##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 FORM 10-K
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2005
 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
    
 o þ
 o þ
 þ o
 o
  o o þ
 o þ
  DOCUMENTS TO BE INCORPORATED BY REFERENCE




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TABLE OF CONTENTS  PART IItem 1. BusinessItem 1A. Risk FactorsItem 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 DataItem 7. Managements Discussion and Analysis of Financial Condition and Results of OperationsITEM 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 and Executive Officers of the RegistrantItem 11 Executive CompensationItem 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersItem 13 Certain Relationships and Related TransactionsItem 14 Principal Accountant Fees and ServicesPART IVItem 15 Exhibits and Financial Statement SchedulesSIGNATURESINDEX TO EXHIBITSEmployment Agreement - Gregory B. KalushEmployment Agreement for Chief Technology Officer - Felix V. DiazEmployment, Confidentiality, and Non-Competition Agreement - Thomas N. Tipton, Jr.Employment, Confidentiality, and Non-Competition Agreement - Randall E. McComasEmployment Agreement - Deborah A. ShuteEmployment, Confidentiality, and Non-Competition Agreement - James W. GraggEmployment, Confidentiality, and Non-Competition Agreement - Prasad KallurEmployment Agreement - Steven P. KovacConsent of Independent Registered Public Accounting FirmConsent 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 
 1




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Adapter 
 AdvancedTCA ® 
 AdvancedMC or AMC (Advanced Mezzanine Card) 
 ATM (Asynchronous Transfer Mode) 
 Backplane 
 Base Station Controller (BSC) 
 Blade 
 Broadband 
 2




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Building Blocks 
 CDMA (Code Division Multiple Access) 
 Communications Controller 
 CompactPCI ® 
 CompactPCI Packet Switching Backplane (cPSB) 
 Ethernet 
 ETSI (European Telecommunications Standards Institute) 
 Gateway Appliances 
 Gbps (Gigabits per second) 
 3




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GSM (Global System for Mobile Communications)  second generation
 IETF (Internet Engineering Task Force) 
 IMS (IP Multimedia Subsystem) 
 IMT-2000 International Mobile Telecommunications-2000 
 Internet Protocol Television (IPTV ) 
 I/O (Input/output) 
 IP (Internet Protocol) 
 IPSec (IP Security) 
 ITU (International Telecommunication Union)  International Telegraph Union
 LAN 
 4




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Media Gateway
 Mbps
 MicroTCA 
 Network Elements 
 OC-3/STM-1 
 OC-12/STM-4 
 Operating System  ® ® 
 OEM (Original Equipment Manufacturer) 
 PCI (Peripheral Components Interconnect) 
 PCI-x (Peripheral Components InterconnectExtended) 
 PCI-e (Peripheral Components InterconnectExpress) 
 5




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PICMG (PCI Industrial Computer Manufacturers Group) 
 PMC (PCI Mezzanine Card) 
 PSTN (Public Switched Telephone Network) 
 Protocol 
 Radio Network Controller (RNC) 
 Router 
 SIP (Session Initiation Protocol) 
 Softswitch (Software Switch) 
 Signaling Gateway 
 SIGTRAN 
 6




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SS7 
 T1/E1 
 T3/E3/J3 
 TEM (Telecommunications Equipment Manufacturer) 
 Triple Play 
 User Plane 
 VME (VersModule-Eurocard)
 VoIP (Voice over Internet Protocol) 
 Virtual Private Network (VPN) 
 WAN (Wide Area Network)
 7




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##### Table of Contents



Mission
    Building innovative and high quality building blocks and gateway appliances for the delivery of
high performance communications infrastructure products
     8




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Delivering advanced slot-optimization and security products for enterprise class
applications
    Delivering a comprehensive environment-friendly product portfolio
   9




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Delivering superior customer service
  Establishing key strategic alliances and partnerships
    Enhancing operational efficiencies
   10




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Products
  Building Block Component Products
  Integrated Communications Controllers
  T1/E1/J1 Controllers
 ®
 i 4538 
 i 4539/4539F 
 i 5539F
 i 1635
  
    
    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
 11




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
    
    Service Control Point
    
    Media Servers
 High Density Interface Controllers
  i 4531/4531P
 i 4532  ®
 i 4532P/Q 
 i 4533P 
  
    
    Radio Network Controller (RNC)
    
    Mobile Switching Center (MSC)
    
