##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 FORM 10-K
 (Mark One)
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from     to
 Commission File Number 0-13071
 INTERPHASE CORPORATION
  Texas
    
    75-1549797(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 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
  Large accelerated filer o
    
    Accelerated filer
o
    
    Non-accelerated filer
þ
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ
  DOCUMENTS INCORPORATED BY REFERENCE




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TABLE OF CONTENTS  PART IItem 1B. Unresolved Staff CommentsItem 2. PropertiesItem 3. Legal ProceedingsItem 4. Submission of Matters to a Vote of Security HoldersPART IIItem 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesItem 6. Selected Consolidated Financial Data.Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKItem 8. Financial Statements and Supplementary DataItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A. Controls and ProceduresItem 9B. Other InformationPART IIIItem 10. Directors, Executive Officers and Corporate GovernanceItem 11. Executive CompensationItem 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersItem 13. Certain Relationships and Related Transactions, and Director IndependenceItem 14. Principal Accounting Fees and ServicesPART IVItem 15. Exhibits and Financial Statement SchedulesSIGNATURESINDEX TO EXHIBITSConsent of Independent Registered Public Accounting FirmRule 13a-14(a)/15d-14(a) CertificationRule 13a-14(a)/15d-14(a) CertificationSection 1350 CertificationSection 1350 Certification    Table of Contents  
 PART I
 Item 1. Business.
 Introduction
 ®
 www.interphase.com www.sec.gov
 Key Terms and Definitions
  3G
 3GPP
 Adapter
 1




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##### Table of Contents



AdvancedTCA ® or ATCA (Advanced Telecom Computing Architecture)
 AdvancedMC or AMC (Advanced Mezzanine Card)
 ASN Gateway or ASN-GW
 Asynchronous Transfer Mode (ATM)
 Backplane
 Base Station Controller (BSC)
 Blade
 Broadband
 2




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##### Table of Contents



Building Blocks
 Code Division Multiple Access (CDMA)
 Communications Controller
 CompactPCI ® (cPCI)
 CompactPCI Packet Switching Backplane (cPSB)
 DS3
 DSL xDSL
 Digital Signal Processing
 Ethernet
 European Telecommunications Standards Institute (ETSI)
 3




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##### Table of Contents



Gateway Appliances
 Gigabits per second (Gbps)
 Global System for Mobile Communications (GSM)
 Input/output (I/O)
 International Mobile Telecommunications-2000 (IMT-2000)
 International Telecommunication Union (ITU
 Internet Engineering Task Force (IETF)
 Internet Protocol (IP)
 Internet Protocol Television (IPTV)
 Inverse Multiplexing over ATM (IMA) 
 IP Multimedia Subsystem (IMS)
 4




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IP-PBX
 IP Security (IPSec)
 I-TDM 
 Kilobits per second (Kbps)
 Local Area Network (LAN
 Media Gateway
 Megabits per second (Mbps)
 MicroTCA
 Multilink PPP (MLPPP)
 Network Elements
 OC-3/STM-1
 OC-12/STM-4
 Operating System
 5




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##### Table of Contents



® ® 
 Original Equipment Manufacturer (OEM)
 Packet Processing
 PCI Industrial Computer Manufacturers Group (PICMG)
 PCI Mezzanine Card (PMC)
 Peripheral Components Interconnect (PCI)
 Peripheral Components InterconnectExpress (PCI-e)
 Peripheral Components InterconnectExtended (PCI-x
 Point-to-Point Protocol (PPP) 
 Public Switched Telephone Network (PSTN)
 Protocol
 Radio Network Controller (RNC
 6




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Router
 RTP
 Session Initiation Protocol (SIP)
 Signaling Gateway
 Signaling System 7 (SS7
 Signaling Transport (SIGTRAN
 Softswitch (Software Switch)
 T1/E1
 T3/E3/J3
 Time-division multiplexing (TDM)
 Telecommunications Equipment Manufacturer (TEM)
 7




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##### Table of Contents



Triple Play
 User Plane
 VersModule-Eurocard (VME)
 Voice over Internet Protocol (VoIP)
 Virtual Private Network (VPN)
 Wide Area Network (WAN)
 Worldwide Interoperability of Microwave Access (WiMAX)
 8




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Mission
    Building innovative and high quality building blocks and gateway appliances for the delivery of
high performance communications infrastructure products
       9




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Professional Services
   Delivering advanced slot-optimization and security products for enterprise class applications
   Delivering a comprehensive environment-friendly product portfolio
  10




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Delivering superior customer service
  Establishing key strategic alliances and partnerships
     Enhancing operational efficiencies
   11




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Products
  Building Block Component Products
  Integrated Communications Controllers
  T1/E1/J1 Controllers
 ®
 i 4538 
 i 4539/4539F 
 i 5539F
 i
 12




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iSPAN 3639
 iSPAN 5639
  
    
    Radio Network Controller (RNC)
    
    Mobile Switching Center (MSC)
    
    Short Message Service Center (SMSC)
    
    Home Location Register/Home Subscriber Subsystem (HLR/HSS)
    
    Signaling Gateway
    
    Softswitch
    
    Media Gateway
    
    Service Control Point
    
    Media Servers
    
    IP-PBX
 High Density Interface Controllers
  i 4532  ®
 i 4532Q 
 i 4533P 
  
    
    Radio Network Controller (RNC)
    
    Mobile Switching Center (MSC)
    
    DSL Access Multiplexers
    
    Cable Modem Termination System (CMTS)
 13




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ATM Network Interface Cards
  i 4575/4576
 i 5575/5576 PCI ATM Communications Interface Card
 i
  
    
    Serving GPRS Service Node (SGSN)
    
    Gateway GPRS Service Node (GGSN)
    
    Operations, administration and management devices used for back-end services in
the telecommunications infrastructure
 Security Acceleration Cards
  45NS 
 5585 
 5556
 566
  
    
    Firewall and VPN solutions
    
    On Line Transaction Processing (OLTP)
    
    Network Management solutions
 14




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##### Table of Contents



Gigabit Ethernet Network Interface Cards
  454G SlotOptimizer
 364G SlotOptimizer
 554GB SlotOptimizer
 564GB SlotOptimizer
  
    
    High performance computing servers for engineering applications
    
    Serving GPRS Service Node (SGSN)
    
    Softswitches
 Gateway Appliance Solutions
  i ® 9200 Broadband Access Gateway
 i 921x Media Converter
 New Product Development
  15




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
    
    Ethernet-based IP networks offer an inexpensive, ubiquitous broadband packet-based
delivery approach for carriers. The simplicity of IP-based ethernet networks are
expected to shorten the period of new service deployment and time to revenue.
    
