UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 FORM 10-K
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2010
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For
the transition period from
 to
 Commission File Number 0-13071
 INTERPHASE CORPORATION
  Texas
(State or other jurisdiction of incorporation or organization)
    
    75-1549797
(I.R.S. Employer Identification No.)
 2901 North Dallas Parkway, Suite 200, Plano, Texas 75093
   Name of each exchangeTitle of each class
    
    on which registeredCommon Stock, $.10 par value
    
    NASDAQ Global Market
  o þ
 o þ
 þ o
 o o
 o
  Large accelerated filer o
Accelerated filer o
Non-accelerated filer o
(Do not check if a smaller reporting company)
Smaller Reporting
Company þ o þ
  DOCUMENTS INCORPORATED BY REFERENCE




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PART I
 Item 1.  Business.
 Introduction
  www.interphase.com www.sec.gov
 Forward-Looking Statements
  1




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Key Terms and Definitions
  AdvancedTCA  ® or ATCA (Advanced Telecommunications Computing Architecture) x.
 AdvancedMC or AMC (Advanced Mezzanine Card)
 Base Station
 Baseband
 Broadband
 Building Blocks
 CompactPCI (cPCI)
 2




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CompactPCI Packet Switching Backplane (cPSB)
 eNodeB
 Embedded Computing Systems
 Femtocell
 Gateway Appliances
 Gigabit Ethernet (GigE)
 Interworking
 Internal TDM (I-TDM)
 Internet Protocol (IP)
 3




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Long Term Evolution (LTE or 3GPP LTE) rd
 Media Converter
 Microcell
 OC-3/STM-1
 Packet Processing
 PCI Industrial Computer Manufacturers Group (PICMG)
 PCI Mezzanine Card (PMC)
 Picocell
 Restriction of Hazardous Substances Directive (RoHS)
 SS7 (Signaling System 7)
 4




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T1/E1
 T3/E3/J3
 Time-division multiplexing (TDM)
 Telecommunications Equipment Manufacturer (TEM)
 Worldwide Interoperability of Microwave Access (WiMAX)
 Mission
  Recent Developments
  
    
    Shift from developed country to emerging country subscriber demand with a
much lower price point for equipment and services
 5




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
    
    Significant competition from Asian (Chinese) suppliers, especially for Asian
demand (which tends to be price sensitive rather than performance sensitive)
    
    Shift from circuit-switched network to packet-based IP network
  1.
    
    The Company rapidly developed a new baseband product for use in LTE and WiMAX networks.
This solution targets high-performance mobile broadband networks through 4th
generation (4G) microcell, picocell and enterprise femtocell radio access, offering
customers significant time to market, time to revenue and cost reduction advantages.
Our iSPAN 36701 Wireless Basestation Module was demonstrated at the Mobile World Congress
2011 in Barcelona this past February, and generated keen interest from a variety of
customers and partners. The product supports all of the critical functions of a wireless
base station (excluding the radio head), and it is designed for use in 4G networks,
including the LTE (Long Term Evolution) eNodeB and next generation WiMAX base stations.
In 2011, we expect that we will be asked to customize this product to our customers
specific needs for a variety of wireless broadband applications. Interphase also offers
our customers professional integration services to help them modify any of these solutions
to meet their stringent requirements, regardless of the application.2.
    
    The Company intends to expand its market reach and revenue of its interworking
products, which include the iSPAN 3650 AMC and the 92XX Gateway family, as well as the
newly introduced iSPAN 3632 product. All of these products provide the necessary protocol
interworking between the TDM networks and IP-based networks, at various levels of
channelization, and typically offer our customers a significant cost reduction from
alternative approaches to accomplish the interworking function.3.
    
    The Company is expanding its offering of packet processing products, providing
solutions that bring innovative products and increased processing density to customers in
these markets. The expansion includes the introduction of iSPAN 36MC2 and 36MC3 Packet
Processor cards, which are the newest addition to the Companys portfolio of
high-performance packet processor products based on a multi-core processor architecture
from Cavium Networks.4.
    
    The Company is also broadly expanding its current services capabilities by formally
offering engineering design services and electronics manufacturing services to the market.
 
    
    Engineering Design Services: During 2010 our services
revenue was $770,000, driven by a few key contracts. In 2011, we will increase
our efforts in this business, with the goal of growing our reach into new and
exciting markets.
    
    Electronics Manufacturing Services: This service is
offered to clients in need of outsourcing high-quality, high-mix, and
low-to-medium-volume product manufacturing. Among Interphases many strengths,
the quality of our products,
 6




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our process discipline and our manufacturing
capabilities have consistently been
identified by our customers as world class. We intend to differentiate
ourselves on the basis of customer responsiveness, high quality, and low total
cost of engagement. Since we have honed our processes of design for manufacture,
and because we can supplement these services with the with engineering design
services described above, we believe we can improve our customers ability to
meet their outsourcing needs by using Interphase as a qualified one-stop shop
supplier. This services offering can also make our manufacturing capability more
financially efficient while exposing our Company to additional markets, similar
to engineering design services described above.
 5.
    
    Lastly, we have been investing in two new market areas: cloud computing and embedded
computer vision. Our expectation is that sales of our desktop virtualization product line
aimed at cloud computing will be a revenue and profit producer in 2011, quickly followed by
our embedded computer vision product, which will produce additional revenue and profit in
2012. These products will introduce Interphase into markets that have already demonstrated
significant growth opportunity and welcome innovative new market entrants.
 General
  The Interphase Advantage
 Versatile product set
 
    
    Products built with proven modular building blocks
    
    High-performance products by design
    
    Customization services for specific application needs
 Outstanding performance, quality and reliability
 
    
    Designed to meet scalability and reliability
requirements for systems solutions
 Dedicated development and deployment support
 
    
    Committed to customers success
    
    Act as an extension of customers engineering
and support organizations
 7




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Telecom and Enterprise I/O Products
  Network Connectivity
 
    
    T1/E1 communication controllers that
primarily support SS7 signaling
    
    OC-3/STM-1 ATM network interface cards (NICs)
    
    Ethernet NICs
 Interworking
 
    
    OC-3/STM-1 interworking modules
    
    Gateway appliances (broadband access gateway
and media converter)
 Multi-core Packet Processors
 
    
    GigE packet processors
    
    10 GigE packet processors
 Wireless Baseband Modules
 
    
    LTE eNodeB module
    
    WiMAX base station module
 Services
  Engineering Design Services
 
    
    Specifications gathering
    
    Program management
    
    Detailed design (high performance/cost optimized)
    
    Rapid prototyping
 Electronics Manufacturing
 
    
    Supply Chain
    
    Branding and control
    
    Production assembly
    
    Integration
    
    Testing and delivery
 Marketing and Customers
  8




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Manufacturing and Supplies
    Intellectual Property and Patents
  9