    DSL Access Multiplexers
    
    Cable Modem Termination System (CMTS)
 ATM Network Interface Cards
  i 4575/4576
 i 5575/5576 PCI ATM Communications Interface Card
  
    
    Serving GPRS Service Node (SGSN)
    
    Gateway GPRS Service Node (GGSN)
    
    Operations, Administration and Management devices used for back-end services in the
telecommunications infrastructure
 12




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Security Acceleration Cards
  45NS 
 55NS/5585 
  
    
    Firewall and VPN solutions
    
    On Line Transaction Processing (OLTP)
    
    Network Management solutions
 Gigabit Ethernet Network Interface Cards
  454G SlotOptimizer
 554GB SlotOptimizer
  
    
    High performance computing servers for engineering applications
    
    Serving GPRS Service Node (SGSN)
    
    Softswitches
 Gateway Appliance Solutions
  i ® 9200 Broadband Access Gateway
 i 9400 Signaling Gateway
 13




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New Product Development
   
    
    Ethernet-based IP networks offer an inexpensive, ubiquitous broadband packet-based
delivery approach for carriers. The simplicity of IP-based Ethernet networks will
shorten the period of new service deployment and time to revenue.
    
    The second promise of this network architecture is greatly reduced cost of purchasing
(CAPEX), provisioning and maintaining their networks (OPEX).
    
    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 dependent on outsourced solutions
to meet their product development needs.
    
    The IP Multimedia Subsystem (IMS) standard architecture is enabled by a high bandwidth
IP/Ethernet backbone, and promises to offer multimedia service delivery to end user
devices (wireless or wireline.)
  Telecom Segment Initiatives
  AdvancedTCA and MicroTCA
  14




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Appliance Solutions
  Enterprise Networking Initiatives
  Industry Standards Participation
  15




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Marketing and Customers
    Manufacturing and Supplies
    Intellectual Property and Patents
  16




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Employees
    Competition
  17




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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.
   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.
  18




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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.
  19




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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.
  20




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We may be unable to effectively protect our proprietary technology, which would negatively affect
our ability to compete.
    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.
  21




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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 2006;
    
    expand product and service offerings beyond what is contemplated in 2006 if unforeseen
opportunities arise;
    
    respond to unforeseen competitive pressures.
  We have incurred significant losses.
  We may experience significant period-to-period quarterly and annual fluctations in our revenue and
operating results, which may result in volatility in our stock price.
  22




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2007 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 unless we become an accelerated filer in 2006.
  
 Item 1B. Unresolved Staff Comments.
  
 Item 2. Properties.
  
 Item 3. Legal Proceedings.
  
 Item 4. Submission of Matters to a Vote of Security Holders.
  23




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PART II
 
 Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities.
  2004
    
    High
    
    
    LowFirst Quarter
    
    
    19.17
    
    
    
    11.30Second Quarter
    
    
    12.67
    
    
    
    8.36Third Quarter
    
    
    12.65
    
    
    
    9.21Fourth Quarter
    
    
    10.22
    
    
    
    6.70
 2005
    
    High
    
    
    LowFirst Quarter
    
    
    8.55
    
    
    
    6.34Second Quarter
    
    
    7.36
    
    
    
    5.41Third Quarter
    
    
    7.10
    
    
    
    4.47Fourth Quarter
    
    
    4.89
    
    
    
    4.06
     24




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Item 6. Selected Consolidated Financial Data.
   25




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Year ended December 312005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001Revenues
    
    $
    30,852
    
    
    $
    35,015
    
    
    $
    32,490
    
    
    $
    25,123
    
    
    $
    28,732Gross margin
    
    
    16,097
    
    
    
    19,171
    
    
    
    16,909
    
    
    
    9,792
    
    
    
    9,004Research and development
    
    
    7,974
    
    
    
    8,033
    
    
    
    7,719
    
    
    
    7,005
    
    
    
    7,757Sales and marketing
    
    
    6,310
    
    
    
    6,107
    
    
    
    6,929
    
    
    
    5,991
    
    
    
    6,812General and administrative
    
    
    3,531
    
    
    
    3,675
    
    
    
    3,547
    
    
    
    3,285
    
    
    
    3,759Restructuring charge and other special charges
    
    
    600
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,091Goodwill impairment charge
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,350(Loss) income from operations
    
    
    (2,318
    )
    
    
    1,356
    
    
    
