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, 2000  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, $.10 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, 2001 was approximately $41,967,000.  As of March
 1, 2001, registrant had 5,756,193 shares of Common Stock outstanding.

                     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  2, 2001
 (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 being  used in  next-
 generation telecommunication networks and enterprise data/storage  networks.
 Interphase's products  include  telecom  server  communication  controllers,
 server-based  adapter  cards,  network  operating  system  device   drivers,
 software development tools and management software applications.

 Key Terms and Definitions

 Interphase is a technology company and many terms used by the Company may be
 unfamiliar to those outside the industry.  Following are some key terms that
 may be useful in  helping the reader  understand the products,  technologies
 and markets relevant for the Company.

 Adapter -  Also called a host  bus adapter (HBA)  or network interface  card
 (NIC).   An adapter is  a device that connects a  computer server to one  or
 more peripheral devices (such as switches,  hubs, storage devices,  etc.) or
 other computers.  An adapter card typically plugs into the expansion bus  on
 the motherboard of the computer and  communicates with the operating  system
 controlling the system via the use of specific device drivers.

 AIN -  (Advanced Intelligent Network) The primary architecture of the public
 switched telephone  system  (PSTN) in  the  1990s, which  provides  enhanced
 voice, video and  data services and  dynamic routing  capabilities. It  uses
 digital  switches  known  as  Signal  Switching  Points  (SSPs)  that  query
 databases in computer systems known as Service Control Points (SCPs).

 ATM -  (Asynchronous Transfer  Mode) A network technology  for both LANs and
 WANs that supports real time voice and  video as well as data. The  topology
 uses switches  that establish  a  logical circuit  from  end to  end,  which
 guarantees a quality of service (QoS) for that transmission. However, unlike
 telephone switches that dedicate  circuits end to  end, unused bandwidth  in
 ATM circuits  can  be appropriated  whenever  available. For  example,  idle
 bandwidth in a videoconference circuit can be used to transfer data. ATM  is
 also highly scalable and supports transmission speeds of 1.5, 25, 100,  155,
 622 and 2488 Mbps.

 Broadband - A transmission facility (communications link) that has bandwidth
 (capacity) greater than a voice grade line.

 Communications Controller - Communications I/O adapter (similar to a network
 interface card)  designed specifically  for carrier-grade  computer  systems
 that often support signaling, switching and routing networks.  Communication
 controllers must  conform to  specifications  that maintain  overall  system
 compliance to the rigorous performance and reliability standards that  apply
 to telecom service provider equipment into which they are integrated.
<PAGE>

 CompactPCI -  An industrial grade  variation of  the PCI  bus standard  that
 utilizes the Eurocard (VME) form factor.  CompactPCI has been widely adopted
 by telecom  equipment  suppliers  because of  its  high-density  connectors,
 support for front or rear I/O access and hot-swap capabilities important for
 "Five 9's" (99.999%) reliability.

 Device Drivers -  A program  routine that links  an adapter  card (or  other
 device) to the operating  system.  It is  written by software engineers  who
 understand the  detailed knowledge  of the  adapter's command  language  and
 characteristics and  contains  the  precise machine  language  necessary  to
 perform the functions requested by the  application.  When a new adapter  is
 added to the computer, its driver must be installed in order to run it.  The
 operating system  calls the  driver, and  the driver  "drives" the  adapter.
 Routines that perform internal functions, such  as memory managers and  disk
 caches, are also called drivers.

 DSL -  A relatively new broadband technology that carries data signals up to
 20 times faster than  56K dial-up modems on  the high-frequency portions  of
 phone lines  that also  transmit voice.  Unlike with  dial-up services,  DSL
 users don't dial a phone number to log on to the Internet. Like  cable-modem
 service, a DSL line  is continuously open. DSL  requires two modems, one  at
 the customer end and one  at the phone company  end (called a DSLAN),  which
 communicate constantly with  each other.  DSL providers  don't usually  sell
 their services directly to  consumers - they  typically resell them  through
 Internet service providers such as America Online and Mindspring.

 Broadband  telecom  controllers  System  -  As  related  to  Interphase,  an
 Broadband telecom controllers system is a highly specialized computer server
 that resides in an "industrial" environment requiring high-availability  and
 maximized "up-time."  Typical uses for this type of server include  military
 applications such  as on-board  ship communications  or avionics,  or  next-
 generation telecommunication applications such as intelligent call  routing,
 call number portability or base station communications control for  wireless
 service.

 Fast Ethernet  -  A  variation of  the  Ethernet  standard  (10Base-T)  that
 provides 100  Mbps transmission  bandwidth, and  up to  200 Mbps  total  I/O
 throughput with full duplex operation.

 Fibre Channel -  A high-speed transmission  technology that can be used as a
 front-end communications network, a back-end storage network, or both at the
 same time.  With  Fibre Channel, servers  can not only  talk to the  storage
 system via SCSI  (storage protocol, see  below), but the  hosts can talk  to
 each other via IP (Internet Protocol)  over the same network. Fibre  Channel
 supports existing peripheral  interfaces and  communications protocols.  Its
 name is somewhat  misleading, as Fibre  Channel supports  coaxial cable  and
 twisted pair  copper wiring  as  well as  single  mode and  multimode  fiber
 connections.

 Frame Relay  -  A high-speed packet  switching protocol  used in  wide  area
 networks (WANs).  Providing a granular service of up to DS3 speed (45 Mbps),
 it  has  become  very  popular  for  LAN-to-LAN  connections  across  remote
 distances.  All  the  major  telecommunications carriers  offer  frame relay
 services.  Frame relay is much faster  than X.25 networks, the first packet-
 switching WAN  standard,  because  frame  relay  was  designed  for  today's
 reliable circuits and performs less rigorous error detection.
<PAGE>

 Gigabit Ethernet -  An Ethernet technology that raises transmission speed to
 one Gbps and is used primarily for backbone networks and high-speed  server-
 to-server connectivity.

 ISDN -  A system of  digital connections that has  been available for over a
 decade and has  gained increased use  in the last  few years for  high-speed
 data and video transmission.

 LAN -  (Local Area Network) A  short distanced  data communications  network
 that is contained within a building or complex.  Its primary use is to  link
 computers  and  peripheral  devices  (such  as  printers)  and  to   provide
 individuals with access  to databases  and applications  running on  servers
 attached to the network.  Anyone connected  to the LAN can send messages  to
 and work jointly with others on the network.

 NAS -  (Network Attached Storage)  A network topology that provides a common
 pool of  storage  that  can  be shared  by  multiple  servers  and  clients,
 regardless of  their  file  system or  operating  system.  Network  Attached
 Storage servers are self-contained, intelligent devices that attach directly
 to an existing LAN.  A file system is located and managed on the NAS  server
 and data is transferred  to network clients  over industry standard  network
 protocols such as IP (Ethernet).

 Operating System - The master control program that runs the computer.  It is
 the first program loaded when the computer is turned on, and its main  part,
 called the kernel, resides in  memory at all times.  It may be developed  by
 the vendor of the computer it's  running in or by a third  party.  It is  an
 important component of the computer system  because it sets the  operational
 guidelines for all application programs that run on the system. All programs
 must "talk  to" the  operating system.   Popular  network operating  systems
 today include Windows NT and 2000, HP-UX, AIX and Linux.

 PCI -  A bus standard (Peripheral Components Interconnect) that is currently
 the main  general-purpose bus  in virtually  every  desktop computer  and  a
 majority of servers throughout the world.

 PCI-X -  A high-performance extension to  the PCI Local Bus that is designed
 to meet the  increased I/O demands  of technologies such  as Fibre  Channel,
 Gigabit Ethernet, and Ultra3 SCSI.

 PMC  -  (PCI  Mezzanine  Card)  a   low  profile  mezzanine  card  that   is
 electronically equivalent  to the  Peripheral Component  Interconnect  (PCI)
 specification.  PMC cards are used  as a quick and cost-effective method  to
 add modular I/O to other card formats such as VME and CompactPCI.

 Remote Access Server -   A remote access server  is a computer that provides
 access to  remote users  (such as  telecommuters, road  warriors and  branch
 office locations) via analog or digital modems and ISDN connections.

 SAN  -   (Storage  Area   Network)   A  flexible   "any-to-any"   networking
 infrastructure linking multiple servers to multiple storage devices.   Based
 on Fibre  Channel technology,  SANs have  recently  emerged as  the  highest
 performance data communications environment available today to  interconnect
 servers  and  storage.    Running  at  Gigabit  speeds,  SANs  offer  better
 scalability, fault recovery and  general manageability than current  client-
 server LAN-based approaches for real-time and data intensive applications.
 Storage Area Networks are being widely deployed for video editing,  prepress
 and data mining applications throughout the general IT marketplace.
<PAGE>

 SCSI -  (Small Computer  System Interface)  Pronounced "skuzzy,"  SCSI is  a
 widely used  communications technology  for connecting  computer servers  to
 storage devices.  The technology is especially popular in applications where
 network servers  are attached  to numerous  SCSI  drives and  configured  as
 fault-tolerant RAID clusters.  In the  event one drive fails, the system  is
 still operational. SCSI-based RAID is widely used in file servers,  database
 servers and other network servers. Interphase products utilize Ultra2  SCSI,
 which provides up to 80 Mbps data throughput and Ultra3 SCSI, which  doubles
 the throughput to 160 Mbps.

 Server -  A  computer in  a network  shared  by multiple  users.   These are
 typically more powerful than computers  used by individuals (often  referred
 to as  "desktops") and  require advanced  I/O connectivity.   In  enterprise
 network environments, some computers may be dedicated to a single task.  For
 instance, an Internet  server is  a computer  that provides  World Wide  Web
 services on the Internet.  If the Web  server is used internally and not  by
 the public, it may be known as an "intranet server."

 SS7 -  (Signaling System 7)  The protocols used in the U.S. telephone system
 for setting  up calls  and providing  modern  transaction services  such  as
 caller ID, automatic recall and call forwarding. When you dial "1" in  front
 of a number,  SS7 routes the  call to your  long distance  carrier. It  also
 routes local calls based on the first three digits of the phone number.

