity
    
    
    25,037
    
    
    
    24,286Total liabilities and shareholders equity
    
    $
    33,278
    
    
    $
    31,248
 The accompanying notes are an integral part of these condensed consolidated financial statements.
  2




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INTERPHASE CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 Three Months EndedMarch 31,2009
    
    
    2008Revenues
    
    $
    8,421
    
    
    $
    7,471Cost of sales
    
    
    3,404
    
    
    
    3,134Gross margin
    
    
    5,017
    
    
    
    4,337Research and development
    
    
    2,025
    
    
    
    2,870Sales and marketing
    
    
    1,474
    
    
    
    1,499General and administrative
    
    
    1,188
    
    
    
    908Restructuring charge
    
    
    
    
    
    
    365Total operating expenses
    
    
    4,687
    
    
    
    5,642Income (loss) from operations
    
    
    330
    
    
    
    (1,305
    )Interest income, net
    
    
    100
    
    
    
    163Other (loss) income, net
    
    
    (3
    )
    
    
    303Income (loss) before income tax
    
    
    427
    
    
    
    (839
    )Income tax benefit
    
    
    (280
    )
    
    
    (311
    )Net income (loss)
    
    $
    707
    
    
    $
    (528
    )Net income (loss) per share:Basic EPS
    
    $
    0.11
    
    
    $
    (0.08
    )Diluted EPS
    
    $
    0.11
    
    
    $
    (0.08
    )Weighted average common shares
    
    
    6,714
    
    
    
    6,481Weighted average common and dilutive shares
    
    
    6,714
    
    
    
    6,481
 The accompanying notes are an integral part of these condensed consolidated financial statements.
  3




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INTERPHASE CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Three Months EndedMarch 31,2009
    
    
    2008Cash flows from operating activities:Net income (loss)
    
    $
    707
    
    
    $
    (528
    )Adjustments to reconcile net income (loss) to net cash used in
operating activities:Provision for uncollectible accounts and returns
    
    
    14
    
    
    
    (32
    )Provision for excess and obsolete inventories
    
    
    100
    
    
    
    Depreciation and amortization
    
    
    213
    
    
    
    219Amortization of restricted stock
    
    
    113
    
    
    
    50Write-off of impaired capitalized software
    
    
    
    
    
    
    69Change in assets and liabilities:Trade accounts receivable
    
    
    (3,069
    )
    
    
    644Inventories
    
    
    (365
    )
    
    
    206Prepaid expenses and other current assets
    
    
    (617
    )
    
    
    218Other assets
    
    
    1
    
    
    
    (296
    )Accounts payable, deferred revenue and accrued liabilities
    
    
    717
    
    
    
    (1,343
    )Accrued compensation
    
    
    538
    
    
    
    (213
    )Deferred lease obligations
    
    
    107
    
    
    
    (13
    )Net cash used in operating activities
    
    
    (1,541
    )
    
    
    (1,019
    )Cash flows from investing activities:Purchase of property and equipment
    
    
    (21
    )
    
    
    (84
    )Purchase of capitalized software
    
    
    (30
    )
    
    
    (57
    )Proceeds from the sale of marketable securities
    
    
    4,013
    
    
    
    3,076Purchase of marketable securities
    
    
    (2,310
    )
    
    
    (2,420
    )Net cash provided by investing activities
    
    
    1,652
    
    
    
    515Cash flows from financing activities:Borrowings under credit facility
    
    
    3,500
    
    
    
    Payments on debt
    
    
    (3,500
    )
    
    
    Proceeds from the exercise of stock options
    
    
    
    
    
    
    2Net cash provided by financing activities
    
    
    
    
    
    
    2Effect of exchange rate changes on cash and cash equivalents
    
    
    (41
    )
    
    
    (66
    )Net increase (decrease) in cash and cash equivalents
    
    
    70
    
    
    
    (568
    )Cash and cash equivalents at beginning of period
    
    
    7,383
    
    
    
    6,384Cash and cash equivalents at end of period
    
    $
    7,453
    
    
    $
    5,816
 The accompanying notes are an integral part of these condensed consolidated financial statements.
  4




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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, 2008
    