    (1,286
    )
    
    
    (6,489
    )
    
    
    (13,765
    )Other, net
    
    
    237
    
    
    
    240
    
    
    
    305
    
    
    
    611
    
    
    
    (20
    )(Loss) income from operations before income
tax
    
    
    (2,081
    )
    
    
    1,596
    
    
    
    (981
    )
    
    
    (5,878
    )
    
    
    (13,785
    )Income tax provision (benefit)
    
    
    218
    
    
    
    (122
    )
    
    
    (212
    )
    
    
    2,523
    
    
    
    (4,213
    )Net (loss) income
    
    $
    (2,299
    )
    
    $
    1,718
    
    
    $
    (769
    )
    
    $
    (8,401
    )
    
    $
    (9,572
    )Net (loss) income per shareBasic EPS
    
    $
    (0.40
    )
    
    $
    0.30
    
    
    $
    (0.14
    )
    
    $
    (1.51
    )
    
    $
    (1.68
    )Diluted EPS
    
    $
    (0.40
    )
    
    $
    0.27
    
    
    $
    (0.14
    )
    
    $
    (1.51
    )
    
    $
    (1.68
    )Weighted average common shares
    
    
    5,758
    
    
    
    5,719
    
    
    
    5,544
    
    
    
    5,551
    
    
    
    5,705Weighted average common and dilutive shares
    
    
    5,758
    
    
    
    6,312
    
    
    
    5,544
    
    
    
    5,551
    
    
    
    5,705
 
 December 31,2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001Working capital
    
    $
    24,554
    
    
    $
    26,450
    
    
    $
    24,255
    
    
    $
    24,254
    
    
    $
    31,601Total assets
    
    
    29,194
    
    
    
    32,098
    
    
    
    30,743
    
    
    
    30,749
    
    
    
    39,243Total liabilities
    
    
    6,696
    
    
    
    7,310
    
    
    
    7,930
    
    
    
    7,931
    
    
    
    7,323Redeemable common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    762Shareholders equity
    
    $
    22,498
    
    
    $
    24,788
    
    
    $
    22,813
    
    
    $
    22,818
    
    
    $
    31,158
 26




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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:
  27




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Warranty Reserve:
 Allowance for Doubtful Accounts:
 Allowance for Returns:
 Inventories:
 Long-Lived Assets:
 Derivative Financial Instruments and Hedging:
 28




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Stock-Based Compensation:
 Tax Assessments:
 Deferred Taxes:
 CONSOLIDATED STATEMENT OF OPERATIONS AS A PERCENTAGE OF REVENUE
 Year ended December 31,2005
    
    
    2004
    
    
    2003Revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    47.8
    %
    
    
    45.2
    %
    
    
    48.0
    %Gross margin
    
    
    52.2
    %
    
    
    54.8
    %
    
    
    52.0
    %Research and development
    
    
    25.8
    %
    
    
    22.9
    %
    
    
    23.8
    %Sales and marketing
    
    
    20.5
    %
    
    
    17.5
    %
    
    
    21.3
    %General and administrative
    
    
    11.5
    %
    
    
    10.5
    %
    
    
    10.9
    %Restructuring charge
    
    
    1.9
    %
    
    
    
    
    
    
    (Loss) income from operations
    
    
    (7.5
    )%
    
    
    3.9
    %
    
    
    (4.0
    )%Interest income, net
    
    
    1.2
    %
    
    
    0.7
    %
    
    
    0.7
    %Other (expense) income, net
    
    
    (0.4
    )%
    
    
    0.0
    %
    
    
    0.3
    %(Loss) income before income tax
    
    
    (6.7
    )%
    
    
    4.6
    %
    
    
    (3.0
    )%Income tax provision (benefit)
    
    
    0.8
    %
    
    
    (0.3
    )%
    
    
    (0.6
    )%Net (loss) income
    
    
    (7.5
    )%
    
    
    4.9
    %
    
    
    (2.4
    )%
 29




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OVERVIEW
  RESULTS OF OPERATIONS
 Revenue:
  Gross Margin:
  30




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Research and Development:
  Sales and Marketing:
  General and Administrative:
 31




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Restructuring Charge:
 Interest, Net:
 Other (Expense) Income, Net:
  Income Taxes:
   32




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Net (Loss) Income:
 LIQUIDITY AND CAPITAL RESOURCES
 Consolidated Cash Flows
  Operating Activities:
  Investing Activities:
 33




