SECURITIES AND EXCHANGE COMMISSION
                       Washington, D.C. 20549
          _________________________________________________
                              FORM 10-K
          ANNUAL  REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                 THE SECURITIES EXCHANGE ACT OF 1934

             For the Fiscal Year Ended December 31, 1998
                   Commission File  Number 0-13071

                       INTERPHASE CORPORATION
       (Exact name of registrant as specified in its charter)

                 Texas                                75-1549797
       (State or other jurisdiction of            (I.R.S. Employer
       incorporation or organization)             Identification No.)

                  13800 Senlac, Dallas, Texas 75234
        (Address of principal executive offices and zip code)

  Registrant's telephone number, including area code:  (214) 654-5000

         Securities registered pursuant to Section 12(b) of the Act:
                                None

     Securities registered pursuant to Section 12(g) of the Act:
                           Title of Class
                     Common Stock, no par value

  Indicate by check mark whether the  registrant (1) has filed all  reports
  required by Section 13  or 15(d) of the  Securities Exchange Act of  1934
  during the  preceding 12  months (or  for 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 if disclosure  of delinquent  filers pursuant  to
  Item 405  of Regulation  S-K is  not contained  herein, and  will not  be
  contained, to the best of registrant's knowledge, in definitive proxy  or
  information statements incorporated by reference in Part III of this Form
  10-K or any amendment to this 10-K. [   ]

  The aggregate market value of the voting stock held by non-affiliates  of
  the registrant on March  1, 1999 was approximately  $34,450,000.   As  of
  March 1,  1999, registrant  had outstanding  5,456,491 shares  of  Common
  Stock.

                     DOCUMENTS INCORPORATED BY REFERENCE

  Parts of the following documents are incorporated by reference into  this
  annual report on Form 10-K Report:  (1) Portions of the Definitive  Proxy
  Statement for Annual Meeting  of Shareholders to be  held on May 5,  1999
  (Part III).

<PAGE>

                                   PART I

  ITEM 1.  BUSINESS

  Introduction
      
  Interphase Corporation and subsidiaries  ("Interphase" or the  "Company")
  designs, develops,  manufactures, markets  and supports  high-performance
  connectivity  products  utilizing   advanced  technologies  for   today's
  enterprise network  and  mass  storage environments  and  other  embedded
  computer systems.  Interphase's network and mass storage products include
  high  performance   adapter  cards,   concentrators,  switches,   network
  operating  system  (NOS)  software   drivers,  and  management   software
  applications.

  * Adapter  cards are  printed  circuit boards with cable connections that
    fit inside  a slot  on a computer,  enabling those  devices to  connect
    with other devices in a network topology. 

  * Concentrators  and switches  are network  interconnection devices  that
    allow an adapter  to be connected to  one or more network  transmission
    segments.

  * Operating systems  are master control programs  that run the  computers
    on which they are installed.  An operating system is the first  program
    loaded when the  computer is turned on, and  its main part, called  the
    kernel, resides in memory at  all times.  Operating system drivers  are
    programs  running  under   the  operating  systems  and  that   control
    different parts  of  the computer  such as the network interface cards.  
    A  NOS  is  an operating  system  that  manages  network  resources  by
    handling  multiple requests  (inputs)  concurrently and  providing  the
    security necessary in a multi-user environment.

  * Management  software   applications  are   specifically  designed   and
    programmed  to  assist the  end  user  with the  installation,  set  up
    (setting  various  user  preferences),  and  monitoring  of  Interphase
    adapter cards.

  The Company's local  area network ("LAN")  products implement high  speed
  networking  technologies  such  as   Fiber  Distributed  Data   Interface
  ("FDDI"), Asynchronous  Transfer  Mode ("ATM"),  Gigabit  Ethernet,  Fast
  Ethernet (100 Base-T), 100VG-AnyLAN,  Ethernet (10Base-T) and Token  Ring
  technologies that  facilitate  the  high speed  movement  of  information
  across computer  networks.    The Company's  wide  area  network  ("WAN")
  products, serving  both  the server  class  and client  class  computers,
  utilize Integrated Services Digital  Network ("ISDN"), V.90 (56K),  Frame
  Relay, X.25  and other  communications technologies.  The Company's  mass
  storage  controllers  are  currently  based  on  Small  Computer  Systems
  Interface ("SCSI") technology and high speed Fibre Channel technology  to
  facilitate the movement of data to and from mass storage devices.   Fibre
  Channel can  also be  used for  a high  speed interconnect  in  clustered
  applications.  The  Company's products are  designed to  not only  comply
  with the appropriate  open system technical  standards but also  optimize
  the performance of the customer's network and mass  storage environments.
<PAGE>
  The Company's networking  and mass  storage adapter  products consist  of
  both hardware and software. The  hardware is essentially printed  circuit
  boards which  plug  into the  backplane  of a  computer  and  incorporate
  industry standard  bus architectures  of the  most popular  client/server
  platforms such as PCI, CompactPCI, PMC, SBus, EISA, VME, and GIO, as well
  as  input-output  front-ends  for  many  performance  oriented   computer
  systems.   The Company's  network adapters  support  a variety  of  media
  including fiber optic  cabling and  unshielded twisted  pair ("UTP")  and
  shielded twisted  pair  ("STP")  copper wire.    The  Company's  software
  consists of  drivers  for the  most  popular operating  systems  such  as
  Microsoft Windows NT, Novell NetWare, HP-UX, IRIX, O/S2, Solaris,  SunOS,
  AIX and certain real-time operating systems  such  as LynxOS and VxWorks.  

  In addition,  the software  may include  diagnostics, station  management
  ("SMT").  In certain cases, the software off loads the processing of  the
  protocol stack from the server to  the adapter card.  The Company's  FDDI
  concentrator products are  stand-alone network  devices that  serve as  a
  single point of connection for multi-port local area networks as well  as
  perform certain  network  traffic management  tasks.   The  mass  storage
  adapters provide a high-speed connection to computer peripheral  devices,
  such as  disk  drives, tape  drives  and  printers.   The  Company's  WAN
  adapters are  complete  ISDN T1/E1  or  serial I/O  packages  that  allow
  servers and other communications devices to connect remote locations in a
  corporate network, such as a virtual private network (VPN). The Company's
  products are  used in  a wide  range of  computer applications  including
  graphics  workstations,  high  performance  work  groups,  CPU  clusters,
  medical imaging, telephone switching, on-line transaction processing  and
  financial services networks.  The Company believes  that  its  success in
  gaining significant  market  share in  its  selected markets is dependent
  upon not  only the development  and  manufacturing  of  high performance,
  high  quality  products  but  also  in  establishing  and maintaining the
  appropriate distribution channels.   The  Company  has original equipment
  manufacturer ("OEM") agreements with some of the  best-known companies in
  the computer industry for its network products and mass storage adapters.
  The Company's  customers  include OEM's of computer systems  and  network
  switches,    systems    integrators,   value-added   resellers   ("VAR"),
  distributors  and end-users.  The  Company believes that it must maintain
  an ongoing synergistic relationship  with its  customers and  demonstrate
  technology  leadership  coupled   with  sophisticated  manufacturing  and
  customer   support   capabilities.    The   Company's  manufacturing  and
  development activities  are certified  under  the  ISO 9001 international
  quality  standard.  This standard,  considered the most comprehensive  of
  the ISO 9000 standards, applies to not  only manufacturing  quality,  but
  design,  development  and  support  quality  systems  as  well.   Certain
  companies in the United States and Europe now require  ISO  certification
  of  their key suppliers.    The  Company's headquarters and manufacturing
  facilities are located in Dallas, Texas.

  Effective June  29,  1996,  the Company  purchased  all  the  issued  and
  outstanding capital  stock  of  Synaptel  S.A.  ("Synaptel").    Synaptel
  designs and distributes a broad line of remote access and ISDN  products,
  which include both significant software content and interoperability with
  a broad range of networking protocols.

  The Company, a Texas corporation, was founded in 1977. 
<PAGE>

  NETWORKING / STORAGE PRODUCTS

  Product Overview

  The bus structure  of a computer  system is the  pathway over which  data
  flows among the system's components, such as the central processing units
  ("CPU"), disk or tape drives and network adapters. The bus structure of a
  computer coordinates the timing and routing  of data, as well as  defines
  the  system  architecture for components that  interface with each other.  
  The Company  develops  and  sells  products  based  on  high  performance
  peripheral bus architectures such as PCI, CompactPCI, PMC, EISA,  SBusVME
  and GIO.   These peripheral bus architectures were developed by  computer
  system manufacturers  and are  considered  "open systems"  since  certain
  specifications of the architecture are published to encourage competition
  among vendors  of  peripheral equipment  such  as network  adapters.  The
  concept of open systems has gained  significant momentum in recent  years
  and  has  allowed  end-users  to   configure  a  computing  and   network
  environment that incorporates  desired technology, features,  scalability
  and support from a variety of product and service providers. 

  The CPU of a computer performs basic arithmetic, local memory access  and
  input/output functions  for communication  with peripheral  equipment  as
  well as other functions associated with  data transfers within a  network
  such as protocol processing. When commanded by the CPU, a network adapter
  facilitates the high-speed communication  of data among computer  systems
  over a  network as  well as  validates data  completeness and  integrity.
  Network adapters also perform varying  levels of protocol processing  and
  network management tasks.   A  network protocol is  the set  of rules  or
  conventions used to govern the exchange of information between  networked
  nodes or LANs.  Most computer applications require immediate access to  a
  greater volume of data than can be stored in the computer's local memory.
  This  necessitates external  data storage  capacity provided  by disk  or
  tape drives.  A  disk controller directs the  data storage and  retrieval
  operations of  the  disk  drive  and controls the  flow of  data  between
  the CPU and disk drive.  The disk controller locates and formats the data
  stored on the disk, performs data validity checking, data error detection
  and correction and informs the CPU of the status of these operations  and
  of the controller itself.  A tape controller performs the same  functions
  as a disk  controller but interfaces  with a tape  drive.   Multifunction
  controllers operate like a  disk controller but allow  the CPU to  access
  disk drives and tape drives simultaneously.  

  Intelligent controllers designed by  the Company incorporate  proprietary
  firmware (i.e., programs developed by the Company and stored in memory on
  the product) and software to  perform these functions simultaneously  and
  independently from  the  CPU,  which allows  the  CPU  to  perform  other
  operations at the same  time as network  communications, data storage  or
  retrieval occurs.
<PAGE>

  NETWORKING / STORAGE PRODUCTS

  Network Products

  The Company's networking  products include  those that  are designed  for
  both LAN  and WAN  environments.   Local  area networks  are a  group  of
  interconnected computers in a  small geographic area,  such as an  office
  building or a  complex of  offices in a  campus environment.   Wide  area
  networks connect computers dispersed over long distances, such as  across
  the  country  or  internationally.    Revenues  derived  from  networking
  products represented  approximately  73%,  77% and  71%  of  consolidated
  revenues for the years ended December 31,1998, 1997 and 1996.  (See  Note
  11 to consolidated financial statements)

  Local Area Network (LAN)

  Over the past several years the  Company has developed a diverse line  of
  LAN products targeted for the PCI, CompactPCI, PMC, VME, SBus, EISA,  and
  GIO peripheral bus marketplace.  The majority of these products are  sold
  directly to OEMs but a substantial portion are also sold to VAR's, system
  integrators, distributors and large end-users.   

  The Company's products included within this broad grouping can be further
  divided into board  level controller (adapter)  products and  stand-alone
  network devices. 


  Board Level Products-

       FDDI Product Line-

  FDDI is  a stable,  standardized, 100Mbit  per  second technology.    Its
  combination of speed  and stability make  FDDI ideal  for reliable  high-
  performance workgroup  connections. FDDI  high performance  adapters  are
  often used for movement of large graphical images such as color  prepress
  and medical  imaging  applications.   These  adapters are  also  used  in
  enterprise servers  for high-demand  transaction processing  networks  in
  corporate systems.

  4511 PMC FDDI Adapter provides  reliable, high-performance 100 Mbps  FDDI
  connectivity for  PMC-based systems.   It  supports multimode  fiber  and
  copper wiring.

  4811 EISA FDDI  Adapter is a  high performance FDDI  network adapter  for
  EISA bus systems.   It provides for full  implementation of FDDI  Station
  Management (SMT) on-board, freeing the  host CPU to execute  applications
  and upper level protocols. 

  5211 VME FDDI Adapter represents a third generation FDDI network  adapter
  from Interphase.    This  host-based product  is  capable  of  supporting
  varying types of media  (e.g., fiber or copper)  and contains an  optical
  bypass control.  It  can be used  in VME64 systems and is capable of link
  level or on-board protocol processing.   Its RISC-based architecture  can
  be configured for either single or dual attachment to an FDDI network and
  is available in a 9U or 6U  form factor (refers to standard form  factors
  of the printed circuit board).  
<PAGE>
  5511 PCI FDDI Adapter is a high performance FDDI network adapter for  PCI
  based systems.  It provides Single Attachment Station (SAS)  connectivity
  for FDDI  workstations or  server connectivity  to  a concentrator  in  a
  workgroup topology.  It also comes  with a Dual Attachment Station  (DAS)
  option for direct A-B  connectivity to an FDDI  ring or concentrator,  or
  for dual homing between two concentrators.  The 5511 provides connections
  for multimode fiber  and TP-PMD compliant  Category 5 Unshielded  Twisted
  Pair copper wiring.

  5611 SBus FDDI  Adapter is a  high performance FDDI  network adapter  for
  SBus  systems.     The  5611  is  designed  to  capitalize  on  the  high
  performance of  Sun SPARC  and compatible  systems with  a direct  memory
  access (DMA) architecture.

  CDDI WA-C303  SBus  FDDI  Adapter  provides  high  performance,  100-Mbps
  connectivity to FDDI networks for SPARC-based worstations and servers. It
  supports  single   attachment   and   fault-tolerant,   dual   attachment
  connections.

  WA-C323  EISA  FDDI   Adapter    provides   high  performance  100   Mbps
  connectivity to workgroup servers and workstations.  