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Employees
    Competition
  Item 1A.  Risk Factors.
 The continued issues in global credit and financial markets could materially and adversely affect
our business and results of operations.
 10




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The marketing and sale of our products involve lengthy sales cycles. This and other factors make
business forecasting extremely difficult and can lead to significant fluctuations in
period-to-period results.
   The telecommunications signaling and networking business is characterized by rapid technological
change and frequent introduction of new products.
  11




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Litigation against us could require significant time of our management, be costly to defend against
and/or negatively impact our operating results.
  We operate in an intensely competitive marketplace and many of our competitors have greater
resources than we do.
  12




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The loss of one or more key customers or reduced spending by customers could significantly impact
our operating results, financial condition and cash flows.
  Schedule delays, cancellations of programs and changes in customer markets can delay or prevent a
design-win from reaching the production phase, which could negatively impact our operating results,
financial condition and cash flows.
  Design defects, errors or problems in our products or services could harm our reputation, revenue
and profitability.
   13




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If our third party suppliers fail to produce quality products or parts in a timely manner, we may
not be able to meet our customers demands.
  We are dependent on one manufacturing facility and if there is an interruption in production we may
not be able to deliver products on a timely basis.
  If we fail to accurately forecast demand for our products, we would be exposed to risk associated
with inventory.
  We may be unable to effectively protect our proprietary technology, which would negatively affect
our ability to compete. Also, if our products are alleged to violate the proprietary rights of
others, our ability to compete would be negatively impacted.
  14




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We depend on key personnel to manage our business effectively.
  We have substantial international activities, which expose us to additional business risks
including political, economic and currency risks.
  We may require additional working capital to fund operations and expand our business.
  
    
    fund research and development of new products beyond what is expected in 2011;
    
    expand product and service offerings beyond what is contemplated in 2011 if unforeseen
opportunities arise;
    
    take advantage of potential acquisition opportunities in the current economic
environment;
 15




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
    
    invest in businesses and technologies that complement our current operations; or
    
    respond to unforeseen competitive pressures.
  We have incurred significant losses.
  We may experience significant period-to-period quarterly and annual fluctuations in our revenue and
operating results, which may result in volatility in our stock price.
  If our stock does not continue to be traded on an established exchange, an active trading market
may not exist and the trading price of our stock may decline.
  16




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The cost of compliance or failure to comply with the Sarbanes-Oxley Act of 2002 may adversely
affect our business.
  Item 1B. Unresolved Staff Comments.
  Item 2. Properties.
  17




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Item 3. Legal Proceedings.
  Item 4. Reserved.
 PART II
 Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities.
  2009
    
    High
    
    
    LowFirst Quarter
    
    
    3.20
    
    
    
    1.44Second Quarter
    
    
    6.07
    
    
    
    3.15Third Quarter
    
    
    5.60
    
    
    
    3.94Fourth Quarter
    
    
    4.50
    
    
    
    2.21
 2010
    
    High
    
    
    LowFirst Quarter
    
    
    3.12
    
    
    
    2.28Second Quarter
    
    
    2.73
    
    
    
    1.55Third Quarter
    
    
    1.79
    
    
    
    1.46Fourth Quarter
    
    
    1.87
    
    
    
    1.20
   18




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##### 



Stock Performance Graph
  Cumulative Return12/05
    
    
    12/06
    
    
    12/07
    
    
    12/08
    
    
    12/09
    
    
    12/10Interphase Corporation
    
    
    100
    
    
    
    188
    
    
    
    235
    
    
    
    38
    
    
    
    58
    
    
    
    41NASDAQ Composite
    
    
    100
    
    
    
    112
    
    
    
    125
    
    
    
    74
    
    
    
    107
    
    
    
    126Dow Jones US
Telecommunications
Equipment TSM Index
    
    
    100
    
    
    
    116
    
    
    
    119
    
    
    
    70
    
    
    
    106
    
    
    
    112
 
 19




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Item 6. Selected Consolidated Financial Data.
   
 Year ended December 31,2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006Revenues
    
    $
    18,207
    
    
    $
    25,585
    
    
    $
    26,231
    
    
    $
    30,780
    
    
    $
    33,403Gross margin
    
    
    9,187
    
    
    
    12,289
    
    
    
    14,031
    
    
    
    17,591
    
    
    
    18,126Research and development
    
    
    6,572
    
    
    
    7,970
    
    
    
    9,198
    
    
    
    10,216
    
    
    
    8,226Sales and marketing
    
    
    4,512
    
    
    
    5,753
    
    
    
    5,237
    
    
    
    5,614
    
    
    
    5,405General and administrative
    
    
    3,843
    
    
    
    4,275
    
    
    
    4,100
    
    
    
    4,692
    
    
    
    3,926Restructuring charge
    
    
    3,339
    
    
    
    1,236
    
    
    
    403
    
    
    
    
    
    
    
    (Loss) income from operations
    
    
    (9,079
    )
    
    
    (6,945
    )
    
    
    (4,907
    )
    
    
    (2,931
    )
    
    
    569Other income, net
    
    
    23
    
    
    
    289
    
    
    
    618
    
    
    
    1,128
    
    
    
    1,112(Loss) income before income tax
    
    
    (9,056
    )
    
    
    (6,656
    )
    
    
    (4,289
    )
    
    
    (1,803
    )
    
    
    1,681Income tax benefit
    
    
    (637
    )
    
    
    (1,102
    )
    
    
    (1,263
    )
    
    
    (609
    )
    
    
    (405
    )Net (loss) income
    
    $
    (8,419
    )
    
    $
    (5,554
    )
    
    $
    (3,026
    )
    
    $
    (1,194
    )
    
    $
    2,086Net (loss) income per shareBasic EPS
    
    $
    (1.23
    )
    
    $
    (0.81
    )
    
    $
    (0.46
    )
    
    $
    (0.19
    )
    
    $
    0.34Diluted EPS
    
    $
    (1.23
    )
    
    $
    (0.81
    )
    
    $
    (0.46
    )
    
    $
    (0.19
    )
    
    $
    0.33Weighted average common shares
    
    
    6,839
    
    
    
    6,899
    
    
    
    6,550
    
    
    
    6,240
    
    
    
    6,059Weighted average common and dilutive shares
    
    
    6,839
    
    
    
    6,899
    
    
    
    6,550
    
    
    
    6,240
    
    
    
    6,333
 20




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December 31,2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006Working capital
    
    $
    13,117
    
    
    $
    21,257
    
    
    $
    25,301
    
    
    $
    27,030
    
    
    $
    26,604Total assets
    
    
    19,314
    
    
    
    28,647
    
    
    
    31,248
    
    
    
    36,180
    
    
    
    34,062Total liabilities
    
    
    8,304
    
    
    
    9,385
    
    
    
    6,962
    
    
    
    8,918
    
    
    