 T1 -  A digital transmission link with a  capacity of 1.544 Mbps  (1,544,000
 bits per second).  T1 links normally handle 24 voice conversations, but with
 digital encoding can  handle many more  voice channels.   T1 lines are  also
 used to connect networks across remote  distances.  The European  equivalent
 (E1) handles 30 voice channels.

 T3 -  A digital transmission link equivalent  to 28 T1  lines.  Providing  a
 capacity  of  45  Mbps,  a  T3  link  is  capable  of  handling  672   voice
 conversations.

 WAN -  (Wide  Area  Network)  A  communications  network that  covers a wide
 geographic area, such as state  or country.  A  WAN typically extends a  LAN
 (Local Area Network, see above) outside the building, over telephone  common
 carrier lines to  link to  other LANs in  remote locations,  such as  branch
 offices or  at-home workers  and telecommuters.    WANs typically  run  over
 leased phone lines, but are increasingly also employing the Internet for VPN
 (virtual private network) connectivity.


 Strategy

 The  Company's   strategy  is   to  provide   innovative,   high-performance
 connectivity solutions  for  the telecommunications  and  enterprise  server
 markets.    To  achieve  this  strategy,  Interphase  pursues  several   key
 initiatives that include:

 Providing an advanced line of communication controllers for  next-generation
 telecom servers.
<PAGE>

 To capitalize on the trend towards the acquisition of I/O connectivity  from
 third party vendors by telecommunication server providers, Interphase offers
 a comprehensive line of carrier-class communications controllers for:

 * 2.5 and  3G Wireless - controllers  that provide enhanced mobile  services
   and integration with the Internet

 * Fast  Internet  Access  -  controllers  that  enable  broadband   Internet
   connectivity and high-speed wireless Internet access

 * Intelligent Network  Migration - controllers  that help service  providers
   migrate  their AIN  facilities  to  more scalable  and  versatile  network
   architectures

 Beginning in 2001, the Interphase telecommunication solutions offering  also
 includes a Professional  Services organization  responsible for  customizing
 software and third party  applications  to customer  specific designs.  With
 high-performance communication controllers, software development tools,  the
 industry's  broadest  protocol   support,  and  complementary   professional
 services, Interphase  helps decrease  costs and  improve time-to-market  for
 service providers building next-generation telecom networks.

 Offering a comprehensive server I/O adapter product portfolio.

 In order to provide Interphase  customers with effective storage  networking
 solutions, Interphase  offers a  comprehensive  line of  storage  networking
 adapters specifically  designed  for  use  in  demanding,  enterprise  class
 applications such as:

 * Enterprise Connectivity - mission critical backbone and Internet servers

 * Server-attached Storage - high-throughput direct-attached storage servers

 * Storage Area  Networks - servers  providing connectivity for  SAN and  NAS
   applications

 Delivering superior customer service.

 Over the past 25 years, Interphase has established strong relationships with
 key suppliers of enterprise computer and telecommunication servers.  Much of
 this success has  been due to  the superior pre-  and post-sale service  the
 Company delivers  to  customers.    With  a  vertically  integrated  account
 perspective, Interphase  provides  flexibility, timely  response  and  other
 customized account  service  features.   Further,  the  Company's  technical
 support is divided into  functional groups supporting  either server I/O  or
 telecommunication product  offerings,  allowing Interphase  to  specifically
 focus its support efforts  for the different needs  and requirements of  its
 customers in these differing market segments.

 Expanding the company's base of quality channel partners.

 In keeping with  its efforts to  expand the total  available market for  its
 product  offerings,  Interphase   continues  to  build   a  broad  base   of
 distribution channel partners that  provide cost-effective penetration  into
 the enterprise IT  segment.   Through its  Gold Rush  Partners Program,  the
 Company recruits high-end resellers (VARs) and systems integrators that  are
 building storage-centric solutions for their enterprise customers.
<PAGE>

 Developing strategic partnerships.

 Interphase is an acknowledged leader in multi-vendor interoperability.   The
 Company leverages this leadership position into strategic partnerships  with
 its Diamond Developer  Partners Program.   Through this program,  Interphase
 builds synergistic  marketing and  technical  relationships with  other  key
 suppliers in its  respective markets.   Rigorous product  testing and  early
 access to new  partner product releases  allows tighter product  integration
 and helps assure compatibility for the Company's end-user customers.

 Products

 Interphase offers an advanced line  of telecom communication controllers,  a
 comprehensive portfolio of  Fibre Channel  SAN adapters  (including HBA  SAN
 management software) and adapters for remote access and WAN communications.

 Telecom Communication Controllers

 Interphase products designed  for use in  next-generation Broadband  telecom
 controllers telecommunication servers include:

   *  4531 PMC ATM  over T3/E3 Communications  Controller -  a PCI  Mezzanine
      Card that provides reliable,  high performance ATM communications  over
      T3/E3 connections for applications such as aggregating Internet traffic
      for transport over the public ATM backbone network.

   *  4534 PMC Quad-port Serial Communications  Controller - a PCI  Mezzanine
      Card that provides reliable, high performance serial communications for
      multiple telecommunication protocols including ATM, ISDN, Frame  Relay,
      X.25 and PPP.

   *  4535 PMC Multiprotocol Communications Controller - a PCI Mezzanine Card
      that provides  four high-speed  serial communication  links to  provide
      connection to the Public Switch  Telephone Network to support  advanced
      SS7 or AIN applications.

   *  4537 PMC Multiprotocol Communications Controller - a PCI Mezzanine Card
      targeted specifically for  telecommunication applications that  require
      multiple T1/E1  interfaces.   The  4537 supports  multiple  frame-based
      protocols, such as ATM and SS7, provides options for front or rear  I/O
      access, and includes an integrated Channel Service Unit.

   *  4575 PMC  ATM Communications  Controller -  a PCI  Mezzanine Card  that
      provides  reliable,   high  performance   ATM  SONET   OC-3  155   Mbps
      connectivity.

   *  5575 PCI ATM Adapter - a PCI adapter card that provides full duplex ATM
      connectivity for systems running Windows NT, Novell NetWare,  UnixWare,
      Solaris and AIX.

   *  6535 CompactPCI T1/E1/J1  Communications Controller -  a 6U  CompactPCI
      communications controller with an  advanced architecture featuring  the
      Motorola  MPC8260  RISC  CPU  that  offers  superior  performance  over
      T1/E1/J1 communication links.

   *  6575 CompactPCI ATM Communications Controller -  a 3U or 6U  CompactPCI
      adapter that provides full duplex ATM  connectivity at OC-3 data  rates
      for industrial and telecommunication server computers.
<PAGE>

  Server I/O Products

 Interphase server I/O products targeted  for use in enterprise  applications
 include the following:

   *  5526 PowerSAN PCI Fibre Channel Adapter - a 33Mhz PCI bus adapter which
      provides single port 100 MBps Fibre Channel connectivity.

   *  5527 PowerSAN PCI Fibre Channel Adapter - a 66Mhz PCI bus adapter which
      provides single port 100 MBps Fibre Channel connectivity.

   *  5540 PowerSAN PCI Fibre Channel Adapter - a 66Mhz PCI bus adapter which
      provides price-effective 1-Gbps  storage connectivity  for basic  Fibre
      Channel SAN connectivity.

   *  5541 PowerSAN PCI Fibre Channel Adapter - a low profile version of  the
      5540 that is only half of the height of normal PCI cards, allowing  use
      in the  new smaller  profile (1U)  servers being  increasingly used  in
      Internet server and e-commerce applications.

   *  5550 PowerSAN PCI Fibre Channel Adapter - a 66Mhz PCI bus adapter which
      provides two  independent 1-Gbps  Fibre Channel  connections for  high-
      reliability SAN applications.

   *  5560 PowerSAN PCI Fibre Channel Adapter - a 66Mhz PCI bus adapter which
      provides 2-Gbps Fibre Channel  connectivity for applications  requiring
      maximized data throughput.

   *  FibreView Enterprise  - a  JAVA-based management  utility which  allows
      enterprise IT managers to control Fibre Channel server connections from
      anywhere within the network via the Internet.

   *  5570 SlotOptimizer  PCI  Storage  Networking Adapter  -  a  64-bit  PCI
      multifunction adapter card providing full duplex Gigabit Fibre  Channel
      and high-performance Gigabit Ethernet connectivity.

   *  552C SlotOptimizer  PCI  Storage  Networking Adapter  -  a  64-bit  PCI
      multifunction  adapter  card   combining  dual   channel  Ultra2   SCSI
      connectivity with two 10/100 Ethernet ports.

   *  553C SlotOptimizer  PCI  Storage  Networking Adapter  -  a  64-bit  PCI
      multifunction  adapter  card   combining  dual   channel  Ultra3   SCSI
      connectivity with two 10/100 Ethernet ports.

   *  554E SlotOptimizer  Quad-port  Fast Ethernet  Adapter  - a  64-bit  PCI
      adapter card that provides  four independent full-duplex Fast  Ethernet
      ports.
<PAGE>

 Remote Access and WAN Communications Adapters

 Interphase also  offers communication  adapters  that enable  remote  access
 server communications in  enterprise WAN  environments. Flagship  Interphase
 products for remote access and WAN connectivity include:

   *  5535  ENTIA  ATM  over  T1  Communications  Controller  -  an  PCI  WAN
      controller that uses an on-board CPU and memory to locally execute  all
      communications protocols. Providing either single  or dual port PRI  or
      T1/E1 connectivity, this  controller is  a cost-effective  connectivity
      solution for small and medium size enterprise networking environments.

   *  5536 ENTIA V.90 Digital  Modem Controller - a  PCI WAN controller  that
      uses an on-board CPU and memory  to locally process all  communications
      protocols. Offering up to 60 digital modems and simultaneous processing
      of both ISDN and analog (V.34 and V.90) call traffic, this adapter is a
      cost-effective solution for remote users requiring access to enterprise
      network applications.