    The second promise of this network architecture is greatly reduced cost of purchasing,
provisioning and maintaining their networks.
    
    Another significant trend in the COTS market is the move to AdvancedTCA platforms.
Sponsored primarily by Intel, a number of AdvancedTCA suppliers have emerged to address
the ever-growing needs of TEMs. TEMs have been reducing their internal development
infrastructure over the past several years and are now more dependent on outsourced
solutions to meet their product development needs.
    
    With the transition to the packet infrastructure modules that provide multi-gigabit
ethernet and 10 gigabit Ethernet line rate switching, processing and classification of
packet data are becoming very important for a wide range of applications including secure
data transport, microbilling and high speed multi-media content delivery.
  Telecom Segment Initiatives
  Packet Accelerator Products
   16




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®
  iSPAN 36CA
 i
  
    
    Radio Network Controller (RNC)
    
    Packet Access Gateway in 4G wireless networks
    
    ASN Gateway and BSCs in WiMax networks
    
    GGSN in WCDMA networks
    
    Wireless LAN Access Concentrators
    
    Content Processing Appliances
    
    Security Appliances
 AdvancedTCA and MicroTCA
   17




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
    
    iSPAN 3639 an AdvancedMC with 4 or 8 T1/E1/J1 interfaces via front and rear access with
support for both signaling and media termination
    
    364G an AdvancedMC with 4 gigabit ethernet interfaces
    
    iSPAN 3650 an AdvancedMC with 4 OC-3/STM-1 unchannelized interfaces via front and rear
access for termination of ATM packets and interworking to IP
    
    iSPAN 36CA an AdvancedMC with 4 gigabit ethernet interfaces via front access for high
performance line rate packet processing and packet switching solutions
    
    iNAV 31K an AdvancedTCA carrier with support for up to 4 mid-size or full size
AdvancedMCs with 10 Gigabit fabric interface support for the integration and delivery of
high-capacity and high performance subsystem solutions
    
    iNAV 74PF  a quad processor dual-core Freescale 8641D based processor blade for high
performance embedded packet and control processing
    18




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Cost Reduction Services
  PCI Rack Mounted Server Solutions
 i i i
 Appliance Solutions
  i
 i i
  Enterprise Networking Initiatives
  19




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Industry Standards Participation
   Marketing and Customers
     20




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Manufacturing and Supplies
    Intellectual Property and Patents
    21




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Employees
    Competition
  Item 1A. Risk Factors.
 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.
   22




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The telecommunications signaling and networking business is characterized by rapid technological
change and frequent introduction of new products.
  We operate in an intensely competitive marketplace and many of our competitors have greater
resources than we do.
  The loss of one or more key customers or reduced spending by customers could significantly impact
our operating results, financial condition and cash flows.
  23




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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 could harm our reputation, revenue and
profitability.
   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.
  24




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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.
    25




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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 2008;
    
    expand product and service offerings beyond what is contemplated in 2008 if unforeseen
opportunities arise; or
    
    respond to unforeseen competitive pressures.
  26




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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.
  2008 will be the first year that our internal controls over financial reporting will be audited by
our independent registered public accounting firm in accordance with Section 404 of the
Sarbanes-Oxley Act of 2002.
  
 Item 1B. Unresolved Staff Comments.
  
 Item 2. Properties.
  27




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Item 3. Legal Proceedings.
  
 Item 4. Submission of Matters to a Vote of Security Holders.
  
 PART II
 
 Item 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities.
  2006
    
    High
    
    LowFirst Quarter
    
    
    6.25
    
    
    
    4.40Second Quarter
    
    
    6.55
    
    
    
    5.25Third Quarter
    
    
    12.60
    
    
    
    5.58Fourth Quarter
    
    
    15.37
    
    
    
    7.85
 2007
    
    High
    
    LowFirst Quarter
    
    
    11.85
    
    
    
    8.20Second Quarter
    
    
    13.66
    
    
    
    8.91Third Quarter
    
    
    12.52
    
    
    
    8.99Fourth Quarter
    
    
    12.43
    
    
    
    9.27
  28




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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 securitieswarrants and rights
    
    warrants and rights
    
    reflected in column (a))Plan Category
    
    (a)
    
    (b)
    
    (c)Equity Compensation
plans approved by
security holders
    
    
    1,699
    
    
    $
    9.67
    
    
    
    1,323Equity Compensation
plans not approved
by security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    1,699
    
    
    $
    9.67
    
    
    
    1,323
   29




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Stock Performance Graph
  Cumulative Return12/02
    
    12/03
    
    12/04
    
    12/05
    
    12/06
    
    12/07Interphase Corporation
    
    
    100
    
    
    
    366
    
    
    
    237
    
    
    
    124
    
    
    
    234
    
    
    
    292NASDAQ Composite
    
    
    100
    
    
    
    150
    
    
    
    165
    
    
    
    169
    
    
    
    188
    
    
    
    205DJ WilshireTelecommunicationsEquipment Index
    
    
    100
    
    
    
    183
    
    
    
    189
    
    
    
    191
    
    
    
    222
    
    
    
    233
 
 30




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Item 6. Selected Consolidated Financial Data.
   
 Year ended December 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003Revenues
    
    $
    30,780
    
    
    $
    33,403
    
    
    $
    30,852
    
    
    $
    35,015
    
    
    $
    32,490Gross margin
    
    
    17,591
    
    
    
    18,126
    
    
    
    16,097
    
    
    
    19,171
    
    
    
    16,909Research and development
    
    
    10,216
    
    
    
    8,226
    
    
    
    7,974
    
    
    
    8,033
    
    
    
    7,719Sales and marketing
    
    
    5,614
    
    
    
    5,405
    
    
    
    6,310
    
    
    
    6,107
    
    
    
    6,929General and administrative
    
    
    4,692
    
    
    
    3,926
    
    
    
    3,531
    
    
    
    3,675
    
    
    
    3,547Restructuring charge
    
    
    
    
    
    
    
    
    
    
    600
    
    
    
    
    
    
    
    (Loss) income from operations
    
    
    (2,931
    )
    
    
    569
    
    
    
    (2,318
    )
    
    
    1,356
    
    
    