    8,262Shareholders equity
    
    $
    11,010
    
    
    $
    19,262
    
    
    $
    24,286
    
    
    $
    27,262
    
    
    $
    25,800
 Item 7. Managements Discussion and Analysis of Financial Condition and Results of
Operations.
 APPLICATION OF CRITICAL ACCOUNTING POLICIES
  Revenue Recognition:
  21




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Warranty Reserve:
 Accounts Receivable and Allowance for Doubtful Accounts:
 Allowance for Returns:
 Inventories:
 Stock-Based Compensation:
 Income Taxes:
 22




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CONSOLIDATED STATEMENT OF OPERATIONS AS A PERCENTAGE OF REVENUE
 Year ended December 31,2010
    
    
    2009
    
    
    2008Revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    49.5
    %
    
    
    52.0
    %
    
    
    46.5
    %Gross margin
    
    
    50.5
    %
    
    
    48.0
    %
    
    
    53.5
    %Research and development
    
    
    36.1
    %
    
    
    31.1
    %
    
    
    35.1
    %Sales and marketing
    
    
    24.8
    %
    
    
    22.5
    %
    
    
    20.0
    %General and administrative
    
    
    21.1
    %
    
    
    16.7
    %
    
    
    15.6
    %Restructuring charge
    
    
    18.3
   %
    
    
    4.8
    %
    
    
    1.5
    %Loss from operations
    
    
    (49.9
    )%
    
    
    (27.1
    )%
    
    
    (18.7
    )%Interest income, net
    
    
    0.6
    %
    
    
    1.2
    %
    
    
    2.0
    %Other (loss) income, net
    
    
    (0.4
    )%
    
    
    (0.1
    )%
    
    
    0.4
    %Loss before income tax
    
    
    (49.7
    )%
    
    
    (26.0
    )%
    
    
    (16.3
    )%Income tax benefit
    
    
    (3.5
    )%
    
    
    (4.3
    )%
    
    
    (4.8
    )%Net loss
    
    
    (46.2
    )%
    
    
    (21.7
    )%
    
    
    (11.5
    )%
 OVERVIEW
  23




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RESULTS OF OPERATIONS
 Revenues:
  Gross Margin:
 24




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Research and Development:
  Sales and Marketing:
 25




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General and Administrative:
  Restructuring Charge:
 26




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Interest Income, Net:
 Other (loss) income, Net:
 Income Taxes:
 Net loss:
 27




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LIQUIDITY AND CAPITAL RESOURCES
 Consolidated Cash Flows
  Operating Activities:
  Investing Activities:
 28




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Financing Activities:
 Commitments
   Contractual Obligation
    
    Payments due by periodTotal
    
    <1 year
    
    1 - 3 years
    
    3 - 5 years
    
    > 5 yearsLong-term debt obligation (1,2)
    
    $
    3,689
    
    
    $
    63
    
    
    $
    3,626
    
    
    $
    
    
    
    $
    Operating lease obligations (3,4)
    
    $
    2,017
    
    
    $
    694
    
    
    $
    1,208
    
    
    $
    115
    
    
    $
    Total
    
    $
    5,706
    
    
    $
    757
    
    
    $
    4,834
    
    
    $
    115
    
    
    $
    
 
 (1)
    
    At December 31, 2010, we had borrowings of $3.5 million under a $5.0 million
revolving credit facility with a bank. The revolving credit facility matures on
December 19, 2013 and is secured throughout the term of the credit facility by
marketable securities.(2)
    
    We incur interest expense on the borrowings from the revolving credit facility
at a rate of LIBOR plus 1.0% to 1.5% applicable margin rate based on certain factors
included in our credit agreement. At December 31, 2010, our interest rate on the
borrowings from the revolving credit facility was 1.8%. We used the 1.8% rate to
estimate interest expense for 2011 through December 2013. The interest expense
estimate is $63,000 annually for the years 2011 through December 2013.(3)
    
    We lease our facilities under non-cancelable operating leases with the longest
terms extending to March 2014.(4)
    
    Our operating lease at our headquarters location includes a $280,000 letter of
credit issued to our landlord which can only be used in the case of non-payment of such
lease. The letter of credit, if accessed, would be funded by our existing revolving
credit facility. 29




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Off-Balance Sheet Arrangements
  Other
   Recently Issued Accounting Pronouncements
   30




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ITEM 7A. Quantitative and Qualitative Disclosure about Market Risk.
 Foreign Currency Risk
   Market Price Risk
  Interest Rate Risk
   31




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Item 8. Financial Statements and Supplementary Data.
  Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
  Item 9A. Controls and Procedures.
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Controls
  32




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Managements Report on Internal Control Over Financial Reporting
  (1)
    
    Pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and dispositions of the assets of
the Company;(2)
    
    Provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
accounting principles generally accepted in the United States of America, and
that receipts and expenditures of the Company are being made only in accordance
with authorizations of management and directors of the Company; and(3)
    
    Provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the Companys
assets that could have a material effect on the financial statements.
   Item 9B. Other Information.
  33




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PART III
 Item 10. Directors, Executive Officers and Corporate Governance.
 Directors
  Executive Officers
  Code of Ethics
 www.interphase.com
 Item 11. Executive Compensation.
  34




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Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
  Number of securities inthousands remainingNumber of securities in
    
    
    
    
    
    available for futurethousands to be issued
    
    Weighted-average
    
    issuance under equityupon exercise of
    
    exercise price of
    
    compensation planoutstanding options,
    
    outstanding options,
    
    (excluding securitiesPlan Category
    
    warrants and rights
    
    warrants and rights
    
    reflected in column (a))(a)
    
    (b)
    
    (c)Equity Compensation
plans approved by
security holders
    
    
    1,470
    
    
    $
    5.00
    
    
    
    1,236Equity Compensation
plans not approved
by security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    1,470
    
    
    $
    5.00
    
    
    
    1,236
  Item 13. Certain Relationships and Related Transactions, and Director Independence.
  Item 14. Principal Accountant Fees and Services.
  35




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PART IV
 Item 15. Exhibits and Financial Statement Schedules.
       36




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##### 



SIGNATURES
  INTERPHASE CORPORATIONDate: March 21, 2011
    By:
    /s/ Gregory B. KalushGregory B. KalushChairman of the Board,
Chief Executive Officer and President  Name
    
    Title/s/ Gregory B. Kalush
    
    Chairman of the Board,Gregory B. Kalush
    
    Chief Executive Officer and President(Principal executive officer)/s/ Thomas N. Tipton, Jr.
    
    Chief Financial Officer,Thomas N. Tipton, Jr.
    
