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, 2009
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from            to
 Commission File Number 0-13071
 INTERPHASE CORPORATION
  Texas
    
    75-1549797(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 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
 þ
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller Reporting Company þ(Do not check if a smaller reporting company)
 o þ
  DOCUMENTS INCORPORATED BY REFERENCE




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PART I
 Item 1. Business.
 Introduction
 ® TM
 www.interphase.com www.sec.gov
 Key Terms and Definitions
  AdvancedTCA ® or ATCA (Advanced Telecommunications Computing Architecture)
 AdvancedMC or AMC (Advanced Mezzanine Card)
 1




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Base Station
 Baseband
 Broadband
 Building Blocks
 CompactPCI ® (cPCI)
 CompactPCI Packet Switching Backplane (cPSB)
 eNodeB
 Embedded Computing Systems
 Femtocell
 2




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Field Programmable Gate Array (FPGA)
 Gateway Appliances
 Gigabit Ethernet (GigE)
 Interworking
 Internal TDM (I-TDM) 
 Internet Protocol (IP)
 Long Term Evolution (LTE or 3GPP LTE) rd
 Media Converter
 Microcell
 OC-3/STM-1
 Packet Processing
 3




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PCI Industrial Computer Manufacturers Group (PICMG)
 PCI Mezzanine Card (PMC)
 Picocell 
 Restriction of Hazardous Substances Directive (RoHS)
 Signaling System 7 (SS7
 Synchronous Optical Network (SONET)
 T1/E1
 T3/E3/J3
 Time-division multiplexing (TDM)
 4




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Telecommunications Equipment Manufacturer (TEM)
 Worldwide Interoperability of Microwave Access (WiMAX)
 5




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Mission
  Recent Developments
   
    
    Shift from developed country to emerging country subscriber demand with a
much lower price point for equipment and services
    
    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
  
    
    The Company rapidly developed a new line of baseband products for LTE and WiMAX
networks. These solutions, targeting high-performance mobile broadband networks through
4th generation (4G) microcell, picocell and enterprise femtocell radio access,
offer customers significant time to market, time to revenue and cost reduction
advantages. Two of these products are the iSPAN 36701 and 36702 Wireless Base Station
Modules that were announced in the first quarter of 2010. These powerful,
application-ready, small-form-factor modules support pre-integrated protocol layers and are
ready to combine with the radio head in 4G wireless base station applications. Interphase
also offers its customers professional integration services to help them modify any of
these solutions to meet their stringent requirements, regardless of the application. The
Company believes that these new baseband modules provide a significantly reduced footprint
and price point
over the commercially available alternatives in the market today. These products should also
expand the benefits of broadband delivery to various industries outside of traditional
telecommunications providers.
 6




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
    
    The Company expanded its current interworking product line by launching a channelized
OC-3/STM-1 AMC product called the iSPAN 3651. This product utilizes the
WintegraWinPath2TM and offers new levels of interworking processing that is
needed in markets with densely populated wireless environments, such as China. The
interworking product line previously included both the 3650 AMC and the 92XX Gateway
family. These products provide the necessary protocol interworking between the TDM networks
and IP-based networks, and typically offer our customers a significant cost reduction from
alternative approaches to accomplish the interworking function.
    
    The Company is expanding its offering in the packet processing product line, providing
solutions that will bring innovative products and increased processing density to customers
in these markets. The expansion includes the introduction of iSPAN 36MC1 Packet Processer,
which is newest addition to the Companys portfolio of high-performance packet processor
products based on OCTEON Plus multi-core processor architecture from Cavium Networks.
    
    The Company is also broadly expanding its current services capabilities by formally
offering engineering design services and contract manufacturing services to the market.
Among Interphases many strengths, the Companys quality of products, process discipline,
engineering and manufacturing capabilities have consistently been identified by customers
as a key core competency that they consider being world class. The Company decided to offer
contract manufacturing as a new service. With very little start-up costs, the Company
believes that it can differentiate itself on the basis of customer responsiveness, high
quality, low total cost of engagement and overall one stop shop experience, offering
off-the-shelf products, design services and manufacturing services under one roof.
    
    The Company has been taking steps to expand into the aerospace/defense market by
offering products to this industrys large defense contractors. This is a market that
favors domestic developers and manufacturers. The Company believes that many of the
embedded computing technologies and product form factors already perfected within the
communications space will directly apply to this market, although the Company will
certainly have to expand form factor support and change some components and processes to
comply with a more ruggedized environment. While, there has been a lot of consolidation
with this market, it remains largely fragmented, and it accepts new entrants.
 General
  7




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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
 Interphase promise
 
    
    Designed to Perform. Designed to Last. ®
 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)
  
    
    GigE packet processors
    
    10 GigE packet processors
 Wireless Base Station Modules
 
    
    LTE eNodeB module
    
    WiMAX base station module
 8




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Services
 Engineering Design Services
 