    (1,286
    )Other, net
    
    
    1,128
    
    
    
    1,112
    
    
    
    237
    
    
    
    240
    
    
    
    305(Loss) income before income tax
    
    
    (1,803
    )
    
    
    1,681
    
    
    
    (2,081
    )
    
    
    1,596
    
    
    
    (981
    )Income tax (benefit) provision
    
    
    (609
    )
    
    
    (405
    )
    
    
    218
    
    
    
    (122
    )
    
    
    (212
    )Net (loss) income
    
    $
    (1,194
    )
    
    $
    2,086
    
    
    $
    (2,299
    )
    
    $
    1,718
    
    
    $
    (769
    )Net (loss) income per shareBasic EPS
    
    $
    (0.19
    )
    
    $
    0.36
    
    
    $
    (0.40
    )
    
    $
    0.30
    
    
    $
    (0.14
    )Diluted EPS
    
    $
    (0.19
    )
    
    $
    0.33
    
    
    $
    (0.40
    )
    
    $
    0.27
    
    
    $
    (0.14
    )Weighted average common shares
    
    
    6,161
    
    
    
    5,854
    
    
    
    5,758
    
    
    
    5,719
    
    
    
    5,544Weighted average common and dilutive shares
    
    
    6,161
    
    
    
    6,254
    
    
    
    5,758
    
    
    
    6,312
    
    
    
    5,544
 
 December 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003Working capital
    
    $
    27,030
    
    
    $
    26,604
    
    
    $
    24,554
    
    
    $
    26,450
    
    
    $
    24,255Total assets
    
    
    36,180
    
    
    
    34,062
    
    
    
    29,194
    
    
    
    32,098
    
    
    
    30,743Total liabilities
    
    
    8,918
    
    
    
    8,262
    
    
    
    6,696
    
    
    
    7,310
    
    
    
    7,930Shareholders equity
    
    $
    27,262
    
    
    $
    25,800
    
    
    $
    22,498
    
    
    $
    24,788
    
    
    $
    22,813
 31




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Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.
  APPLICATION OF CRITICAL ACCOUNTING POLICIES
  Revenue Recognition:
 Warranty Reserve:
 Accounts Receivable and Allowance for Doubtful Accounts:
 32




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Allowance for Returns:
 Inventories:
 Long-Lived Assets:
 Derivative Financial Instruments and Hedging:
 Stock-Based Compensation:
 33




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Tax Assessments:
 Income Taxes:
 CONSOLIDATED STATEMENT OF OPERATIONS AS A PERCENTAGE OF REVENUE
 Year ended December 31,2007
    
    2006
    
    2005Revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    42.8
    %
    
    
    45.7
    %
    
    
    47.8
    %Gross margin
    
    
    57.2
    %
    
    
    54.3
    %
    
    
    52.2
    %Research and development
    
    
    33.2
    %
    
    
    24.6
    %
    
    
    25.8
    %Sales and marketing
    
    
    18.2
    %
    
    
    16.2
    %
    
    
    20.5
    %General and administrative
    
    
    15.2
    %
    
    
    11.8
    %
    
    
    11.5
    %Restructuring charge
    
    
    
    
    
    
    
    
    
    
    1.9
    %(Loss) income from operations
    
    
    (9.5
    )%
    
    
    1.7
    %
    
    
    (7.5
    )%Interest income, net
    
    
    2.5
    %
    
    
    1.9
    %
    
    
    1.2
    %Other income (expense), net
    
    
    1.2
    %
    
    
    1.4
    %
    
    
    (0.4
    )%(Loss) income before income tax
    
    
    (5.9
    )%
    
    
    5.0
    %
    
    
    (6.7
    )%Income tax (benefit) provision
    
    
    (2.0
    )%
    
    
    (1.2
    )%
    
    
    0.8
    %Net (loss) income
    
    
    (3.9
    )%
    
    
    6.2
    %
    
    
    (7.5
    )%
 34




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OVERVIEW
  RESULTS OF OPERATIONS
 Revenue:
  Gross Margin:
 35




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Research and Development:
  Sales and Marketing:
  36




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General and Administrative:
  Restructuring Charge:
 Interest Income, Net:
 Other Income (Expense), Net:
  37




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Income Taxes:
   Net (Loss) Income:
 LIQUIDITY AND CAPITAL RESOURCES
 Consolidated Cash Flows
  Operating Activities:
 38




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Investing Activities:
 Financing Activities:
 Commitments
  39




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Payments due by periodContractual Obligation
    
    Total
    
    <1 year
    
    1 -3 years
    
    3- 5 years
    
    > 5 yearsLong-term debt obligation (1,2)
    
    $
    3,847
    
    
    $
    219
    
    
    $
    3,628
    
    
    $
    
    
    
    $
    Operating lease obligations (3)
    
    $
    1,700
    
    
    $
    887
    
    
    $
    647
    
    
    $
    166
    
    
    $
    Total
    
    $
    5,547
    
    
    $
    1,106
    
    
    $
    4,275
    
    
    $
    166
    
    
    $
    
 
 (1)
    
    At December 31, 2007, the Company had borrowings of $3.5 million under a $5
million revolving credit facility with a bank. The revolving credit facility matures
on July 31, 2009 and is secured throughout the term of the credit facility by
marketable securities.(2)
    
    The Company incurs interest expense on the borrowings from the revolving credit
facility at a rate of LIBOR + 1% (6.25% at December 31, 2007). The Company used the
6.25% rate to estimate interest expense for 2008 through July 2009. The interest
expense estimate is $219,000 and $128,000 for years 2008 and 2009, respectively.(3)
    
    The Company leases its facilities under non-cancelable operating leases with
the longest terms extending to June 2011. Off-Balance Sheet Arrangements
  Other
   40




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Recently Issued Accounting Pronouncements
     
 ITEM 7A.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
 Foreign Currency Risk
   41




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Market Price Risk
  Interest Rate Risk
    
 Item 8. Financial Statements and Supplementary Data.
  
 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
  42




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Item 9A. Controls and Procedures.
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Controls
  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
generally accepted accounting principles, 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.
  43




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Item 9B. Other Information.
  
 PART III
 
 Item 10. Directors, Executive Officers and Corporate Governance.
 Directors
  Executive Officers
  Code of Ethics
 www.interphase.com
 
 Item 11. Executive Compensation.
  44




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Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
  
 Item 13. Certain Relationships and Related Transactions, and Director Independence.
  
 Item 14. Principal Accounting Fees and Services.
  