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Financing Activities:
 Commitments
   Contractual Obligation
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    TotalOperating leases (1)
    
    $
    736
    
    
    $
    736
    
    
    $
    656
    
    
    $
    152
    
    
    $
    2,280Long-term debt (2,3)
    
    $
    188
    
    
    $
    3,610
    
    
    $
    
    
    
    $
    
    
    
    $
    3,798Total
    
    $
    924
    
    
    $
    4,346
    
    
    $
    656
    
    
    $
    152
    
    
    $
    6,078
 (1)
    
    The Company leases its facilities under non-cancelable operating leases with the
longest terms extending to December 2009.(2)
    
    At December 31, 2005, 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, 2007 and is secured throughout the term of the credit facility by
marketable securities.(3)
    
    The Company incurs interest expense on the borrowings from the revolving credit
facility at a rate of LIBOR + 1% (5.375% at December 31, 2005). The Company used the
5.375% rate to estimate interest expense for 2006 through July 2007. The interest
expense estimate is $188,000 and $110,000 for years 2006 and 2007, respectively.
 Off-Balance Sheet Arrangements
  34




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Other






Recently Issued Accounting Pronouncements









ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK


Foreign Currency Risk




35



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Market Price Risk
  Interest Rate Risk
   36
    Table of Contents   
 Item 8. Financial Statements and Supplementary Data.
  
 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
  
 Item 9A. Controls and Procedures.
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Controls
  
 Item 9B. Other Information.
  
 PART III
 
 Item 10. Directors and Executive Officers of the Registrant.
 Directors
  37




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Executive Officers
  Code of Ethics
  
 Item 11. Executive Compensation.
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
  
 Item 13. Certain Relationships and Related Transactions.
  
 Item 14. Principal Accountant Fees and Services.
 38
    Table of Contents   
 PART IV
 
 Item 15. Exhibits and Financial Statement Schedules.
 (a)
    
    (1) Financial Statements.
      39




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SIGNATURES
  INTERPHASE CORPORATIONDate: March 21, 2006
    By:
    /s/ Gregory B. KalushGregory B. KalushChairman of the Board,
Chief Executive Officer and President  Name
    
    Title/s/ Gregory B. Kalush
    
    Chairman of the Board,Gregory B. Kalush
    
    Chief Executive Officer and President(Principal executive officer)/s/ Thomas N. Tipton, Jr.
    
    Chief Financial Officer,Thomas N. Tipton, Jr.
    
    Vice President of Finance and Treasurer(Principal financial and accounting officer)/s/ Paul N. Hug
    
    DirectorPaul N. Hug/s/ Randall D. Ledford
    
    DirectorRandall D. Ledford/s/ Michael J. Myers
    
    DirectorMichael J. Myers/s/ Kenneth V. Spenser
    
    DirectorKenneth V. Spenser/s/ S. Thomas Thawley
    
    Vice Chairman, Director and SecretaryS. Thomas Thawley
 40




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INDEX TO FINANCIAL STATEMENTS
 Report of Grant Thornton LLP
    
    F-2Report of PricewaterhouseCoopers LLP
    
    F-3Consolidated
Balance Sheets  As of December 31, 2005 and 2004
    
    F-4Consolidated Statements of Operations  Years Ended
December 31, 2005, 2004 and 2003
    
    F-5Consolidated Statements of Shareholders Equity  Years Ended
December 31, 2005, 2004 and 2003
    
    F-6Consolidated Statements of Cash Flows  Years Ended December 31, 2005, 2004 and 2003
    
    F-7Notes to Consolidated Financial Statements
    
    F-8 to F-24
 
 *
    
    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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F-3




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December 31,2005
    
    
    2004ASSETSCash and cash equivalents
    
    $
    3,180
    
    
    $
    4,928Marketable securities
    
    
    15,388
    
    
    
    15,585Trade accounts receivable, less allowances
of $126 and $141, respectively
    
    
    5,195
    
    
    
    4,976Inventories
    
    
    3,109
    
    
    
    3,509Prepaid expenses and other current assets
    
    
    754
    
    
    
    956Income taxes receivable
    
    
    
    
    
    
    246Total current assets
    
    
    27,626
    
    
    
    30,200Machinery and equipment
    
    
    5,899
    
    
    
    6,170Leasehold improvements
    
    
    411
    
    
    