    
    Specifications gathering
    
    Program management
    
    Detailed design (high performance/cost optimized)
    
    Rapid prototyping
 Contract Manufacturing
 
    
    Branding and control
    
    Production assembly
    
    Integration
    
    Testing and delivery
 Marketing and Customers
    Manufacturing and Supplies
  9




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Intellectual Property and Patents
    Employees
   10




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Competition
  Item 1A. Risk Factors.
 The current crisis in global credit and financial markets could materially and adversely affect our
business and results of operations.
  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.
  11




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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.
  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 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 2010;
    
    expand product and service offerings beyond what is contemplated in 2010 if unforeseen
opportunities arise;
    
    take advantage of potential acquisition opportunities in the current economic
environment;
    
    invest in businesses and technologies that complement our current operations; or
    
    respond to unforeseen competitive pressures.
  15




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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.
  2010 is expected to 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.
  16




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Item 1B. Unresolved Staff Comments.
  Item 2. Properties.
  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.
  2008
    
    High
    
    LowFirst Quarter
    
    
    9.93
    
    
    
    4.52Second Quarter
    
    
    4.90
    
    
    
    3.20Third Quarter
    
    
    3.45
    
    
    
    2.80Fourth Quarter
    
    
    2.99
    
    
    
    1.59
 2009
    
    High
    
    LowFirst Quarter
    
    
    3.20
    
    
    
    1.44Second Quarter
    
    
    6.07
    
    
    
    3.15Third Quarter
    
    
    5.60
    
    
    
    3.94Fourth Quarter
    
    
    4.50
    
    
    
    2.21
  17




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Stock Performance Graph
   12/04
    
    12/05
    
    12/06
    
    12/07
    
    12/08
    
    12/09Interphase Corporation
    
    
    100
    
    
    
    52
    
    
    
    99
    
    
    
    123
    
    
    
    20
    
    
    
    31NASDAQ Composite
    
    
    100
    
    
    
    101
    
    
    
    114
    
    
    
    124
    
    
    
    73
    
    
    
    106Dow Jones USTelecommunicationsEquipment TSM Index
    
    
    100
    
    
    
    101
    
    
    
    117
    
    
    
    120
    
    
    
    71
    
    
    
    108
 COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
 
 
 *
    
    $100 invested on 12/31/04 in stock or index, including reinvestment of dividends. Fiscal year ending December 31. 18




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Item 6. Selected Consolidated Financial Data.
 
   
 Year ended December 31,2009
    
    2008
    
    2007
    
    2006
    
    2005Revenues
    
    $
    25,585
    
    
    $
    26,231
    
    
    $
    30,780
    
    
    $
    33,403
    
    
    $
    30,852Gross margin
    
    
    12,289
    
    
    
    14,031
    
    
    
    17,591
    
    
    
    18,126
    
    
    
    16,097Research and development
    
    
    7,970
    
    
    
    9,198
    
    
    
    10,216
    
    
    
    8,226
    
    
    
    7,974Sales and marketing
    
    
    5,753
    
    
    
    5,237
    
    
    
    5,614
    
    
    
    5,405
    
    
    
    6,310General and administrative
    
    
    4,275
    
    
    
    4,100
    
    
    
    4,692
    
    
    
    3,926
    
    
    
    3,531Restructuring charge
    
    
    1,236
    
    
    
    403
    
    
    
    
    
    
    
    
    
    
    
    600(Loss) income from operations
    
    
    (6,945
    )
    
    
    (4,907
    )
    
    
    (2,931
    )
    
    
    569
    
    
    
    (2,318
    )Other income, net
    
    
    289
    
    
    
    618
    
    
    
    1,128
    
    
    
    1,112
    
    
    
    237(Loss) income before income tax
    
    
    (6,656
    )
    
    
    (4,289
    )
    
    
    (1,803
    )
    
    
    1,681
    
    
    
    (2,081
    )Income tax (benefit) provision
    
    
    (1,102
    )
    
    
    (1,263
    )
    
    
    (609
    )
    
    
    (405
    )
    
    
    218Net (loss) income
    
    $
    (5,554
    )
    
    $
    (3,026
    )
    
    $
    (1,194
    )
    
    $
    2,086
    
    
    $
    (2,299
    )Net (loss) income per shareBasic EPS
    
    $
    (0.81
    )
    
    $
    (0.46
    )
    
    $
    (0.19
    )
    
    $
    0.34
    
    
    $
    (0.39
    )Diluted EPS
    
    $
    (0.81
    )
    
    $
    (0.46
    )
    
    $
    (0.19
    )
    
    $
    0.33
    
    
    $
    (0.39
    )Weighted average common shares
    
    
    6,899
    
    
    
    6,550
    
    
    
    6,240
    
    
    
    6,059
    
    
    
    5,841Weighted average common and dilutive shares
    
    
    6,899
    
    
    
    6,550
    
    
    
    6,240
    
    
    