       Ethernet / Fast Ethernet Product Line-

  The  Company's   Ethernet  Product   Line  includes   several   different
  technologies that  are generally  grouped under  the Ethernet  umberella.
  Ethernet is the most widely used  LAN Media Access control method,  which
  is defined by the IEEE 802.3. Ethernet is normally a shared media LAN and
  all stations on the segment share the total bandwidth, which is either 10
  Mbps  (Ethernet),  100  Mbps  (Fast  Ethernet)  or  1000  Mbps   (Gigabit
  Ethernet).   Fast  Ethernet  (100Base-T),  is  a  high-speed  version  of
  Ethernet (IEEE 802.3u  standard). 100BaseT transmits  at 100 Mbps  rather
  than 10  Mbps.  100VG-AnyLAN is  another  100 Mbps  version  of  Ethernet
  developed by Hewlett-Packard that is able to transport both Ethernet  and
  Token Ring frames. It is a shared media LAN like Ethernet, but employs  a
  different access method, allowing  realtime voice and  video to be  given
  high priority.

  4207 VME Ethernet   Adapter provides a connection to an ethernet  network
  for VMEbus systems.  It is a high performance protocol processor that  is
  capable of data rate transfers of over 30 Mbytes/second.

  4221VME Ethernet  Adapter  is a 10  Base-T product.   This adapter is  an
  intelligent network interface which can provide up to four Ethernet ports
  from a single VME or VME64 slot.

  4824  EISA  100Base-T  Adapter  provides  either  100  Mbps  or  10  Mbps
  connectivity which  is  automatically configured  based  on the  type  of
  network connection detected upon system start-up.

  5524 PCI 100Base-T Adapter provides 100  Mbps connectivity for most  PCI-
  compliant systems. The 5524  provides full auto-negotiation  capabilities
  to select  full  or half  duplex  for 100-Mbit  or  10-Mbit  connections,
  supporting TX (Category 5UTP copper cable).

  6224 VME 100Base-T Adapter allows the creation of one or more  high-speed
  connections between a VMEbus-based HP-UX system and a 100Base-T  network.
  The 6224 adapter supports a data rate of 100 Mbps.
<PAGE>
  4524 PMC 100Base T  Adapter provides 802.3u  100Base-T  connectivity  for
  most PMC-compliant systems.  Driver support  includes:  AIX, Solaris  and
  Window NT.

  4622 SBus  100VG-AnyLan   Adapter  provides Sun  SPARC stations and  100%
  compatibles with  selectable connectivity  to  networks based  either  on
  10Base-T or 100VG-AnyLAN technology.

       ATM Product Line-

  ATM is  a  scalable  network technology  capable  of  providing  enhanced
  quality of  service  in  managing video,  audio  and  data  transmissions
  compared to  other existing  network technologies.  ATM has  found  niche
  applications  in  the  desktop  LAN  environment,  and  it  is   becoming
  increasingly popular  as a  multi-service  LAN technology  for  corporate
  backbones. As  ATM  continues  to be  adopted  for  new  public  switched
  services, both in  the backbone  and at the  network access,  such as  in
  high-speed Internet  access, digital  video and  IP  telephony.   ATM  is
  expected to become the predominant technology for the integration of  LAN
  traffic into the wide area networking environment.

  4515  PMC  ATM      Adapter  provides  reliable,  high  performance   ATM
  connectivity for PMC-based systems.  This adapter supports SONET OC-3 155
  Mpbs connectivity.

  4615 SBus ATM Adapter provides full duplex ATM connectivity for virtually
  all Sun Sbus platforms from 600 MP Servers to the SPARCcenter 2000.  This
  adapter supports SunOS 4.1.3. and Solaris 2.3 or greater.

  4815 EISA  ATM Adapter  provides full  duplex ATM  connectivity for  many
  EISA-compliant systems  from high  performance  PCs and  workstations  to
  powerful mutiprocessing servers running Windows NT and Novell

  4915 GIO ATM Adapter provides full duplex ATM connectivity for  virtually
  all Silicon Graphics  GIO-based platforms.   This adapter supports  SGI's
  IRIX operating system version 5.3.

  5215 VME ATM Adapter provides full  duplex ATM connectivity for SGI  Onyz
  and Challenge systems running the IRIX operating system.

  5575 PCI ATM  Adapter provides full duplex ATM connectivity for most PCI-
  compliant systems.   This  adapter supports  Windows NT,  Novell  NetWare
  UnixWare, Solaris and AIX. 

  6575 CompactPCI ATM  Adapter provides  full duplex  ATM connectivity  for
  industrial and  Telecom  computers.  This adapter  supports  Windows  NT,
  Novell NetWare UnixWare, Solaris and AIX. 

  Stand Alone Network Devices-

  M1600 FDDI  Concentrator  provides  multiport  connectivity  to  an  FDDI
  network.  It supports  up to 16 master  ports and facilitates high  speed
  FDDI networking  between  a  variety  of  computing  devices  and  across
  different types of FDDI media including fiber and copper.  This device is
  "hot swappable" meaning that individual modules may be replaced,  removed
  or added without interrupting the entire network.  Other fault  tolerance
  features include  an  external optical  bypass  control and  an  optional
  redundant power supply, making the  M1600 well-suited for demanding  FDDI
  backbone environments.
<PAGE>
  M800 FDDI  Concentrator  contains  many  of  the  same  high  performance
  features as  the M1600  FDDI Concentrator  but  is designed  for  smaller
  workgroups with large data transfer requirements.   It is available in  a
  table top or rack mountable design. 

  M400 FDDI Concentrator is  a compact, fixed  port concentrator ideal  for
  small workgroup cluster. Available in either 4 or 8 port  configurations,
  the M400 provides options for fiber or copper media connectivity and  the
  ability to select managed or unmanaged operations.

  S4000 Millennium is a scalable LAN switch featuring  a media independent,
  five-slot chassis that  supports  switched 10Mbps Ethernet, 100Mbps  Fast
  Ethernet, 1000Mbps Gigabit Ethernet and FDDI  connectivity.

  Wide Area Networks (WAN)

  The Company's  WAN  products serve  several  segments of  the  enterprise
  networking market  including:   remote access  server (RAS)  connectivity
  utilizing ISDN and digital technologies, IBM SNA LAN to host integration,
  and access to  wide area  networks for servers,  remote LANs  and PCs  in
  multi-vendor networking  environments  and  LAN  to  LAN  interconnection
  utilizing a variety of protocols. Interphase WAN products are  compatible
  with Novell, Microsoft, IBM, Sun, UNIX, SNA, X.25, Frame Relay and  ISDN.

  Server Class products  include fully featured,  multi-purpose and  multi-
  operating systems products for ISDN, X.25,  Frame Relay and other  serial
  and dial  up  technologies.    These  products  are  used  by  networking
  professionals to  outfit  remote  offices  or  central  offices  with  an
  ISDN/WAN adapter  that  can manage  multiple  ISDN channels  or  multiple
  communication modes.

  ENTIA-PRI RAS Adapter is an intelligent PCI compliant RAS peripheral that
  uses  an  on-board  PowerPC  CPU  and  memory  to  locally  execute   all
  communications protocols. Available in two configurations, single or dual
  port PRI/T1/E1, the ENTIA-PRI Adapter provides connectivity for small and
  medium size enterprise networking environments.

  ENTIA-BRI RAS Adapter is an intelligent peripheral that uses an  on-board
  IBM PowerPC  CPU  and   memory  to  locally  execute  all  communications
  protocols. Featuring 4 ISDN BRI (Basic  Rate Interface) ports, the  ENTIA
  BRI RAS Adapter offers both ST  and built-in NT1 (U-loop) interfaces  for
  small branch offices.

  ENTIA-SR Adapter is an intelligent PCI compliant peripheral that uses  an
  on-board PowerPC CPU  and memory  to locally  execute all  communications
  protocols. The  serial port  on the  ENTIA-SR Adapter  can operate  as  a
  single, unchannelized data port at speeds between 56K and T1 (1.544 Mbps)
  or E1  (2.048  Mbps)  or  at  any  speeds  in  between  for  LAN  to  LAN
  interconnections or for branch office router interconnections in a leased
  line networking environment.

  ENTIA-DM PCI  Digital  Modem  Adapter is  an  intelligent  PCI  compliant
  peripheral that  uses  an on-board  PowerPC  CPU and  memory  to  locally
  execute all communications protocols. Offering  up to 60 digital  modems,
  an optional integrated CSU/DSU, and simultaneous processing of both  ISDN
  and analog (V.34  and V.90) call  traffic, the  ENTIA-DM supports  remote
  users requiring access to enterprise network applications like  Microsoft
  Backoffice (SNA, SQL, E-mail), Remote Access Server, routing programs and
  communications programs.
<PAGE>
  5532 PCI ISDN/X.25 Adapter  is  an active adapter for remote  workstation
  and small branch office communication servers.  Offering an ISDN BRI  S/T
  interface, the 5532 enables users to utilize advanced X.25, PPP and  SDLC
  connectivity, while providing  high-speed access to  LANs, remote  access
  hosts or the Internet.

  Client Class products are serial I/O  and ISDN board level products  that
  are used in desktop  and laptop computers.   These products are  designed
  primarily to Windows operating systems for client applications.

  5132 ISA ISDN  Adapter is an  adapter for remote  workstations and  small
  branch office  communication  servers. Offering  a  serial V.11  or  V.24
  connection to a  leased line  plus an ISDN  BRI S/T  interface, the  5132
  enable users with high-speed access to  LANs, remote access hosts or  the
  Internet.

  5133 ISA ISDN  Adapter provides  a low  cost ISDN  solution designed  for
  desktops running Microsoft  Windows 95/98.  The 5133  provide users  with
  fast and secure access to LANs or the Internet.

  5333 PCMCIA ISDN Adapter  provides a low cost  ISDN solution for  laptops
  with PC Card  slots running Microsoft  Windows 95/98.   The 5333  provide
  users with fast and secure access to LANs or the Internet.

  Mass Storage Controller Products

  Revenues  derived  from  mass  storage  controller  products  represented
  approximately 25%, 12%  and 14% of  consolidated revenues  for the  years
  ended December 31, 1998, 1997 and 1996. 

  The Company's mass storage product  line includes products that  function
  in VME, PCI and CompactPCI systems.   Presently, SCSI is the most popular
  mass storage technology for both desktop and server applications since it
  is "device independent" whereas many technologies prior to SCSI were not.
  Device independent  refers to the fact that the controller can access and
  send data to and from a variety of peripheral devices (e.g., disk drives,
  tape drives  or printers).  Historically, the  primary market  for  these
  products has been computer system OEM's. 

  The Company introduced its first Fibre  Channel product in 1996.    Fibre
  Channel is  an  emerging  high-speed data  transfer  technology.    Fibre
  Channel is regarded as a follow-on migration path from SCSI.  It is 10 to
  250 times faster than existing  technologies, including SCSI, capable  of
  transmitting at rates of  one gigabit per  second simultaneously in  both
  directions.   This kind  of performance  is  a practical  necessity  when
  sizable files containing x-rays or MRI scans are retrieved from a storage
  device.  Fibre Channel can also operate over distances up to 10 km.   For
  disaster recovery  purposes it  is an  ideal  technology for  backing  up
  mission critical data to mass storage device at a secure remote location.
  Fibre Channel is  also  regarded  by the industry  as a  key enabler  for
  Storage Area Networks (SANs).  A  SAN provides centralized management  of
  storage devices from  anywhere on the  network and  utilize a  high-speed
  Fibre Channel backbone to  tie together large numbers  of tape, disk  and
  other storage devices and link them to remote servers.  Fibre Channel  is
  also expected to  play a  significant role  in mass  storage for  Telecom
  database  engines  for   Advanced  Intelligent   Networks  and   wireless
  telephony.
<PAGE>

  SCSI

  4210  VME SCSI  Adapter  is  a high-performance dual  channel  SCSI  host
  adapter for VMEbus applications.   It supports up  to seven SCSI  devices
  per channel  and can  be  configured with  one  or two  independent  SCSI
  channels.  By utilizing the BUSpacket  Interface it can provide  transfer
  rates of  up  to  5 MBytes/second  in  synchronous  mode and  up  to  1.5
  MBytes/second in  the asynchronous  mode. This  product is  available  in
  either a 6U or 9U form factor.  4220 VME SCSI-2  Adapter  is designed for
  VMEbus and VME64 systems.  It  complies with the industry standard SCSI-2
  interface.  It also  contains two channels that support up  to 14  SCSI-1
  or SCSI-2 devices.  It is capable of data rates of up to 10 MBytes/second
  in the  synchronous  mode  and  5 MBytes/second in the asynchronous mode.
  This product is available in either a 6U or 9U form factor. Additionally,
  an optional  daughter  card is available which allows for a connection to
  an Ethernet network. The incorporation of an Ethernet daughter  card with
  a  SCSI adapter  in  this  manner  utilizes  only  one slot in a computer
  backplane.

  5520 PCI SCSI-2 Adapter provids high  performance "Fast and Wide"  SCSI-2
  connectivity for PCI-based systems and is  designed to meet the needs  of
  applications ranging from graphics intensive multimedia desktops to  high
  throughput departmental file servers.

  Fibre Channel

  5526 PCI Fibre  Channel    Adapter provides  single port  100 MBps  Fibre
  Channel connectivity and is powered by the Hewlett-Packard Tachyon  Fibre
  Channel protocol engine.

  6526 CompactPCI Fibre Channel  Adapter  is a 3U CompactPCI adapter  which
  delivers full  100  MBps  throughput for  next  generation  mass  storage
  applications in embedded system environments.

  Interphase (i)chipTPI ASIC  is a single  chip solution  which allows  the
  Hewlett-Packard  Tachyon  Fibre   Channel  controller  to   be  used   in
  conjunction with the industry standard PCI bus. 

  FibreView  is   a  management/diagnostic   tool  which   simplifies   the
  configuration of Interphase Fibre Channel adapter cards.  With FibreView,
  users can  display,  add, modify  and  delete SCSI  ID  assignments  with
  relative ease, making it simple to  tailor their storage arrangement  for
  specific application requirements.