    377Furniture and fixtures
    
    
    545
    
    
    
    5726,855
    
    
    
    7,119Less-accumulated depreciation and amortization
    
    
    (5,697
    )
    
    
    (5,729
    )Total property and equipment, net
    
    
    1,158
    
    
    
    1,390Capitalized software, net
    
    
    229
    
    
    
    310Other assets
    
    
    181
    
    
    
    198Total assets
    
    $
    29,194
    
    
    $
    32,098LIABILITIES AND SHAREHOLDERS EQUITYLiabilitiesAccounts payable
    
    $
    255
    
    
    $
    529Deferred revenue
    
    
    118
    
    
    
    244Accrued liabilities
    
    
    1,757
    
    
    
    1,423Accrued compensation
    
    
    942
    
    
    
    1,554Total current liabilities
    
    
    3,072
    
    
    
    3,750Other non-current liabilities
    
    
    34
    
    
    
    Deferred lease obligations
    
    
    90
    
    
    
    60Long term debt
    
    
    3,500
    
    
    
    3,500Total liabilities
    
    
    6,696
    
    
    
    7,310Commitments and contingenciesShareholders EquityCommon stock, $.10 par value; 100,000,000 shares authorized;
5,901,895 and 5,750,824 shares issued and outstanding, respectively
    
    
    590
    
    
    
    575Additional paid in capital
    
    
    39,445
    
    
    
    38,633Unamortized restricted stock
    
    
    (628
    )
    
    
    Retained deficit
    
    
    (16,145
    )
    
    
    (13,846
    )Cumulative other comprehensive loss
    
    
    (764
    )
    
    
    (574
    )Total shareholders equity
    
    
    22,498
    
    
    
    24,788Total liabilities and shareholders equity
    
    $
    29,194
    
    
    $
    32,098
 The accompanying notes are an integral part of these consolidated financial statements.
 F-4




---



##### Table of Contents



2005
    
    2004
    
    2003Revenues
    
    $
    30,852
    
    
    $
    35,015
    
    
    $
    32,490Cost of sales
    
    
    14,755
    
    
    
    15,844
    
    
    
    15,581Gross margin
    
    
    16,097
    
    
    
    19,171
    
    
    
    16,909Research and development
    
    
    7,974
    
    
    
    8,033
    
    
    
    7,719Sales and marketing
    
    
    6,310
    
    
    
    6,107
    
    
    
    6,929General and administrative
    
    
    3,531
    
    
    
    3,675
    
    
    
    3,547Restructuring charge
    
    
    600
    
    
    
    
    
    
    
    Total operating expenses
    
    
    18,415
    
    
    
    17,815
    
    
    
    18,195(Loss) income from operations
    
    
    (2,318
    )
    
    
    1,356
    
    
    
    (1,286
    )Interest income, net
    
    
    370
    
    
    
    232
    
    
    
    226Other (expense) income, net
    
    
    (133
    )
    
    
    8
    
    
    
    79(Loss) income before income tax
    
    
    (2,081
    )
    
    
    1,596
    
    
    
    (981
    )Income tax provision (benefit)
    
    
    218
    
    
    
    (122
    )
    
    
    (212
    )Net (loss) income
    
    $
    (2,299
    )
    
    $
    1,718
    
    
    $
    (769
    )Net (loss) income per share:Basic EPS
    
    $
    (0.40
    )
    
    $
    0.30
    
    
    $
    (0.14
    )Diluted EPS
    
    $
    (0.40
    )
    
    $
    0.27
    
    
    $
    (0.14
    )Weighted average common shares
    
    
    5,758
    
    
    
    5,719
    
    
    
    5,544Weighted average common and dilutive
shares
    
    
    5,758
    
    
    
    6,312
    
    
    
    5,544
 The accompanying notes are an integral part of these consolidated financial statements.
 F-5




---



##### Table of Contents



Additional
    
    Unamortized
    
    
    
    
    
    OtherCommon Stock
    
    Paid in
    
    Restricted
    
    Retained
    
    ComprehensiveShares
    
    Amount
    
    Capital
    
    Stock
    
    Deficit
    
    Loss
    
    TotalBalance at December 31, 2002
    
    
    5,514
    
    
    $
    551
    
    
    $
    37,304
    
    
    
    
    
    
    $
    (14,795
    )
    
    $
    (242
    )
    
    $
    22,818Option exercises
    
    
    166
    
    
    