 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 develop,  in a  timely
 manner,  new  products   in  emerging  technologies   that  achieve   market
 acceptance.  The Company believes it must offer products to the market  that
 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,  ANSI, VME International  Trade Association (VITA),  Fibre
 Channel Industry Association (FCIA), Infiniband Trade Association (ITA), 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.
<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 may 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  2000,  sales  to  Hewlett
 Packard and Terayon Communication Systems accounted  for $10 million or  18%
 and $5.9 million or 11% of consolidated revenues, respectively, and were the
 only customers  accounting for  more  than  10%  of  consolidated  revenues.
 During 1999, sales to Hewlett Packard accounted for $36.9 million or 50%  of
 consolidated revenues, and was  the only customer  accounting for more  than
 10% of  consolidated  revenues.   During  1998,  sales  to  Hewlett  Packard
 accounted for $28.3  million or 41%  of consolidated revenues,  and was  the
 only customer accounting for more than 10% of consolidated revenues.

 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; Minneapolis, Minnesota; Paris, France and Bangkok,  Thailand.
 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  Ingram  Micro,  Tech  Data,  Fuji-Xerox,
 Gates/Arrow and Macnica.

 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 dates  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.

 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 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 the date of invoice.
<PAGE>

 Manufacturing and Supplies

 Manufacturing  operations   are  currently   conducted  at   the   Company's
 headquarters in Dallas, Texas.  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.   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  finished
 goods inventories.

 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  noninfringing  technology  or  acquire  licenses  to  the
 technology, which is the subject of asserted infringement.

 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, 2000, the Company  had 197 full-time employees, of which  70
 were engaged  in manufacturing  and quality  assurance, 71  in research  and
 development, 31 in  sales, sales support,  service and marketing  and 25  in
 general management and administration.
<PAGE>

 The Company's  success  to date  has  been significantly  dependent  on  the
 contributions of  a  number  of its key technical  and management employees.
 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 storage
 I/O and  telecommunication 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.


 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) that 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.


 ITEM 3.        LEGAL PROCEEDINGS.

 None


 ITEM 4.        SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

 Not applicable
<PAGE>

                                   PART II


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

<TABLE>
 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 quarter during 2000 and 1999  as
 reported by Nasdaq.

          2000                         High          Low
      -------------                   ------        ------
      <S>                             <C>           <C>
      First Quarter                   41.750        17.250
      Second Quarter                  26.875        13.125
      Third Quarter                   25.750        16.125
      Fourth Quarter                  16.438         7.938

          1999                         High           Low
      -------------                   ------        ------
      First Quarter                    9.063         6.125
      Second Quarter                  23.000         6.500
      Third Quarter                   34.375        15.938
      Fourth Quarter                  44.750        17.250
</TABLE>

 The Company had approximately 4,800 beneficial  owners of its common  stock,
 of which 64 are of record as of March 1, 2001.

 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.

 The Board of Directors  has adopted a Shareholder  Rights Plan whereby  each
 holder of record as of December 29,  2000 received a right to purchase  from
 the Company one share of common stock of the  Company at a price of $93  per
 share for each share held.  These rights can only be exercised after certain
 events occur, such as if a person or  entity acquires, or makes a tender  or
 exchange offer to acquire 15% or more of the Company's common stock and  the
 rights expire ten years from  the record  date.  Upon acquisition of 15%  or
 more of the Company's  common stock, each right  not owned by the  acquiring
 person or group will be adjusted to allow  the purchase for $93 of a  number
 of shares having a then market value of $186.  These rights are intended  to
 provide  the  Company  certain  antitakeover  protections.    The  Board  of
 Directors may terminate the Rights Plan, or redeem the rights for $0.01  per
 right, at  any  time  until  the  tenth  business  day  following  a  public
 announcement of a 15% or more  stock acquisition.  The Company has  reserved
 7,000,000 shares of common stock for this plan.

 The rights were distributed to shareholders as of the record date as a  non-
 taxable dividend.  The rights  are attached  to  and trade  with  Interphase
 common stock until the occurrence of one of the triggering events, at  which
 time the rights would become detached from the common stock.
<PAGE>


 ITEM 6.        SELECTED FINANCIAL DATA

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


                                       Twelve months ended December 31,
                               2000       1999       1998       1997       1996
                             ---------------------------------------------------
 <S>                         <C>        <C>        <C>        <C>        <C>
 Revenues                    $55,697    $73,502    $68,690    $66,004    $56,752
                             ---------------------------------------------------
   Gross Profit               29,688     34,702     33,598     32,016     27,964
                             ---------------------------------------------------
   Research and development   10,359     10,590     10,766     13,327      9,902

   Sales and marketing        10,731     11,036     10,060     11,686     10,297

   General and administrative  4,824      5,366      5,417      6,248      4,905

   In process research and
    development                    -          -          -          -     11,646
                             ---------------------------------------------------
   Operating income (loss)     3,774      7,710      7,355        755     (8,786)
                             ---------------------------------------------------
   Other, net                    333     (1,030)    (1,583)    (1,525)      (705)

   Income (loss) from
    continuing operations
    before income tax          4,107      6,680      5,772       (770)    (9,491)

   Income (loss) from
    continuing operations      2,400      4,291      3,542       (971)   (10,055)

   Discontinued
     operations, net             571       (867)      (829)         -          -
                             ---------------------------------------------------
   Net income (loss)          $2,971     $3,424     $2,713      $(971)  $(10,055)
                             ---------------------------------------------------
   Income (loss) from
    continuing operations
    per share
     Basic                     $0.41      $0.77      $0.64     $(0.18)    $(1.99)
     Diluted                   $0.38      $0.70      $0.63     $(0.18)    $(1.99)

   Net income (loss)
   per share
     Basic                     $0.51      $0.61      $0.49     $(0.18)    $(1.99)
     Diluted                   $0.48      $0.56      $0.48     $(0.18)    $(1.99)

   Weighted average
    common shares              5,805      5,593      5,508      5,496      5,062

   Weighted average
    common & common
    equivalent shares          6,237      6,113      5,628      5,496      5,062

<PAGE>


                                         Twelve months ended December 31,

 Balance Sheet Data:           2000       1999       1998       1997       1996
                             ---------------------------------------------------
 Working capital             $37,502    $35,314    $26,314    $25,244    $22,836

 Total assets                 54,473     54,671     50,288     49,447     53,924

 Total liabilities            12,534     14,536     18,463     19,904     23,538

 Redeemable common stock       1,780      2,796      3,813          -          -

 Shareholders' equity         40,159     37,339     28,012     29,543     30,386

</TABLE>
<PAGE>


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

 This report contains  forward-looking statements with  respect to  financial
 results and certain  other matters.   These  statements are  made under  the
 "safe harbor" provisions of the Private Securities Litigation Reform Act  of
 1995 and involve a number of risks and uncertainties that could cause actual
 results  to  differ materially from those in the forward-looking statements.
 Such risks and  uncertainties include, without  limitation, fluctuations  in
 demand, the quality and price of similar or comparable networking  products,
 access to sources of capital, general  economic conditions in the  Company's
 market areas and that future sales and growth rates for the industry and the
 Company could be lower than anticipated.

<TABLE>
 Consolidated Statement of Operations as a Percentage of Revenues

                                       Year ended December 31,
                                     2000        1999        1998
                                    -------------------------------
 <S>                                <C>         <C>         <C>
 Revenues                           100.0 %     100.0 %     100.0 %
 Cost of sales                       46.7 %      52.8 %      51.1 %
                                    -------------------------------
 Gross profit                        53.3 %      47.2 %      48.9 %

 Research and development            18.6 %      14.4 %      15.7 %
 Sales and marketing                 19.3 %      15.0 %      14.6 %
 General and administrative           8.6 %       7.3 %       7.9 %
                                    -------------------------------
 Operating income                     6.8 %      10.5 %      10.7 %
                                    -------------------------------
 Interest income                      2.1 %       0.6 %       0.5 %
 Interest expense                    (1.1)%      (0.9)%      (1.5)%
 Other, net                          (0.5)%      (1.1)%      (1.3)%
                                    -------------------------------
 Income (loss) from continuing
   operations before income taxes     7.4 %       9.1 %       8.4 %
 Provision for income taxes           3.1 %       3.3 %       3.2 %
                                    -------------------------------
 Income (loss) from continuing        4.3 %       5.8 %       5.2 %
   operations

 Discontinued operations              1.0 %      (1.2)%      (1.2)%
                                    -------------------------------
 Net income (loss)                    5.3 %       4.6 %       4.0 %
                                    ===============================
</TABLE>
<PAGE>


 RESULTS OF OPERATIONS

 In September 1999, the Company completed the sale of its Voice Over Internet
 Protocol  ("VOIP")  business.    Accordingly,  the  Company's   consolidated
 financial statements and  notes included herein,  for all periods  presented
 reflect the VOIP  business as a  discontinued operation  in accordance  with
 Accounting Principles Board Opinion No. 30.

 Revenues consist of product revenues and  are recognized in accordance  with
 SEC Staff Accounting  Bulletin (SAB)  101, "Revenue  Recognition."   Product
 revenues  are  recognized  upon  shipment,  provided  fees  are  fixed   and
 determinable, a customer  order is obtained,  and  collection  is  probable.
 Revenues from reseller agreements are typically recognized when the  product
 is sold through to the end  customer.  Deferred revenue consists of  revenue
 from reseller arrangements  and certain arrangements  with extended  payment
 terms.

 Revenues:  Total revenues  for the years ended  December 31, 2000, 1999  and
 1998 were $55.7 million, $73.5 million and $68.7 million, respectively.

 Revenues decreased 24% in  2000 compared to 1999.   The decrease in  revenue
 was primarily attributable to the effects  of the transitional period  where
 the Company is refocusing its efforts  on its new Fibre Channel and  Telecom
 Communication Controller products.  During this  period, several of the  new
 Fibre Channel products experienced delays in the engineering phase.  Due  to
 the intense  competition in  the industry,  these delays  had a  significant
 impact on sales during 2000. Additionally, 30% of the revenues in 1999  were
 attributable to  Hewlett Packard's  purchases of  a Fibre  Channel  product,
 which ceased in the first quarter of 2000.  The decrease in revenues  during
 2000 was  partially  offset by  sales  of products  through  an  end-of-life
 program instituted in 2000 for many  of the Company's legacy products.   The
 Company began this program in  an effort to focus  its resources on its  new
 product lines.