    6,333
    
    
    
    5,841
 19




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##### 



December 31,2009
    
    2008
    
    2007
    
    2006
    
    2005Working capital
    
    $
    21,257
    
    
    $
    25,301
    
    
    $
    27,030
    
    
    $
    26,604
    
    
    $
    24,554Total assets
    
    
    28,647
    
    
    
    31,248
    
    
    
    36,180
    
    
    
    34,062
    
    
    
    29,194Total liabilities
    
    
    9,385
    
    
    
    6,962
    
    
    
    8,918
    
    
    
    8,262
    
    
    
    6,696Shareholders equity
    
    $
    19,262
    
    
    $
    24,286
    
    
    $
    27,262
    
    
    $
    25,800
    
    
    $
    22,498
 Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.
  APPLICATION OF CRITICAL ACCOUNTING POLICIES
  Revenue Recognition:
 20




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Warranty Reserve:
 Accounts Receivable and Allowance for Doubtful Accounts:
 Allowance for Returns:
 Inventories:
 Long-Lived Assets:
 21




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Fair Value of Financial Instruments:
 Stock-Based Compensation:
 Tax Assessments:
 Income Taxes:
 CONSOLIDATED STATEMENT OF OPERATIONS AS A PERCENTAGE OF REVENUE
 Year ended December 31,2009
    
    2008
    
    2007Revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    52.0
    %
    
    
    46.5
    %
    
    
    42.8
    %Gross margin
    
    
    48.0
    %
    
    
    53.5
    %
    
    
    57.2
    %Research and development
    
    
    31.1
    %
    
    
    35.1
    %
    
    
    33.2
    %Sales and marketing
    
    
    22.5
    %
    
    
    20.0
    %
    
    
    18.2
    %General and administrative
    
    
    16.7
    %
    
    
    15.6
    %
    
    
    15.2
    %Restructuring charge
    
    
    4.8
    %
    
    
    1.5
    %
    
    
    Loss from operations
    
    
    (27.1
    )%
    
    
    (18.7
    )%
    
    
    (9.5
    )%Interest income, net
    
    
    1.2
    %
    
    
    2.0
    %
    
    
    2.5
    %Other (loss) income, net
    
    
    (0.1
    )%
    
    
    0.4
    %
    
    
    1.2
    %Loss before income tax
    
    
    (26.0
    )%
    
    
    (16.3
    )%
    
    
    (5.9
    )%Income tax benefit
    
    
    (4.3
    )%
    
    
    (4.8
    )%
    
    
    (2.0
    )%Net loss
    
    
    (21.7
    )%
    
    
    (11.5
    )%
    
    
    (3.9
    )%
 22




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OVERVIEW
   RESULTS OF OPERATIONS
 Revenues:
  23




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Gross Margin:
  Research and Development:
 24




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Sales and Marketing:
  General and Administrative:
 25




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Restructuring Charge:
  Interest Income, Net:
 Other (loss) income, Net:
 Income Taxes:
 26




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Net loss:
 LIQUIDITY AND CAPITAL RESOURCES
 Consolidated Cash Flows
  Operating Activities:
 27




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Investing Activities:
 Financing Activities:
 Commitments
   Payments due by periodContractual Obligation
    
    Total
    
    <1 year
    
    1 - 3 years
    
    3 - 5 years
    
    > 5 yearsLong-term debt obligation (1,2)
    
    $
    3,683
    
    
    $
    46
    
    
    $
    91
    
    
    $
    3,546
    
    
    $
    Operating lease obligations
(3,4)
    
    $
    2,962
    
    
    $
    892
    
    
    $
    1,346
    
    
    $
    724
    
    
    $
    Total
    
    $
    6,645
    
    
    $
    938
    
    
    $
    1,437
    
    
    $
    4,270
    
    
    $
    
 
 (1)
    
    At December 31, 2009, 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 28




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credit agreement. At December 31, 2009, our interest rate on the
borrowings from the revolving credit facility was 1.3%. We used the 1.3% rate to estimate interest expense
for 2010 through December 2013. The interest expense estimate is $45,500 annually for
the years 2010 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 $350,000 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. Off-Balance Sheet Arrangements
  Other
   Recently Issued Accounting Pronouncements
   29




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ITEM 7A. Quantitative and Qualitative Disclosure about Market Risk
 Foreign Currency Risk
   Market Price Risk
  Interest Rate Risk
  30




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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
  31




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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
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.
   32




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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.
  33




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Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
  Number ofsecurities inthousandsNumber of
    
    
    
    
    
    
    remaining availablesecurities in
    
    
    
    
    
    
    for future issuancethousands to be
    
    
    
    
    
    
    under equityissued upon
    
    
    Weighted-average
    
    
    compensation planexercise of
    
    
    exercise price of
    
    
    (excludingoutstanding
    
    
    outstanding
    
    
    securitiesoptions, warrants
    
    
    options, warrants
    
    
    reflected in columnand rights
    
    
    and rights
    
    
    (a))Plan Category
    
    (a)
    