  VOICE OVER INTERNET PROTOCAL (VoIP)

  Fueled by the explosive  growth of the  Internet, IP-based networks  have
  become the standard for  corporate data networks. IP-telephony  (Internet
  Protocol telephony) is a general term  for the technologies that use  the
  Internet Protocol's packet-switched connections  to exchange voice,  fax,
  and other forms of information that have traditionally been carried  over
  the  dedicated  circuit-switched  connections  of  the  public   switched
  telephone network (PSTN).   The  Company is  currently evaluating  market
  opportunities with  two key  IP telephony  technologies:   Voice over  IP
  (VoIP) and Voice over the Internet (VoN).   Voice over the Internet  uses
  IP telephony for users  that are connected to  the Internet, where  voice
  conversations and other  information is converted  into digital data  and
  transmitted over the public  Internet.    Voice over IP  is based on  the
  same underlying technology as VoN, but operates on proprietary  networks,
  not the public Internet.
<PAGE>

  New Product Development

  The markets  for  the  Company's  products  are  characterized  by  rapid
  technological development,  evolving  industry  standards,  frequent  new
  product introductions  and  relatively  short product  life  cycles.  The
  Company's  success  is  substantially  dependent  upon  its  ability   to
  anticipate  and  react  to  these  changes,  maintain  its  technological
  expertise,  expand  and  enhance   its  product  offerings  in   existing
  technologies, and to develop in a timely manner new products in  emerging
  technologies, such as Fibre Channel-based storage area networking,  which
  achieve market acceptance.  The Company  believes it must offer  products
  to  the  market  which  not only  meet  ever-increasing  performance  and
  quality standards, but also  provide compatibility  and  interoperability
  with products and architectures offered  by various computer and  network
  systems vendors.  The continued utility of the Company's products can  be
  adversely affected by products or technologies developed by others.

  The Company has been engaged in  the development of new products and  the
  refinement of its existing products since its inception.  Interphase  has
  been active in the formulation of industry standards sanctioned by groups
  such as  the  IEEE and  ANSI  and, VME  International  Trade  Association
  (VITA), Fibre  Channel Association  (FCA), Fibre  Channel Community,  PCI
  Industrial  Manufacturers  Group  (PICMG),  Project  UDI,  Fast  Ethernet
  Alliance,  SCSI  Committee,   the  LADDIS   Group,  ONC/NFS   Consortium,
  University of  New Hampshire  FDDI Interoperability  Lab, FC-Open  (Fibre
  Channel)  Consortium,  and  ANTC  Consortium  for  FDDI  interoperability
  testing.

  In  1998,  the  Company    applied  the  majority  of    its  engineering
  development resources  to products  for the  emerging remote  access  and
  Fibre Channel markets. The remote access equipment market is growing at a
  38% annual rate according to recent  research and the Company intends  to
  provide "best of breed" remote access solutions for embedded systems  and
  communications servers  for mission  critical enterprise  communications.
  The SAN market for  hardware, software and services  is expected to  grow
  from an estimated $3.5 billion in 1998 to $10 billion by 2002,  according
  to Strategic  Research.  Through  engineering  development,  the  Company
  strives for continuous  improvements in scalability  and throughput  with
  its Fibre Channel  offerings in  order to  make its  products   industry-
  leading solutions for building localized SAN's.

  In addition,  the Company  has continued  its focus  on ATM  and  certain
  traditional products  including FDDI.  ATM is  rapidly becoming  the  key
  technology in  fostering  multipurpose,  seamless  LAN/WAN  connectivity.
  Interphase, as a recognized leader in ATM, intends to continue to exploit
  its leadership position by targeting these new opportunities for ATM with
  new ATM products, while continuing to cater to existing LAN opportunities
  for ATM.  (See Item 7. Management's Discussion and Analysis of  Financial
  Conditions and Results of Operations, for further discussion on  Research
  and Development activities).
<PAGE>

  Marketing and Customers

  The Company's  standard  products are  sold  to OEM's  for  inclusion  in
  scientific,  industrial,  medical,  engineering  workstations,  printing,
  mini-supercomputer,  graphics  and  other  computer  applications.  These
  purchasers incorporate the Company's products in proprietary systems  for
  resale to distributors, system integrators and VAR's (which add specially
  designed software) prior to resale to end-users.  Also, the Company sells
  products directly to sophisticated end-users such as large  corporations,
  universities and scientific research  organizations.  During 1998,  sales
  to Hewlett  Packard  accounted for  $28,349,000  or 41%  of  consolidated
  revenues, and  was the  only customer  accounting for  more than  10%  of
  consolidated revenues.  During 1997,  sales to Hewlett Packard  accounted
  for $26,402,000  or  40%  of consolidated  revenues,  and  was  the  only
  customer accounting for more than 10%  of consolidated revenues.   During
  1996, no  single customer  accounted for  more than  10% of  consolidated
  revenues.

  In October 1998, the Company entered into a stock repurchase agreement to
  buy back all the outstanding shares held by Motorola at a total price  of
  $4,125,000.  The stock repurchases will be made ratably from October 1998
  to July  2002.   Sales to  Motorola approximated  3%, 3%  and 6%  of  the
  Company's revenues for the years ended  December 31, 1998, 1997 and  1996
  respectively.   

  The Company markets its products through its own sales organization  and,
  to  a  lesser   extent,  through   a network   of    independent    sales
  representatives.  In  addition to the  Company's headquarters in  Dallas,
  Texas, the Company  has sales  offices located  in or  near Santa  Clara,
  California;  Boston,   Massachusetts;  Phoenix,   Arizona;   Minneapolis,
  Minnesota; London,  England;  and  Paris,  France.  The  Company's  sales
  personnel market products directly  to key customers  as well as  support
  the sales representative  network. In addition,  the Company has  entered
  into  distribution  agreements  with   key  national  and   international
  distribution partners,  including  Anixter, Fuji-Xerox,  Gates/Arrow  and
  Westcon.

  Interphase emphasizes its extensive  product support, training and  field
  support to its customers.  The Company's products are generally sold with
  a one to three-year  warranty covering components and  labor.  After  the
  expiration of the warranty period, the Company generally provides support
  services for a stated flat fee.

  The Company and  its customers  generally enter  into written  agreements
  specifying, among other items standard in commercial agreements,  product
  specifications,   failure   rates,   shipping   requirements,    shipment
  rescheduling terms, price/volume  schedules and manufacturer  warranties.
  Substantially  all  of  these  agreements  do  not  contain  determinable
  purchase commitments  of the  customers,  providing instead  that  actual
  purchase  and  shipments of products be  made by specific purchase order.  
  Accordingly, any shipment rates stated in  such contracts are subject  to
  rescheduling and/or cancellation, and therefore are not indicative of the
  future purchase orders to  be submitted by such  customer.  In  addition,
  the actual terms  of the contracts  tend to be  modified in the  ordinary
  course of business  by means of  subsequent purchase order  terms and  by
  course of dealing.
<PAGE>
  The Company  does not  believe that  the level  of backlog  of orders  is
  either material or indicative of future results, since its contracts  are
  subject to  revision through  subsequent purchase  orders and  since  its
  customers are  generally  permitted  to cancel  purchase  orders,  within
  certain parameters, prior to shipment without penalty.

  The majority  of the  Company's  sales are  to  OEMs with  payment  terms
  typically being net 30-45 days from date of invoice.

  Manufacturing and Supplies

  Most manufacturing operations  are currently conducted  at the  Company's
  headquarters in  Dallas,  Texas.    In  addition,  the  Company  utilizes
  contract manufacturing operations for  the assembly of certain  products,
  including some  of those  produced in  France.   The  Company's  products
  consist  primarily  of  various  integrated  circuits,  other  electronic
  components and  firmware assembled  onto an  internally designed  printed
  circuit board.

  The Company uses  internally designed,  applications specific  integrated
  circuits ("ASIC"),  some  of  which are  sole-sourced,  on  some  of  its
  products as well as standard off-the shelf items presently available from
  two or more suppliers.  Historically the Company has not experienced  any
  significant problems in  maintaining an  adequate supply  of these  parts
  sufficient to satisfy customer demand, and  the Company believes that  it
  has good relations with its vendors.

  The Company generally does not manufacture products to stock in  finished
  goods inventory,  as substantially  all of  the Company's  production  is
  dedicated to specific customer purchase orders.  As a result, the Company
  does  not  have  any   material  requirements  to  maintain   significant
  inventories  or other  working capital items.

  Intellectual Property and Patents

  While the Company believes that its success is ultimately dependent  upon
  the innovative  skills of  its personnel  and its  ability to  anticipate
  technological changes, its ability  to compete successfully will  depend,
  in part, upon its ability to protect proprietary technology contained  in
  its products.  The Company does  not currently hold any patents  relative
  to its  current  product lines.    Instead,  the Company  relies  upon  a
  combination of trade secret, copyright and trademark laws and contractual
  restrictions to establish and protect proprietary rights in its products.
  The  development of  alternative, proprietary and  other technologies  by
  third parties could adversely affect the competitiveness of the Company's
  products.  Further, the  laws of some countries  do not provide the  same
  degree of protection of the Company's  proprietary information as do  the
  laws of the United States.  Finally, the Company's adherence to industry-
  wide technical  standards  and  specifications may  limit  the  Company's
  opportunities  to  provide  proprietary   product  features  capable   of
  protection.

  The  Company  is  also  subject  to  the  risk  of  litigation   alleging
  infringement of third party  intellectual property rights.   Infringement
  claims could require the Company to expend significant time and money  in
  litigation, pay  damages, develop  non-infringing technology  or  acquire
  licenses to the technology which is the subject of asserted infringement.
<PAGE>
  The Company  has entered  into  several nonexclusive  software  licensing
  agreements that  allow  the  Company to  incorporate  software  into  its
  product  line  thereby  increasing  its  functionality,  performance  and
  interoperability.      

  Employees

  At December 31, 1998, the Company  had 229 full-time employees, of  which
  60 were engaged in  manufacturing and quality  assurance, 86 in  research
  and development, 46 in sales, sales support, service and marketing and 37
  in general management and administration.

  The Company's success  to date has  been significantly  dependent on  the
  contributions of a number of its key technical and management  employees.
  The Company  does  not  maintain  life  insurance  policies  on  its  key
  employees and, does  not have  employment agreements  with key  employees
  except for a few executive officers.  The loss of the services of one  or
  more of these key employees could  have a material adverse effect on  the
  Company.  In addition, the Company believes that its future success  will
  depend in  large part  upon  its ability  to  attract and  retain  highly
  skilled  and  motivated  technical,   managerial,  sales  and   marketing
  personnel.  Competition for such personnel is intense. 

  None of the Company's  employees are covered  by a collective  bargaining
  agreement and  there have  been no  work  stoppages.   Additionally,  the
  Company considers its relationship with its employees to be good.

  Competition

  The  computer   network  industry   is  intensely   competitive  and   is
  significantly affected by product introductions and market activities  of
  industry participants.   The Company expects  substantial competition  to
  continue.    The  Company's  competition  includes  vendors  specifically
  dedicated to the  mass storage  controller and  computer network  product
  markets.  Traditionally the Company's major OEM customers have chosen not
  to  manufacture  adapters  for  their  products  or  do  not  manufacture
  sufficient quantities  or types  of controllers  to  meet their  needs.  

  Increased competition  could  result in price reductions, reduced margins
  and loss  of  market  share.  (See  Note  11  to  Consolidated  Financial
  Statements)

  ITEM 2.   PROPERTIES.

  The Company  leases a  96,000 square  foot  facility located  in  Farmers
  Branch, Texas, a suburb of Dallas.   The facility includes  approximately
  $2.9 million  in  leasehold  improvements that were made  by the Company.  
  The lease,  inclusive of  renewal options,  extends through  2002.     In
  addition the Company leases a facility  in Chaville, France (near  Paris)
  which supports  the  European  markets. The  Company  believes  that  its
  facilities and equipment are in good operating condition and are adequate
  for its operations.  The Company owns  most of the equipment used in  its
  operations.  Such equipment consists primarily of engineering  equipment,
  manufacturing and test equipment, and fixtures. 
<PAGE>

  ITEM 3.        LEGAL PROCEEDINGS.

  None


  ITEM 4.        SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
     
  Not applicable
     
                               PART II

  ITEM 5.        MARKET FOR REGISTRANT'S COMMON EQUITY AND 
            RELATED SHAREHOLDER MATTERS.

  Since January 1984 shares of the Company's common stock have been  traded
  on The Nasdaq Stock Exchange under  the symbol INPH. The following  table
  summarizes its high and low price for each fiscal quarter during 1998 and
  1997 as reported by Nasdaq.

     Fiscal 1998                               High            Low
     -----------                               -----          -----
     First Quarter                             8.813          6.063
     Second Quarter                            9.500          6.500
     Third Quarter                             8.000          5.000
     Fourth Quarter                            8.688          5.250

     Fiscal 1997                               High            Low
     -----------                               -----          -----
     First Quarter                            11.125          8.000
     Second Quarter                            8.875          6.250
     Third Quarter                            11.125          7.875
     Fourth Quarter                            8.625          5.750

  The Company had approximately 1700 beneficial owners of its Common Stock,
  of which 80 are of record  as of March 1, 1999.

  The Company has  not paid  dividends on  its  Common   Stock  since   its
  inception.  The  Board of Directors  does not anticipate  payment of  any
  dividends in the foreseeable future and  intends to continue its  present
  policy of retaining earnings  for reinvestment in  the operations of  the
  Company.
<PAGE>

  ITEM 6.        SELECTED FINANCIAL DATA

<TABLE>
  Statement of Operations Data:
  (In Thousands, except per share data)



                                                Two months
                           Twelve months          ended      Twelve months
                           ended Dec. 31,        Dec. 31,    ended Oct. 31,
                      1998     1997      1996      1995      1995     1994
                     ------    ------    ------   ------    ------    ------
<S>                 <C>       <C>       <C>      <C>       <C>       <C>
Revenues            $68,846   $66,004   $56,752  $ 3,379   $47,368   $40,303

Gross Profit         33,627    32,016    27,964    1,224    23,547    20,066

Research and
 development         11,156    13,327     9,902    1,360     7,327     7,862

Sales and marketing  10,539    11,686    10,297    1,173     8,583     7,599

General and           5,914     6,248     4,905      634     4,004     4,146
administrative

Special charges         -         -      11,646      -         -       1,148

Operating income
 (loss)               6,018       755    (8,786)  (1,943)    3,633      (689)

Other, net           (1,583)   (1,525)     (705)      94       589       278
                     -------------------------------------------------------

Income (loss) before  4,435      (770)   (9,491)  (1,849)    4,222      (411)
income tax

Net income (loss)   $ 2,713    $ (971) $(10,055) $(1,167)  $ 2,759    $ (280)
                     -------------------------------------------------------

Net income (loss)
 per share

  Basic              $ 0.49    $ (0.18) $ (1.99) $ (0.25)  $ 0.60     $(0.06)
                     -------------------------------------------------------
  Diluted            $ 0.48    $ (0.18) $ (1.99) $ (0.25)  $ 0.55     $(0.06)
                     -------------------------------------------------------
Weighted average
 common shares        5,508     5,496     5,062    4,663     4,561     4,484
                     -------------------------------------------------------
Weighted average
 common & common
 equivalent shares    5,628     5,496     5,062    4,663     5,051     4,484
                     -------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
                                   December 31,                  October 31,
Balance Sheet Data:    1998      1997       1996      1995     1995      1994
                      -------------------------------------   ----------------
<S>                  <C>      <C>        <C>       <C>       <C>       <C>
Working capital      $26,314  $ 25,244   $ 22,836  $ 23,141  $24,328   $20,776

Total assets          50,288    49,447     53,924    33,624   35,430    31,943

Total liabilities     18,463    19,904     23,538     4,363    5,019     5,094

Redeemable Common
 Stock                 3,813       -          -         -        -         -

Shareholders' equity  28,012    29,543     30,386    29,261   30,411    26,849

</TABLE>


  ITEM 7.        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 
                 CONDITION AND RESULTS OF OPERATIONS
<TABLE>

  Consolidated Statement of Operations Percentage of Revenues
                                                      
                                                                       
                                                 Year ended December 31,      
                                                1998        1997     1996
                                               ---------------------------
  <S>                                          <C>         <C>      <C>
  Revenues                                     100.0%      100.0%   100.0%
  Cost of sales                                 51.1%       51.5%    50.7%
                                               ---------------------------
  Gross profit                                  48.9%       48.5%    49.3%

  Research and development                      16.2%       20.2%    17.4%
  Sales and marketing                           15.3%       17.7%    18.1%
  General and administrative                     8.6%        9.5%     8.6%
  Acquired in-process R&D                        0.0%        0.0%    20.5%
                                               ---------------------------
  Operating income (loss)                        8.8%        1.1%   (15.3)%

  Interest income                                0.5%        0.7%     0.7%
  Interest expense                              (1.5)%      (1.7)%   (0.9)%
  Other, net                                    (1.3)%      (1.3)%   (1.0)%
                                               ---------------------------
  Income (loss) before income taxes              6.5%       (1.2)%  (16.5)%

  Provision (benefit) for income taxes           2.5%        0.3%     1.0%
                                               ---------------------------
  Net income (loss)                              4.0%       (1.5)%  (17.5)%
                                               ===========================
</TABLE>
<PAGE>

  RESULTS OF OPERATIONS

  Effective January 1, 1996, Interphase Corporation ("the Company") changed
  its fiscal year end from October 31 to December 31.