 The growth in revenues from 1998  to 1999 was 7%.   The increase in  revenue
 was attributable to growth  in the Company's  Storage and Broadband  telecom
 controller product  lines, partially  offset by  a decline  in LAN  and  WAN
 products.  In  1999, Storage revenues,  which consist of  Fibre Channel  and
 SCSI technologies, accounted  for approximately 48%  of total revenues,  LAN
 revenues which consist of FDDI, Fast  Ethernet, ATM and Ethernet,  accounted
 for 36%  of total  revenues, WAN  accounted  for 7%  of total  revenues  and
 Broadband telecom controllers  accounted for 9%  of total  revenues.   North
 American revenues  grew 14%,  Pacific Rim  revenues grew  78%, and  European
 revenues declined 26% compared to 1998.  In 1999, sales to one OEM  customer
 accounted for approximately 50% of the Company's revenue.

 Gross Profit:  Gross profit as  a percentage of sales  was 53% for the  year
 ended December 31, 2000, 47%  for the year ended  December 31, 1999 and  49%
 for the year ended December 31, 1998.  The increase in the gross profit rate
 is primarily  the  result  of a  change  in  product mix  and  product  cost
 improvements that  began in  late 1999,  whereby  the Company  improved  its
 purchasing and production processes.
<PAGE>

 Research and Development:   The Company's investment  in the development  of
 new products  through  research and  development  was $10.4  million,  $10.6
 million and  $10.8 million  in  2000, 1999,  and  1998, respectively.  As  a
 percentage of revenue, research and development  expenses were 19%, 14%  and
 16% for 2000, 1999 and 1998,  respectively.  Research and development  costs
 decreased slightly  in  2000,  primarily due  to  a  reduction  in  variable
 spending in  response to  decreased revenues  for the  year.   However,  the
 research and development investment  in 2000 resulted  in new products  that
 will provide the  foundation for  the Company's  product lines  in 2001  and
 beyond.

 Sales and Marketing:  Sales and  marketing expenses were $10.7 million,  $11
 million, and  $10.1 million  in  2000, 1999  and  1998, respectively.  As  a
 percentage of revenue, sales  and marketing expenses were  19%, 15% and  15%
 for 2000, 1999 and 1998, respectively.  The decrease in sales and  marketing
 expenses in  2000  is primarily  the  result of  decreased  revenues,  which
 resulted in reduced sales  commissions and bonuses  for the year,  partially
 offset by  increased marketing  activity used  to position  the Company  for
 future product releases.

 General and Administrative:  General  and administrative expenses were  $4.8
 million,  $5.4  million,  and   $5.4  million  in   2000,  1999  and   1998,
 respectively.  As  a  percentage  of  revenue,  general  and  administrative
 expenses were 9%, 7% and 8%  for 2000, 1999 and 1998, respectively.  General
 and  administrative costs  have been relatively  consistent in recent years.
 However, the decrease in 2000 costs,  relative to 1999, is primarily due  to
 lower headcount related expenses, as the number of employees in the  general
 and administrative function decreased from 33 as of December 31, 1999 to  25
 as of December 31, 2000.

 Interest Income:  Interest income was $1.2 million, $481,000 and $338,000 in
 2000, 1999 and 1998, respectively. The increase in interest income from year
 to year  is  a  reflection  of  the increase  in  the  funds  available  for
 investment.

 Interest Expense:  Interest expense was $587,000, $694,000 and $1 million in
 2000, 1999 and 1998, respectively.  The decrease in interest expense is  due
 to the reduction of the Company's credit facility.

 Other Expense, Net:  Other expense, net, was $266,000, $817,000 and $896,000
 in 2000, 1999 and 1998, respectively.  Other expense primarily reflects  the
 amortization of goodwill  and acquired developed  technologies related to  a
 1996 acquisition  of  Synaptel.    However, the  net  decrease  in  2000  is
 primarily  due  to  the  increase  in  other  income  generated  by  hedging
 transactions on certain marketable  securities received in  the sale of  the
 Company's VOIP  business.   For  the year  ended  December 31,  2000,  these
 hedging transactions resulted in a gain of approximately $689,000.

 Provision for Income  Taxes:   The Company's  provision for  taxes was  $1.7
 million, $2.4 million and $2.2 million in 2000, 1999 and 1998, respectively.

 The effective income  tax rates were  42% in 2000,  36% in 1999  and 39%  in
 1998.  The Company's effective tax  rate is greater than the statutory  rate
 primarily due to nondeductible goodwill amortization.   The increase in  the
 Company's effective income tax rate, from 1999 to 2000, is primarily due  to
 the decrease in  foreign earnings, which  are offset by  foreign loss  carry
 forwards.
<PAGE>

 Discontinued Operations:  In  1999, the Company sold  its VOIP business  for
 $2.4 million.  However,  due to the uncertainty  of payment on the  proceeds
 that remained unpaid as of December 31, 1999, the Company recognized  income
 upon payment.   In  2000,  the remaining  $830,000  due for  the  technology
 license fee was collected and recorded as a gain on disposal of discontinued
 operations.  Additionally,  in 2000, the  Company sold its  20% interest  in
 Quescom for $400,000, resulting  in a gain  of $91,000.   The total gain  in
 2000 was $571,000 net of $350,000  tax.  There were no operating  activities
 during 2000 related to the  VOIP business.  Gain  on disposal of assets  was
 $326,000, net of tax, in 1999.  Operating  losses, net of tax, for the  VOIP
 business were $1.2 million and $829,000 for 1999 and 1998, respectively.

 Net Income (Loss):  The Company reported  net income of $3 million in  2000,
 $3.4 million in 1999 and $2.7 million in 1998.


 LIQUIDITY AND CAPITAL RESOURCES

 The Company's cash,  cash equivalents and  marketable securities  aggregated
 $17.5 million and  $16.3 million at December 31, 2000 and 1999.  The  growth
 in cash, cash  equivalents and marketable  securities from 1999  to 2000  is
 primarily attributable  to  cash  generated  by  the  Company's  operations,
 proceeds received from the  exercise of stock options  and cash received  in
 connection with the sale of its VOIP business.

 Expenditures for  equipment and  purchased software  were $1.1  million,  $2
 million and $2.9 million in 2000, 1999 and 1998, respectively.  At  December
 31, 2000,  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, future  debt  payments  and  repurchase  of
 Interphase common stock from Motorola (described below).

 The Company has a $16 million credit facility with a financial  institution.
 This  credit facility  includes an $8.5  million term loan,  a $2.5  million
 equipment loan and  a $5 million  revolving credit facility.   The term  and
 equipment loans are due  in quarterly installments,  and expire in  November
 2001.   The  revolving credit  facility  expires in  June  2002.   In  2001,
 maturities of this credit facility will  be approximately $1.7 million.  The
 Company has  not  paid  any  dividends since  its  inception  and  does  not
 anticipate paying any dividends in 2001.

 Effective October 1998,  the Company approved  a stock repurchase  agreement
 with Motorola, Inc. to purchase ratably from October 1998 to July 2002,  all
 of the shares owned by Motorola for $4.1 million at $6.25 per share.   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 cancels  the
 stock upon  each repurchase.  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 sheets.  As of December 31, 2000,  375,336
 shares have been repurchased  for $2.3 million  and retired; 284,664  shares
 remain to be repurchased.

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

 Recently Issued Accounting Pronouncements
<PAGE>

 On January 1, 2001, the Company adopted SFAS 133, "Accounting for Derivative
 Instruments  and  Hedging Activities," as amended  by SFAS 137 and SFAS 138.
 SFAS 133 requires all derivatives to be recorded at fair value.  Changes  in
 the fair  values of  derivatives are  recorded in  either the  statement  of
 operations or as a component of  comprehensive income, depending on  whether
 the derivative qualifies as  a hedge, and depending  on the type of  hedging
 relationship that exists.  Adoption of this standard did not have a material
 effect on the Company's financial statements.""


 ITEM 7a.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

 Foreign currency risk - Revenues  originating  outside of  the United States
 totaled 15%, 17% and 22% of total revenues in 2000, 1999, and  1998.  Due to
 the fact that the Company conducts business on  a  global  basis in  various
 foreign currencies, it is exposed to  adverse  movements in foreign currency
 exchange  rates.  During  the  periods  presented, the Company entered  into
 certain foreign currency forward exchange contracts to  reduce  the  risk of
 foreign exchange exposure.  Neither the  foreign  currency transaction gains
 and  losses  nor  the  gains  and  losses  on  the  forward  contracts  were
 significant.  The Company has not used, nor do they expect  to use,  forward
 contracts for trading purposes.

 Interest Rate Risk - The Company is exposed to interest rate risk under  its
 Credit Facility, which currently bears interest at  8.5%.  The  Company does
 not enter into hedging arrangements to mitigate this risk.

 Market Price Risk - The Company maintains a minority equity investment in  a
 publicly traded Company and recorded a $925,000  net  after  tax  unrealized
 loss during 2000 on this investment.  The  Company's ability to sell certain
 equity positions is restricted  under contractual arrangements.  During 2000
 the Company  entered  into  a  hedge on a portion of this equity investment,
 realizing  a gain of $689,000 on the transaction.  The Company has no equity
 hedge contracts outstanding as of December 31, 2000.


 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 2, 2001, which is incorporated herein
 by reference.

 Executive Officers

 As of March 1, 2001, 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
 -----------------   ---  ----------------------------------    -----------
 Gregory B. Kalush    44  Chairman of the Board, Chief             1998
                           Executive Officer and President


 Steven P. Kovac      45  Chief Financial Officer, Treasurer       1999
                           and Vice President of Finance


 Gregory B. Kalush joined  the Company in February  1998, as Chief  Financial
 Officer, Vice President of Finance and Treasurer.  Mr. Kalush was  appointed
 the Chief Executive Officer, President and Director of the Company in  March
 1999 and was elected Chairman of the Board in May 2000.  Mr. Kalush is  also
 the sole member of the New Employee and Retention Stock Option Committee  of
 the Board of Directors.   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 Business Unit, Director  of
 Finance, Planning and  Administration for the  Southwest area, and  Division
 Director of Finance and Operations for the Data Systems division.