    
    (b)
    
    
    (c)Equity Compensation
plans approved by
security holders
    
    
    1,450
    
    
    $
    8.16
    
    
    
    1,161Equity Compensation
plans not approved
by security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    1,450
    
    
    $
    8.16
    
    
    
    1,161
   34




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Item 13. Certain Relationships and Related Transactions, and Director Independence.
  Item 14. Principal Accountant Fees and Services.
  PART IV
 Item 15. Exhibits and Financial Statement Schedules.
       35




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##### 



SIGNATURES
  INTERPHASE CORPORATIONDate:     March 19, 2010
    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
 36




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##### 



INDEX TO FINANCIAL STATEMENTS
 Report of Grant Thornton LLP
    
    F-2Consolidated Balance Sheets  As of December 31, 2009 and 2008
    
    F-3Consolidated Statements of Operations  Years Ended December 31, 2009, 2008 and 2007
    
    F-4Consolidated Statements of Shareholders Equity  Years Ended December 31, 2009, 2008 and 2007
    
    F-5Consolidated Statements of Cash Flows  Years Ended December 31, 2009, 2008 and 2007
    
    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 31,2009
    
    
    2008ASSETSCash and cash equivalents
    
    $
    8,115
    
    
    $
    7,383Marketable securities
    
    
    9,724
    
    
    
    11,563Trade accounts receivable, less allowances of $76 and $159, respectively
    
    
    5,106
    
    
    
    4,758Inventories
    
    
    1,699
    
    
    
    2,329Prepaid expenses and other current assets
    
    
    2,202
    
    
    
    2,729Total current assets
    
    
    26,846
    
    
    
    28,762Machinery and equipment
    
    
    6,993
    
    
    
    6,929Leasehold improvements
    
    
    430
    
    
    
    422Furniture and fixtures
    
    
    587
    
    
    
    5808,010
    
    
    
    7,931Less-accumulated depreciation and amortization
    
    
    (7,318
    )
    
    
    (7,056
    )Total property and equipment, net
    
    
    692
    
    
    
    875Capitalized software, net
    
    
    912
    
    
    
    1,408Other assets
    
    
    197
    
    
    
    203Total assets
    
    $
    28,647
    
    
    $
    31,248LIABILITIES AND SHAREHOLDERS EQUITYLiabilitiesAccounts payable
    
    $
    1,257
    
    
    $
    1,328Deferred revenue
    
    
    161
    
    
    
    28Accrued liabilities
    
    
    2,667
    
    
    
    942Accrued compensation
    
    
    1,504
    
    
    
    1,163Total current liabilities
    
    
    5,589
    
    
    
    3,461Deferred lease obligations
    
    
    296
    
    
    
    1Long term debt
    
    
    3,500
    
    
    
    3,500Total liabilities
    
    
    9,385
    
    
    
    6,962Commitments and contingenciesShareholders EquityCommon stock, $.10 par value; 100,000,000 shares authorized; 6,911,494 and 6,573,294
shares issued and outstanding, respectively
    
    
    691
    
    
    
    657Additional paid in capital
    
    
    43,022
    
    
    
    42,652Retained deficit
    
    
    (23,784
    )
    
    
    (18,230
    )Cumulative other comprehensive loss
    
    
    (667
    )
    
    
    (793
    )Total shareholders equity
    
    
    19,262
    
    
    
    24,286Total liabilities and shareholders equity
    
    $
    28,647
    
    
    $
    31,248
 The accompanying notes are an integral part of these consolidated financial statements.
 F-3




---



##### 



2009
    
    
    2008
    
    
    2007Revenues
    
    $
    25,585
    
    
    $
    26,231
    
    
    $
    30,780Cost of sales
    
    
    13,296
    
    
    
    12,200
    
    
    
    13,189Gross margin
    
    
    12,289
    
    
    
    14,031
    
    
    
    17,591Research and development
    
    
    7,970
    
    
    
    9,198
    
    
    
    10,216Sales and marketing
    
    
    5,753
    
    
    
    5,237
    
    
    
    5,614General and administrative
    
    
    4,275
    
    
    
    4,100
    
    
    
    4,692Restructuring charge
    
    
    1,236
    
    
    
    403
    
    
    
    Total operating expenses
    
    
    19,234
    
    
    
    18,938
    
    
    
    20,522Loss from operations
    
    
    (6,945
    )
    
    
    (4,907
    )
    
    
    (2,931
    )Interest income, net
    
    
    301
    
    
    
    526
    
    
    
    764Other (loss) income, net
    
    
    (12
    )
    
    
    92
    
    
    
    364Loss before income tax
    
    
    (6,656
    )
    
    
    (4,289
    )
    
    
    (1,803
    )Income tax benefit
    
    
    (1,102
    )
    