  In June 1996, the Company acquired  Synaptel, S.A ("Synaptel"), a  French
  company which designs and distributes a  broad line of remote access  and
  ISDN products,    which include  both  significant software  content  and
  interoperability with a broad range of networking protocols.

  Revenues:  Total revenues for the years ended December 31, 1998, 1997 and
  1996  were $68,846,000, $66,004,000 and $56,752,000, respectively. 

  The growth in revenues from 1997 to 1998 was 4%.  The increase in revenue
  was attributable  to growth  in the  Company's Fibre  Channel and  Remote
  Access/WAN, ATM, Fast Ethernet and  SCSI product lines, partially  offset
  by a  decline in  FDDI and  Ethernet products.   In  1998, FDDI  revenues
  accounted for approximately  19% of  total revenues,  Fast Ethernet  30%,
  SCSI 10%, WAN 11%, ATM 8%, Ethernet 3% and Fibre Channel 14%.  Local area
  networking products in total  comprised 63% of  total revenues for  1998,
  mass storage product revenues 25% and wide area networking products  10%.
  North American revenues grew 1%, Pacific Rim revenues declined  31%,  and
  European revenues  grew  27%  compared to  1997.  The  Company's  current
  marketing strategy is  to increase  market penetration  through sales  to
  major OEM customers.  One of these customers accounted for  approximately
  41% of the Company's revenue in 1998.

  The growth in  revenues from  1996 to 1997  was 16%.     The increase  in
  revenues was led  by significant revenue  growth in  the Company's  Fibre
  Channel product line,  a three-fold increase  in sales  of the  Company's
  Fast Ethernet product line,  and  22% increase in sales of ATM  products.
  This  was offset by  a shift from the Company's FDDI, SCSI, and  Ethernet
  products by 20% from 1996 to 1997.  In 1997, FDDI revenues accounted  for
  approximately 33% of total revenues, Fast Ethernet 30%, SCSI 9%, WAN  8%,
  ATM   8%, Ethernet  6% and   Fibre  Channel 3%.   Local  area  networking
  products in total comprised 77% of total revenues for 1997,  mass storage
  product revenues   12%  and wide  area networking  products 8%.     North
  American  revenues  grew  26%,  Pacific  Rim  revenues declined  8%,  and  
  European revenues declined 12% compared to  1996. One of these  customers
  accounted for approximately 40% of the Company's revenue in 1997.

  Cost of Sales:  Cost of sales expressed  as a percentage of revenues were
  approximately 51% for each year ended December 31, 1998, 1997 and 1996.

  Research and Development:   The  Company's investment in the  development
  of  new  products  through  research  and  development  was  $11,156,000,
  $13,327,000 and $9,902,000 in  1998, 1997, and  1996, respectively. As  a
  percentage of revenue,  research and development  expenses were 16%,  20%
  and 17% for 1998, 1997 and 1996, respectively.  The decrease in  spending
  from 1997 to  1998 is a  reflection of the  Company's efforts to  control
  expenses, offset by an investment in spending for VOIP development.   The
  increase in spending in 1997 reflected additional spending on development
  for ATM, WAN, Fibre Channel and Fast Ethernet.  In 1999, as a  percentage
  of revenue,  research and  development expenses  are expected  to  remain
  consistent with 1998.
<PAGE>
  Sales and  Marketing:   Sales and  marketing expenses  were  $10,539,000,
  $11,686,000 and $10,297,000 in 1998, 1997,  and 1996, respectively. As  a
  percentage of revenue, sales and marketing expenses were 15% in 1998  and
  18%, in 1997 and  18% in 1996.    The decrease in  spending from 1997  to
  1998 is a reflection of the Company's efforts to control expenses, offset
  by an investment in spending for VOIP sales and marketing spending.    In
  199, as  a  percentage  of revenue,  sales  and  marketing  expenses  are
  expected to remain consistent with 1998.

  Special Charges:   In the second  quarter of 1996 the Company recorded  a
  charge of $11,646,000 for acquired in-process R&D in association with the
  acquisition of Synaptel.   Acquired in-process  research and  development
  activities  had  no   alternative  future  use   and  had  not   achieved
  technological feasibility; accordingly, the amounts were expensed in  the
  accompanying consolidated statements of  operations for the period  ended
  December 31, 1996.

  General and  Administrative:   General and  administrative expenses  were
  $5,914,000,  $6,248,000  and   $4,905,000  in  1998,   1997,  and   1996,
  respectively. As  a percentage  of  revenue, general  and  administrative
  expenses were approximately 9% for each  year.  In 1999, as a  percentage
  of revenue, general  and administrative expenses  are expected to  remain
  consistent with 1998.

  Interest Income:  Interest income was  $338,000 $438,000 and $421,000  in
  1998, 1997 and  1996, respectively. The  change in  interest income  from
  year to year is a  reflection of the increase  and decrease in the  funds
  available for investment.

  Interest Expense:    Interest  expense  was  $1,025,000,  $1,126,000  and
  $535,000 in  1998,  1997  and  1996, respectively.  The interest  expense
  is a result  of the debt  incurred by the  Company to  fund the  Synaptel
  acquisition in mid-1996.

  Other Expense:   Other expense was  $896,000, $837,000 and  $591,000   in
  1998, 1997 and 1996, respectively.  Other expense primarily reflects  the
  amortization of goodwill and  acquired developed technologies related  to
  the Synaptel acquisition.

  Provision (Benefit) for Income Taxes:  The Company's provision for  taxes
  was  $1,722,000,  $201,000,  and  $564,000  in  1998,  1997,  and   1996,
  respectively.  The increase  in the Company's  effective income tax  rate
  from 1996 to  1998 is due  to the write-off  of in  process research  and
  development in 1996 which was not benefited for income tax purposes.  The
  Company experienced a net loss before taxes in 1997; however, due to  the
  effects of non-deductible  goodwill and state  income taxes, the  Company
  had a tax provision of $201,000.  In 1998, the Company's effective income
  tax rate  was greater  than the  statutory rate,  primarily due  to  non-
  deductible goodwill amortization.

  Net Income (Loss):   The  Company reported  net income  of $2,713,000  in
  1998, net loss  of $971,000 in  1997 and   a net loss  of $10,055,000  in
  1996.   The loss  in 1996 was attributable  to the write-off of  acquired
  in-process research and  development  ($11,646,000)  associated with  the
  acquisition of Synaptel.   The increase in net  income from 1997 to  1998
  was due to the increase in revenues, in addition to the Company's efforts
  to control costs.
<PAGE>
  Adoption  of  Accounting  Standards:   Effective  January  1,  1998,  the
  Company adopted SFAS  No. 130,  "Reporting Comprehensive  Income"   which
  requires companies to  report all changes  in equity  during the  period,
  except those resulting from investments  by and distributions to  owners,
  in  a  financial  statement.    The   Company  has  chosen  to   disclose
  Comprehensive Income, which includes net income, unrealized holding gains
  or  losses   and  foreign   currency  translation   adjustments  in   the
  Consolidated Statement of  Stockholder's Equity.   Prior years have  been
  restated to conform to SFAS No. 130 requirements.

  During 1998 the Company adopted SFAS No. 131, "Disclosures about Segments
  of an  Enterprise  and  Related Information."    SFAS  No.  131  requires
  companies  to  report   segment  information  in   accordance  with   the
  "management approach."  The  management approach designates the  internal
  reporting that is  used by management  for  making  operating  decisions.  
  SFAS No.  131  also requires  disclosures  about products  and  services,
  geographic areas and major customers.   The Company manages its  business
  segments on an industry basis.

  LIQUIDITY AND CAPITAL RESOURCES

  The Company's cash, cash equivalents and marketable securities aggregated
  $7,961,000, $5,519,000  and $5,850,000  at December  31, 1998,  1997  and
  1996, respectively.   Expenditures for equipment  and purchased  software
  were $2,892,000,  $1,150,000  and  $2,539,000 in  1998,  1997  and  1996,
  respectively.   At  December  31,  1998,  the  Company  had  no  material
  commitments to purchase capital assets.  The Company's significant  long-
  term obligations  are its  operating lease  on  its Dallas  facility  and
  future debt payments.  The Company  has not paid any dividends since  its
  inception and  does not  anticipate paying  any dividends  in 1999.    In
  connection with  the  Synaptel  acquisition in  June  1996,  the  Company
  entered into  a two-year  $16,000,000 credit  facility with  a  financial
  institution, subject to annual renewal provisions.  This credit  facility
  includes an  $8,500,000 term  loan, a  $2,500,000  equipment loan  and  a
  $5,000,000 revolving credit facility.  The  term and equipment loans  are
  due in quarterly installments beginning in  November 1996, and expire  in
  November 2001.  The revolving credit facility expires in  June 2000.   In
  1999,  maturities  of   this  credit  facility   will  be   approximately
  $2,192,000.  

  Effective October 1998, the Company approved a stock repurchase agreement
  with Motorola, Inc. to purchase all  of the shares owned by Motorola  for
  $4,125,000, ratably from October 1998 to  July 2002.  Under the terms  of
  the agreement  Motorola retains  the right  as an  equity owner  and  has
  assigned its voting rights to the  Company.  The Company plans to  cancel
  the stock  upon  each  re-purchase. Prior  to  the  repurchase  agreement
  Motorola owned  approximately 12%  of  the Company's  outstanding  common
  stock.  The future scheduled payments are classified as redeemable common
  stock in the accompanying consolidated balance sheet.  As of December 31,
  1998, 50,000 shares have been re-purchased for $312,500 and retired.

  The  Company  expects  that   its  cash,  cash  equivalents,   marketable
  securities and proceeds from its credit facility will be adequate to meet
  foreseeable needs for the next 12 months.
<PAGE>
  Year 2000

  The Company has  recognized the need  to ensure that  its operations  and
  relationships with vendors and other third parties will not be  adversely
  impacted by  software processing  errors  arising from  the  calculations
  using the Year 2000 ("Y2K") and beyond. 

  The Company has created a company-wide  Y2K team to identify and  resolve
  Y2K issues associated  with the Company's  internal information  systems,
  internal non-information systems, the products  sold by the Company,  and
  its major suppliers of products and  services. The Company established  a
  Y2K program coordinator to ensure  these programs are implemented  across
  the Company. The coordinator provides a  single point of reference,  both
  internal, and external, for the Company.   The products that the  Company
  sells are Y2K  compliant, or will  be compliant by  mid year  1999.   The
  Company's  internal  reporting  system  is  being  replaced  with  a  Y2K
  compliant Enterprise Reporting Planning  (ERP) system which is  scheduled
  to go live in  mid-year 1999.  In addition, the Company is  communicating
  with  all  its  suppliers,  customers,  vendors  and  financial   service
  organizations  regarding  their  Year  2000  compliance.    The   Company
  anticipates that  its  full  Year 2000  review,  new  information  system
  implementation,  and  other   necessary  remediation   actions  will   be
  substantially complete by mid 1999.  Direct expenditures are expected  to
  be  between  $850,000   and  $900,000.  The   Company  will  fund   these
  expenditures through  its normal  operating budget,  and as  required  by
  generally accepted accounting principles, these costs are being  expensed
  as incurred, excluding the capitalization  of application software.   The
  capitalization for software will be approximately $300,000.  The  Company
  does not believe that the costs associated with such actions will have  a
  material adverse  effect  on  the  Company's  results  of  operations  or
  financial condition.   However the costs  of such actions  may vary  from
  quarter to quarter, and there  is no assurance that  there will not be  a
  delay in the Company's implementation or increased costs associated  with
  the implementation of such changes.  Failure to achieve Y2K readiness for
  the Company could delay its ability to manufacture and ship products  and
  deliver services.   The Company's  inability to  perform these  functions
  could have an adverse effect on future results of operations or financial
  condition. 

  Non-IT systems include,  but are not  limited to, telephone/PBX  systems;
  fax machines; facilities systems  regulating alarms, building access  and
  sprinklers; manufacturing, assembly and distribution equipment; and other
  miscellaneous systems  and processes.  Y2K readiness  for these  internal
  non-IT systems is the responsibility of the Company's Y2K coordinator, it
  is anticipated at all  Non-IT systems will be  compliant if they are  not
  already compliant by mid 1999.