 Steven P. Kovac joined the Company  in May 1999 as Chief Financial  Officer,
 Vice President of Finance and Treasurer.  Prior to Interphase, from 1997  to
 1999 Mr. Kovac served as Chief Operating Officer and Chief Financial Officer
 for TPN Inc., a satellite television network.   From 1989 to 1997 Mr.  Kovac
 was the Regional Vice President of  Finance and Chief Financial Officer  for
 AT&T Wireless  Services,  McCaw  Cellular Communications  and  LIN  Cellular
 Communications.  From 1988 to 1989, Mr. Kovac was Vice President of  Finance
 and Administration for  BBL Industries, a  manufacturer of paging  terminals
 and voice  messaging equipment.   Mr.  Kovac is  a member  of the  Board  of
 Directors  for  Integrated  Systems  Corporation,  a  reseller  of  DSL  and
 satellite ISP, located in Denver, Colorado.
<PAGE>


 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 2,  2001,
 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 2,  2001,
 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 2,  2001,
 which is incorporated herein by reference.


                                   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 Registrant has  filed no Reports  on Form 8-K  during the quarter  ended
 December 31, 2000.

<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 26, 2001              By:  /s/ Gregory B. Kalush
                                       -----------------------
                                       Gregory B. Kalush
                                       Chairman of the Board, 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 26, 2001.

                   Name                         Title
       ---------------------------      ---------------------------

       /s/ Gregory B. Kalush            Chairman of the Board,
       ---------------------------      Chief Executive Officer and President
           Gregory B. Kalush            (Principal executive officer)

       /s/ Steven P. Kovac              Chief Financial Officer, Treasurer
       ---------------------------      and Vice President of Finance
           Steven P. Kovac              (Principal financial officer)

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

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

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

       /s/ S. Thomas Thawley            Vice Chairman, Director
       ---------------------------      and Secretary
           S. Thomas Thawley

       /s/ William R. Voss              Director
       ---------------------------
           William R. Voss

<PAGE>

                              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)    Amendment to Articles of Incorporation of the registrant. (10)
  3 (c)    Amended and Restated Bylaws of the registrant adopted on December
           5, 1995. (6)
 10 (a)    Registrant's Amended and Restated Stock Option Plan and Amendment
           No. 1 and 2 thereto. (9)
 10 (b)    Registrant's Amended and Restated Stock Option Plan Amendment
           No. 4. (10)
 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 (f)    Directors Stock Option Plan and Amendment No. 1 thereto. (6)
 10 (g)    Directors Stock Option Plan Amendment No. 2  (10)
 10 (h)    Loan Agreement between Interphase Corporation and BankOne Texas,
           N.A. (8)
 10 (i)    Purchase Agreement between Interphase Corporation and Cisco
           Systems Inc. (9)
 10 (j)    Motorola Stock Repurchase Agreement (2)
 10 (k)    Rights Agreement dated as of December 7, 2000 by and between
           the Company and Computershare Investor Services, LLC as Rights
           Agent.  (11)
 23 (a)    Consent of Independent Public Accountants. (12)
 _____________________
 (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 as an exhibit to Report on Form 10-K for the year ended December
      31, 1999 and incorporated herein by reference.
 (11) Filed as  an exhibit to Form 8-K on January 9, 2001, and incorporated
      herein by reference.
 (12) Filed herein.


<PAGE>
                       INDEX TO FINANCIAL STATEMENTS AND
                         FINANCIAL STATEMENT SCHEDULES




 Management's Report on Financial Responsibility                       F-2

 Report of Independent Public Accountants -
      Arthur Andersen LLP                                              F-3

 Consolidated Balance Sheets - As of December 31, 2000 and 1999        F-4

 Consolidated Statements of Operations - Years Ended
      December 31, 2000, 1999 and 1998                                 F-5

 Consolidated Statements of Shareholders' Equity - Years Ended
      December 31, 2000, 1999 and 1998                                 F-6

 Consolidated Statements of Cash Flows - Years Ended                   F-7
      December 31, 2000, 1999 and 1998

 Notes to Consolidated Financial Statements                        F-8 to F-21



                                      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  accounting
 principles generally  accepted in  the United  States 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 three
 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
 Chairman of the Board,
 Chief Executive Officer and President

 February 6, 2001



                                      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,  2000
 and  1999,   and  the   related  consolidated   statements  of   operations,
 shareholders' equity, and  cash flows  for each of  the three  years in  the
 period ended  December  31,  2000.    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 auditing  standards  generally
 accepted in  the  United States. 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, 2000 and 1999, and the results  of their
 operations and their  cash flows for  each of the three years in  the period
 ended December 31, 2000, in conformity with accounting  principles generally
 accepted in the United States.

                                      ARTHUR ANDERSEN  LLP
 Dallas, Texas
 February 6, 2001


                                      F-3

<PAGE>
<TABLE>

   INTERPHASE CORPORATION
   CONSOLIDATED BALANCE SHEETS
   (in thousands, except number of shares data)
                                                           December 31,
   ASSETS                                               2000         1999
   ------                                            ----------------------
   <C>                                              <C>          <C>
   Cash and cash equivalents                        $   10,587   $   10,988
   Marketable securities                                 6,886        5,288
   Trade accounts receivable, less allowances
     for uncollectible accounts of $273 and
     $260, respectively                                 14,085       14,005
   Inventories                                          13,193       11,678
   Prepaid expenses and other current assets               941        1,383
   Deferred income taxes                                   844          774
                                                     ----------------------
        Total current assets                            46,536       44,116
                                                     ----------------------
   Machinery and equipment                               8,033        9,149
   Leasehold improvements                                2,954        2,907
   Furniture and fixtures                                  490          475
                                                     ----------------------
                                                        11,477       12,531
   Less-accumulated depreciation                        (9,755)     (10,334)
                                                     ----------------------
        Total property and equipment, net                1,722        2,197
                                                     ----------------------
   Capitalized software, net                               490          684
   Deferred income taxes, net                            1,146        1,458
   Acquired developed technology, net                    1,680        2,280
   Goodwill, net                                         2,590        2,830
   Other assets                                            309        1,106
                                                     ----------------------
        Total assets                                $   54,473    $  54,671
                                                     ======================

   LIABILITIES AND SHAREHOLDERS' EQUITY
   ------------------------------------
        Liabilities
   Accounts payable                                      1,417        2,129
   Deferred revenue                                      1,093            -
   Accrued liabilities                                   2,816        1,586
   Accrued compensation                                  1,947        2,131
   Income taxes payable                                     78          754
   Current portion of debt                               1,683        2,202
                                                     ----------------------
        Total current liabilities                        9,034        8,802

   Other liabilities                                         -          570
   Long-term debt, net of current portion                3,500        5,164
                                                     ----------------------
        Total liabilities                               12,534       14,536

        Commitments and contingencies
   Common stock redeemable; 284,664 and
     447,332 shares respectively                         1,780        2,796

        Shareholders' Equity
   Common stock, $.10 par value; 100,000,000
      shares authorized; 5,480,550 and 5,391,296
      shares issued and outstanding, respectively          548          539
   Additional paid in capital                           36,805       35,998
   Retained earnings                                     3,178          207
   Cumulative other comprehensive (loss) income           (372)         595
                                                     ----------------------
        Total shareholders' equity                      40,159       37,339
                                                     ----------------------
        Total liabilities and shareholders' equity  $   54,473   $   54,671
                                                     ======================

   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)



                                              Years ended December 31,
                                        ------------------------------------
                                           2000          1999         1998
                                        ------------------------------------
    <S>                                <C>           <C>          <C>
    Revenues                           $   55,697    $   73,502   $   68,690
    Cost of sales                          26,009        38,800       35,092
                                        ------------------------------------
    Gross profit                           29,688        34,702       33,598
                                        ------------------------------------
    Research and development               10,359        10,590       10,766
    Sales and marketing                    10,731        11,036       10,060
    General and administrative              4,824         5,366        5,417
                                        ------------------------------------
       Total operating expenses            25,914        26,992       26,243
                                        ------------------------------------
    Operating income                        3,774         7,710        7,355

    Interest income                         1,186           481          338
    Interest expense                         (587)         (694)      (1,025)
    Other, net                               (266)         (817)        (896)
                                        ------------------------------------
    Income from continuing operations
      before income taxes                   4,107         6,680        5,772

    Provision for income taxes              1,707         2,389        2,230
                                        ------------------------------------
    Income from continuing operations       2,400         4,291        3,542

    Discontinued operations (Note 7)
    Gain on disposal of VOIP business,
      net of tax                              571           326            -
    Operating losses from VOIP
      business, net of tax                      -        (1,193)        (829)
                                        ------------------------------------
    Net income                         $    2,971    $    3,424   $    2,713
                                        ====================================
    Income from continuing
      operations per share
      Basic                            $     0.41    $     0.77   $    0.64
                                        ------------------------------------
      Diluted                          $     0.38    $     0.70   $    0.63
                                        ------------------------------------

    Net income per share
      Basic                            $     0.51    $     0.61   $    0.49
                                        ------------------------------------
      Diluted                          $     0.48    $     0.56   $    0.48
                                        ------------------------------------

    Weighted average common shares          5,805         5,593       5,508
                                        ------------------------------------
    Weighted average common and
      common equivalent shares              6,237         6,113       5,628
                                        ------------------------------------

    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
                                                       Additional  Retained       Other
                                        Common Stock    Paid in    Earnings   Comprehensive           Comprehensive
                                        Shares Amount   Capital    (Deficit)  Income (Loss)   Total   Income (Loss)
                                        ------------------------------------------------------------- -------------
 <S>                                    <C>    <C>      <C>        <C>           <C>        <C>
 Balance at December 31, 1997           5,516  $   552  $ 34,774   $ (5,930)     $  147     $  29,543    $      -
                                        -------------------------------------------------------------
 Option exercises, including
   related tax benefit                      6        1        19          -           -            20           -

 Redeemable common stock                 (660)     (66)   (4,059)         -           -        (4,125)          -

 Comprehensive income (loss):
   Foreign currency translation             -        -         -          -        (205)         (205)       (205)
   Unrealized holding period gain,
     net of tax                             -        -         -          -          66            66          66