 PART IV
 
 Item 15. Exhibits and Financial Statement Schedules.
 (a)
    (1)
    
    Financial Statements.
  (2)
    
    Financial Statement Schedules
  (3)
    
    Exhibits.
  45




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SIGNATURES
  INTERPHASE CORPORATIONDate:     March 24, 2008
    By:
    /s/ Gregory B. KalushGregory B. KalushChairman of the Board,
Chief Executive Officer and
President  Name
    
    Title/s/ Gregory B. Kalush

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

Thomas N. Tipton, Jr.
    
    Chief Financial Officer,
Vice President of Finance and Treasurer
(Principal financial and accounting officer)/s/ Paul N. Hug

Paul N. Hug
    
    Director/s/ Michael J. Myers

Michael J. Myers
    
    Director/s/ Kenneth V. Spenser

Kenneth V. Spenser
    
    Director/s/ Christopher B. Strunk

Christopher B. Strunk
    
    Director/s/ S. Thomas Thawley

S. Thomas Thawley
    
    Vice Chairman, Director
and Secretary
 46




---



##### Table of Contents



INDEX TO FINANCIAL STATEMENTS
 Report of Grant Thornton LLP
    
    
    F-2Consolidated Balance Sheets  As of December 31, 2007 and 2006
    
    
    F-3Consolidated Statements of Operations  Years Ended
December 31, 2007, 2006 and 2005
    
    
    F-4Consolidated Statements of Shareholders Equity  Years Ended
December 31, 2007, 2006 and 2005
    
    
    F-5Consolidated Statements of Cash Flows  Years Ended
December 31, 2007, 2006 and 2005
    
    
    F-6Notes to Consolidated Financial Statements
    
    F-7 to F-23
 
 *
    
    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




---



##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
      
 F-2




---



##### Table of Contents



December 31,2007
    
    2006ASSETSCash and cash equivalents
    
    $
    6,384
    
    
    $
    9,061Marketable securities
    
    
    14,185
    
    
    
    13,469Trade accounts receivable, less allowances
of $173 and $118, respectively
    
    
    7,550
    
    
    
    5,824Inventories
    
    
    2,886
    
    
    
    1,921Prepaid expenses and other current assets
    
    
    1,391
    
    
    
    1,006Total current assets
    
    
    32,396
    
    
    
    31,281Machinery and equipment
    
    
    6,962
    
    
    
    6,308Leasehold improvements
    
    
    427
    
    
    
    422Furniture and fixtures
    
    
    574
    
    
    
    5547,963
    
    
    
    7,284Less-accumulated depreciation and amortization
    
    
    (6,879
    )
    
    
    (6,308
    )Total property and equipment, net
    
    
    1,084
    
    
    
    976Capitalized software, net
    
    
    1,817
    
    
    
    1,322Other assets
    
    
    883
    
    
    
    483Total assets
    
    $
    36,180
    
    
    $
    34,062LIABILITIES AND SHAREHOLDERS EQUITYLiabilitiesAccounts payable
    
    $
    2,304
    
    
    $
    1,372Deferred revenue
    
    
    30
    
    
    
    98Accrued liabilities
    
    
    1,387
    
    
    
    1,140Accrued compensation
    
    
    1,645
    
    
    
    2,067Total current liabilities
    
    
    5,366
    
    
    
    4,677Deferred lease obligations
    
    
    52
    
    
    
    85Long term debt
    
    
    3,500
    
    
    
    3,500Total liabilities
    
    
    8,918
    
    
    
    8,262Commitments and contingenciesShareholders EquityCommon stock, $.10 par value; 100,000,000
shares authorized; 6,500,206 and 6,152,141
shares issued and outstanding, respectively
    
    
    650
    
    
    
    615Additional paid in capital
    
    
    42,267
    
    
    
    39,884Retained deficit
    
    
    (15,204
    )
    
    
    (14,059
    )Cumulative other comprehensive loss
    
    
    (451
    )
    
    
    (640
    )Total shareholders equity
    
    
    27,262
    
    
    
    25,800Total liabilities and shareholders equity
    
    $
    36,180
    
    
    $
    34,062
 The accompanying notes are an integral part of these consolidated financial statements.
 F-3




---



##### Table of Contents



2007
    
    2006
    
    2005Revenues
    
    $
    30,780
    
    
    $
    33,403
    
    
    $
    30,852Cost of sales
    
    
    13,189
    
    
    
    15,277
    
    
    
    14,755Gross margin
    
    
    17,591
    
    
    
    18,126
    
    
    
    16,097Research and development
    
    
    10,216
    
    
    
    8,226
    
    
    
    7,974Sales and marketing
    
    
    5,614
    
    
    
    5,405
    
    
    
    6,310General and administrative
    
    
    4,692
    
    
    
    3,926
    
    
    
    3,531Restructuring charge
    
    
    
    
    
    
    
    
    
    
    600Total operating expenses
    
    
    20,522
    
    
    
    17,557
    
    
    
    18,415(Loss) income from operations
    
    
    (2,931
    )
    
    
    569
    
    
    
    (2,318
    )Interest income, net
    
    
    764
    
    
    
    637
    
    
    
    370Other income (expense), net
    
    
    364
    
    
    
    475
    
    
    
    (133
    )(Loss) income before income tax
    
    
    (1,803
    )
    
    
    1,681
    
    
    
    (2,081
    )Income tax (benefit) provision
    
    
    (609
    )
    
    
    (405
    )
    
    
    218Net (loss) income
    
    $
    (1,194
    )
    
    $
    2,086
    
    
    $
    (2,299
    )Net (loss) income per share:Basic EPS
    
    $
    (0.19
    )
    
    $
    0.36
    
    
    $
    (0.40
    )Diluted EPS
    
    $
    (0.19
    )
    
    $
    0.33
    
    
    $
    (0.40
    )Weighted average common shares
    
    
    6,161
    
    
    
    5,854
    
    
    
    5,758Weighted average common and dilutive
shares
    
    
    6,161
    
    
    
    6,254
    
    
    
    5,758
 The accompanying notes are an integral part of these consolidated financial statements.
 F-4




---



##### Table of Contents



CumulativeAdditional
    
    
    
    
    
    
    OtherCommon Stock
    
    
    Paid in
    
    
    Retained
    
    
    Comprehensive
    
    
    