    17
    
    
    
    914
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    931Comprehensive loss:Foreign currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (46
    )
    
    
    (46
    )Unrealized holding period loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (121
    )
    
    
    (121
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (769
    )
    
    
    
    
    
    
    (769
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at December 31, 2003
    
    
    5,680
    
    
    $
    568
    
    
    $
    38,218
    
    
    $
    
    
    
    $
    (15,564
    )
    
    $
    (409
    )
    
    $
    22,813Option exercises
    
    
    71
    
    
    
    7
    
    
    
    415
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    422Comprehensive income:Foreign currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21
    
    
    
    21Unrealized holding period loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (186
    )
    
    
    (186
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,718
    
    
    
    
    
    
    
    1,718Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    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
    
    
    
    749
    
    
    
    (763
    )
    
    
    
    
    
    
    
    
    
    
    Amortization of restricted stock plan compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    135
    
    
    
    
    
    
    
    
    
    
    
    135Comprehensive loss:Foreign currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (157
    )
    
    
    (157
    )Unrealized holding period loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (33
    )
    
    
    (33
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,299
    )
    
    
    
    
    
    
    (2,299
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at December 31, 2005
    
    
    5,902
    
    
    $
    590
    
    
    $
    39,445
    
    
    $
    (628
    )
    
    $
    (16,145
    )
    
    $
    (764
    )
    
    $
    22,498
 The accompanying notes are an integral part of these consolidated financial statements.
 F-6




---



##### Table of Contents



Years ended December 31,2005
    
    2004
    
    2003Cash flows from operating activities:Net (loss) income
    
    $
    (2,299
    )
    
    $
    1,718
    
    
    $
    (769
    )Adjustments to reconcile net (loss) income to net cash provided by operating activities:Provision for uncollectible accounts and returns
    
    
    (10
    )
    
    
    (3
    )
    
    
    (42
    )Provision for excess and obsolete inventories
    
    
    1,000
    
    
    
    300
    
    
    
    700Depreciation and amortization
    
    
    801
    
    
    
    788
    
    
    
    902Amortization of restricted stock
    
    
    135
    
    
    
    
    
    
    
    Change in assets and liabilities:Trade accounts receivable
    
    
    (209
    )
    
    
    661
    
    
    
    91Inventories
    
    
    (600
    )
    
    
    (848
    )
    
    
    (540
    )Prepaid expenses and other current assets
    
    
    192
    
    
    
    (187
    )
    
    
    (62
    )Income taxes receivable
    
    
    233
    
    
    
    (246
    )
    
    
    247Other assets
    
    
    (1
    )
    
    
    44
    
    
    
    1Accounts payable, deferred revenue and accrued liabilities
    
    
    (42
    )
    
    
    (976
    )
    
    
    (183
    )Accrued compensation
    
    
    (501
    )
    
    
    309
    
    
    
    37Other current liabilities
    
    
    34
    
    
    
    
    
    
    
    Deferred lease obligations
    
    
    30
    
    
    
    (28
    )
    
    
    3Net adjustments
    
    
    1,062
    
    
    
    (186
    )
    
    
    1,154Net cash (used in) provided by operating activities
    
    
    (1,237
    )
    
    
    1,532
    
    
    
    385Cash flows from investing activities:Purchase of property and equipment
    
    
    (506
    )
    
    
    (454
    )
    
    
    (504
    )Purchase of software
    
    
    (32
    )
    
    
    (86
    )
    
    
    (329
    )Proceeds from the sale of marketable securities
    
    
    11,948
    
    
    
    3,322
    
    
    
    2,068Purchases of marketable securities, net of unrealized holding period gain or loss
    
    
    (11,784
    )
    
    
    (14,047
    )
    
    
    (1,719
    )Net cash used in investing activities
    
    
    (374
    )
    
    
    (11,265
    )
    
    
    (484
    )Cash flows from financing activities:Decrease in restricted cash
    
    
    
    
    
    
    
    
    
    
    3,500Proceeds
from the exercise of stock options
    
    
    62
    
    
    
    422
    
    
    
    931Repayment of long-term debt
    
    
    
    
    
    
    
    
    
    
    (3,500
    )Borrowings under new revolving credit facility
    
    
    
    
    
    
    
    
    
    
    3,500Net cash provided by financing activities
    
    
    62
    
    
    
    422
    
    
    