 Net income                                 -        -         -      2,713           -         2,713       2,713
                                                                                                          -------
 Total comprehensive income                 -        -         -          -           -             -    $  2,574
                                        ------------------------------------------------------------- -------------
 Balance at December 31, 1998           4,862  $   487  $ 30,734   $ (3,217)     $    8     $  28,012
                                        -------------------------------------------------------------
 Option exercises, including
   related tax benefit                    529       52     5,264          -           -         5,316    $      -

 Comprehensive income (loss):
   Foreign currency translation             -        -         -          -        (105)         (105)       (105)
   Unrealized holding period gain,
     net of tax                             -        -         -          -         692           692         692

 Net income                                 -        -         -      3,424           -         3,424       3,424
                                                                                                          -------
 Total comprehensive income                 -        -         -          -           -             -    $  4,011
                                        ------------------------------------------------------------- -------------
 Balance at December 31, 1999           5,391  $   539  $ 35,998   $    207      $  595     $  37,339
                                        -------------------------------------------------------------
 Option exercises, including
   related tax benefit                     90        9       807          -           -           816    $      -

 Comprehensive income (loss):
   Foreign currency translation             -        -         -          -         (80)          (80)        (80)
   Unrealized holding period loss,
     net of tax                             -        -         -          -        (887)         (887)       (887)

 Net income                                 -        -         -      2,971           -         2,971       2,971
                                                                                                          -------
 Total comprehensive income                 -        -         -          -           -             -    $  2,004
                                        ------------------------------------------------------------- -------------
 Balance at December 31, 2000           5,481  $   548  $ 36,805   $  3,178      $ (372)     $ 40,159
                                        -------------------------------------------------------------

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

                                      F-6
</TABLE>
<PAGE>
<TABLE>

  INTERPHASE CORPORATION
  CONSOLIDATED STATEMENTS OF CASH FLOWS
  (in thousands)
                                                                Years ended December 31,
                                                           ---------------------------------
                                                              2000        1999        1998
                                                           ---------------------------------
  <S>                                                      <C>         <C>         <C>
  Cash flows from operating activities:
    Income from continuing operations                      $   2,400   $   4,291   $   3,542
    Operating loss from discontinued operations                    -      (1,193)       (829)
    Gain on disposal of discontinued operations                  571         326           -
    Adjustments to reconcile income from continuing
      operations to net cash provided by operating
      activities:
     Depreciation and amortization                             2,615       3,640       4,013
     Deferred income taxes                                       242        (340)       (344)
     Tax benefit from stock option exercises                     277       1,500           -
     Changes in assets and liabilities-
         Trade accounts receivable                             1,013        (289)       (686)
         Inventories                                          (1,515)      1,810       1,407
         Prepaid expenses and other current assets              (388)       (527)        (58)
         Accounts payable and accrued liabilities                518        (787)       (643)
         Accrued compensation                                   (184)         90         131
         Income taxes payable                                   (676)       (654)      1,211
                                                           ---------------------------------
     Net adjustments                                           2,473       3,576       4,202
                                                           ---------------------------------
         Net cash provided by operating activities             4,873       7,867       7,744
                                                           ---------------------------------

  Cash flows from investing activities:
     Additions to property, equipment, capitalized
       software and leasehold improvements                    (1,093)     (2,003)     (2,892)
     Decrease in other assets                                    304         916           1
     Cash received in sale of VOIP business                    1,230         600           -
     Proceeds from the sale of marketable securities             852           -           -
     Purchases of marketable securities, net of
       unrealized holding period gain or loss                 (3,337)     (1,166)        (92)
                                                           ---------------------------------
         Net cash used by investing activities                (2,044)     (1,653)     (2,983)
                                                           ---------------------------------

  Cash flows from financing activities:
     (Decrease) increase in other long-term liabilities         (570)       (303)        273
     Payments on debt                                         (2,183)     (2,253)     (2,458)
     Purchase of redeemable common stock                      (1,016)     (1,017)       (312)
     Proceeds from the exercise of stock options                 539       3,816          20
                                                           ---------------------------------
         Net cash (used) provided by financing activities     (3,230)        243      (2,477)
                                                           ---------------------------------

  Net (decrease) increase in cash and cash equivalents          (401)      6,457       2,284
  Cash and cash equivalents at beginning of year              10,988       4,531       2,247
                                                           ---------------------------------
  Cash and cash equivalents at end of year                $   10,587   $  10,988   $   4,531
                                                           =================================
  Supplemental Disclosure of Cash Flow Information:
  Interest paid                                                  608         698         953
  Taxes paid                                                   1,729       1,703         891


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

                                      F-7
</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 September 1999,  the Company  completed the  sale of  its VOIP  business.
 Accordingly, the  Company's  consolidated  financial  statements  and  notes
 included herein, for all  periods presented reflect the  VOIP business as  a
 discontinued  operation  in  accordance  with  Accounting  Principles  Board
 Opinion No. 30.  See further discussion of the sale in Note 7.

 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.

 Investments - Investments in  debt and equity  securities are  classified as
 available for  sale  with  unrealized  holding  gains  and  losses  reported
 in  other  comprehensive  income.   Management  determines  the  appropriate
 classification of securities at  the time of purchase.   Earnings from  debt
 securities are calculated on a yield  to maturity basis and recorded in  the
 results of operations.

<TABLE>
 Allowance for doubtful accounts:   As of December  31, 2000, 1999 and  1998,
 the allowance for  doubtful accounts  was $273,000,  $260,000 and  $164,000.
 The activity in this account was as follows  (in thousands):

                        Balance at             Write-offs    Balance
                        Beginning   Charged to   Net of      at End
 Year Ended:            of Period    Expense   Recoveries   of Period
 --------------------------------------------------------------------
 <S>                       <C>        <C>       <C>           <C>
 December 31, 2000         $ 260      $ 358     $ (345)       $ 273
 December 31, 1999           164        120        (24)         260
 December 31, 1998           544        392       (772)         164

</TABLE>

 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):


                                  Years ended December 31,
                                   2000             1999
                                 -------------------------
 Raw Materials                   $  9,439         $  8,044
 Work-in-process                    3,280            3,352
 Finished Goods                       474              282
                                  -------          -------
 Total                           $ 13,193         $ 11,678
                                  =======          =======
<PAGE>

 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             Depreciation      Accumulated
     December 31:               Expense        Depreciation
     ------------               -------        ------------
         2000                  $ 1,370           $ 9,755
         1999                    2,035            10,334
         1998                    2,436            10,339

 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
     ------------             -------          ------------
         2000                  $ 345             $ 2,139
         1999                    280               1,875
         1998                    302               1,656


 Research and Development Subsidy:  Included in other assets at December  31,
 2000 and 1999,  is a receivable  for a subsidy  of  $72,000  and   $529,000,
 respectively, due from  the French government  related to  the research  and
 development activities of the Company's Paris based operation.

 Long-Lived Assets:  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:    Revenues  consist  of  product  revenues  and   are
 recognized in  accordance  with SEC  Staff  Accounting Bulletin  (SAB)  101,
 "Revenue Recognition."    Product  revenues are  recognized  upon  shipment,
 provided fees are fixed and determinable, a customer order is obtained,  and
 collection is probable.   Revenues  from reseller  agreements are  typically
 recognized when the product is sold  through to the end customer.   Deferred
 revenue  consists  of  revenue   from  reseller  arrangements  and   certain
 arrangements with extended payment terms.
<PAGE>

 Concentration of  Credit  Risk:   Financial  instruments  which  potentially
 expose the Company  to concentrations of  credit risk  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 as a component of comprehensive income (loss).

 Income Taxes:  The Company determines its deferred taxes using the liability
 method.  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.

 Certain  Reclassifications:     Certain   prior  year   amounts  have   been
 reclassified to conform with the 2000 presentation.

 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.
<PAGE>


 2.  ACQUISITION

 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. Developed  technology and  assembled workforce  are
 amortized on  a straight-line  basis  over a  7-year  period.   Goodwill  is
 amortized on a straight-line basis over a 15-year period.  Acquired  product
 rights from Cisco are amortized ratably over the anticipated revenue  stream
 of such  products  sold.  The  December  31,  2000  intangible  balances  at
 historical  cost   and   related  amortization   expense   and   accumulated
 amortization were as follows (in thousands):
<TABLE>


                                   Amortization Expense   Accumulated   Ending
                      Intangibles   2000   1999   1998    Amortization  Balance
                      ---------------------------------------------------------
 <S>                   <C>         <C>     <C>     <C>      <C>         <C>
 Developed technology  $ 4,230     $ 600   $ 600   $ 600    $2,550      $ 1,680
 Assembled workforce       390        60      60      60       255          135
 Goodwill-Synaptel       3,596       240     240     240     1,006        2,590
 Acquired Product
   Rights-Cisco          2,500         -     485     435     2,500            -

</TABLE>


 3.  MARKETABLE SECURITIES

 Marketable securities consist of investments in equity and debt  securities.
 As of  December 31,  2000 and  1999,  the fair  market value  of  marketable
 securities was $6.9 million  and $5.3 million,  respectively.  During  2000,
 the Company realized a gain  of $689,000 from the  sale of securities.   The
 Company had an unrealized loss  of $887,000 (net of  taxes) in 2000, and  an
 unrealized gain of $692,000 (net of taxes) in 1999, with respect to  certain
 available-for-sale securities.


 4.  DERIVATIVES AND HEDGINGS

 The Company  addresses  certain  financial exposures  through  a  controlled
 program of risk  management that includes  the use  of derivative  financial
 instruments on a minimal basis.  The  Company does not utilize or expect  to
 utilize  derivative  financial  instruments   for  trading  or   speculative
 purposes.

 During the  periods  presented, the  Company  entered into  certain  foreign
 currency forward exchange contracts to reduce  the risk of foreign  exchange
 exposure.  Neither the foreign currency transaction gains and losses nor the
 gains and losses on the forward  contracts were significant.   Additionally,
 the Company  entered into  a hedge  on  a portion  of an  equity  investment
 realizing a gain of $689,000 on the transaction.  The Company has no  equity
 hedge contracts outstanding as of December 31, 2000.
<PAGE>

 On January 1, 2001, the Company adopted SFAS 133, "Accounting for Derivative
 Instruments and Hedging Activities,"  as amended by SFAS  137 and SFAS  138.
 SFAS 133 requires all derivatives  to be recorded at fair value.  Changes in
 the fair  values of  derivatives are  recorded in  either the  statement  of
 operations or as a component of  comprehensive income, depending  on whether
 the derivative qualifies as  a hedge, and depending  on the type of  hedging
 relationship that exists.  Adoption of this standard did not have a material
 effect on the Company's financial statements.