    
    (1,263
    )
    
    
    (609
    )Net loss
    
    $
    (5,554
    )
    
    $
    (3,026
    )
    
    $
    (1,194
    )Net loss per share:Basic EPS
    
    $
    (0.81
    )
    
    $
    (0.46
    )
    
    $
    (0.19
    )Diluted EPS
    
    $
    (0.81
    )
    
    $
    (0.46
    )
    
    $
    (0.19
    )Weighted average common shares
    
    
    6,899
    
    
    
    6,550
    
    
    
    6,240Weighted average common and dilutive
shares
    
    
    6,899
    
    
    
    6,550
    
    
    
    6,240
 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, 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 loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (1,005
    )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
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
    )
    
    $
    19,262
 The accompanying notes are an integral part of these consolidated financial statements.
 F-5




---



##### 



Years ended December 31,2009
    
    2008
    
    2007Cash flows from operating activities:Net loss
    
    $
    (5,554
    )
    
    $
    (3,026
    )
    
    $
    (1,194
    )Adjustments to reconcile net loss to net cash provided by operating activities:Provision for uncollectible accounts and returns
    
    
    27
    
    
    
    (14
    )
    
    
    55Provision for excess and obsolete inventories
    
    
    500
    
    
    
    200
    
    
    
    300Depreciation and amortization
    
    
    835
    
    
    
    868
    
    
    
    916Amortization of restricted stock
    
    
    400
    
    
    
    389
    
    
    
    376Write-off of impaired capitalized software
    
    
    173
    
    
    
    185
    
    
    
    218Change in assets and liabilities:Trade accounts receivable
    
    
    (375
    )
    
    
    2,806
    
    
    
    (1,781
    )Inventories
    
    
    130
    
    
    
    357
    
    
    
    (1,265
    )Prepaid expenses and other current assets
    
    
    577
    
    
    
    (1,480
    )
    
    
    18Other assets
    
    
    10
    
    
    
    671
    
    
    
    (637
    )Accounts payable, deferred revenue and accrued liabilities
    
    
    1,728
    
    
    
    (1,286
    )
    
    
    1,091Accrued compensation
    
    
    305
    
    
    
    (424
    )
    
    
    (541
    )Deferred lease obligations
    
    
    295
    
    
    
    (51
    )
    
    
    (33
    )Net adjustments
    
    
    4,605
    
    
    
    2,221
    
    
    
    (1,283
    )Net cash used in operating activities
    
    
    (949
    )
    
    
    (805
    )
    
    
    (2,477
    )Cash flows from investing activities:Purchase of property and equipment
    
    
    (182
    )
    
    
    (236
    )
    
    
    (674
    )Purchase of capitalized software
    
    
    (136
    )
    
    
    (336
    )
    
    
    (1,045
    )Proceeds from the sale of marketable securities
    
    
    8,269
    
    
    
    8,585
    
    
    
    14,958Purchases of marketable securities
    
    
    (6,372
    )
    
    
    (6,049
    )
    
    
    (15,583
    )Net cash provided by (used in) investing activities
    
    
    1,579
    
    
    
    1,964
    
    
    
    (2,344
    )Cash flows from financing activities:Borrowings under credit facility
    
    
    14,000
    
    
    
    3,500
    
    
    
    Payments on debt
    
    
    (14,000
    )
    
    
    (3,500
    )
    
    
    Proceeds from the excerise of stock options
    
    
    4
    
    
    
    2
    
    
    
    2,042Net cash provided by financing activities
    
    
    4
    
    
    
    2
    
    
    
    2,042Effect of exchange rate changes on cash and cash equivalents
    
    
    98
    
    
    
    (162
    )
    
    
    102Net increase (decrease) in cash and cash equivalents
    
    
    732
    
    
    
    999
    
    
    
    (2,677
    )Cash and cash equivalents at beginning of year
    
    
    7,383
    
    
    
    6,384
    
    
    
    9,061Cash and cash equivalents at end of year
    
    $
    8,115
    
    
    $
    7,383
    
    
    $
    6,384Supplemental Disclosure of Cash Flow Information:Income taxes paid
    
    $
    
    
    
    $
    
    
    
    $
    185Interest paid
    
    $
    7
    
    
    $
    236
    
    
    $
    225
 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: ® TM
 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, 2009
    
    December 31, 2008Fair Value
    
    
    
    
    
    Unrealized
    
    Estimated
    
    
    
    
    
    Unrealized
    
    Estimated FairHierarchy
    
    Cost
    
    Gain
    
    Fair Value
    
    Cost
    
    Gain (loss)
    
    ValueAgencies
    
    Level 2
    
    $
    3,350
    
    
    $
    29
    
    
    $
    3,379
    
    
    $
    5,306
    
    
    $
    101
    
    
    $
    5,407Asset Backed
    
    Level 2
    
    
    2,065
    
    
    
    17
    
    
    
    2,082
    
    
    