    
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    Loss
    
    
    Total
    
    
    Income (loss)Balance at December 31, 2004
    
    
    5,751
    
    
    $
    575
    
    
    $
    38,633
    
    
    $
    (13,846
    )
    
    $
    (574
    )
    
    $
    24,788Option exercises
    
    
    15
    
    
    
    1
    
    
    
    63
    
    
    
    
    
    
    
    
    
    
    
    64Stock issued under restricted stock plan
    
    
    136
    
    
    
    14
    
    
    
    (14
    )
    
    
    
    
    
    
    
    
    
    
    Amortization of restricted stock
plan compensation
    
    
    
    
    
    
    
    
    
    
    135
    
    
    
    
    
    
    
    
    
    
    
    135Comprehensive loss:Foreign currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (157
    )
    
    
    (157
    )
    
    
    (157
    )Unrealized holding period loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (33
    )
    
    
    (33
    )
    
    
    (33
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,299
    )
    
    
    
    
    
    
    (2,299
    )
    
    
    (2,299
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (2,489
    )Balance at December 31, 2005
    
    
    5,902
    
    
    $
    590
    
    
    $
    38,817
    
    
    $
    (16,145
    )
    
    $
    (764
    )
    
    $
    22,498Option exercises
    
    
    144
    
    
    
    15
    
    
    
    782
    
    
    
    
    
    
    
    
    
    
    
    797Stock issued under restricted stock
plan, net forefeitures
    
    
    106
    
    
    
    10
    
    
    
    (10
    )
    
    
    
    
    
    
    
    
    
    
    Amortization of restricted stock
plan compensation
    
    
    
    
    
    
    
    
    
    
    295
    
    
    
    
    
    
    
    
    
    
    
    295Comprehensive income:Foreign currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    61
    
    
    
    61
    
    
    
    61Unrealized holding period gain
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    63
    
    
    
    63
    
    
    
    63Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,086
    
    
    
    
    
    
    
    2,086
    
    
    
    2,086Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    2,210Balance at December 31, 2006
    
    
    6,152
    
    
    $
    615
    
    
    $
    39,884
    
    
    $
    (14,059
    )
    
    $
    (640
    )
    
    $
    25,800FIN48 Tax Adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    49
    
    
    
    
    
    
    
    49Option exercises
    
    
    320
    
    
    
    32
    
    
    
    2,010
    
    
    
    
    
    
    
    
    
    
    
    2,042Stock issued under restricted stock
plan, net forefeitures
    
    
    28
    
    
    
    3
    
    
    
    (3
    )
    
    
    
    
    
    
    
    
    
    
    Amortization of restricted stock
plan compensation
    
    
    
    
    
    
    
    
    
    
    376
    
    
    
    
    
    
    
    
    
    
    
    376Comprehensive income:Foreign currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    98
    
    
    
    98
    
    
    
    98Unrealized holding period gain
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    91
    
    
    
    91
    
    
    
    91Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,194
    )
    
    
    
    
    
    
    (1,194
    )
    
    
    (1,194
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (1,005
    )Balance at December 31, 2007
    
    
    6,500
    
    
    $
    650
    
    
    $
    42,267
    
    
    $
    (15,204
    )
    
    $
    (451
    )
    
    $
    27,262
 The accompanying notes are an integral part of these consolidated financial statements.
 F-5




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##### Table of Contents



Years ended December 31,2007
    
    2006
    
    2005Cash flows from operating activities:Net (loss) income
    
    $
    (1,194
    )
    
    $
    2,086
    
    
    $
    (2,299
    )Adjustments to reconcile net (loss) income to net cash provided by operating activities:Provision for uncollectible accounts and returns
    
    
    55
    
    
    
    (8
    )
    
    
    (10
    )Provision for excess and obsolete inventories
    
    
    300
    
    
    
    500
    
    
    
    1,000Depreciation and amortization
    
    
    916
    
    
    
    695
    
    
    
    801Amortization of restricted stock
    
    
    376
    
    
    
    295
    
    
    
    135Write-off of impaired capitalized software
    
    
    218
    
    
    
    
    
    
    
    Change in assets and liabilities:Trade accounts receivable
    
    
    (1,781
    )
    
    
    (621
    )
    
    
    (209
    )Inventories
    
    
    (1,265
    )
    
    
    688
    
    
    
    (600
    )Prepaid expenses and other current assets
    
    
    18
    
    
    
    (236
    )
    
    
    192Income taxes receivable
    
    
    
    
    
    
    
    
    
    
    233Other assets
    
    
    (637
    )
    
    
    (274
    )
    
    
    (1
    )Accounts payable, deferred revenue and accrued liabilities
    
    
    1,091
    
    
    
    455
    
    
    
    (42
    )Accrued compensation
    
    
    (541
    )
    
    
    1,030
    
    
    
    (501
    )Other non-current liabilities
    
    
    
    
    
    
    (34
    )
    
    
    34Deferred lease obligations
    
    
    (33
    )
    
    
    (5
    )
    
    
    30Net adjustments
    
    
    (1,283
    )
    
    
    2,485
    
    
    
    1,062Net cash (used in) provided by operating activities
    
    
    (2,477
    )
    
    
    4,571
    
    
    
    (1,237
    )Cash flows from investing activities:Purchase of property and equipment
    
    
    (674
    )
    
    
    (358
    )
    
    
    (506
    )Purchase of capitalized software
    
    
    (1,045
    )
    
    
    (1,178
    )
    
    
    (32
    )Proceeds from the sale of marketable securities
    
    
    14,958
    
    
    
    14,860
    
    
    
    11,948Purchases of marketable securities
    
    
    (15,583
    )
    
    
    (12,878
    )
    
    
    (11,784
    )Net cash (used in) provided by investing activities
    
    
    (2,344
    )
    
    
    446
    
    
    
    (374
    )Cash flows from financing activities:Proceeds from the excerise of stock options
    
    
    2,042
    
    
    
    797
    
    
    
    62Net cash provided by financing activities
    
    
    2,042
    
    
    
    797
    
    
    
    62Effect of exchange rate changes on cash and cash equivalents
    
    
    102
    
    
    
    67
    
    
    
    (199
    )Net (decrease) increase in cash and cash equivalents
    
    
    (2,677
    )
    
    
    5,881
    
    
    
    (1,748
    )Cash and cash equivalents at beginning of year
    
    
    9,061
    
    
    
    3,180
    
    
    