 5.  ACCRUED LIABILITIES

 Accrued liabilities consisted of the following (in thousands):

                                   Years ended December 31,
                                     2000            1999
                                    -----------------------
 Accrued outside commissions        $   300         $   362
 Accrued property tax                   281             147
 Accrued other                        2,235           1,077
                                     ------          ------
                                    $ 2,816         $ 1,586
                                     ======          ======


 6.  CREDIT FACILITY

 The Company maintains a  credit facility with a  bank.  The credit  facility
 consists of an $8.5 million acquisition term loan, a $2.5 million  equipment
 financing  facility  and  a  $5  million  revolving  credit  facility.   The
 revolving credit facility matures June 30,  2002, 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 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
 credit  facility  is  collateralized  by  marketable  securities,   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, 2000,  the Company  was in  compliance with  all covenants.  At
 December 31, 2000,  total availability under  the revolving credit  facility
 was $1.5 million.
<PAGE>

<TABLE>
 At December 31, 2000 and 1999,  the Company's outstanding debt consisted  of
 the following (in thousands):
                                                Year ended December 31,
                                                  2000           1999
                                                 -----------------------
 <S>                                            <C>            <C>
 Acquisition term loan                          $   1,275      $   2,975
 Equipment financing loan                             408            881
 Borrowings under revolving credit facility         3,500          3,500
 Other                                                  -             10
                                                 --------       --------
 Total                                              5,183          7,366
 Less current portion                               1,683          2,202
                                                 --------       --------
 Total long-term debt                           $   3,500      $   5,164
                                                 ========       ========

</TABLE>

 The total scheduled debt principal payments  are $1.7 million in 2001,  $3.5
 million in 2002 and zero thereafter.
<PAGE>


 7.  DISPOSITION OF ASSETS

 In June 1999, the Company sold an 80% interest in part of its VOIP business,
 Quescom, for $1,172,000 to the former owner of Interphase's Paris Operation.
 The sales proceeds  consisted of  $300,000 due  at closing  with a  $830,000
 technology license  fee.  In  2000,  the  remaining  $830,000  due  for  the
 technology license fee was collected and  recorded as a gain on disposal  of
 discontinued operations.  Additionally,  in 2000, the  Company sold its  20%
 interest in Quescom for $400,000, resulting in a gain of $91,000.  The total
 gain in 2000 was $571,000 net of $350,000 tax.

 In  September  1999,  the  Company  sold  its  other  VOIP  business,  Zirca
 Corporation ("Zirca"), along  with the technologies  developed by Zirca  for
 $300,000 cash and stock  valued at $517,680 on  the date of disposition,  to
 UniView Technologies, resulting in a gain  of $140,000, net of $86,000  tax.
 The UniView securities received as part of the agreement are included on the
 Balance Sheet in Marketable Securities, and accounted for as  available-for-
 sale securities.

<TABLE>
 The following are the results from  discontinued operations for the  periods
 presented: (in thousands)

                                                 Years ended December 31,
                                             2000        1999         1998
                                            --------------------------------
 <S>                                       <C>         <C>          <C>
 Operating losses from discontinued
   operations before tax                   $      -    $ (1,924)    $ (1,337)
 Income tax benefit                               -         731          508
 Net loss from discontinued operations      -------     --------     -------
                                           $      -    $ (1,193)    $   (829)
                                            =======     ========     =======
</TABLE>
<PAGE>


 8.  INCOME TAXES

<TABLE>
 The provision for income taxes applicable to continuing operations for  each
 period presented was as follows (in thousands):


                                      Year ended December 31,
                                  2000        1999         1998
                                 --------------------------------
 <S>                            <C>          <C>          <C>
 Current provision              $ 1,465      $ 2,729      $ 2,574
 Deferred provision (benefit)       242         (340)        (344)
                                 ------       ------       ------
 Income tax expense             $ 1,707      $ 2,389      $ 2,230
                                 ======       ======       ======



 Tax effect of temporary differences that give rise to significant components
 of the deferred tax assets as of  December 31, 2000 and 1999, are  presented
 as follows (in thousands):

                                      Year ended December 31,
                                          2000        1999
                                       ---------------------
 <S>                                  <C>             <C>
 Current deferred tax assets:
 Inventory                            $  176          $  559
 Accounts receivable                     151             147
 Deferred Revenue                        372               -
 Vacation accrual                         20              20
 Other accruals                          125              48
                                       -----           -----
 Total                                $  844          $  774
                                       =====           =====

 Noncurrent deferred tax
   assets  (liabilities), net:
 Assets:
 Depreciation                         $  912          $1,450
 Amortization                            660             682
                                       -----           -----
                                       1,572           2,132
 Liabilities:
 Other                                  (426)           (674)
                                       -----           -----
 Total                                $1,146          $1,458
                                       =====           =====
</TABLE>

<PAGE>
 The Company  has not  recorded a  valuation allowance  with respect  to  the
 various domestic  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 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,
                                          2000        1999        1998
                                         -------------------------------
 <S>                                    <C>         <C>          <C>
 Income taxes at statutory rate         $  1,396    $  2,271     $ 1,962
 State income taxes                          189         168          11
 Non-deductible goodwill
   amortization                              306         306         306
 Benefit of tax loss carry-forward          (209)       (339)       (131)
 Other                                        25         (17)         82
                                         -------     -------     -------
 Provision for income taxes             $  1,707    $  2,389    $  2,230

</TABLE>


 9.  NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE

<TABLE>

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

                                       Years ended December 31,
                                      2000       1999       1998
                                      ---------------------------
 <S>                                  <C>        <C>        <C>
 Weighted average
 shares outstanding                   5,805      5,593      5,508

 Dilutive impact of stock options       432        520        120
                                      -----      -----      -----
 Total outstanding weighted
 average common and common
 equivalent shares                    6,237      6,113      5,628
                                      =====      =====      =====

</TABLE>

 Anti-dilutive options of 348,000, 117,000 and 944,000 were excluded from the
 dilutive calculation in 2000, 1999 and 1998, respectively.
<PAGE>


 10.  COMMON STOCK

 Amended and Restated Stock  Option Plan:  In  2000, the Company amended  and
 restated its Stock Option Plan which, as amended, authorizes the issuance to
 employees of  up to  3,500,000 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.  The Board may provide  for
 the exercise of options in installments and upon such terms, conditions  and
 restrictions as it may determine.  Options granted prior to January 1,  1999
 generally vest ratably over a 5-year period from the date of grant.  Options
 granted since January 1,  1999 generally vest ratably  over a 3-year  period
 from the  date of grant.  The term of option grants may  be up to 10  years.
 Options are canceled upon the lapse of three months following termination of
 employment except in the event of death or disability, as defined.

 United Kingdom 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 Board may  provide for the  exercise of options  in
 installments and  upon such  terms, conditions  and restrictions  as it  may
 determine.  Options granted prior to January 1, 1999 generally vest  ratably
 over a 5-year period from the date of grant.  Options granted since  January
 1, 1999 generally vest ratably over a 3-year period from the date of  grant.
 The term of option grants may be up to  10 years.  The options are  canceled
 upon termination of employment, except in the event of death, retirement  or
 injury, as defined.

 France Stock Option Sub-Plan:  This plan was adopted in 2000 for the benefit
 of the Company's  employees located  in France.   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.  Unless otherwise decided by at the sole discretion of the Board, the
 options vest (i) 75% after the expiration of a two-year period from the date
 of grant and (ii) 25% after the  expiration of a three-year period from  the
 date of grant.  Except  for the events provided  under the French tax  code,
 the shares cannot  be sold or  otherwise disposed of  for a  period of  five
 years from the  date of grant.  The term of  option grants may  be up to  10
 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>

<TABLE>
 The following table summarizes the transactions under the Stock Option  Plan
 and the Stock Option Sub-Plans (in thousands, except option prices):

                                     Number of  Weighted Average
                                      Options     Option Price
                                       --------------------
 <S>                                   <C>          <C>
 Balance, December 31, 1997            1,410        $ 10.80
                                       =====         ------
 Granted                                 246           6.83
 Exercised                               (17)          4.17
 Canceled                               (499)          7.90
                                       -----          -----
 Balance, December 31, 1998            1,140           8.62

 Granted                                 793          16.47
 Exercised                              (441)          7.09
 Canceled                               (270)          8.48
                                       -----          -----
 Balance, December 31, 1999            1,222          13.22

 Granted                                 746          14.76
 Exercised                               (80)          6.90
 Canceled                               (248)         16.23
                                       -----          -----
 Balance, December 31, 2000            1,640          13.85
                                       -----          -----
 Exercisable at December 31, 2000        379        $ 12.44
                                       =====         ======

</TABLE>

<TABLE>

 The following table summarizes information  about options granted under  the
 Plan that were outstanding at December 31, 2000:


                                 Options Outstanding                 Options Exercisable
                                 -------------------                ----------------------
  Range of Exercise    Number of   Weighted-Average     Weighted      Number      Weighted
       Prices         Outstanding    Remaining          Average     Exercisable   Average
                      at 12/31/00   Contractual         Exercise    at 12/31/00   Exercise
                         (000)         Life              Price         (000)       Price
   ---------------------------------------------------------------------------------------
   <S>                    <C>          <C>             <C>              <C>       <C>
   $ 5.88-$ 7.94             395        7.31           $ 6.99           185       $ 6.86
   $ 8.00-$18.88             924        9.12            13.45           109        13.66
   $19.00-$41.75             321        9.03            23.45            85        23.05
   ---------------------------------------------------------------------------------------
       Total               1,640        8.67           $13.85           379       $12.44