  The Company  regularly  reviews  and monitors    the    suppliers'    Y2K
  readiness plans and performance. Based on the Company's risk  assessment,
  selective on-site reviews may be performed.   In some cases, to meet  Y2K
  readiness, the  Company has  replaced suppliers  or eliminated  suppliers
  from consideration for new business. The Company has also contracted with
  multiple   transportation   companies   to   provide   product   delivery
  alternatives.
<PAGE>
  While the Company has contingency plans  in place to address most  issues
  under its control, an infrastructure problem outside of its control could
  result in  a delay  in  product shipments  depending  on the  nature  and
  severity of the problems.  The Company would  expect that most  utilities
  and service  providers  would be  able  to restore  service  within  days
  although more  pervasive  system problems  involving  multiple  providers
  could last two to four weeks or  more depending on the complexity of  the
  systems and the  effectiveness of their  contingency plans. Although  the
  Company  is  dedicating  substantial  resources  towards  attaining   Y2K
  readiness, there is no assurance it will be successful in its efforts  to
  identify and address all Y2K issues. Even if the Company acts in a timely
  manner to  complete  all of  its  assessments; identifies,  develops  and
  implements remediation  plans  believed  to  be  adequate;  and  develops
  contingency plans  believed  to be  adequate  some problems  may  not  be
  identified or corrected in time to prevent material adverse  consequences
  to the  Company.  The  discussion above  regarding  estimated  completion
  dates, costs, risks and other forward-looking statements regarding Y2K is
  based on the Company's best estimates given information that is currently
  available and is subject to change. As the Company continues to  progress
  with its Y2K initiatives, it may discover that actual results will differ
  materially from these estimates.

  Use of Forward-Looking Statements:   Certain statements contained in MD&A
  are forward-looking, including  statements concerning expected  expenses,
  Year 2000 readiness, and the adequacy of the Company's sources of cash to
  finance its current  and future operations.   Factors  which could  cause
  actual  results  to  materially  differ  from  management's  expectations
  include the following:   general economic  conditions and  growth in  the
  high tech industry; competitive factors and pricing pressures; changes in
  product mix;  the  timely development  and  acceptance of  new  products;
  inventory risks due to  shifts in market domain;  Year 2000 readiness  of
  the Company's suppliers, and the risks described from time to time in the
  Company's SEC filings.

  ITEM 7a.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

  The Company is  exposed to  market risk  from changes  in interest  rates
  which may adversely affect its financial position, results of  operations
  and cash flows.   In  seeking to minimize  the risks  from interest  rate
  fluctuations, the Company manages exposures through it regular  operating
  and financing activities.  The Company does not use financial instruments
  for trading  or  other  speculative  purposes and  is  no  party  to  any
  leveraged financial instruments. 

  The Company  is  exposed to  interest  rate risk  primarily  through  its
  borrowing activities, which are described  in the "Long-Term Debt"  Notes
  to the Consolidated Financial  Statements, which are incorporated  herein
  by reference.


  ITEM 8.        FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

       See Item 14 (a) below.

  ITEM 9.        CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
                 ON ACCOUNTING AND FINANCIAL DISCLOSURE.

       Not applicable
<PAGE>
                              PART III

  ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

  Directors

  See information regarding the directors  and nominees for director  under
  the heading "Election of Directors" of the Proxy Statement for the Annual
  Meeting of Shareholders  to be held  May 5, 1999,  which is  incorporated
  herein by reference.

  Executive Officers

  As of  March  1, 1999,  the  executive  officers of  the  Company,  their
  respective ages, positions held and tenure as officers are listed  below:

                                          Executive
                                         Officers of
                                         the Company

        Name            Age    Position(s) Held with the Company    Since
        ----            ---    ---------------------------------    -----
  R. Stephen Polley      48    Chairman                             1993

  Gregory B. Kalush      42    Chief Executive Officer,             1998
                               and President

  Philippe Oros          36    General Manager, Quescom             1998


  R. Stephen Polley  joined the Company  as President  and Chief  Operating
  Officer and was elected a director by the Board of Directors in  November
  1993.  In June 1994, Mr. Polley was named Chief Executive Officer of  the
  Company and appointed Chairman of the Board of Directors.  In March 1999,
  Mr. Polley resigned all  officer positions, but  remains Chairman of  the
  Board.  In June 1998, Mr. Polley was appointed a director of ObjectSpace.
  ObjectSpace is a  provider of  distributed computing  solutions built  on
  100% Pure Java(tm). From August 1992  to February 1993, Mr. Polley  acted
  as a consultant in strategic and management matters and as a director for
  Computer Automation, Inc.  Computer Automation provided various  products
  and services for use in  facsimile management systems, minicomputers  and
  microcomputers.     From  1987  to  April  1992,  Mr.  Polley  served  as
  President, Chief Executive Officer and a director of Intellicall, Inc., a
  diversified  supplier   of  telecommunications   products  and   services
  including  private  pay  telephones  and  microprocessor-based  automated
  operator systems.  
<PAGE>
  Gregory B. Kalush joined the Company in February 1998, as Chief Financial
  Officer, Vice President  of Finance and  Treasurer.  In  March 1999,  Mr.
  Kalush was appointed Chief Executive Officer, President, and Director  of
  the Company.   Prior  to  joining Interphase,  Mr.  Kalush was  with  DSC
  Communications Corporation from 1995 to 1997.  While at DSC he served  as
  Vice President Transmission Data Services, Vice President of  Operations,
  International Access  Products  and  Group  Vice  President  of  Finance,
  Transport Systems  Group.     Prior  to  DSC,  Mr. Kalush  was  with  IBM
  Corporation from 1978 to  1994. During that  time his positions  included
  Chief Financial Officer and Operations  Executive for the Skill  Dynamics
  Unit, Director of Finance, Planning and Administration for the  southwest
  area, and  Division  Director of  Finance  and Operations  for  the  Data
  Systems division.

  Philippe Oros  joined  the Company  in  1996  as part  of  the  Company's
  acquisition of Synaptel.  Mr. Oros founded Synaptel in 1986 and served as
  its General manager until 1996.  In 1998, Mr. Oros was appointed  General
  Manager of Quescom, a wholly owned subsidiary of Interphase Corporation.

  ITEM 11.  EXECUTIVE COMPENSATION.

  The information  required by  this Item  will be  included in  the  Proxy
  Statement for the  Annual Meeting of  Shareholders to be  held on May  5,
  1999, which is incorporated herein by reference.

  ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
            MANAGEMENT.

  The information  required by  this Item  will be  included in  the  Proxy
  Statement for the  Annual Meeting of  Shareholders to be  held on May  5,
  1999, which is incorporated herein by reference.

  ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

  The information  required by  this Item  will be  included in  the  Proxy
  Statement for the  Annual Meeting of  Shareholders to be  held on May  5,
  1999, which is incorporated herein by reference.
<PAGE>
                               PART IV

  ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
            FORM 8-K.


  (a)  (i)  and (ii)  Financial Statements and Schedules.

  Reference is made to the listing on page F-1 of all financial  statements
  and schedules filed as a part of this report.

       (iii)  Exhibits.

  Reference is made to the Index to Exhibits on page E-1 for a list of  all
  exhibits filed during the period covered by this report.

  (b)  Reports on Form 8-K.

  The Company filed the following reports on Form 8-K for the quarter ended
  December 31, 1998.

  Date of Filing:  October 15, 1998
  Item Reported:  5-Other Events
  Subject of Report:  Stock Redemption Agreement with Motorola, Inc.

<PAGE>


                             SIGNATURES


  Pursuant to the  requirements of Section  13 or 15(d)  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

  Date: March 30, 1999               By:  /s/ Gregory B. Kalush   
                                     Gregory B. Kalush
                                     Chief Executive Officer and President


  Pursuant to the requirements of the Securities Exchange Act of 1934, this
  report has been signed  below by the following  persons on behalf of  the
  registrant and in the capacities indicated on March 30, 1999.

               Name                             Title
               ----                             -----
      /s/ R. Stephen Polley        Chairman of the Board and Director
          R. Stephen Polley

      /s/ Gregory B. Kalush        Chief Executive Officer, President
          Gregory B. Kalush        Chief Financial Officer, Treasurer
                                   Vice President of Finance and Director
                                   (Principal executive and financial officer)
                   
      /s/ Michael P. Glover        Corporate Controller
          Michael P. Glover        (Principal accounting officer)

      /s/ Gary  W. Fiedler         Director
          Gary W. Fiedler

      /s/ Dale Crane               Director
          Dale Crane

      /s/ James F. Halpin          Director
          James F. Halpin

      /s/ Paul N. Hug              Director
          Paul N. Hug

      /s/ William Voss             Director
          William Voss

      /s/ David H. Segrest         Director
          David H. Segrest

      /s/ S. Thomas Thawley        Director
          S. Thomas Thawley

<PAGE>


                  INDEX TO FINANCIAL STATEMENTS AND
                    FINANCIAL STATEMENT SCHEDULES




  Report of Management's Financial Responsibility                 F-2


  Report of Independent Public Accountants -
       ARTHUR ANDERSEN LLP                                        F-3


  Consolidated Balance Sheets - December 31, 1998 and 1997        F-4


  Consolidated Statements of Operations - Years Ended
       December 31, 1998, 1997 and 1996                           F-5


  Consolidated Statements of Shareholders' Equity - Years Ended
       December 31, 1998, 1997 and 1996                           F-6


  Consolidated Statements of Cash Flows - Years Ended          
       December 31, 1998, 1997 and 1996                        F-7 to F-8


  Notes to Consolidated Financial Statements                   F-9 to F-22


                                      F-1

<PAGE>

               MANAGEMENT'S REPORT ON FINANCIAL RESPONSIBILITY


  Management is  responsible  for  the  preparation  and  fairness  of  the
  consolidated financial statements of Interphase Corporation and all other
  information  contained  in   this  annual  report.     The   accompanying
  consolidated financial statements have  been prepared in accordance  with
  generally accepted accounting principles  and reflect informed  judgments
  and estimates, which management believes to be reasonable.

  The  Company  maintains  an  effective  system  of  internal   accounting
  controls, which  are modified  periodically as  the Company's  operations
  change.  Additionally, the  Company is receptive  to suggestions made  by
  Arthur  Andersen  LLP,  its  independent  public  accountants,  regarding
  enhancements and changes  to the Company's  existing internal  accounting
  controls.   Overall,  management believes  that  its system  of  internal
  accounting controls is adequate to provide reasonable assurance as to the
  integrity  and  reliability   of  its  financial   statements,  and   the
  safeguarding of assets.

  The Board of Directors, acting through its Audit Committee, monitors  the
  accounting affairs  of  the Company  and  has approved  the  accompanying
  consolidated financial statements.   The Audit  Committee, consisting  of
  four directors, reviews  the results  of the  annual financial  statement
  audit,  and  the   actions  taken  by   management  in  discharging   its
  responsibilities for  accounting  and  financial reporting.    The  Audit
  Committee meets  periodically  and  privately  with  management  and  the
  independent public accountants to  assure that each  is carrying out  its
  responsibilities.



  Gregory B. Kalush
  Chief Executive Officer and President

  February 10, 1999

                                     F-2

<PAGE>

              REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



  To the Shareholders and Board of Directors of Interphase Corporation:

  We  have  audited  the   accompanying  consolidated  balance  sheets   of
  Interphase Corporation  (a  Texas  corporation) and  subsidiaries  as  of
  December 31, 1998 and  1997, and the  related consolidated statements  of
  operations, shareholders' equity, and  cash flows for  each of the  three
  years in the period ended December 31, 1998.  These financial  statements
  are the responsibility of the  Company's management.  Our  responsibility
  is to  express an  opinion on  these financial  statements based  on  our
  audits.

  We conducted our  audits in accordance  with generally accepted  auditing
  standards.  Those standards require that we plan and perform the audit to
  obtain reasonable assurance  about whether the  financial statements  are
  free of material misstatement.   An audit includes  examining, on a  test
  basis, evidence supporting the amounts  and disclosures in the  financial
  statements.  An audit also  includes assessing the accounting  principles
  used and significant estimates made by management, as well as  evaluating
  the overall financial statement presentation.  We believe that our audits
  provide a reasonable basis for our opinion.

  In our  opinion,  the  financial statements  referred  to  above  present
  fairly, in all  material respects, the  financial position of  Interphase
  Corporation and subsidiaries as  of December 31, 1998  and 1997, and  the
  results of their operations  and their cash flows  for each of the  three
  years in the period ended December 31, 1998, in conformity with generally
  accepted accounting principles.


                                ARTHUR ANDERSEN  LLP


  Dallas, Texas
  February 10, 1999



                                     F-3
<PAGE>
<TABLE>

   INTERPHASE CORPORATION
   CONSOLIDATED BALANCE SHEETS
   (in thousands, except number of shares data)
                                                           December 31,
   ASSETS                                               1998        1997
   ------                                           ---------------------
   <C>                                              <C>         <C>
   Cash and cash equivalents                        $   4,531   $   2,247
   Marketable securities                                3,430       3,272
   Trade accounts receivable, less allowances
        for uncollectible accounts of $164
        and $544 respectively                          13,716      13,030
   Inventories, net                                    13,488      14,895
   Prepaid expenses and other current assets              856         798
   Deferred income taxes, net                             516         686
                                                    ---------------------
        Total current assets                           36,537      34,928
                                                    ---------------------
   Machinery and equipment                             10,135      12,079
   Leasehold improvements                               2,909       2,890
   Furniture and fixtures                                 515         417
                                                    ---------------------
                                                       13,559      15,386
   Less-accumulated depreciation and
     amortization                                     (10,339)    (11,817)
                                                    ---------------------
        Total property and equipment, net               3,220       3,569
                                                    ---------------------
   Capitalized software, net                              773         225
   Deferred income taxes, net                           1,376         862
   Acquired developed technology, net                   3,365       4,400
   Goodwill, net                                        3,070       3,310
   Other assets                                         1,947       2,153
                                                    ---------------------
        Total assets                                $  50,288   $  49,447
                                                    =====================
<PAGE>

   LIABILITIES AND SHAREHOLDERS' EQUITY
   ------------------------------------
        Liabilities
   Accounts payable                                 $   2,883   $   2,636
   Accrued liabilities                                  1,639       2,484
   Accrued compensation                                 2,041       1,910
   Income taxes payable                                 1,408         197
   Current portion of debt                              2,252       2,457
                                                    ---------------------
        Total current liabilities                      10,223       9,684
   Other liabilities                                      873         600
   Long-term debt, net of current portion               7,367       9,620
                                                    ---------------------
        Total liabilities                              18,463      19,904
   Commitments and contingencies
   Common Stock Redeemable; 610,000 shares              3,813           -
        Shareholders' Equity
   Common stock, no par value; 100,000,000
      shares authorized; 4,861,858 and                 31,221      35,326
      5,516,578 shares outstanding, respectively
   Retained earnings (deficit)                         (3,217)     (5,930)
   Cumulative other comprehensive income                    8         147
        Total shareholders' equity                     28,012      29,543
                                                    ---------------------
        Total liabilities and shareholders' equity  $  50,288   $  49,447
                                                    =====================

   The accompanying notes are an integral part of these consolidated
    financial statements.