    4,928Cash and cash equivalents at end of year
    
    $
    6,384
    
    
    $
    9,061
    
    
    $
    3,180Supplemental Disclosure of Cash Flow Information:Income taxes paid
    
    $
    185
    
    
    $
    359
    
    
    $
    92Interest paid
    
    $
    225
    
    
    $
    160
    
    
    $
    124
 The accompanying notes are an integral part of these consolidated financial statements.
 F-6




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##### Table of Contents



INTERPHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Description of the Business: ®
 Principles of Consolidation and Basis of Presentation:
 Reclassification
 Fair Value of Financial Instruments:
 Cash and Cash Equivalents:
 Marketable Securities:
 F-7




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##### Table of Contents



Accounts Receivable and Allowance for Doubtful Accounts:
 Balance at
    
    
    
    
    
    (Write-offs,)
    
    BalanceBeginning
    
    Charged to
    
    Net of
    
    at EndYear Ended December 31:
    
    of Period
    
    Expense
    
    Recoveries
    
    of Period2007
    
    $
    33
    
    
    $
    47
    
    
    $
    (3
    )
    
    $
    772006
    
    
    36
    
    
    
    (3
    )
    
    
    
    
    
    
    332005
    
    
    36
    
    
    
    5
    
    
    
    (5
    )
    
    
    36
 Allowance for Returns:
 Inventories:
 Years ended December 31,2007
    
    
    2006Raw Materials
    
    $
    2,038
    
    
    $
    1,449Work-in-Process
    
    
    594
    
    
    
    344Finished Goods
    
    
    254
    
    
    
    128Total
    
    $
    2,886
    
    
    $
    1,921
  F-8




---



##### Table of Contents



Property and Equipment:
 Year ended December 31:
    
    Depreciation Expense2007
    
    $
    5882006
    
    $
    5672005
    
    $
    690
  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 Amortization2007
    
    $
    328
    
    
    $
    1,9642006
    
    $
    128
    
    
    $
    1,6702005
    
    $
    111
    
    
    $
    1,501
 Long-Lived Assets:
 Revenue Recognition:
 Warranty Reserve:
 F-9




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##### Table of Contents



Concentration of Credit Risks:
 Research and Development:
 Interest Income, net:
 Advertising Expense:
 Foreign Currency Translation:
  Income Taxes:
   F-10




---



##### Table of Contents



Other Comprehensive Income (loss):
 Stock-Based Compensation:
 Year ended December 31,2005Net loss as reported
    
    $
    (2,299
    )Add: APB 25 expense
    
    
    135Less: Total stock based employee compensation expense
determined under fair value methods for all awards
    
    
    (1,150
    )Pro forma net loss
    
    
    (3,314
    )Loss per common share:As reported  basic
    
    $
    (0.40
    )Pro forma  basic
    
    $
    (0.58
    )As reported  diluted
    
    $
    (0.40
    )Pro forma  diluted
    
    $
    (0.58
    )
 Use of Estimates:
 F-11




---



##### Table of Contents



2. MARKETABLE SECURITIES
  3. ACCRUED LIABILITIES
  Years ended December 31,2007
    
    
    2006Inventory receipts
    
    
    364
    
    
    
    381Consulting fees
    
    
    298
    
    
    
    134Accrued other
    
    
    725
    
    
    
    625$
    1,387
    
    
    $
    1,140
 4. DERIVATIVE FINANCIAL INSTRUMENTS
   F-12




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##### Table of Contents



5. CREDIT FACILITY
  6. INCOME TAXES
  Year ended December 31,2007
    
    
    2006
    
    
    2005United States tax benefit
    
    $
    (133
    )
    
    $
    (55
    )
    
    $
    (10
    )Foreign (benefit) provision
    
    
    (476
    )
    
    
    (350
    )
    
    
    228Income tax (benefit) provision
    
    $
    (609
    )
    
    $
    (405
    )
    
    $
    218
  Year ended December 31,2007
    
    
    2006Current deferred tax assets:Inventories
    
    $
    659
    
    
    $
    1,198Accounts receivable
    
    
    29
    
    
    
    13Deferred revenue
    
    
    11
    
    
    
    37Other accruals
    
    
    214
    
    
    
    265Total current deferred tax assets
    
    $
    913
    
    
    $
    1,513Noncurrent deferred tax assets:Depreciation
    
    $
    (40
    )
    
    $
    77Amortization
    
    
    216
    
    
    
    280Other
    
    
    25
    
    
    
    26Net operating loss carryforwards
    
    
    7,244
    
    
    
    5,564Total noncurrent deferred tax assets
    
    $
    7,445
    
    
    $
    5,947Valuation allowance for deferred tax assets
    
    
    (8,358
    )
    
    
    (7,460
    )Deferred tax assets, net of valuation allowance
    
    $
    
    
    
    $
    
  F-13




---



##### Table of Contents



Year ended December 31,2007
    
    
    2006
    
    
    2005Income taxes at statutory rate
    
    $
    (615
    )
    
    $
    576
    
    
    $
    (708
    )Benefit for French research and development tax
credit
    
    
    (497
    )
    
    
    (394
    )
    
    
    (239
    )State provision (benefit)
    
    
    47
    
    
    
    16
    
    
    
    (119
    )Benefit recorded for favorable outcome of tax audits
    
    
    
    
    
    
    
    
    
    
    French permanent items
    
    
    (282
    )
    
    
    (218
    )
    
    
    244Extraterritorial income exclusion benefit
    
    
    
    
    
    
    (56
    )
    
    
    (75
    )Adjustment to deferred tax assets
    
    
    129
    
    
    
    717
    
    
    
    (747
    )Other
    
    
    (289
    )
    
    
    (130
    )
    
    
    Change in valuation allowance
    
    
    898
    
    
    
    (916
    )
    
    
    1,862(Benefit) provision for income taxes
    
    $
    (609
    )
    
    $
    (405
    )
    
    $
    218
   F-14




---



##### Table of Contents



UnrecognizedTax BenefitBalance as of January 1, 2007
    
    $
    365,000Additions based on tax positions  current year
    
    
    83,000Additions based on tax positions  previous years
    
    
    Reductions for tax positions  previous years
    
    
    (49,000
    )Reductions as a result of lapse of statute limitations
    
    
    (139,000
    )Settlements
    
    
    Effect of exchange rate changes
    
    
    6,000Balance as of December 31, 2007
    
    $
    266,000
 7. RESTRUCTURING CHARGE
  F-15




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##### Table of Contents



8. EARNINGS PER SHARE
  Years ended December 31,2007
    
    
    2006
    
    
    2005Basic (loss) income per share:Net (loss) income
    
    $
    (1,194
    )
    