    3,930
    
    
    
    (110
    )
    
    
    3,820Corporate Bonds
    
    Level 2
    
    
    976
    
    
    
    1
    
    
    
    977
    
    
    
    1,573
    
    
    
    (1
    )
    
    
    1,572Municipal Bonds and
US Treasuries
    
    Level 2
    
    
    3,276
    
    
    
    10
    
    
    
    3,286
    
    
    
    759
    
    
    
    5
    
    
    
    764Total
    
    
    
    
    
    $
    9,667
    
    
    $
    57
    
    
    $
    9,724
    
    
    $
    11,568
    
    
    $
    (5
    )
    
    $
    11,563
 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 Period2009
    
    $
    113
    
    
    $
    (16
    )
    
    $
    (56
    )
    
    $
    412008
    
    
    77
    
    
    
    45
    
    
    
    (9
    )
    
    
    1132007
    
    
    33
    
    
    
    47
    
    
    
    (3
    )
    
    
    77
 Allowance for Returns:
 Derivative Financial Instruments and Hedging:
 Inventories:
 Years ended December 31,2009
    
    
    2008Raw Materials
    
    $
    1,399
    
    
    $
    1,885Work-in-Process
    
    
    218
    
    
    
    378Finished Goods
    
    
    82
    
    
    
    66Total
    
    $
    1,699
    
    
    $
    2,329
  Property and Equipment:
 Year ended December 31:
    
    Depreciation Expense2009
    
    $
    3672008
    
    $
    4272007
    
    $
    588
 F-9




---



##### 



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 Amortization2009
    
    $
    468
    
    
    $
    2,5172008
    
    $
    441
    
    
    $
    2,3822007
    
    $
    328
    
    
    $
    1,964
 Long-Lived Assets:
 Revenue Recognition:
 Warranty Reserve:
 Concentration of Credit Risks:
 F-10




---



##### 



Research and Development:
 Interest Income, net:
 Advertising Expense:
 Foreign Currency Translation:
  Income Taxes:
   Other Comprehensive Loss:
 Stock-Based Compensation:
 F-11




---



##### 



Use of Estimates:
 2. PREPAID EXPENSES AND OTHER CURRENT ASSETS
  December 31,2009
    
    
    2008Research and development tax credit in France
    
    $
    1,583
    
    
    $
    2,388Prepaid other
    
    
    619
    
    
    
    341Total prepaid expenses and other current assets
    
    $
    2,202
    
    
    $
    2,729
 3. ACCRUED LIABILITIES
  December 31,2009
    
    
    2008Provision for restructuring
    
    $
    979
    
    
    $
    French corporate tax
    
    
    500
    
    
    
    423Reserve for uncertain tax position
    
    
    491
    
    
    
    Inventory receipts
    
    
    106
    
    
    
    149Accrued other
    
    
    591
    
    
    
    370Total accrued liabilites
    
    $
    2,667
    
    
    $
    942
 4. DERIVATIVE FINANCIAL INSTRUMENTS
   F-12




---



##### 



5. CREDIT FACILITY
  6. INCOME TAXES
  Year ended December 31,2009
    
    
    2008
    
    
    2007United States tax provision (benefit)
    
    $
    
    
    
    $
    (2
    )
    
    $
    (133
    )Foreign tax benefit
    
    
    (1,102
    )
    
    
    (1,261
    )
    
    
    (476
    )Income tax benefit
    
    $
    (1,102
    )
    
    $
    (1,263
    )
    
    $
    (609
    )
 F-13




---



##### 



Year ended December 31,2009
    
    
    2008Current deferred tax assets:Inventories
    
    $
    623
    
    
    $
    735Accounts receivable
    
    
    14
    
    
    
    43Deferred revenue
    
    
    56
    
    
    
    57Other accruals
    
    
    193
    
    
    
    256Total current deferred tax assets
    
    $
    886
    
    
    $
    1,091Noncurrent deferred tax assets:Depreciation
    
    $
    (46
    )
    
    $
    (74
    )Amortization
    
    
    82
    
    
    
    153Other
    
    
    111
    
    
    
    27Net operating loss carryforwards
    
    
    11,151
    
    
    
    8,988Total noncurrent deferred tax assets
    
    $
    11,298
    
    
    $
    9,094Valuation allowance for deferred tax assets
    
    
    (12,184
    )
    
    
    (10,185
    )Deferred tax assets, net of valuation allowance
    
    $
    
    
    
    $
    
    F-14




---



##### 



Year ended December 31,2009
    
    
    2008
    
    
    2007Income taxes at statutory rate
    
    $
    (2,263
    )
    
    $
    (1,458
    )
    
    $
    (615
    )Benefit for French research and development tax credit
    
    
    (1,582
    )
    
    
    (1,699
    )
    
    
    (497
    )State (benefit) provision
    
    
    
    
    
    
    (7
    )
    
    
    47French permanent items
    
    
    119
    
    
    