</TABLE>
<PAGE>

 Amended and  Restated Director  Stock Option  Plan:   In 2000,  the  Company
 amended and  restated its  Director Stock  Option Plan,  which, as  amended,
 authorizes the  issuance to  directors of  up to  750,000 shares  of  common
 stock.  Stock option grants pursuant to the directors' plan will vest in one
 year and have  a term of  10 years.   The exercise prices  related to  these
 options are 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  Weighted Average
                                       Options     Option Price
                                       ------------------------
 <S>                                     <C>         <C>
 Balance, December 31, 1997               231        $ 8.35
                                          ===         -----
 Granted                                   40          8.09
                                          ---          ----
 Balance, December 31, 1998               271          8.31
                                          ===         -----

 Granted                                   35          7.50
 Exercised                               (88)          8.20
 Cancellations                           (25)          6.63
                                          ---          ----
 Balance, December 31, 1999               193          8.43
                                          ===         -----

 Granted                                   60         17.81
 Exercised                               (10)         11.19
 Cancellations                            (5)         10.25
                                          ---          ----
 Balance, December 31, 2000               238         10.64
                                          ===         -----

 Exercisable at December 31, 2000         178        $ 8.23
                                          ---          ----


 The following table summarizes information  about options granted under  the
 Plan that were outstanding at December 31, 2000:


                                 Options Outstanding                 Options Exercisable
                                 -------------------                ----------------------
  Range of Exercise    Number of   Weighted-Average     Weighted      Number      Weighted
       Prices         Outstanding    Remaining          Average     Exercisable   Average
                      at 12/31/00   Contractual         Exercise    at 12/31/00   Exercise
                         (000)         Life              Price         (000)       Price
   ---------------------------------------------------------------------------------------
   <S>                    <C>          <C>             <C>              <C>       <C>
   $4.38-$ 7.50            113           2.57          $  6.03           113      $ 6.03
   $8.09-$17.81            125           5.15            14.82            65       12.05
   ---------------------------------------------------------------------------------------
      Total                238           3.92          $ 10.64           178      $ 8.23

</TABLE>
<PAGE>

 Rights Agreement:  The Board of  Directors has adopted a Shareholder  Rights
 Plan whereby each holder of record as of December 29, 2000 received a  right
 to purchase from the Company one share of  common stock of the Company at  a
 price of  $93 per  share for  each share  held.   These rights  can only  be
 exercised after  certain  events  occur,  such as  if  a  person  or  entity
 acquires, or makes a tender or exchange offer to acquire, 15% or more of the
 Company's common stock and the rights expire ten years from the record date.
 Upon acquisition of 15%  or more of the  Company's common stock, each  right
 not owned by the  acquiring person or  group will be  adjusted to allow  the
 purchase for $93 of a number of shares  having a then market value of  $186.
 These rights  are  intended  to provide  the  Company  certain  antitakeover
 protections.   The Board  of Directors  may terminate  the Rights  Plan,  or
 redeem the rights for $0.01 per right, at any time until the tenth  business
 day following a public announcement of a 15% or more stock acquisition.  The
 Company had reserved 7,000,000 shares of common stock for this plan.

 The rights were distributed to shareholders as of the record date as a  non-
 taxable dividend.  The rights  are attached  to  and trade  with  Interphase
 common stock until the occurrence of one of the triggering events, at  which
 time the rights would become detached from the Company's common stock.

 Pro-Forma Net Income (Loss):  The Company's pro forma net income (loss)  for
 2000, 1999 and 1998 would have been  $ (2.2 million), $1.5 million and  $1.6
 million respectively, resulting  in diluted earnings  per share of  $(0.36),
 $0.24 and  $0.29, 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
 2000, 1999 and 1998:  risk-free interest rate of 6% for each year 2000, 1999
 and 1998, expected  dividend yield of  zero in each  year, expected term  of
 3.88 in  2000, 4.83  years in  1999 and  4.41 years  in 1998,  and  expected
 volatility of  140% in  2000, 140.29%  in 1999  and 117.31%  in  1998.   The
 weighted average fair valuation per share was $12.63 in 2000, $14.25 in 1999
 and $5.42 in 1998.

 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.


 11.  RELATED-PARTY TRANSACTIONS

 The Company paid approximately $253,000, $366,000 and $425,000 for the years
 ended December 31,  2000, 1999 and  1998, respectively,  to certain  outside
 directors of the  Company or  their firms  for professional  services.   The
 Company believes the terms were equivalent to those of unrelated parties.
<PAGE>


 12.  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 $4.1
 million or $6.25 per share, 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  cancels the
 stock upon each purchase.  The future scheduled  payments are classified  as
 redeemable common stock in the accompanying consolidated Balance Sheet.   As
 of December 31, 2000,  375,336 shares have been  purchased for $2.3  million
 and retired.


 13.  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 $256,000,  $232,000 and  $240,000 for  the years  ended
 December 31, 2000, 1999 and 1998 respectively.  The Company offers no  post-
 retirement or post-employment benefits.


 14.  OTHER FINANCIAL INFORMATION

 Major Customers:    During  2000,  sales  to  Hewlett  Packard  and  Terayon
 Communication Systems accounted for $10 million  or 18% and $5.9 million  or
 11% of  consolidated revenues,  respectively, and  were the  only  customers
 accounting for more than 10% of  consolidated revenues.  During 1999,  sales
 to Hewlett  Packard  accounted for  $36.9  million or  50%  of  consolidated
 revenues, and  was  the  only  customer accounting  for  more  than  10%  of
 consolidated revenues.  During 1998, sales to Hewlett Packard accounted  for
 $28.3 million or  41% of consolidated  revenues, and was  the only  customer
 accounting for more than 10% of consolidated revenues.

 Commitments:  The Company  leases its office,  research and development  and
 manufacturing   facility   and   certain   manufacturing   equipment   under
 noncancelable operating  leases to  2005.   Rent  expense related  to  these
 leases is recorded  on a straight-line  basis.    As of  December 31,  2000,
 operating lease commitments having noncancelable terms of more than one year
 are as follows (in thousands):

 Year ending December 31:
 ------------------------
 2001                  $  985
 2002                     878
 2003                     262
 2004                     182
 2005                      84
 Thereafter                 -

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

 Year                       Total Rent Expense
 ----                       ------------------
 2000                             $1,120
 1999                              1,231
 1998                              1,089


 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>


 15.  SEGMENT DATA

 The  Company  is  principally  engaged   in  the  design,  development   and
 manufacturing of advanced technologies  for enterprise networks and  storage
 environments.    The  chief   operating  decision-makers  review   financial
 information presented on a consolidated basis, accompanied by information by
 geographic region for purposes of  making operating decisions and  assessing
 financial performance.  Accordingly, the Company considers itself to be in a
 single industry segment.

<TABLE>
 Geographic revenue and long lived assets related to North America and  other
 foreign countries as of and for the years ended December 31, 2000, 1999  and
 1998 are as follows (in thousands):

     Revenues               2000          1999           1998
     ----------------------------------------------------------
     <S>                  <C>           <C>            <C>
     North America        $ 47,116      $ 60,791       $ 53,478
     Europe                  6,209        10,173         13,785
     Pacific Rim             2,372         2,538          1,427
                           -------       -------        -------
     Total                $ 55,697      $ 73,502       $ 68,690
                           =======       =======        =======

 Geographic long-lived  assets exclude  corporate assets.   Corporate  assets
 include cash and cash equivalents, marketable securities and intangibles.

     Long lived assets      2000          1999           1998
     ----------------------------------------------------------
     <S>                  <C>           <C>            <C>
     North America        $  1,995      $  2,658       $  3,701
     Europe                    215           223            292
     Pacific Rim                 2             -              -
                           -------       -------        -------
     Total                $  2,212      $  2,881       $  3,993
                           =======       =======        =======

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

     Product Revenue        2000          1999           1998
     ----------------------------------------------------------
     <S>                  <C>           <C>            <C>
     WAN                  $  1,547      $  5,016       $  6,983
     LAN                    20,615        26,516         42,652
     Broadband telecom      12,501         6,422          1,823
     Storage                21,034        35,548         17,232
                           -------       -------        -------
     Total                $ 55,697      $ 73,502       $ 68,690
                           =======       =======        =======

</TABLE>
<PAGE>


 16.  QUARTERLY FINANCIAL DATA (Unaudited)

<TABLE>
                                             Quarter Ended
                             March 31    June 30   September 30  December 31
                             -----------------------------------------------
  2000                           (in thousands, except per share amounts)
  ----
  <S>                         <C>        <C>          <C>          <C>
  Revenues                    $13,585    $13,332      $13,260      $15,520
  Gross profit                  7,496      7,265        7,067        7,860
  Income from continuing
    operations before taxes     1,256      1,147          675        1,029
  Income from continuing
    operations                    723        696          373          608
  Discontinued operations         571          -            -            -
  Net Income                    1,294        696          373          608

  Net income per share
  Basic EPS                   $   .22     $  .12      $   .06      $   .11

  Diluted EPS                 $   .20     $  .11      $   .06      $   .11



                                             Quarter Ended
                             March 31    June 30   September 30  December 31
                             -----------------------------------------------
  1999                           (in thousands, except per share amounts)
  ----
  <S>                         <C>        <C>          <C>          <C>
  Revenues                    $17,169    $17,657      $20,511      $18,165
  Gross profit                  7,819      8,272        9,845        8,766
  Income from continuing
    operations before taxes     1,482      1,114        2,387        1,697
  Income from continuing
    operations                    936        763        1,390        1,202
  Discontinued operations        (512)      (243)        (112)           -
  Net Income                      424        520        1,278        1,202

  Net income per share
  Basic EPS                   $   .08      $ .10      $   .22      $   .21

  Diluted EPS                 $   .08      $ .09      $   .20      $   .19



                                             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      $17,042      $17,972
  Gross profit                  8,143      8,080        8,365        9,010
  Income from continuing
    operations before taxes     1,180        877        1,760        1,955
  Income form continuing
    operations                    708        510        1,031        1,293
  Discontinued operations           -          -         (308)        (521)
  Net Income                      708        510          723          772

  Net income per share
  Basic EPS                   $   .13      $ .09      $   .13      $   .14

  Diluted EPS                 $   .13      $ .09      $   .13      $   .14

</TABLE>