                                     F-4
</TABLE>
<PAGE>
<TABLE>

   INTERPHASE CORPORATION
   CONSOLIDATED STATEMENTS OF OPERATIONS
   (in thousands, except per share amounts)



                                           Year ended December 31,
                                     ---------------------------------
                                        1998         1997       1996
                                     ---------------------------------
   <S>                               <C>         <C>         <C>
   Revenues                          $  68,846   $  66,004   $  56,752
   Cost of sales                        35,219      33,988      28,788
                                     ---------------------------------
   Gross profit                         33,627      32,016      27,964

   Research and development             11,156      13,327       9,902
   Sales and marketing                  10,539      11,686      10,297
   General and administrative            5,914       6,248       4,905
   Acquired in-process R&D                   -           -      11,646
                                     ---------------------------------
      Total operating expenses          27,609      31,261      36,750
                                     ---------------------------------
   Operating income (loss)               6,018         755      (8,786)

   Interest income                         338         438         421
   Interest expense                     (1,025)     (1,126)       (535)
   Other, net                             (896)       (837)       (591)
                                     ---------------------------------
   Income (loss) before income taxes     4,435        (770)     (9,491)

   Provision for income taxes            1,722         201         564
                                     ---------------------------------
   Net income (loss)                 $   2,713   $    (971)  $ (10,055)
                                     =================================

   Net income (loss) per share
     Basic                           $    0.49   $   (0.18)  $   (1.99)
                                     =================================
     Diluted                         $    0.48   $   (0.18)  $   (1.99)
                                     =================================

   Weighted average common shares        5,508       5,496       5,062
                                     =================================
   Weighted average common and common
           equivalent shares             5,628       5,496       5,062
                                     =================================

   The accompanying notes are an integral part of these consolidated
    financial statements.

                                     F-5

</TABLE>
<PAGE>
<TABLE>
  INTERPHASE CORPORATION
  CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
  (in thousands)
                                                                     Cumulative
                                                          Retained     Other
                                         Common Stock      Earnings Comprehensive         Comprehensive
                                        Shares   Amount   (Deficit)    Income      Total  Income (loss)
                                         ------------------------------------------------  ---------
  <S>                                    <C>   <C>        <C>         <C>        <C>       <C>   
  Balance at December 31, 1995           4,667 $ 24,194   $  5,096    $  (29)    $ 29,261
                                         ================================================
  Option exercises, including related
    tax benefit                            230    1,801         -         -        1,801          -
  Common stock issued in Synaptel
    acquisition                            595    9,200         -         -        9,200          -
  Comprehensive income:
    Foreign currency translation             -        -         -       164          164        164
    Unrealized holding period gain           -        -         -        15           15         15
  Net loss                                   -        -   (10,055)        -      (10,055)   (10,055)
                                                                                           --------
  Total comprehensive income (loss)          -        -         -         -            -   $ (9,876)
                                         ------------------------------------------------  ========
                                         ------------------------------------------------
  Balance at December 31, 1996           5,492 $ 35,195  $ (4,959)   $  150     $ 30,386
                                         ================================================
  Option exercises, including related
    tax benefit                             24      131         -         -          131          -
  Comprehensive income:
    Foreign currency translation             -        -         -        14           14         14
    Unrealized holding period gain           -        -         -       (17)         (17)       (17)
  Net loss                                   -        -      (971)        -         (971)      (971)
                                                                                           --------
  Total comprehensive income (loss)          -        -         -         -            -   $   (974)
                                         ------------------------------------------------  ========
                                         ------------------------------------------------
  Balance at December 31, 1997           5,516 $ 35,326  $ (5,930)   $  147     $ 29,543
                                         ================================================
  Option exercises, including related
    tax benefit                              6       20         -         -           20          -
  Redeemable common stock                 (660)  (4,125)        -         -       (4,125)         -
  Comprehensive income:
    Foreign currency translation             -        -         -      (205)        (205)      (205)
    Unrealized holding period gain           -        -         -        66           66         66
  Net income                                 -        -     2,713         -        2,713      2,713
                                                                                           --------
  Total comprehensive income                 -        -         -         -            -   $  2,574
                                         ------------------------------------------------  ========
                                         ------------------------------------------------
  Balance at December 31, 1998           4,862 $ 31,221  $ (3,217)   $    8     $ 28,012
                                         ================================================

                                     F-6
</TABLE>
<PAGE>
<TABLE>
INTERPHASE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
                                                               Years ended December 31,
                                                            1998       1997        1996
                                                         --------------------------------
<S>                                                      <C>        <C>         <C>  
Cash flows from operating activities:
  Net income (loss)                                      $  2,713   $   (971)   $(10,055)
  Adjustments to reconcile net income (loss)
   to net cash provided (used) by operating activities:
  Write-off of acquired in-process research
     and development                                            -          -      11,646
   Depreciation and amortization                            4,013      4,739       4,234
   Deferred income taxes                                     (344)      (270)       (358)
   Changes in assets and liabilities, net
    of Synaptel acquisition
       Trade accounts receivable                             (686)     2,152      (8,584)
       Inventories                                          1,407     (2,296)     (1,345)
       Prepaid expenses and other current assets              (58)       423        (151)
       Accounts payable and accrued liabilities              (643)    (2,081)       (409)
       Accrued compensation                                   131     (1,052)       (258)
       Income taxes payable                                 1,211        104           -
                                                         --------------------------------
   Net adjustments                                          5,031      1,719       4,775
                                                         --------------------------------
       Net cash provided (used) by operating activities     7,744        748      (5,280)
                                                         --------------------------------
Cash flows from investing activities:
   Additions to property, equipment, capitalized software
     and leasehold improvements                            (2,892)    (1,150)     (2,539)
   Decrease (increase) in other assets                        206        373        (200)
   Decrease (increase) in marketable securities              (158)       307       5,788
   Cash acquired in Synaptel acquisition                        -          -          11
   Change in unrealized holding period loss on
     marketable securities                                     66        (17)         15
   Acquisition of developed technologies                        -          -      (2,500)
                                                         --------------------------------
       Net cash provided  (used) by investing activities   (2,778)      (487)        575
                                                         --------------------------------
Cash flows from financing activities:
   Increase (decrease) in other long term liabilities         273       (592)      1,093
   Payments on debt                                        (2,458)    (2,338)     (1,134)
   Proceeds from debt                                           -      2,500       2,075
   Increase in foreign currency translation adjustment       (205)        14         164
   Increase (repurchase of) in common stock                  (292)       131       1,801
                                                         --------------------------------
       Net cash provided (used) by financing activities    (2,682)      (285)      3,999
                                                         --------------------------------
Net increase (decrease) in cash and cash equivalents        2,284        (24)       (706)
Cash and cash equivalents at beginning of year              2,247      2,271       2,977
                                                         --------------------------------
Cash and cash equivalents at end of year                 $  4,531   $  2,247    $  2,271
                                                         ================================
<PAGE>

Supplemental Disclosure of Cash Flow Information:
Interest paid                                            $    953   $    996    $    438
Taxes refunded                                                  -         27          40
Taxes paid                                                    891        389         476

The accompanying notes are an integral part of these consolidated financial statements.

                                     F-7

</TABLE>
<PAGE>
<TABLE>


   INTERPHASE CORPORATION
   SUPPLEMENTAL SCHEDULE OF CASH FLOWS
   (in thousands)


   Supplemental schedule of noncash investing
     and financing activities

   In June 1996, the Company purchased all of
     the capital stock of Synaptel.

        <S>                                        <C>
        Fair value of assets acquired              $  (27,403)
        Liabilities assumed                             8,414
        Acquisition debt                                8,000
        Common stock issued                             9,200
        Aquisition costs                                1,800
                                                   ----------
          Cash acquired in Synaptel acquisition    $       11
                                                   ==========


   The accompanying notes are an integral part of these
     consolidated financial statements.



                                  F-8
</TABLE>
<PAGE>
  INTERPHASE CORPORATION
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  Principles of Consolidation and Basis of Presentation:   The consolidated
  financial statements  include  the  financial  statements  of  Interphase
  Corporation  (the  "Company")  and its  wholly  owned subsidiaries.   All
  significant intercompany accounts and transactions have been eliminated.

  In 1996,  the  Company  acquired Synaptel,  S.A  ("Synaptel"),  a  French
  company which designs and distributes a  broad line of remote access  and
  ISDN  products,   which   include  significant   software   content   and
  interoperability with a broad range of networking protocols.

  Cash and  Cash Equivalents:   The  Company considers  cash and  temporary
  investments with original maturities of less  than three months, as  well
  as interest bearing money market accounts, to be cash equivalents.

  Marketable Securities:   As  of December  31, 1998  and   1997, the  fair
  market value  of marketable  securities  was $3,430,000  and  $3,272,000,
  respectively.  In accordance  with the requirements  of the Statement  of
  Financial Accounting Standards ("SFAS") No. 115, "Accounting for  Certain
  Investments in Debt and Equity Securities," all marketable securities are
  classified as "available-for-sale securities" are reported at fair value.
  Unrealized gains and losses are excluded from net income and reported  as
  a separate component  of shareholders'  equity, net  of related  deferred
  taxes and as a component of comprehensive income.  The Company's  results
  of operations will continue to include  earnings from such securities  as
  calculated on a yield-to-maturity basis. During 1998 the Company realized
  a loss of $34,000 from the sale  of securities.  During 1997 the  Company
  realized a net gain of $34,000 from the sale of securities.  The  Company
  had recorded a valuation gain  of $35,000 as of  December 31, 1998 and  a
  valuation loss of $31,000  (net of taxes) as  of December 31, 1997,  with
  respect to certain available-for-sale securities.

  Allowance for doubtful accounts:  As of December 31, 1998, 1997 and 1996,
  the allowance for doubtful accounts was $164,000, $544,000 and  $503,000.
  The activity in this account was as follows  (in thousands):

<TABLE>

                      Balance at      Write-offs                      Balance
                      Beginning  Charged to   Net of     Synaptel     at End
  Year Ended:         of Period   Expense   Recoveries  Acquisition  of Period
  ----------------------------------------------------------------------------
  <S>                   <C>        <C>       <C>           <C>        <C>
  December 31, 1998     $ 544      $ 392     $ (772)       $ -        $ 164
  December 31, 1997       503        337       (296)         -          544
  December 31, 1996       238         50        (50)        265         503

</TABLE>
<PAGE>

  Inventories:  Inventories are valued at  the lower of cost or market  and
  include material, labor and manufacturing  overhead.  Cost is  determined
  on a first-in, first-out basis (in thousands):

                                    Dec. 31,1998      Dec. 31, 1997
                                       -------          -------
  Raw Materials                       $  8,119         $  7,922
  Work-in-process                        4,828            5,943
  Finished Goods                           541            1,030
                                       -------          -------
  Total                               $ 13,488         $ 14,895
                                       =======          =======

  Property and Equipment:   Property and  equipment are  recorded at  cost.
  Depreciation and  amortization are  provided  over the  estimated  useful
  lives of  depreciable  assets  using  the  straight-line  method.    When
  property and equipment  are sold  or otherwise  retired,  the  cost   and
  accumulated depreciation applicable  to such assets  are eliminated  from
  the accounts, and  any resulting  gain or  loss is  reflected in  current
  operations.  Related  depreciation expense  and accumulated  depreciation
  were as follows (in thousands):

  Year ended December 31:     Depreciation Expense         Accumulated
                                                           Depreciation
  -----------------------     --------------------         ------------
  1998                              $ 2,436                 $ 10,339
  1997                                2,781                   11,817
  1996                                2,782                   10,394

  The depreciable lives of property and equipment are as follows:

  Machinery and equipment        3-5   years
  Leasehold improvements         3-10  years
  Furniture and fixtures         5-7   years

  Capitalized Software:  Capitalized  software represents various  software
  licenses purchased by  the Company and  utilized in  connection with  the
  Company's network  and  mass storage  products  as well  as  the  general
  operations of the Company.   Capitalized software  is amortized over  3-5
  years utilizing the straight-line  method.  Related amortization  expense
  and accumulated amortization were as follows (in thousands):

  Year ended                Amortization          Accumulated
  December 31:                 Expense            Amortization
  ------------                 -------            ------------
  1998                         $ 302                $ 1,656
  1997                           223                  1,950
  1996                           362                  2,128


  Research and Development Subsidy:  Included  in other assets at  December
  31, 1998 and  1997, is  a receivable  for a  subsidy of   $1,437,000  and
  $1,651,000, respectively,  due from the French government  related to the
  research and development activities of Synaptel.
<PAGE>
  Intangibles:     As  a  result  of  the  acquisition  of  Synaptel,  S.A.
  ("Synaptel") and certain product rights acquired from Cisco Systems, Inc.
  ("Cisco"), the Company  acquired intangible assets  related to  developed
  technologies, assembled workforce  and goodwill (See  Note 2).  Developed
  technology and assembled workforce are amortized on a straight-line basis
  over a 7-year period.   Goodwill related to  the Synaptel acquisition  is
  amortized on  a straight-line  basis over  a  10-year period.    Acquired
  product rights  from Cisco  are amortized  ratably over  the  anticipated
  revenue stream of such  products sold. The  December 31, 1998  intangible
  balances  at  cost  and  related  amortization  expense  and  accumulated
  amortization were as follows (in thousands):

<TABLE>
                                 Amortization Expense     Accum.    Ending
                     Intangibles  1998    1997   1996  Amortization Balance
                     ------------------------------------------------------
<S>                    <C>       <C>     <C>     <C>     <C>        <C> 
Developed technology   $ 4,230   $ 600   $ 600   $150    $1,350     $2,880
Assembled workforce        390      60      60     15       135        255
Goodwill-Synaptel        3,596     240     263     23       526      3,070
Acquired Product
  Rights-Cisco           2,500     435     812    768     2,015        485

</TABLE>

  Long Lived  Assets:   In accordance  with SFAS  121 "Accounting  for  the
  Impairment of Long-Lived Assets and for Long-Lived Assets to be  disposed
  of," intangibles and other long-lived assets are reviewed for  impairment
  whenever events or  changes in circumstances  indicate that the  carrying
  amount may not be recoverable.   Any impairment would  be  recognized  in
  operating results if a permanent reduction in value were to occur.