    83
    
    
    
    (282
    )Foreign income inclusion
    
    
    240
    
    
    
    
    
    
    
    Adjustment to deferred tax assets
    
    
    379
    
    
    
    (17
    )
    
    
    129Other
    
    
    6
    
    
    
    9
    
    
    
    (289
    )Change in valuation allowance
    
    
    1,999
    
    
    
    1,827
    
    
    
    898Benefit for income taxes
    
    $
    (1,102
    )
    
    $
    (1,262
    )
    
    $
    (609
    )
    F-15




---



##### 



UnrecognizedTax BenefitBalance as of January 1, 2008
    
    $
    266Additions based on tax positions  current year
    
    
    285Additions based on tax positions  previous years
    
    
    25Reductions for tax positions  previous years
    
    
    Reductions as a result of lapse of statute limitations
    
    
    (69
    )Settlements
    
    
    Effect of exchange rate changes
    
    
    (4
    )Balance as of December 31, 2008
    
    $
    503Additions based on tax positions  current year
    
    $
    272Additions based on tax positions  previous years
    
    
    33Reductions for tax positions  previous years
    
    
    Reductions as a result of lapse of statute limitations
    
    
    (56
    )Settlements
    
    
    Effect of exchange rate changes
    
    
    19Balance as of December 31, 2009
    
    $
    771
 7. RESTRUCTURING CHARGE
  F-16




---



##### 



Cash payments andnon-cash chargesduring quarter
    
    Remaining liabilityended December 31,
    
    as of December 31,Description
    
    Restructuring charge
    
    2009
    
    2009Severance & Fringe
Benefits
    
    $
    1,063
    
    
    $
    84
    
    
    $
    979Non-Utilized Fixed Assets
    
    
    173
    
    
    
    173
    
    
    
    Total
    
    $
    1,236
    
    
    $
    257
    
    
    $
    979
  8. EARNINGS PER SHARE
  F-17




---



##### 



Years ended December 31,2009
    
    
    2008
    
    
    2007Basic loss per share:Net loss
    
    $
    (5,554
    )
    
    $
    (3,026
    )
    
    $
    (1,194
    )Weighted average common shares outstanding
    
    
    6,899
    
    
    
    6,550
    
    
    
    6,240Basic loss per share
    
    $
    (0.81
    )
    
    $
    (0.46
    )
    
    $
    (0.19
    )Diluted loss per share:Net loss
    
    $
    (5,554
    )
    
    $
    (3,026
    )
    
    $
    (1,194
    )Weighted average common shares outstanding
    
    
    6,899
    
    
    
    6,550
    
    
    
    6,240Dilutive stock options and restricted stock
    
    
    
    
    
    
    
    
    
    
    Weighted average common shares outstanding  assuming dilution
    
    
    6,899
    
    
    
    6,550
    
    
    
    6,240Diluted loss per share
    
    $
    (0.81
    )
    
    $
    (0.46
    )
    
    $
    (0.19
    )Outstanding stock options that were not included
in the diluted calculation because their effect would
be anti-dilutive
    
    
    1,494
    
    
    
    1,655
    
    
    
    756
 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, 2006
    
    
    2,122
    
    
    
    9.52
    
    
    $
    2,886Granted
    
    
    
    
    
    
    N/AExercised
    
    
    (320
    )
    
    
    6.37Canceled
    
    
    (103
    )
    
    
    16.90Balance, 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
    
    
    
    Exercisable at December 31, 2009
    
    
    1,350
    
    
    $
    8.57
    
    
    $
    
  F-19




---



##### 



Options Outstanding
    
    Options ExercisableWeighted-AverageNumber
    
    Remaining
    
    
    
    
    
    NumberRange of Exercise
    
    Outstanding at
    
    Contractual Life
    
    Weighted Average
    
    Exercisable at
    
    Weighted AveragePrices
    
    12/31/09
    
    (years)
    
    Exercise Price
    
    12/31/09
    
    Exercise Price$2.55 - $4.60
    
    
    286
    
    
    
    4.76
    
    
    $
    3.69
    
    
    
    186
    
    
    $
    4.31$4.83 - $5.75
    
    
    236
    
    
    
    2.37
    
    
    
    5.15
    
    
    
    236
    
    
    
    5.15$5.88 - $8.00
    
    
    415
    
    
    
    2.36
    
    
    
    6.88
    
    
    
    415
    
    
    
    6.88$8.50 - $11.45
    
    
    254
    
    
    
    2.98
    
    
    
    10.80
    
    
    
    254
    
    
    
    10.80$13.75 - $24.06
    
    
    259
    
    
    
    0.37
    
    
    
    15.29
    
    
    
    259
    
    
    
    15.29Total
    
    
    1,450
    
    
    
    2.59
    
    
    $
    8.16
    
    
    