    $
    2,086
    
    
    $
    (2,299
    )Weighted average common shares outstanding
    
    
    6,161
    
    
    
    5,854
    
    
    
    5,758Basic (loss) income per share
    
    $
    (0.19
    )
    
    $
    0.36
    
    
    $
    (0.40
    )Diluted (loss) income per share:Net (loss) income
    
    $
    (1,194
    )
    
    $
    2,086
    
    
    $
    (2,299
    )Weighted average common shares outstanding
    
    
    6,161
    
    
    
    5,854
    
    
    
    5,758Dilutive stock options and restricted stock
    
    
    
    
    
    
    400
    
    
    
    Weighted average common shares
outstanding  assuming dilution
    
    
    6,161
    
    
    
    6,254
    
    
    
    5,758Diluted (loss) income per share
    
    $
    (0.19
    )
    
    $
    0.33
    
    
    $
    (0.40
    )Outstanding stock options and restricted stock that
were not included in the diluted calculation because
their effect would be anti-dilutive
    
    
    1,440
    
    
    
    1,251
    
    
    
    2,084
 9. COMMON STOCK
 2004 Long-Term Stock Incentive Plan:
 F-16




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##### Table of Contents



Amended and Restated Stock Option Plan:
 France Stock Option Sub-Plan:
 Amended and Restated Director Stock Option Plan:
  Number of
    
    
    Weighted Average
    
    
    AggregateOptions
    
    
    Option Price
    
    
    Intrinsic ValueBalance, December 31, 2004
    
    
    2,654
    
    
    $
    9.35
    
    
    $
    2,793Granted
    
    
    
    
    
    
    N/AExercised
    
    
    (15
    )
    
    
    4.24Canceled
    
    
    (53
    )
    
    
    9.78Balance, December 31, 2005
    
    
    2,586
    
    
    
    9.38
    
    
    
    73Granted
    
    
    
    
    
    
    N/AExercised
    
    
    (144
    )
    
    
    5.54Canceled
    
    
    (320
    )
    
    
    10.13Balance, December 31, 2006
    
    
    2,122
    
    
    
    9.52
    
    
    
    2,886Granted
    
    
    
    
    
    
    N/AExercised
    
    
    (320
    )
    
    
    6.37Canceled
    
    
    (103
    )
    
    
    16.90Balance,
December 31, 2007
    
    
    1,699
    
    
    
    9.67
    
    
    
    4,366Exercisable
at December 31, 2007
    
    
    1,699
    
    
    $
    9.67
    
    
    $
    4,366
 F-17




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##### Table of Contents



Options Outstanding
    
    Options ExercisableWeighted-AverageNumber
    
    Remaining
    
    Weighted
    
    Number
    
    WeightedRange of
    
    Outstanding at
    
    Contractual Life
    
    Average Exercise
    
    Exercisable at
    
    Average ExerciseExercise Prices
    
    12/31/07
    
    (years)
    
    Price
    
    12/31/07
    
    Price$3.09-$4.60
    
    
    197
    
    
    
    4.01
    
    
    $
    4.28
    
    
    
    197
    
    
    $
    4.28$4.83-$6.45
    
    
    459
    
    
    
    4.77
    
    
    
    5.51
    
    
    
    459
    
    
    
    5.51$7.20-$10.63
    
    
    463
    
    
    
    2.84
    
    
    
    8.27
    
    
    
    463
    
    
    
    8.27$11.25-$13.88
    
    
    329
    
    
    
    4.05
    
    
    
    12.78
    
    
    
    329
    
    
    
    12.78$17.25-$24.06
    
    
    241
    
    
    
    2.00
    
    
    
    19.52
    
    
    
    241
    
    
    
    19.52$31.00
    
    
    10
    
    
    
    1.90
    
    
    
    31.00
    
    
    
    10
    
    
    
    31.00Total
    
    
    1,699
    
    
    
    3.61
    
    
    $
    9.67
    
    
    
    1,699
    
    
    $
    9.67
 Stock Option Acceleration:
 Aggregate Number of
    
    Weighted AverageShares Issuable Under
    
    Exercise Price PerAccelerated Stock Options
    
    ShareTotal Non-Employee Directors
    
    
    
    
    
    
    N/ATotal Executive Officers
    
    
    167,830
    
    
    $
    9.47Total All Other Employees
    
    
    38,092
    
    
    $
    7.61Total
    
    
    205,922
    
    
    $
    9.13
 Restricted Stock:
 F-18




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##### Table of Contents



Restricted Stock
    
    
    Weighted AverageShares
    
    
    Grant Date ValueNonvested restricted stock at December 31, 2005
    
    
    136,052
    
    
    $
    5.59Granted
    
    
    112,300
    
    
    
    6.46Vested
    
    
    (21,127
    )
    
    
    5.68Cancelled/Forefeited
    
    
    (5,800
    )
    
    
    6.11Nonvested restricted stock at December 31, 2006
    
    
    221,425
    
    
    $
    5.96Granted
    
    
    106,000
    
    
    $
    10.94Vested
    
    
    (41,455
    )
    
    
    6.09Cancelled/Forefeited
    
    
    (78,410
    )
    
    
    6.07Nonvested restricted stock at December 31, 2007
    
    
    207,560
    
    
    $
    8.53
 Rights Agreement:
  Option Valuation:
 F-19




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##### Table of Contents



10. RELATED PARTY TRANSACTIONS
  11. EMPLOYEE BENEFIT PLAN
  12. OTHER FINANCIAL INFORMATION
 Major Customers
  Commitments:
 Year ending December 31:2008
    
    $
    8872009
    
    $
    3222010
    
    $
    3252011
    
    $
    1662012
    
    $
    
 F-20




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##### Table of Contents



Year ending December 31:2007
    
    $
    8372006
    
    $
    7382005
    
    $
    757
 Contingencies
 13. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
     F-21




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##### Table of Contents



14. SEGMENT DATA
   Long Lived Assets
    
    2007
    
    
    2006North America
    
    $
    2,657
    
    
    $
    2,064Europe
    
    
    244
    
    
    
    234Total
    
    $
    2,901
    
    
    $
    2,298
 Revenues
    
    2007
    
    
    2006
    
    
    2005North America
    
    $
    12,475
    
    
    $
    11,226
    
    
    $
    16,912Pacific Rim
    
    
    11,994
    
    
    