    Vice President of Finance and Treasurer(Principal financial and accounting officer)/s/ Paul N. Hug
    
    DirectorPaul N. Hug/s/ Michael J. Myers
    
    DirectorMichael J. Myers/s/ Kenneth V. Spenser
    
    DirectorKenneth V. Spenser/s/ Christopher B. Strunk
    
    DirectorChristopher B. Strunk/s/ S. Thomas Thawley
    
    Vice Chairman, Director and SecretaryS. Thomas Thawley
 37




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INDEX TO FINANCIAL STATEMENTS
 Report of Grant Thornton LLP
    
    F-2Consolidated Balance Sheets  As of December 31, 2010 and 2009
    
    F-3Consolidated Statements of Operations  Years Ended
December 31, 2010, 2009 and 2008
    
    F-4Consolidated Statements of Shareholders Equity  Years Ended
December 31, 2010, 2009 and 2008
    
    F-5Consolidated Statements of Cash Flows  Years Ended
December 31, 2010, 2009 and 2008
    
    F-6Notes to Consolidated Financial Statements
    
    F-7 to F-25
  
 *
    
    All schedules are omitted because they are not applicable or the required information is
presented in the consolidated financial statements or notes thereto. F-1




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
     
 F-2




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##### 



December 31,2010
    
    2009ASSETSCash and cash equivalents
    
    $
    4,772
    
    
    $
    8,115Marketable securities
    
    
    6,005
    
    
    
    9,724Trade accounts receivable, less allowances
of $70 and $76, respectively
    
    
    4,633
    
    
    
    5,106Inventories
    
    
    1,645
    
    
    
    1,699Prepaid expenses and other current assets
    
    
    623
    
    
    
    2,202Total current assets
    
    
    17,678
    
    
    
    26,846Machinery and equipment
    
    
    6,840
    
    
    
    6,993Leasehold improvements
    
    
    327
    
    
    
    430Furniture and fixtures
    
    
    398
    
    
    
    5877,565
    
    
    
    8,010Less-accumulated depreciation and amortization
    
    
    (7,151
    )
    
    
    (7,318
    )Total property and equipment, net
    
    
    414
    
    
    
    692Capitalized software, net
    
    
    485
    
    
    
    912Other assets
    
    
    737
    
    
    
    197Total assets
    
    $
    19,314
    
    
    $
    28,647LIABILITIES AND SHAREHOLDERS EQUITYLiabilitiesAccounts payable
    
    $
    1,388
    
    
    $
    1,257Deferred revenue
    
    
    39
    
    
    
    161Accrued liabilities
    
    
    2,486
    
    
    
    2,667Accrued compensation
    
    
    648
    
    
    
    1,504Total current liabilities
    
    
    4,561
    
    
    
    5,589Deferred lease obligations
    
    
    243
    
    
    
    296Long term debt
    
    
    3,500
    
    
    
    3,500Total liabilities
    
    
    8,304
    
    
    
    9,385Commitments and contingenciesShareholders EquityCommon stock, $.10 par value; 100,000,000
shares authorized; 6,815,600 and 6,911,494
shares issued and outstanding, respectively
    
    
    682
    
    
    
    691Additional paid in capital
    
    
    43,355
    
    
    
    43,022Retained deficit
    
    
    (32,203
    )
    
    
    (23,784
    )Cumulative other comprehensive loss
    
    
    (824
    )
    
    
    (667
    )Total shareholders equity
    
    
    11,010
    
    
    
    19,262Total liabilities and shareholders equity
    
    $
    19,314
    
    
    $
    28,647
 The accompanying notes are an integral part of these consolidated financial statements.
 F-3




---



##### 



2010
    
    2009
    
    2008Revenues
    
    $
    18,207
    
    
    $
    25,585
    
    
    $
    26,231Cost of sales
    
    
    9,020
    
    
    
    13,296
    
    
    
    12,200Gross margin
    
    
    9,187
    
    
    
    12,289
    
    
    
    14,031Research and development
    
    
    6,572
    
    
    
    7,970
    
    
    
    9,198Sales and marketing
    
    
    4,512
    
    
    
    5,753
    
    
    
    5,237General and administrative
    
    
    3,843
    
    
    
    4,275
    
    
    
    4,100Restructuring charge
    
    
    3,339
    
    
    
    1,236
    
    
    
    403Total operating expenses
    
    
    18,266
    
    
    
    19,234
    
    
    
    18,938Loss from operations
    
    
    (9,079
    )
    
    
    (6,945
    )
    
    
    (4,907
    )Interest income, net
    
    
    102
    
    
    
    301
    
    
    
    526Other (loss) income, net
    

    
    (79
    )
    
    
    (12
    )
    
    
    92Loss before income tax
    
    
    (9,056
    )
    
    
    (6,656
    )
    
    
    (4,289
    )Income tax benefit
    
    
    (637
    )
    
    
    (1,102
    )
    
    
    (1,263
    )Net loss
    
    $
    (8,419
    )
    
    $
    (5,554
    )
    
    $
    (3,026
    )Net loss per share:Basic EPS
    
    $
    (1.23
    )
    
    $
    (0.81
    )
    
    $
    (0.46
    )Diluted EPS
    
    $
    (1.23
    )
    
    $
    (0.81
    )
    
    $
    (0.46
    )Weighted average common shares
    
    
    6,839
    
    
    
    6,899
    
    
    
    6,550Weighted average common and
dilutive shares
    
    
    6,839
    
    
    
    6,899
    
    
    
    6,550
 The accompanying notes are an integral part of these consolidated financial statements.
 F-4




---



##### 



CumulativeAdditional
    
    
    
    
    
    
    OtherCommon Stock
    
    Paid in
    
    
    Retained
    
    
    Comprehensive
    
    
    
    
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    Loss
    
    
    Total
    
    
    Income (loss)Balance at December 31, 2007
    
    
    6,500
    
    
    $
    650
    
    
    $
    42,267
    
    
    $
    (15,204
    )
    
    $
    (451
    )
    
    $
    27,262Option exercises
    
    
    1
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    2Stock issued under restricted stock
plan, net forefeitures
    
    
    72
    
    
    
    7
    
    
    
    (6
    )
    
    
    
    
    
    
    
    
    
    
    1Amortization of restricted stock
plan compensation
    
    
    
    
    
    
    
    
    
    
    389
    
    
    
    
    
    
    
    
    
    
    
    389Comprehensive income:Foreign currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (256
    )
    
    
    (256
    )
    
    
    (256
    )Unrealized holding period loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (86
    )
    
    
    (86
    )
    
    
    (86
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,026
    )
    
    
    
    
    
    
    (3,026
    )
    
    
    (3,026
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (3,368
    )Balance at December 31, 2008
    
    
    6,573
    
    
    $
    657
    
    
    $
    42,652
    
    
    $
    (18,230
    )
    
    $
    (793
    )
    
    $
    24,286Option exercises
    
    
    1
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    4Stock issued under restricted stock
plan, net forefeitures
    
    
    337
    
    
    
    34
    
    
    
    (34
    )
    
    
    
    
    
    
    
    
    