    1,350
    
    
    $
    8.57
 Option Valuation:
  2009
    
    2008
    
    2007Weighted average risk free interest rates
    
    
    3.55
    %
    
    
    N/A
    
    
    
    N/AWeighted Average life (in years)
    
    
    10
    
    
    
    N/A
    
    
    
    N/AVolatility
    
    
    67.72
    %
    
    
    N/A
    
    
    
    N/AExpected dividend yield
    
    
    
    
    
    
    N/A
    
    
    
    N/AWeighted average grant-date fair value per
share of options granted
    
    $
    1.95
    
    
    
    N/A
    
    
    
    N/A
 Restricted Stock:
 F-20




---



##### 



Restricted Stock
    
    
    Weighted AverageShares
    
    
    Grant Date ValueNonvested restricted stock at December 31, 2007
    
    
    207,560
    
    
    $
    8.53Granted
    
    
    138,337
    
    
    
    6.65Vested
    
    
    (47,811
    )
    
    
    7.50Cancelled/Forefeited
    
    
    (65,837
    )
    
    
    9.92Nonvested 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
    
    
    $
    2.84
 Rights Agreement:
 10. RELATED PARTY TRANSACTIONS
  11. EMPLOYEE BENEFIT PLAN
  F-21




---



##### 



12. OTHER FINANCIAL INFORMATION
 Major Customers
  Commitments:
 Year ending December 31:2010
    
    $
    8922011
    
    $
    7472012
    
    $
    5992013
    
    $
    6092014
    
    $
    115Thereafter
    
    $
    
  Year ending December 31:2009
    
    $
    8262008
    
    $
    8402007
    
    $
    837
 Contingencies
 F-22




---



##### 



13. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
    14. SEGMENT DATA
   F-23




---



##### 



Long Lived Assets
    
    2009
    
    
    2008North America
    
    $
    1,294
    
    
    $
    1,910Europe
    
    
    310
    
    
    
    373Total
    
    $
    1,604
    
    
    $
    2,283
 Revenues
    
    2009
    
    
    2008
    
    
    2007Pacific Rim
    
    $
    10,812
    
    
    $
    11,204
    
    
    $
    11,994North America
    
    
    7,490
    
    
    
    8,598
    
    
    
    12,475Europe
    
    
    7,283
    
    
    
    6,429
    
    
    
    6,311Total
    
    $
    25,585
    
    
    $
    26,231
    
    
    $
    30,780
  Product Revenue
    
    2009
    
    
    2008
    
    
    2007Broadband telecom
    
    $
    22,742
    
    
    $
    23,218
    
    
    $
    26,071Professional services
    
    
    1,284
    
    
    
    501
    
    
    
    603Enterprise
    
    
    806
    
    
    
    867
    
    
    
    3,369Other
    
    
    753
    
    
    
    1,645
    
    
    
    737Total
    
    $
    25,585
    
    
    $
    26,231
    
    
    $
    30,780
 15. QUARTERLY FINANCIAL DATA (Unaudited)
 
 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-24




---



##### 



Quarter EndedMarch 31
    
    June 30
    
    September 30
    
    December 31Revenues
    
    $
    7,471
    
    
    $
    6,650
    
    
    $
    6,888
    
    
    $
    5,222Gross margin
    
    
    4,337
    
    
    
    3,103
    
    
    
    3,984
    
    
    
    2,607Loss before income
tax
    
    
    (839
    )
    
    
    (1,628
    )
    
    
    (255
    )
    
    
    (1,567
    )Net loss
    
    
    (528
    )
    
    
    (1,161
    )
    
    
    (55
    )
    
    
    (1,282
    )Net loss per share:Basic EPS
    
    $
    (0.08
    )
    
    $
    (0.18
    )
    
    $
    (0.01
    )
    
    $
    (0.20
    )Diluted EPS
    
    $
    (0.08
    )
    
    $
    (0.18
    )
    
    $
    (0.01
    )
    
    $
    (0.20
    )
   F-25




---



##### 



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. (3)4 (a)
    
    Rights Agreement dated as of December 7, 2000 by and between the Company and
Computershare Investor Services, LLC as Rights Agent. (4)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)
    
    Interphase Corporation 2004 Long-Term Stock Incentive Plan *(12)21 (a)
    
    Subsidiaries of the Registrant. (13)23 (a)
    
    Consent of Independent Registered Public Accounting Firm. (14)31 (a)
    
    Rule 13a-14(a)/15d-14(a) Certification. (14)31 (b)
    
    Rule 13a-14(a)/15d-14(a) Certification. (14)32 (a)
    
    Section 1350 Certification. (14)32 (b)
    
    Section 1350 Certification. (14)
 
 (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 Schedule 14a on March 31, 2004 and incorporated herein by reference.(13)
    
    Filed as an exhibit to Report on Form 10-K for the year ended December 31, 2002, and incorporated herein by reference.(14)
    
    Filed herewith*
    
    Management contract or compensatory plan or arrangement. E- 2