    6,962
    
    
    
    5,136Europe
    
    
    6,311
    
    
    
    15,215
    
    
    
    8,804Total
    
    $
    30,780
    
    
    $
    33,403
    
    
    $
    30,852
  Product Revenue
    
    2007
    
    
    2006
    
    
    2005Broadband telecom
    
    $
    26,071
    
    
    $
    26,507
    
    
    $
    20,502Enterprise
    
    
    3,369
    
    
    
    4,730
    
    
    
    8,236Professional Services
    
    
    603
    
    
    
    128
    
    
    
    1,691Other
    
    
    737
    
    
    
    2,038
    
    
    
    423Total
    
    $
    30,780
    
    
    $
    33,403
    
    
    $
    30,852
 F-22




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##### Table of Contents



15. QUARTERLY FINANCIAL DATA (Unaudited)
 
 Quarter EndedMarch 31
    
    June 30
    
    September 30
    
    December 31Revenues
    
    $
    5,104
    
    
    $
    8,241
    
    
    $
    8,429
    
    
    $
    9,006Gross margin
    
    
    2,699
    
    
    
    4,925
    
    
    
    5,180
    
    
    
    4,787(Loss) income before
income taxes
    
    
    (1,912
    )
    
    
    301
    
    
    
    547
    
    
    
    (739
    )Net (loss) income
    
    
    (1,852
    )
    
    
    390
    
    
    
    698
    
    
    
    (430
    )(Loss) earnings per share:Basic EPS
    
    $
    (0.30
    )
    
    $
    0.06
    
    
    $
    0.11
    
    
    $
    (0.07
    )Diluted EPS
    
    $
    (0.30
    )
    
    $
    0.06
    
    
    $
    0.10
    
    
    $
    (0.07
    )
 
 Quarter EndedMarch 31
    
    June 30
    
    September 30
    
    December 31Revenues
    
    $
    8,151
    
    
    $
    9,371
    
    
    $
    7,758
    
    
    $
    8,123Gross margin
    
    
    4,121
    
    
    
    5,400
    
    
    
    4,067
    
    
    
    4,538Income before
income taxes
    
    
    195
    
    
    
    1,066
    
    
    
    118
    
    
    
    302Net income
    
    
    310
    
    
    
    1,143
    
    
    
    175
    
    
    
    458Earnings per share:Basic EPS
    
    $
    0.05
    
    
    $
    0.20
    
    
    $
    0.03
    
    
    $
    0.08Diluted EPS
    
    $
    0.05
    
    
    $
    0.19
    
    
    $
    0.03
    
    
    $
    0.07
  F-23




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##### Table of Contents



INDEX TO EXHIBITS
 Exhibits
 3
    
    (a)
    
    Certificate of Incorporation of the registrant. (1)3
    
    (b)
    
    Amendment to Articles of Incorporation of the registrant. (2)3
    
    (c)
    
    Amended and Restated Bylaws of the registrant adopted on July 27, 2007. (4)4
    
    (a)
    
    Rights Agreement dated as of December 7, 2000 by and between the Company and
Computershare Investor Services, LLC as Rights Agent. (3)10
    
    (a)
    
    Lease on Facility at Parkway Center, Phase I, Plano, Texas. (5)10
    
    (b)
    
    Lease on Facility at 2105 Luna Road, Carrollton, Texas. (5)10
    
    (c)
    
    Note and Credit Agreement between Interphase Corporation and Comerica Bank, including
Amendment dated November 5, 2004. (8)10
    
    (d)
    
    Employment Agreement with Gregory B. Kalush, dated March 12, 1999. *(9)10
    
    (e)
    
    Employment, Confidentiality, and Non-Competition Agreement with Thomas N. Tipton, Jr.,
dated December 19, 2005. *(9)10
    
    (f)
    
    Employment, Confidentiality, and Non-Competition Agreement with Randall E. McComas,
dated February 15, 2002. *(9)10
    
    (g)
    
    Employment Agreement with Deborah A. Shute, dated November 24, 1999. *(9)10
    
    (h)
    
    Employment, Confidentiality, and Non-Competition Agreement with James W. Gragg,
dated November 1, 2004. *(9)10
    
    (i)
    
    Employment, Confidentiality, and Non-Competition Agreement with Prasad Kallur,
dated May 23, 2005. *(9)10
    
    (j)
    
    Interphase Corporation 2004 Long-Term Stock Incentive Plan *(8)10
    
    (k)
    
    Employment, Confidentiality, and Non-Competition Agreement with Marc E. DeVinney dated
August 31, 2007. *(10)21
    
    (a)
    
    Subsidiaries of the Registrant. (6)23
    
    (a)
    
    Consent of Independent Registered Public Accounting Firm. (11)31
    
    (a)
    
    Rule 13a-14(a)/15d-14(a) Certification. (11)31
    
    (b)
    
    Rule 13a-14(a)/15d-14(a) Certification. (11)32
    
    (a)
    
    Section 1350 Certification. (11)32
    
    (b)
    
    Section 1350 Certification. (11)
 
 (1)
    
    Filed as an exhibit to Registration Statement No. 2-86523 on Form S-1 and incorporated
herein by
reference.(2)
    
    Filed as an exhibit to Report on Form 10-K for the year ended December 31, 1999, and
incorporated herein by reference.(3)
    
    Filed as an exhibit to Form 8-K on January 9, 2001, and incorporated herein by
reference.(4)
    
    Filed as an exhibit to Report on Form 8-K on July 31, 2007, and incorporated herein by
reference.(5)
    
    Filed as an exhibit to Report on Form 10-Q for the quarter ended September 30, 2002, and
incorporated herein by reference.(6)
    
    Filed as an exhibit to Report on Form 10-K for the year ended December 31, 2002, and
incorporated herein by reference.(7)
    
    Filed as an exhibit to Report on Form 10-K for the year ended December 31, 2004, and
incorporated herein by reference.(8)
    
    Filed as an exhibit to Schedule 14a on March 31, 2005 and incorporated herein by reference. E-1




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##### Table of Contents



(9)
    
    Filed as an exhibit to Report on Form 10-K for the year ended December 31, 2005, and
incorporated herein by reference.(10)
    
    Filed as an exhibit to Report on Form 8-K on August 31, 2007, and incorporated herein by
reference.(11)
    
    Filed herewith*
    
    Management contract or compensatory plan or arrangement. E-2