    
    Amortization of restricted stock
and
stock option plan compensation
    
    
    
    
    
    
    
    
    
    
    400
    
    
    
    
    
    
    
    
    
    
    
    400Comprehensive income:Foreign currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    64
    
    
    
    64
    
    
    
    64Unrealized holding period gain
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    62
    
    
    
    62
    
    
    
    62Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,554
    )
    
    
    
    
    
    
    (5,554
    )
    
    
    (5,554
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (5,428
    )Balance at December 31, 2009
    
    
    6,911
    
    
    $
    691
    
    
    $
    43,022
    
    
    $
    (23,784
    )
    
    $
    (667
    )
    
    $
    19,262Option exercises
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock forfeited under restricted
stock
plan
    
    
    (95
    )
    
    
    (9
    )
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    Amortization of restricted stock
and
stock option plan compensation
    
    
    
    
    
    
    
    
    
    
    324
    
    
    
    
    
    
    
    
    
    
    
    324Comprehensive income:Foreign currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (125
    )
    
    
    (125
    )
    
    
    (125
    )Unrealized holding period loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (32
    )
    
    
    (32
    )
    
    
    (32
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,419
    )
    
    
    
    
    
    
    (8,419
    )
    
    
    (8,419
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (8,576
    )Balance at December 31, 2010
    
    
    6,816
    
    
    $
    682
    
    
    $
    43,355
    
    
    $
    (32,203
    )
    
    $
    (824
    )
    
    $
    11,010
 The accompanying notes are an integral part of these consolidated financial statements.
 F-5




---



##### 



Years ended December 31,2010
    
    
    2009
    
    
    2008Cash flows from operating activities:Net loss
    
    $
    (8,419
    )
    
    $
    (5,554
    )
    
    $
    (3,026
    )Adjustments to reconcile net loss to net cash provided by
operating activities:Provision for uncollectible accounts and returns
    
    
    12
    
    
    
    27
    
    
    
    (14
    )Provision for excess and obsolete inventories
    
    
    200
    
    
    
    500
    
    
    
    200Depreciation and amortization
    
    
    725
    
    
    
    835
    
    
    
    868Amortization of restricted stock
    
    
    324
    
    
    
    400
    
    
    
    389Write-off of impaired capitalized software, property and equipment
    
    
    29
    
    
    
    173
    
    
    
    185Change in assets and liabilities:Trade accounts receivable
    
    
    461
    
    
    
    (375
    )
    
    
    2,806Inventories
    
    
    (146
    )
    
    
    130
    
    
    
    357Prepaid expenses and other current assets
    
    
    1,458
    
    
    
    577
    
    
    
    (1,480
    )Other assets
    
    
    (552
    )
    
    
    10
    
    
    
    671Accounts payable, deferred revenue and accrued liabilities
    
    
    (6
    )
    
    
    1,728
    
    
    
    (1,286
    )Accrued compensation
    
    
    (762
    )
    
    
    305
    
    
    
    (424
    )Deferred lease obligations
    
    
    (53
    )
    
    
    295
    
    
    
    (51
    )Net adjustments
    
    
    1,690
    
    
    
    4,605
    
    
    
    2,221Net cash used in operating activities
    
    
    (6,729
    )
    
    
    (949
    )
    
    
    (805
    )Cash flows from investing activities:Purchase of property and equipment
    
    
    (47
    )
    
    
    (182
    )
    
    
    (236
    )Purchase of capitalized software
    
    
    (30
    )
    
    
    (136
    )
    
    
    (336
    )Proceeds from the sale of marketable securities
    
    
    6,640
    
    
    
    8,269
    
    
    
    8,585Purchases of marketable securities
    
    
    (2,950
    )
    
    
    (6,372
    )
    
    
    (6,049
    )Net cash provided by investing activities
    
    
    3,613
    
    
    
    1,579
    
    
    
    1,964Cash flows from financing activities:Borrowings under credit facility
    
    
    7,500
    
    
    
    14,000
    
    
    
    3,500Payments on debt
    
    
    (7,500
    )
    
    
    (14,000
    )
    
    
    (3,500
    )Proceeds from the exercise of stock options
    
    
    
    
    
    
    4
    
    
    
    2Net cash provided by financing activities
    
    
    
    
    
    
    4
    
    
    
    2Effect of exchange rate changes on cash and cash equivalents
    
    
    (227
    )
    
    
    98
    
    
    
    (162
    )Net (decrease) increase in cash and cash equivalents
    
    
    (3,343
    )
    
    
    732
    
    
    
    999Cash and cash equivalents at beginning of year
    
    
    8,115
    
    
    
    7,383
    
    
    
    6,384Cash and cash equivalents at end of year
    
    $
    4,772
    
    
    $
    8,115
    
    
    $
    7,383Supplemental Disclosure of Cash Flow Information:Income taxes paid
    
    $
    
    
    
    $
    
    
    
    $
    Interest paid
    
    $
    32
    
    
    $
    7
    
    
    $
    236
 The accompanying notes are an integral part of these consolidated financial statements.
 F-6




---



##### 



INTERPHASE CORPORATION
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Description of the Business:
 Principles of Consolidation and Basis of Presentation:
 Fair Value of Financial Instruments:
 1.
    
    Level 1  Valuations based on quoted prices in active markets for identical
assets and liabilities that the reporting entity has the ability to obtain at the
measurement date. This level provides the most reliable evidence of fair value.2.
    
    Level 2  Valuations based on one or more quoted prices in markets that are
not active; quoted prices for similar assets or liabilities in active markets; inputs
that are observable other than quoted prices for the asset or the liability; or inputs
that are derived principally from or corroborated by observable market data by
correlation or other means.3.
    
    Level 3  Valuations based on inputs that are unobservable and significant to
the overall fair value measurement.
 Cash and Cash Equivalents:
  F-7




---



##### 



Marketable Securities:
   December 31, 2010


    
    
    
    
    December 31, 2009Fair Value
    
    
    
    
    
    Unrealized
    
    Estimated
    
    
    
    
    
    Unrealized
    
    EstimatedHierarchy
    
    Cost
    
    Gain
    
    Fair Value
    
    Cost
    
    Gain
    
    Fair ValueAgencies
    
    Level 2
    
    $
    304
    
    
    $
    1
    
    
    $
    305
    
    
    $
    3,350
    
    
    $
    29
    
    
    $
    3,379Asset Backed
    
    Level 2
    
    
    1,675
    
    
    
    8
    
    
    
    1,683
    
    
    
    2,065
    
    
    
    17
    
    
    
    2,082Corporate Bonds
    
    Level 2
    
    
    1,411
    
    
    
    6
    
    
    
    1,417
    
    
    
    976
    
    
    
    1
    
    
    
    977Municipal
Bonds and US Treasuries
    
    Level 2
    
    
    2,590
    
    
    
    10
    
    
    
    2,600
    
    
    