    
    1,634,271
    
    
    $
    9.65Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Canceled
    
    
    (130,000
    )
    
    
    7.50Balance, March 31, 2009
    
    
    1,504,271
    
    
    $
    9.84
   5




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INTERPHASE CORPORATION
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited)
  WeightedRestricted Stock
    
    
    Average GrantShares
    
    
    Date ValueNonvested restricted stock at December 31, 2008
    
    
    232,249
    
    
    $
    7.24Granted
    
    
    385,500
    
    
    
    1.82Vested
    
    
    (8,840
    )
    
    
    9.78Cancelled/Forefeited
    
    
    (52,800
    )
    
    
    8.98Nonvested restricted stock at March 31, 2009
    
    
    556,109
    
    
    $
    3.28
 NOTE 3.    MARKETABLE SECURITIES
  1.
    
    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.
 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.
  Quoted Prices in
    
    
    SignificantActive Markets
    
    
    Other
    
    
    Significantfor Identical
    
    
    Observable
    
    
    UnobservableAssets
    
    
    Inputs
    
    
    InputsLevel 1
    
    
    Level 2
    
    
    Level 3
    
    
    TotalAvailable-for-sale
Securities
    
    $
    
    
    
    $
    9,905
    
    
    $
    
    
    
    $
    9,905Total
    
    $
    
    
    
    $
    9,905
    
    
    $
    
    
    
    $
    9,905
  6




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INTERPHASE CORPORATION
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited)
  Quoted Prices in
    
    
    SignificantActive Markets
    
    
    Other
    
    
    Significantfor Identical
    
    
    Observable
    
    
    UnobservableAssets
    
    
    Inputs
    
    
    InputsLevel 1
    
    
    Level 2
    
    
    Level 3
    
    
    TotalAvailable-for-sale
Securities
    
    $
    
    
    
    $
    11,563
    
    
    $
    
    
    
    $
    11,563Total
    
    $
    
    
    
    $
    11,563
    
    
    $
    
    
    
    $
    11,563
 NOTE 4.    INVENTORIES
  March 31,
2009
    
    
    December 31,
2008Raw materials
    
    $
    2,064
    
    
    $
    1,885Work-in-process
    
    
    512
    
    
    
    378Finished goods
    
    
    18
    
    
    
    66Total
    
    $
    2,594
    
    
    $
    2,329
  NOTE 5.    DERIVATIVE FINANCIAL INSTRUMENTS
   NOTE 6.    INCOME TAXES
   7




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INTERPHASE CORPORATION
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited)
     NOTE 7.    RESTRUCTURING CHARGE
  NOTE 8.    CREDIT FACILITY
   8




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INTERPHASE CORPORATION
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited)
 NOTE 9.    COMPREHENSIVE INCOME (LOSS)
  Three
Months Ended March 31,2009
    
    
    2008Net Income (loss)
    
    $
    707
    
    
    $
    (528
    )Other comprehensive income:Unrealized holding gain arising
during period, net of tax
    
    
    46
    
    
    
    42Foreign currency translation adjustment
    
    
    (115
    )
    
    
    65Comprehensive income (loss)
    
    $
    638
    
    
    $
    (421
    )
 NOTE 10.    EARNINGS PER SHARE
   Three Months EndedMarch 31,2009
    
    
    2008Basic net income (loss) per share:Net income (loss)
    
    $
    707
    
    
    $
    (528
    )Weighted average common shares outstanding
    
    
    6,714
    
    
    
    6,481Basic net income (loss) per share
    
    $
    0.11
    
    
    $
    (0.08
    )Diluted net income (loss) per share:Net income (loss)
    
    $
    707
    
    
    $
    (528
    )Weighted average common shares outstanding
    
    
    6,714
    
    
    
    6,481Dilutive stock options
    
    
    
    
    
    
    Weighted
average common shares outstanding  assuming dilution
    
    
    6,714
    
    
    
    6,481Diluted net income (loss) per share
    
    $
    0.11
    
    
    $
    (0.08
    )Outstanding stock options that were not included
in the diluted calculation because their effect
would be anti-dilutive1,598
    
    
    