  Revenue Recognition:   Revenue from product  sales is  recorded when  the
  earnings process has been completed, which is at the time of shipment.

  Concentration of Credit  Risk:  Financial  instruments which  potentially
  expose the Company to concentrations of  credit risk, as defined by  SFAS
  No. 105, consist primarily of trade accounts receivable.  The majority of
  the Company's  sales have  been to  original equipment  manufacturers  of
  computer systems.

  The  Company  conducts credit  evaluations  of its  customers'  financial
  condition and limits the amount of trade credit extended when  necessary.
  The Company establishes  an allowance  for doubtful  accounts based  upon
  factors surrounding  the credit  risk of  specific customers,  historical
  trends, and other information.

  Research and Development:  Research and development costs are charged  to
  expense as incurred.

  Foreign Currency Translation:  Assets and liabilities of certain non-U.S.
  subsidiaries are  translated  at  current  exchange  rates,  and  related
  revenues and expenses are translated at average exchange rates in  effect
  during the period.   Resulting translation  adjustments are reflected  in
  shareholders' equity and comprehensive income.
<PAGE>
  Income Taxes:   The Company utilizes  the liability  method to  determine
  deferred taxes.   Deferred tax assets  and liabilities are  based on  the
  estimated  future  tax  effects  of  differences  between  the  financial
  statement and tax basis of assets  and liabilities given  the  provisions
  of enacted  tax law.   The  Company's consolidated  financial  statements
  include deferred income  taxes arising from  the recognition of  revenues
  and expenses in different periods for income tax and financial  reporting
  purposes.

  Net Income (Loss) Per Common and Common Equivalent Share:

  The following  table  shows the  calculation  of the  Company's  weighted
  average common and common equivalent shares outstanding (in thousands):

<TABLE>

                                           Years ended December  31,  
                                           -------------------------
                                           1998       1997       1996
                                          ---------------------------
  <S>                                     <C>        <C>        <C>
  Weighted average
  shares outstanding                      5,508      5,496      5,062
                                          -----      -----      -----
  Dilutive impact of stock options          120          -         -
                                          -----      -----      -----
  Total outstanding weighted
  average common and common
  equivalent shares                       5,628      5,496      5,062
                                          =====      =====      =====
</TABLE>

  Anti-dilutive options  of 944,000,  1,027,000 and  160,000 were  excluded
  from the dilutive calculation in 1998, 1997 and 1996, respectively.

  Recently Adopted Accounting  Policies:   Effective January  1, 1998,  the
  Company adopted SFAS  No. 130,  "Reporting Comprehensive  Income"   which
  requires companies to  report all changes  in equity  during the  period,
  except those resulting from investments  by and distributions to  owners,
  in a financial  statement for the  period in which  they are  recognized.
  The Company has chosen to  disclose comprehensive income, which  includes
  net income,  unrealized  holding gains  or  losses and  foreign  currency
  translation adjustments in  the Consolidated  Statement of  Shareholders'
  Equity.  Prior years have  been restated to conform  to the SFAS No.  130
  requirements.

  During 1998,  the  Company  adopted  SFAS  No.  131,  "Disclosures  about
  Segments of  an  Enterprise  and Related  Information."    SFAS  No.  131
  requires companies to report segment  information in accordance with  the
  "management approach."  The management approach designates that  segments
  be determined based on the internal reporting that is used by  management
  for making operating decisions.  SFAS  No. 131 also requires  disclosures
  about products and services, geographic areas and major customers.

  Certain  Reclassifications:    Certain  prior  year  amounts  have   been
  reclassified to conform with the 1998 presentation.
<PAGE>
  Use of Estimates:  The preparation of financial statements in  conformity
  with generally accepted accounting principles requires Company management
  to make estimates  and assumptions that  affect the  reported amounts  of
  assets  and  liabilities   and  disclosure  of   contingent  assets   and
  liabilities at  the date  of the  financial statements  and the  reported
  amounts of revenues  and expenses during  the reporting  period.   Actual
  results could differ from those estimates.

  2.   ACQUISITIONS

  SYNAPTEL

  Effective June 29, 1996,  the Company acquired all  the capital stock  of
  Synaptel,  S.A.  ("Synaptel"),  a   French  company,  for   approximately
  $19,000,000.    The  purchase consideration  consisted of  $8,000,000  in
  cash,  594,595  shares   of  the  Company's   common  stock,  valued   at
  approximately $9,200,000, and  $1,800,000 of  accrued acquisition  costs.
  The Company  financed the  cash portion  of the  consideration through  a
  credit facility  with  a financial  institution.   This  acquisition  was
  accounted for using the purchase method of accounting from the  effective
  date of the acquisition.  The  total purchase consideration in excess  of
  the fair value of the tangible and identified intangible assets  acquired
  was included  in  goodwill.   Identified  intangibles  acquired  included
  approximately  $11,600,000  of   in-process  research  and   development,
  $4,230,000 of  developed technology  and $390,000  related to  Synaptel's
  assembled  workforce.  Acquired   in-process  research  and   development
  activities  had  no   alternative  future  use   and  had  not   achieved
  technological feasibility; accordingly, the amounts were expensed in  the
  accompanying consolidated  statement of  operations  for the  year  ended
  December 31, 1996.

  In addition to the purchase  consideration discussed above, the  purchase
  agreement included provisions for additional consideration of  $3,500,000
  cash and 450,000  options to purchase  the Company's common  stock at  an
  exercise price of $18.50  per share if  Synaptel attains certain  revenue
  and operating income  targets through 1998.   No  earn-out payments  were
  made pursuant to the terms of the purchase agreement.

  The unaudited pro forma financial information  is presented for the  year
  ended December 31, 1996.  This unaudited pro forma financial  information
  gives effect  to the  purchase of  Synaptel as  if such  transaction  had
  occurred as of January 1, 1996, and excludes the $11,646,000 write-off of
  acquired in-process research and development (in thousands):
    
                                             Year ended
                                          December 31, 1996
                                          -----------------
  Net sales                                    $ 59,845
  Net income (loss)                              (1,388)
  Basic earnings per share                       (0.26)
  Diluted earnings per share                     (0.26)

  The unaudited  pro  forma  financial  information  does  not  purport  to
  represent what the results  of operations of  the Company would  actually
  have been if the aforementioned transactions  had occurred on January  1,
  1996, nor do they project the results of operations or financial position
  for any future periods or at any future date.
<PAGE>
  ACQUIRED PRODUCT RIGHTS

  In June 1996, the Company acquired the rights to manufacture, market, and
  sell  certain  FDDI  products  from  Cisco    for  a  purchase  price  of
  $2,500,000.     The acquired  product  rights are  included  in  acquired
  developed technology  in the  accompanying December  31, 1998  and  1997,
  consolidated balance sheets.

  3.   CREDIT FACILITY

  Prior to and in  conjunction with the  Synaptel acquisition discussed  in
  Note 2, the Company entered into a credit facility with BankOne Texas NA.
  The credit facility consists  of an $8,500,000  acquisition term loan,  a
  $2,500,000 equipment financing facility and a $5,000,000 revolving credit
  facility.   The revolving credit facility is a two-year facility with  an
  annual renewal  provision, and  bears interest  at the  bank's base  rate
  (currently 8.5%).  The term loan and equipment loan are payable in  equal
  quarterly installments totaling $548,000 plus accrued interest commencing
  on November 30,  1996, with  final payment due  November 30,  2001.   The
  Company has the  ability to satisfy  the quarterly payments  on the  term
  notes through  borrowing  under the  revolving  credit component  of  the
  credit facility.  The revolving portion of the loan is due June 30, 2000.
  The credit  facility  is  collateralized  by  marketable  securities,  of
  accounts receivable and equipment.  The credit facility includes  certain
  restrictive financial  covenants including,  among others,  tangible  net
  worth, total liabilities to tangible net worth, interest coverage,  quick
  ratio, debt  service  coverage,  and  is  subject  to  a  borrowing  base
  calculation.  At December  31, 1998, the Company  was in compliance  with
  all covenants. At December 31, 1998, total availability under this credit
  facility was $1,500,000.

  At December 31, 1998 and 1997,  the Company's outstanding debt  consisted
  of the following (in thousands):

<TABLE>
                                                       December 31,
                                                     1998         1997 
                                                     -----------------
  <S>                                           <C>          <C>
  Acquisition Term Loan                         $    4,675   $    6,375
  Equipment Financing Loan                           1,373        1,866
  Borrowings under revolving credit facility         3,500        3,500
  Other                                                 71          336
                                                  --------     --------
  Total                                              9,619       12,077
  Less current portion                               2,252        2,457
                                                  --------     --------
  Total long term debt                           $   7,367    $   9,620
                                                  ========     ========

</TABLE>

  The total  scheduled  debt principal  payments  are $2,252,000  in  1999,
  $5,692,000 in 2000, $1,664,000 in 2001 and zero thereafter.
<PAGE>
  4.  INCOME TAXES

  The provision (benefit) for income taxes for each period presented was as
  follows (in thousands):

<TABLE>
                                         Year ended December 31,
                                   1998             1997           1996   
                                  --------------------------------------
  <S>                             <C>               <C>            <C>
  Current provision               $2,066            $ 471          $ 922
  Deferred (benefit)                (344)            (270)          (358)
                                   -----             ----           ----
  Total                           $1,722            $ 201          $ 564
                                   =====             ====           ====

  Tax effect  of  temporary  differences  that  give  rise  to  significant
  components of the deferred tax assets  as of December 31, 1998 and  1997,
  are presented as follows (in thousands):


</TABLE>
<TABLE>
                                                    Year ended December  31,
                                                    ------------------------
                                                         1998       1997
                                                       ------     ------
  <S>                                                 <C>        <C>
  Current deferred tax assets:
  Inventory                                           $   169    $   155
  Accounts receivable                                      81         88
  Vacation accrual                                         58        148
  Other accruals                                          208        295
                                                       ------     ------
  Total                                               $   516    $   686
                                                       ======     ======
  Noncurrent deferred tax assets (liabilities), net:
  Assets:
  Depreciation                                        $ 1,361    $   850
  Amortization                                            544        459
                                                       ------     ------
                                                        1,905      1,309
  Liabilities:
  Other                                                  (529)      (447)
                                                       ------     ------
  Total                                                $1,376     $  862
                                                       ======     ======

</TABLE>
<PAGE>
  The Company has not  recorded a valuation allowance  with respect to  the
  various deferred tax assets as management believes it is more likely than
  not that these assets will be realized.  Management periodically  reviews
  the realizability of the Company's  deferred tax assets, as  appropriate,
  when existing  conditions change  the probability  of realization.    The
  differences between the provision (benefit) for income taxes computed  on
  income before income taxes at the U.S. federal statutory income tax  rate
  (34%) and the amount shown in  the Consolidated Statements of  Operations
  are presented below (in thousands):

<TABLE>
                                             Year ended December 31,
                                            -------------------------
                                            1998       1997      1996
                                          -------     -----     ------
  <S>                                    <C>         <C>       <C>
  Income taxes at statutory rate         $  1,508    $ (262)   $(3,227)
    State income taxes                         11         1         46
  Write off of in-process
    research and development
    not tax benefited                         -         -        3,960
  Non-deductible goodwill
    amortization                              306       314         64
  Other                                      (103)      148       (279)
                                          -------     -----     ------
  Provision (benefit) for income taxes   $  1,722    $  201    $   564
                                          =======     =====     ======
</TABLE>

  5.  COMMON STOCK

  Amended and Restated Stock  Option Plan:    In 1996, the Company  amended
  and restated  its Stock  Option Plan  which, as  amended, authorizes  the
  issuance to  employees of  up  to 2,350,000  shares  of common  stock  in
  incentive stock  options  (as defined  in  section 422  of  the  Internal
  Revenue Code of 1986,  as amended) and nonqualified  stock options.   The
  exercise price of the incentive stock  options must be at least equal  to
  the fair market value of  the Company's common stock  on the date of  the
  grant, while the exercise price of nonqualified stock options may be less
  than fair market value on the date of grant, as determined by the  board.
  Options generally vest  ratably over  a 5-year  period from  the date  of
  grant.  The term of option grants may be up to 10 years.  Grants prior to
  June 1994 expire after 6 years.   Options are canceled upon the lapse  of
  three months following termination of employment  except in the event  of
  death or disability, as defined.
<PAGE>
  Stock Option Sub-Plan:  This plan was adopted in 1988 for the benefit  of
  the Company's  employees  located  in the  United  Kingdom.    This  plan
  authorizes the  issuance  of options  to  purchase common  stock  of  the
  Company at prices at least equal to  the fair market value of the  common
  stock on the date of the grant. The options vest after 3 years and expire
  after 10 years.  The options are canceled upon termination of employment,
  except in  the event  of death,  retirement or  injury, as  defined.  The
  following table summarizes the transactions  under the Stock Option  Plan
  and the Stock Option Sub-Plan (in thousands, except option prices):

<TABLE>
                                 Number of       Range of    Weighted Average
                                  Options      Option Price    Option Price
                                  -----------------------------------------
  <S>                              <C>         <C>               <C>
  Balance, December 31, 1995       1,054        4.00-16.13        8.08
                                   -----       -----------       -----
  Granted                            370       10.00-18.50       13.95
  Exercised                         (194)       4.00-11.44        6.08
  Canceled                          (118)       4.00-12.07        8.36
                                   -----       -----------       -----  
  Balance, December 31, 1996       1,112        4.00-18.50       10.34
                                   =====       -----------       -----

  Granted                            381        6.00-10.37        7.95
  Exercised                          (24)       6.00-11.00        7.26
  Canceled                           (59)       4.00-15.00       10.17
                                   -----       -----------       -----  
  Balance, December 31, 1997       1,410        4.00-18.50       10.80
                                   =====       -----------       -----

  Granted                            246        5.50- 8.81        6.83
  Exercised                          (17)       4.00- 6.75        4.17
  Canceled                          (499)       4.00-15.19        7.90
                                   -----       -----------       -----  
  Balance, December 31, 1998       1,140        4.00-18.50        8.62
                                   =====       -----------       -----

  Exercisable at December 31, 1998   540        4.00-11.50        8.49
                                   =====       ===========       =====
</TABLE>
<PAGE>
  Director Stock Options:  In May 1994, the Company formalized its  program
  ("directors' plan") of granting stock options to its directors.   500,000
  common shares  were made  available for  grant under  this plan.    Stock
  Option grants pursuant to the directors'  plan will vest within one  year
  and have a  term of five  years.  The  exercise prices  related to  these
  options were equal to the market value of the Company's stock on the date
  of grant.   The  following table  summarizes the  transactions under  the
  Director Stock Option Plan (in thousands, except option prices):