    3,276
    
    
    
    10
    
    
    
    3,286Total
    
    
    
    
    
    $
    5,981
    
    
    $
    25
    
    
    $
    6,005
    
    
    $
    9,667
    
    
    $
    57
    
    
    $
    9,724
 Accounts Receivable and Allowance for Doubtful Accounts:
 F-8




---



##### 



Balance at
    
    
    
    
    
    (Write-offs)
    
    BalanceBeginning
    
    Charged to
    
    Net of
    
    at EndYear Ended December 31:
    
    of Period
    
    Expense
    
    Recoveries
    
    of Period2010
    
    $
    41
    
    
    $
    
    
    
    $
    (18
    )
    
    $
    232009
    
    
    113
    
    
    
    (16
    )
    
    
    (56
    )
    
    
    412008
    
    
    77
    
    
    
    45
    
    
    
    (9
    )
    
    
    113
 Allowance for Returns:
 Derivative Financial Instruments and Hedging:
 Inventories:
 Years ended December 31,2010
    
    
    2009Raw Materials
    
    $
    1,236
    
    
    $
    1,399Work-in-Process
    
    
    384
    
    
    
    218Finished Goods
    
    
    25
    
    
    
    82Total
    
    $
    1,645
    
    
    $
    1,699
  F-9




---



##### 



Property and Equipment:
 Year ended December 31:
    
    Depreciation Expense2010
    
    $
    2782009
    
    $
    3672008
    
    $
    427
  Machinery and equipment
    
    3-5 yearsLeasehold improvements
    
    Term of the respective leasesFurniture and fixtures
    
    3-10 years
 Capitalized Software:
 Year ended December 31:
    
    Amortization Expense
    
    Accumulated Amortization2010
    
    $
    447
    
    
    $
    2,9452009
    
    $
    468
    
    
    $
    2,5172008
    
    $
    441
    
    
    $
    2,382
 Long-Lived Assets:
 Revenue Recognition:
  F-10




---



##### 



Warranty Reserve:
 Concentration of Credit Risks:
 Research and Development:
 Interest Income, Net:
 Advertising Expense:
 Foreign Currency Translation:
  Income Taxes:
 F-11




---



##### 



Other Comprehensive Loss:
 Use of Estimates:
 2. PREPAID EXPENSES AND OTHER CURRENT ASSETS
  December 31,2010
    
    
    2009Research and development tax credit in France
    
    $
    
    
    
    $
    1,583Prepaid other
    
    
    623
    
    
    
    619Total prepaid expenses and other current assets
    
    $
    623
    
    
    $
    2,202
 F-12




---



##### 



3. ACCRUED LIABILITIES
  December 31,2010
    
    
    2009Provision for restructuring
    
    $
    1,189
    
    
    $
    979French corporate tax
    
    
    322
    
    
    
    500Reserve for uncertain tax position
    
    
    391
    
    
    
    491Inventory receipts
    
    
    94
    
    
    
    106Legal
    
    
    151
    
    
    
    6Accrued other
    
    
    339
    
    
    
    585Total accrued liabilites
    
    $
    2,486
    
    
    $
    2,667
 4. DERIVATIVE FINANCIAL INSTRUMENTS
   5. CREDIT FACILITY
  F-13




---



##### 



6. INCOME TAXES
  Year ended December 31,2010
    
    
    2009
    
    
    2008United States tax provision (benefit)
    
    $
    
    
    
    $
    
    
    
    $
    (2
    )Foreign tax benefit
    
    
    (637
    )
    
    
    (1,102
    )
    
    
    (1,261
    )Income tax benefit
    
    $
    (637
    )
    
    $
    (1,102
    )
    
    $
    (1,263
    )
  Year ended December 31,2010
    
    
    2009Current deferred tax assets:Inventories
    
    $
    654
    
    
    $
    623Accounts receivable
    
    
    8
    
    
    
    14Deferred revenue
    
    
    25
    
    
    
    56Other accruals
    
    
    284
    
    
    
    193Total current deferred tax assets
    
    $
    971
    
    
    $
    886Noncurrent deferred tax assets:Depreciation
    
    $
    161
    
    
    $
    (46
    )Amortization
    
    
    24
    
    
    
    82Other
    
    
    196
    
    
    
    111Net operating loss carryforwards
    
    
    14,445
    
    
    
    11,151Total noncurrent deferred tax assets
    
    $
    14,826
    
    
    $
    11,298Valuation allowance for deferred tax assets
    
    
    (15,797
    )
    
    
    (12,184
    )Deferred tax assets, net of valuation allowance
    
    $
    
    
    
    $
    
   F-14




---



##### 



Year ended December 31,2010
    
    
    2009
    
    
    2008Income taxes at statutory rate
    
    $
    (3,079
    )
    
    $
    (2,263
    )
    
    $
    (1,458
    )Benefit for French research and development tax credit
    
    
    (1,125
    )
    
    
    (1,582
    )
    
    
    (1,699
    )State provision (benefit)
    
    
    
    
    
    
    
    
    
    
    (7
    )French permanent items
    
    
    118
    
    
    
    119
    
    
    
    83Foreign income inclusion
    
    
    
    
    
    
    240
    
    
    
    Adjustment to deferred tax assets
    
    
    (169
    )
    
    
    379
    
    
    
    (17
    )Other
    
    
    5
    
    
    
    6
    
    
    
    9Change in valuation allowance
    
    
    3,613
    
    
    
    1,999
    
    
    
    1,827Benefit for income taxes
    
    $
    (637
    )
    
    $
    (1,102
    )
    
    $
    (1,262
    )
    F-15




---



##### 



UnrecognizedTax BenefitBalance as of January 1, 2009
    
    $
    503Additions based on tax positions  current year
    
    
    272Additions based on tax positions  previous years
    
    
    33Reductions as a result of lapse of statute limitations
    
    
    (56
    )Effect of exchange rate changes
    
    
    19Balance as of December 31, 2009
    
    $
    771Additions based on tax positions  current year
    
    $
    46Additions based on tax positions  previous years
    
    
    43Reductions as a result of lapse of statute limitations
    
    
    (82
    )Effect of exchange rate changes
    
    
    (58
    )Balance as of December 31, 2010
    
    $
    720
 7. RESTRUCTURING CHARGE
  F-16




---



##### 



Cashpayments, net
    
    
    
    
    
    Cash payments,of currency
    
    
    
    
    
    net of currencytranslation
    
    Reclassification
    
    translationadjustments
    
    of restructuring
    
    adjustments,during quarter
    
    charge, net of
    
    during quarter
    
    Remainingended
    
    currency
    
    ended
    
    liability asRestructuring
    
    September 30,
    
    translation
    
    December 31,
    
    of DecemberDescription
    
    charge
    
    2010
    
    adjustments
    
    2010
    
    31, 2010Severance & Fringe
Benefits
    
    $
    3,181
    
    
    $
    
    
    