    1,207
 NOTE 11.    SEGMENT INFORMATION
   9




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INTERPHASE CORPORATION
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited)
  Three Months EndedMarch 31,2009
    
    
    2008Revenues:Pacific Rim
    
    $
    4,230
    
    
    $
    3,065Europe
    
    
    2,134
    
    
    
    1,899North America
    
    
    2,057
    
    
    
    2,507Total
    
    $
    8,421
    
    
    $
    7,471
  Three Months EndedMarch 31,2009
    
    
    2008Product Revenues:Broadband telecom
    
    $
    7,990
    
    
    $
    5,779Professional services
    
    
    249
    
    
    
    117Enterprise
    
    
    89
    
    
    
    433Other
    
    
    93
    
    
    
    1,142Total
    
    $
    8,421
    
    
    $
    7,471
 NOTE 12.    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
   11




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Research and Development
   Sales and Marketing
  General and Administrative
  Restructuring Charge
   12




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Interest Income, Net
  Other (Loss) Income, Net
  Income Taxes
   Net Income (loss)
  LIQUIDITY AND CAPITAL RESOURCES
 Consolidated Cash Flows
  Operating Activities
   13




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Investing Activities
  Financing Activities
  Commitments
 Commitments
  Off-Balance Sheet Arrangements
  Other
     14




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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Foreign Currency Risk
   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
 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. (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)
    
    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. (10)10
    (e)
    
    First Amendment to Loan Agreement between Interphase Corporation and Texas Capital Bank. (13)10
    (f)
    
    Amended and Restated Employment, Confidentiality, and Non-Competition Agreement with
Gregory B. Kalush, dated December 30, 2008. *(11)
  16




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Exhibits10
    (g)
    
    Amended and Restated Employment, Confidentiality, and Non-Competition Agreement with
Thomas N. Tipton, Jr. dated December 30, 2008. *(11)10
    (h)
    
    Amended and Restated Employment, Confidentiality, and Non-Competition Agreement with
Randall E. McComas, dated December 30, 2008. *(11)10
    (i)
    
    Amended and Restated Employment, Confidentiality, and Non-Competition Agreement with
Deborah A. Shute, dated December 30, 2008. *(11)10
    (j)
    
    Amended and Restated Employment, Confidentiality, and Non-Competition Agreement with
James W. Gragg, dated December 30, 2008. *(11)10
    (k)
    
    Amended and Restated Employment, Confidentiality, and Non-Competition Agreement with
Marc E. DeVinney, dated December 30, 2008. *(11)10
    (l)
    
    Amended and Restated Employment, Confidentiality, and Non-Competition Agreement with
Yoram Solomon, dated December 30, 2008. *(11)10
    (m)
    
    Employment, Confidentiality, and Non-Competition Agreement with Marc E. DeVinney, dated
August 31, 2007. *(9)10
    (n)
    
    Employment, Confidentiality, and Non-Competition Agreement with Yoram Solomon, dated
November 17, 2008. *(12)10
    (o)
    
    Interphase Corporation 2004 Long-Term Stock Incentive Plan. *(8)31
    (a)
    
    Rule 13a-14(a)/15d-14(a) Certification. (13)31
    (b)
    
    Rule 13a-14(a)/15d-14(a) Certification. (13)32
    (a)
    
    Section 1350 Certification. (13)32
    (b)
    
    Section 1350 Certification. (13)
 
 (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, 2008, and incorporated herein by reference.(7)
    
    Filed as an exhibit to Form 8-K on December 10, 2008, and incorporated herein by reference.(8)
    
    Filed as an exhibit to Schedule 14a on March 31, 2004 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 as an exhibit to Form 8-K on December 24, 2008, and incorporated herein by reference.(11)
    
    Filed as an exhibit to Form 8-K on December 31, 2008, and incorporated herein by reference.(12)
    
    Filed as an exhibit to Form 8-K on November 17, 2008, and incorporated herein by reference.(13)
    
    Filed herewith.*
    
    Management contract or compensatory plan or arrangement. 
 SIGNATURE
  INTERPHASE CORPORATION
(Registrant)Date: May 13, 2009
    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