<TABLE>

                                 Number of       Range of    Weighted Average
                                  Options      Option Price    Option Price
                                  -----------------------------------------
  <S>                              <C>         <C>                <C>
  Balance, October 31, 1995         184         4.38-16.88         6.98

  Granted                            30        14.88-14.88        14.88
  Exercised                         (38)        4.75-10.25         6.20
                                   -----       -----------        -----  
  Balance, December 31, 1996        176         4.38-16.88         8.52
                                   =====       -----------        -----

  Granted                            55         6.75-11.12         7.78
                                   -----       -----------        -----  
  Balance, December 31, 1997        231         4.38-16.88         8.35
                                   =====       -----------        -----

  Granted                            40         8.09- 8.09         8.09
                                   -----       -----------        -----  
  Balance, December 31, 1998        271         4.38-16.88         8.31
                                   =====       -----------        -----

  Exercisable at December 31, 1998  231         4.38-16.88         8.35
                                   ====        ===========        =====
</TABLE>

  Accounting for Stock-Based  Compensation:  In  1996, the Company  adopted
  SFAS No. 123, "Accounting  for Stock-Based Compensation."    The  Company
  has two stock option plans, the  Amended and Restated Stock Option  plan,
  which also includes the  Sub-Plan, and the Directors  Plan.  The  Company
  accounts for  these  plans under  APB  Opinion  No. 25,  under  which  no
  compensation cost has been recognized.   Had compensation cost for  these
  plans been determined  pursuant to the  provisions of SFAS  No. 123,  the
  Company's pro forma net profit for 1998, net loss in 1997 and net loss in
  1996  would  have  been   $1,635,000,  $(2,121,000)  and   $(10,653,000),
  respectively, resulting in diluted earnings per share of $0.29 $(.39) and
  $(2.10), respectively. The fair value of  each option grant is  estimated
  on the date of  grant using the Black-Scholes  option pricing model  with
  the following weighted-average  assumptions used for  options granted  in
  1998, 1997  and 1996:   risk-free  interest rate  of 6%  in 1998,  6%  in
  1997,and 7%  in 1996,  expected  dividend yield  of  zero in  each  year,
  expected term of 4.41 years in 1998, 4.48 years in 1997 and 6.4 years  in
  1996, and  expected volatility  of 117.31%  in 1998,  93.6% in  1997  and
  112.96% in  1996.   The weighted  average fair  valuation per  share  was
  $5.422 in 1998, $5.56 in 1997 and $9.19 in 1996.
<PAGE>
  Because the SFAS  No. 123 method  of accounting has  not been applied  to
  options granted  prior  to  January  1,  1995,  the  resulting  pro-forma
  compensation cost may  not be representative  of that to  be expected  in
  future years.

  6.  ACCRUED LIABILITIES

  Accrued liabilities consisted of the following (in thousands):

                                                      December 31,
                                                   1998           1997
                                                ----------------------
  Accrued royalties                             $   -          $    70
  Accrued outside commissions                       371            320
  Accrued property tax                               67            182
  Accrued other                                   1,201          1,912
                                                 ------         ------
                                                $ 1,639        $ 2,484
                                                 ======         ======
  7.  RELATED PARTY TRANSACTIONS

  The Company paid  approximately $425,000, $347,000  and $668,000 for  the
  years ended December 31,  1998, 1997 and  1996, respectively, to  certain
  outside directors of the Company or their firms as remuneration for their
  professional services.  The Company believes the terms were equivalent to
  those of unrelated parties.

  8.  TRANSACTIONS WITH MOTOROLA, INC.

  Shipments and year-end accounts receivable balances to Motorola comprised
  the following  percentage  of  the Company's  revenues  for  the  periods
  indicated:

                                  % of Total        % of Total
  Year ended December 31:          Revenues     Accounts Receivable
  -----------------------          --------     -------------------
   1998                               3 %              4 %
   1997                               3 %              1 %
   1996                               6 %              4 %

  Stock Repurchase:  Effective October 1998,  the Company approved a  stock
  repurchase agreement with Motorola,  Inc. to purchase  all of the  shares
  owned by Motorola for $4,125,000, ratably from October 1998 to July 2002.
  Under the terms of the agreement, Motorola retains the right as an equity
  owner and has  assigned its voting  rights to the  Company.  The  Company
  plans to cancel the stock upon each re-purchase. Prior to the  repurchase
  agreement, Motorola owned approximately 12% of the Company's  outstanding
  common stock.  The future scheduled payments are classified as redeemable
  common stock  in the  accompanying consolidated  Balance  Sheet.   As  of
  December 31, 1998, 50,000 shares have been re-purchased for $312,500  and
  retired.
<PAGE>
  9.  EMPLOYEE BENEFIT PLAN

  The Company maintains a defined contribution plan for those employees who
  meet the  plan's  length of  service  requirements.   Under  the  defined
  contribution plan,  employees may  make  voluntary contributions  to  the
  plan, subject to certain limitations, and the Company matches  employee's
  contributions up  to 3%  of the  employees' annual  salary.    The  total
  expense under this plan was $240,000, $171,000 and $262,000 for the years
  ended December 31, 1998, 1997 and 1996 respectively.  The Company  offers
  no post-retirement or post-employment benefits.

  10.  OTHER FINANCIAL INFORMATION

  Major Customers:  The Company had  one customer in 1998, one customer  in
  1997 and  no customers  in 1996,  accounting  for more  than 10%  of  the
  Company's consolidated  revenues.    Net  revenues  resulting  from  this
  customer  was  as   follows  ($   in thousands):

  Year           Total Revenues      % of Consolidated Revenues
  -------------------------------------------------------------
  1998              $ 28,349                     41%
  1997                26,402                     40%

  Commitments:  The Company leases its office, research and development and
  manufacturing  facility   and  certain   manufacturing  equipment   under
  noncancelable operating leases to  2010.  Rent  expense related to  these
  leases is recorded on a straight-line basis.    As of December 31,  1998,
  operating lease commitments having noncancelable  terms of more than  one
  year are as follows (in thousands):

  Year ending December 31:
  ------------------------
          1999                         $1,089
          2000                          1,089
          2001                            953
          2002                            846
          2003                            230
          Thereafter                      335

  Total rent expense for operating leases was approximately as follows  (in
  thousands):

          Year                      Total Rent Expense
          --------------------------------------------
          1998                            $1,089
          1997                             1,024
          1996                               817

  Capital Lease:   The  Company leases  certain  office equipment  under  a
  noncancelable capital lease expiring in 2001. The value of the  equipment
  leased is $286,000.   Accumulated depreciation as  of December 31,  1998,
  was $24,000.  As of December  31, 1998, capital lease commitments  having
  noncancelable terms  of more  than one  year are  $106,982, $106,982  and
  $80,237 in 1999, 2000 and 2001, respectively.

  Contingencies:   The Company  is involved  in various  legal actions  and
  claims arising in the ordinary course  of business.  Management  believes
  that such litigation and claims will be resolved without material  effect
  on the Company's financial position or results of operations.
<PAGE>
  11.  SEGMENT DATA

  The Company manages  its business  segments on  an industry  basis.   The
  Company's  reportable   segments  are   composed  of   high   performance
  networking/storage adapters  and  voice  over  Internet  protocol  (VOIP)
  products and services.  The accounting  policies of the various  segments
  are the same as  those described in  Note 1.   The Company evaluates  the
  performance of  its  segments  based on  revenue  and  operating  profit.
  Segment Assets exclude corporate assets.   Corporate assets include  Cash
  and Cash equivalents,  Short-term investments and  intangibles.   Segment
  operating income/loss  exclude general  and administrative  expenses  and
  Special charges.

  Summary information by segment as of and for the years ended December 31,
  1998, 1997 and 1996, are as follows:

<TABLE>

  Networking                           1998         1997        1996
  -------------------------------------------------------------------
  <S>                               <C>          <C>         <C>
  Revenues                          $ 68,689     $ 66,004    $ 56,752
  Operating income                    13,189        7,003       7,765
  Fixed assets                         3,241        3,794       5,487


  VOIP                                 1998         1997        1996
  -------------------------------------------------------------------
  Revenues                          $     157         -           -
  Operating income (loss)              (1,257)        -           -
  Fixed assets                            752         -           -

  Reconciliation of Segment Operating Income to Consolidated Operating
  Income:

                                       1998         1997         1996
  --------------------------------------------------------------------
  <S>                               <C>          <C>         <C>

  Networking                        $ 13,189     $ 7,003     $ 7,765
  VOIP                                (1,257)        -           -
  General and Administrative          (5,914)     (6,248)     (4,905)
  Special Charges                        -           -       (11,646)
  Consolidated Operating Income    $   6,018     $   755    $ (8,786)

<PAGE>

  Revenue and long lived assets related to North America and other  foreign
  countries as of and for the years ended December 31, 1998, 1997, and 1996
  are as follows (in thousands):

  Revenues            1998            1997             1996
  ----------------------------------------------------------
  <S>              <C>             <C>              <C>
  North America    $ 53,634        $ 53,059         $ 42,102
  Europe             13,785          10,867           12,383
  Pacific Rim         1,427           2,078            2,267
  Total            $ 68,846        $ 66,004         $ 56,752


  Long Lived Assets   1998            1997             1996
  ----------------------------------------------------------
  North America     $ 3,701         $ 3,474          $ 5,099
  Europe                292             320              388
  Pacific Rim           -               -                -
  Total             $ 3,993         $ 3,794          $ 5,487


  Additional information regarding revenue by product-line is as follows:

  Product Revenue      1998           1997             1996
  ----------------------------------------------------------
  WAN               $  7,174       $  5,342         $  7,100
  LAN                 44,283         52,740           41,842
  Storage             17,232          7,922            7,810
  VOIP                   157            -                -
  Total             $ 68,846       $ 66,004         $ 56,752

</TABLE>
<PAGE>

  12.  QUARTERLY FINANCIAL DATA (Unaudited)

<TABLE>
                                             Quarter Ended
                             March 31    June 30   September 30  December 31
                             -----------------------------------------------
  1998                           (in thousands, except per share amounts)
  ----
  <S>                         <C>        <C>          <C>          <C>  
  Revenues                    $17,589    $16,087      $17,046      $18,124
  Gross profit                  8,143      8,080        8,366        9,038
  Income before taxes           1,180        877        1,264        1,114
  Net income                      708        510          723          772
  Net income per share
  Basic EPS                   $   .13    $   .09      $   .13      $   .14
  Diluted EPS                 $   .13    $   .09      $   .13      $   .14

                                             Quarter Ended
                             March 31    June 30   September 30  December 31
                             -----------------------------------------------
  1997                           (in thousands, except per share amounts)
  ----
  Revenues                    $16,858    $18,379      $13,611      $17,156
  Gross profit                  8,086      9,162        6,209        8,559
  Income (loss) before taxes      138        814       (2,558)         836
  Net income (loss)                97        437       (2,191)         686
  Net income (loss) per share
  Basic EPS                   $   .02    $   .08      $  (.40)     $   .12
  Diluted EPS                 $   .02    $   .08      $  (.40)     $   .12

                                             Quarter Ended
                             March 31    June 30   September 30  December 31
                             -----------------------------------------------
  1996                           (in thousands, except per share amounts)
  ----
  Revenues                    $11,877    $11,318      $16,370      $17,187
  Gross profit                  6,191      5,588        7,871        8,314
  Income (loss) before taxes    1,007    (11,526)         192          836
  Net income (loss)               644    (11,565)         167          699
  Net income (loss) per share
  Basic EPS                   $   .14    $ (2.45)     $   .03      $   .13
  Diluted EPS                 $   .13    $ (2.45)     $   .03      $   .12

  Operating results in the  second quarter of  1996 included a  $11,646,000
  expense for the write-off of acquired in-process R&D associated with  the
  Synaptel acquisition.

                           INDEX TO EXHIBITS

  Exhibits

    2 (a)   Stock Purchase Agreement, dated as of June 29, 1996, among 
            Interphase Corporation, Synaptel and Philippe Oros, Xavier 
            Sutter, Francois Lecerf, Schroder  Ventures French Enterprise 
            Fund LPI (USA), Schroder ventures French Enterprise Fund 
            UKLP (UK) and Schroder Ventures Holding Limited (UK). (7)

    3 (a)   Certificate of Incorporation of the registrant. (1)

    3 (b)   Amended and Restated Bylaws of the registrant adopted on
            December 5, 1995. (6)

   10 (b)   Registrant's Amended and Restated Stock Option Plan and
            Amendment No. 1 and  2 thereto. (9)

   10 (c)   Registrant's Incentive Stock Option Sub-Plan. (3)

   10 (d)   Stock Purchase Warrant issued to Motorola, Inc. (4)

   10 (e)   Lease on Dallas facility. (5)

   10 (g)   Directors Stock Option Plan and Amendment No. 1 thereto. (6)

   10 (i)   Loan Agreement between Interphase Corporation and BankOne
            Texas, N.A. (8)

   10 (j)   Purchase Agreement between Interphase Corporation and Cisco
            Systems Inc. (9)

   10 (k)   Motorola Stock Repurchase Agreement (2)

   23 (a)   Consent of Independent Public Accountants. (10)

   27       Financial Data Schedule. (10)
  _____________________

  (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 8-K on October 15, 1998, and 
       incorporated herein by reference.
  (3)  Filed as an exhibit to Report on Form 10-K for the year ended 
       October 31, 1988 and incorporated herein by reference.
  (4)  Filed as an exhibit to Report on Form 10-Q for the quarter ended 
       April 30, 1989 and incorporated herein by reference.
  (5)  Filed as an exhibit to Report on Form 10-K for the year ended 
       October 31, 1994 and incorporated herein by reference.
  (6)  Filed as an exhibit to Report on Form 10-K for the year ended 
       October 31, 1995 and incorporated herein by reference.
  (7)  Filed as an exhibit to Report on Form 8-K on August 6, 1996, and 
       incorporated herein by reference.
  (8)  Filed as an exhibit to Report on Form 8-KA on October 4, 1996 and 
       incorporated herein by reference.
  (9)  Filed as an exhibit to Report on Form 10-K for the year ended 
       December 31, 1996  and incorporated herein by reference.
  (10) Filed herein.

                                     E-1



</TABLE>