    $
    (111
    )
    
    $
    2,057
    
    
    $
    1,013Other Related Costs
    
    
    158
    
    
    
    
    
    
    
    111
    
    
    
    93
    
    
    
    176Total
    
    $
    3,339
    
    
    $
    
    
    
    $
    
    
    
    $
    2,150
    
    
    $
    1,189
   8. EARNINGS PER SHARE
  F-17




---



##### 



Years ended December 31,2010
    
    2009
    
    2008Basic loss per share:Net loss
    
    $
    (8,419
    )
    
    $
    (5,554
    )
    
    $
    (3,026
    )Weighted average common shares outstanding
    
    
    6,839
    
    
    
    6,899
    
    
    
    6,550Basic loss per share
    
    $
    (1.23
    )
    
    $
    (0.81
    )
    
    $
    (0.46
    )Diluted loss per share:Net loss
    
    $
    (8,419
    )
    
    $
    (5,554
    )
    
    $
    (3,026
    )Weighted average common shares outstanding
    
    
    6,839
    
    
    
    6,899
    
    
    
    6,550Dilutive stock options and restricted stock
    
    
    
    
    
    
    
    
    
    
    Weighted average common shares outstanding  assuming dilution
    
    
    6,839
    
    
    
    6,899
    
    
    
    6,550Diluted loss per share
    
    $
    (1.23
    )
    
    $
    (0.81
    )
    
    $
    (0.46
    )Outstanding stock options that were not included in the diluted
calculation because their effect would be anti-dilutive
    
    
    1,371
    
    
    
    1,494
    
    
    
    1,655
 9. COMMON STOCK
 2004 Long-Term Stock Incentive Plan:
 Amended and Restated Stock Option Plan:
 France Stock Option Sub-Plan:
 F-18




---



##### 



Amended and Restated Director Stock Option Plan:
 Stock Options:
  Number of
        
        
        Weighted Average
        
        
        AggregateOptions
        
        
        Option
          Price
        
        
        Intrinsic
          ValueBalance, December 31,
            2007
        
        
        1,699
        
        
        
        9.67
        
        
        $
        4,366Granted
        
        
        
        
        
        
        N/AExercised
        
        
        (1
        )
        
        
        4.12Canceled
        
        
        (64
        )
        
        
        10.17Balance, December 31,
            2008
        
        
        1,634
        
        
        
        9.65
        
        
        
        Granted
        
        
        100
        
        
        
        2.55Exercised
        
        
        (1
        )
        
        
        4.12Canceled
        
        
        (283
        )
        
        
        14.81Balance, December 31,
            2009
        
        
        1,450
        
        
        
        8.16
        
        
        
        Granted
        
        
        443
        
        
        
        1.71Exercised
        
        
        
        
        
        
        N/ACanceled
        
        
        (423
        )
        
        
        12.42Balance, December 31,
            2010
        
        
        1,470
        
        
        
        5.00
        
        
        
        Exercisable at December 31,
            2010
        
        
        955
        
        
        $
        6.69
        
        
        $
        
 F-19




---



##### 



Options Outstanding
    
    Options ExercisableWeighted-AverageNumber
    
    Remaining
    
    Weighted
    
    Number
    
    WeightedRange of Exercise
    
    Outstanding at
    
    Contractual Life
    
    Average Exercise
    
    Exercisable at
    
    Average ExercisePrices
    
    12/31/10
    
    (years)
    
    Price
    
    12/31/10
    
    Price$1.36 - $4.18
    
    
    605
    
    
    
    8.18
    
    
    $
    2.19
    
    
    
    90
    
    
    $
    4.11$4.19 - $8.35
    
    
    695
    
    
    
    1.29
    
    
    
    5.99
    
    
    
    695
    
    
    
    5.99$8.36 - $11.45
    
    
    170
    
    
    
    3.04
    
    
    
    10.96
    
    
    
    170
    
    
    
    10.96Total
    
    
    1,470
    
    
    
    4.33
    
    
    $
    5.00
    
    
    
    955
    
    
    $
    6.69
 Option Valuation:
  2010
    
    2009
    
    2008Weighted average risk free interest rates
    
    
    2.84
    %
    
    
    3.55
    %
    
    
    N/AWeighted Average life (in years)
    
    
    10
    
    
    
    10
    
    
    
    N/AVolatility
    
    
    63.37
    %
    
    
    67.72
    %
    
    
    N/AExpected dividend yield
    
    
    
    
    
    
    
    
    
    
    N/AWeighted average grant-date fair value
per share of options granted
    
    $
    1.24
    
    
    $
    1.95
    
    
    
    N/A
 Restricted Stock:
 F-20




---



##### 



Restricted Stock
    
    
    Weighted AverageShares
    
    
    Grant Date ValueNonvested restricted stock at December 31, 2008
    
    
    232,249
    
    
    $
    7.24Granted
    
    
    390,500
    
    
    
    1.87Vested
    
    
    (85,191
    )
    
    
    6.51Cancelled/Forefeited
    
    
    (53,300
    )
    
    
    8.99Nonvested restricted stock at December 31, 2009
    
    
    484,258
    
    
    $
    2.84Granted
    
    
    
    
    
    
    N/AVested
    
    
    (69,809
    )
    
    
    5.26Cancelled/Forefeited
    
    
    (95,894
    )
    
    
    2.15Nonvested restricted stock at December 31, 2010
    
    
    318,555
    
    
    $
    2.52
 10. RELATED PARTY TRANSACTIONS
  11. EMPLOYEE BENEFIT PLAN
  12. OTHER FINANCIAL INFORMATION
 Major Customers
 F-21




---



##### 



Commitments:
 Year ending December 31:2011
    
    $
    6942012
    
    $
    5992013
    
    $
    6092014
    
    $
    115Thereafter
    
    $
    
  Year ending December 31:2010
    
    $
    7942009
    
    $
    8262008
    
    $
    840
 Contingencies
 13. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
  F-22




---



##### 



F-23




---



##### 



14. SEGMENT DATA
   Long Lived Assets
    
    2010
    
    
    2009North America
    
    $
    771
    
    
    $
    1,294Europe
    
    
    128
    
    
    
    310Total
    
    $
    899
    
    
    $
    1,604
 Revenues
    
    2010
    
    
    2009
    
    
    2008North America
    
    $
    6,559
    
    
    $
    7,490
    
    
    $
    8,598Pacific Rim
    
    
    6,458
    
    
    
    10,812
    
    
    
    11,204Europe
    
    
    5,190
    
    
    
    7,283
    
    
    
    6,429Total
    
    $
    18,207
    
    
    $
    25,585
    
    
    $
    26,231
  Product Revenue
    
    2010
    
    
    2009
    
    
    2008Broadband telecom
    
    $
    15,104
    
    
    $
    22,742
    
    
    $
    23,218Enterprise
    
    
    1,553
    
    
    
    806
    
    
    
    867Other
    
    
    780
    
    
    
    753
    
    
    
    1,645Professional services
    
    
    770
    
    
    
    1,284
    
    
    
    501Total
    
    $
    18,207
    
    
    $
    25,585
    
    
    $
    26,231
 F-24




---



##### 



15. QUARTERLY FINANCIAL DATA (Unaudited)
 
 Quarter EndedMarch 31
    
    June 30
    
    September 30
    
    December 31Revenues
    
    $
    3,759
    
    
    $
    3,858
    
    
    $
    4,770
    
    
    $
    5,820Gross margin
    
    
    1,859
    
    
    
    1,781
    
    
    
    2,331
    
    
    
    3,216(Loss) income before income tax
    
    
    (2,530
    )
    
    
    (2,222
    )
    
    
    (4,666
    )
    
    
    362Net (loss) income
    
    
    (2,363
    )
    
    
    (2,211
    )
    
    
    (4,292
    )
    
    
    447Net (loss) income per share:Basic EPS
    
    $
    (0.34
    )
    
    $
    (0.32
    )
    
    $
    (0.63
    )
    
    $
    0.07Diluted EPS
    
    $
    (0.34
    )
    
    $
    (0.32
    )
    
    $
    (0.63
    )
    
    $
    0.06
 
 Quarter EndedMarch 31
    
    June 30
    
    September 30
    
    December 31Revenues
    
    $
    8,421
    
    
    $
    8,120
    
    
    $
    4,368
    
    
    $
    4,676Gross margin
    
    
    5,017
    
    
    
    4,456
    
    
    
    1,099
    
    
    
    1,717Income (loss) before income tax
    
    
    427
    
    
    
    (121
    )
    
    
    (2,726
    )
    
    
    (4,236
    )Net income (loss)
    
    
    707
    
    
    
    74
    
    
    
    (2,381
    )
    
    
    (3,954
    )Net income (loss) per share:Basic EPS
    
    $
    0.11
    
    
    $
    0.01
    
    
    $
    (0.34
    )
    
    $
    (0.57
    )Diluted EPS
    
    $
    0.11
    
    
    $
    0.01
    
    
    $
    (0.34
    )
    
    $
    (0.57
    )
  F-25




---



##### 



INDEX TO EXHIBITS
 Exhibits
 3 (a)
    
    Certificate of Incorporation of the registrant and all amendments as of March
21, 2011. (15)3 (b)
    
    Amended and Restated Bylaws of the registrant adopted on July 27, 2007. (3)10 (a)
    
    Lease on Facility at Parkway Center, Phase I, Plano, Texas. (5)10 (b)
    
    Second Amendment to lease on Facility at Parkway Center, Phase I, Plano, Texas. (6)10 (c)
    
    Lease on Facility at 2105 Luna Road, Carrollton, Texas. (7)10 (d)
    
    Note and Credit Agreement between Interphase Corporation and Texas Capital Bank. (8)10 (e)
    
    First Amendment to Loan Agreement between Interphase Corporation and Texas Capital Bank.
(9)10 (f)
    
    Amended and Restated Employment, Confidentiality, and Non-Competition Agreement with
Gregory B. Kalush, dated December 30, 2008. *(10)10 (g)
    
    Amended and Restated Employment, Confidentiality, and Non-Competition Agreement with
Thomas N. Tipton, Jr. dated December 30, 2008. *(10)10 (h)
    
    Amended and Restated Employment, Confidentiality, and Non-Competition Agreement with
Randall E. McComas, dated December 30, 2008. *(10)10 (i)
    
    Amended and Restated Employment, Confidentiality, and Non-Competition Agreement with
Deborah A. Shute, dated December 30, 2008. *(10)10 (j)
    
    Amended and Restated Employment, Confidentiality, and Non-Competition Agreement with
James W. Gragg, dated December 30, 2008. *(10)10 (k)
    
    Amended and Restated Employment, Confidentiality, and Non-Competition Agreement with
Marc E. DeVinney, dated December 30, 2008. *(10)10 (l)
    
    Amended and Restated Employment, Confidentiality, and Non-Competition Agreement with
Yoram Solomon, dated December 30, 2008. *(10)10 (m)
    
    Employment, Confidentiality, and Non-Competition Agreement with Yoram Solomon, dated
November 17, 2008* (11)10 (n)
    
    Employment, Confidentiality, and Non-Competition Agreement with H. Keith Seawright, dated
April 6, 2010* (12)10 (o)
    
    Interphase Corporation 2004 Long-Term Stock Incentive Plan *(13)21 (a)
    
    Subsidiaries of the Registrant. (14)23 (a)
    
    Consent of Independent Registered Public Accounting Firm. (15)31 (a)
    
    Rule 13a-14(a)/15d-14(a) Certification. (15)31 (b)
    
    Rule 13a-14(a)/15d-14(a) Certification. (15)32 (a)
    
    Section 1350 Certification. (15)32 (b)
    
    Section 1350 Certification. (15)
 
 (1)
    
    Filed as an exhibit to Registration Statement No. 2-86523 on Form S-1 and incorporated
herein by
reference.(2)
    
    Filed as an exhibit to Report on Form 10-K for the year ended December 31, 1999, and
incorporated herein by reference.(3)
    
    Filed as an exhibit to Report on Form 8-K on July 31, 2007, and incorporated herein by
reference.(4)
    
    Filed as an exhibit to Form 8-K on January 9, 2001, and incorporated herein by
reference.(5)
    
    Filed as an exhibit to Report on Form 10-Q for the quarter ended September 30, 2002, and
incorporated herein by reference. E-1




---



##### 



(6)
    
    Filed as an exhibit to Annual Report on Form 10-K for the year ended December 31,
2008, and incorporated herein by reference(7)
    
    Filed as an exhibit to Form 8-K on December 10, 2008, and incorporated herein by
reference(8)
    
    Filed as an exhibit to Form 8-K on December 24, 2008, and incorporated herein by reference.(9)
    
    Filed as an exhibit to Quarterly Report on Form 10-Q for the quarter ended March 31,
2009, and incorporated herein by reference(10)
    
    Filed as an exhibit to Form 8-K on December 31, 2008, and incorporated herein by reference.(11)
    
    Filed as an exhibit to Form 8-K on November 17, 2008, and incorporated herein by reference(12)
    
    Filed as an exhibit to Current Report on Form 8-K on April 7, 2010, and incorporated herein
by reference.(13)
    
    Filed as an exhibit to Schedule 14a on March 31, 2004 and incorporated herein by
reference.(14)
    
    Filed as an exhibit to Report on Form 10-K for the year ended December 31, 2002, and
incorporated herein by reference.(15)
    
    Filed herewith*
    
    Management contract or compensatory plan or arrangement. E-2