    4,431Effect of exchange rate changes on cash and cash equivalents
    
    
    (199
    )
    
    
    35
    
    
    
    15Net (decrease) increase in cash and cash equivalents
    
    
    (1,748
    )
    
    
    (9,276
    )
    
    
    4,347Cash and cash equivalents at beginning of year
    
    
    4,928
    
    
    
    14,204
    
    
    
    9,857Cash and cash equivalents at end of year
    
    $
    3,180
    
    
    $
    4,928
    
    
    $
    14,204Supplemental Disclosure of Cash Flow Information:Income taxes paid
    
    $
    
    
    
    $
    
    
    
    $
    Interest paid
    
    $
    124
    
    
    $
    111
    
    
    $
    72
 The accompanying notes are an integral part of these consolidated financial statements.
 F-7




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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:
 Fair Value of Financial Instruments:
 Cash and Cash Equivalents:
 Marketable Securities:
 F-8




---



##### Table of Contents



Allowance for Doubtful Accounts:
 Balance at
    
    
    
    
    
    (Write-offs,)
    
    BalanceBeginning
    
    Charged to
    
    Net of
    
    at EndYear Ended December 31:
    
    of Period
    
    Expense
    
    Recoveries
    
    of Period2005
    
    $
    36
    
    
    $
    5
    
    
    $
    (5
    )
    
    $
    362004
    
    
    89
    
    
    
    9
    
    
    
    (62
    )
    
    
    362003
    
    
    30
    
    
    
    53
    
    
    
    6
    
    
    
    89
 Allowance for Returns:
 Inventories:
 Years ended December 31,2005
    
    2004Raw Materials
    
    $
    2,393
    
    
    $
    1,818Work-in-Process
    
    
    549
    
    
    
    747Finished Goods
    
    
    167
    
    
    
    944Total
    
    $
    3,109
    
    
    $
    3,509
  Property and Equipment:
 Year ended December 31:
    
    Depreciation Expense2005
    
    $
    6902004
    
    $
    6562003
    
    $
    721
 F-9




---



##### Table of Contents



Machinery and equipment
    
    3-5 yearsLeasehold improvements
    
    Term of the respective leasesFurniture and fixtures
    
    3-10 years
 Capitalized Software:
 AccumulatedYear ended December 31:
    
    Amortization expense
    
    Amortization2005
    
    $
    111
    
    
    $
    1,5012004
    
    $
    132
    
    
    $
    2,4292003
    
    $
    181
    
    
    $
    2,268
 Long-Lived Assets:
 Revenue Recognition:
  Warranty Reserve:
 F-10




---



##### Table of Contents



Concentration of Credit Risks:
 Research and Development:
 Advertising Expense:
 Foreign Currency Translation:
  Income Taxes:
  Other Comprehensive (Loss) Income:
 Stock-Based Compensation:
 F-11




---



##### Table of Contents



Years ended December 31,2005
    
    
    2004
    
    
    2003Net (loss) income as reported
    
    $
    (2,299
    )
    
    $
    1,718
    
    
    $
    (769
    )Add: APB 25 expense
    
    
    135
    
    
    
    
    
    
    
    Less: Total stock based employee compensation expense
determined under fair value methods for all awards
    
    
    (1,150
    )
    
    
    (1,863
    )
    
    
    (2,084
    )Pro forma net loss
    
    
    (3,314
    )
    
    
    (145
    )
    
    
    (2,853
    )(Loss) income per common share:As reported  basic
    
    $
    (0.40
    )
    
    $
    0.30
    
    
    $
    (0.14
    )Pro forma  basic
    
    $
    (0.58
    )
    
    $
    (0.03
    )
    
    $
    (0.53
    )As reported  diluted
    
    $
    (0.40
    )
    
    $
    0.27
    
    
    $
    (0.14
    )Pro forma  diluted
    
    $
    (0.58
    )
    
    $
    (0.03
    )
    
    $
    (0.53
    )
 Use of Estimates:
 2. MARKETABLE SECURITIES
  F-12




---



##### Table of Contents



3. ACCRUED LIABILITIES
  Years ended December 31,2005
    
    
    2004Accrued audit fees
    
    $
    127
    
    
    $
    170Restructuring accrual
    
    
    288
    
    
    
    Loss contingency
    
    
    
    
    
    
    225Accrued outside commissions
    
    
    81
    
    
    
    15Accrued property tax
    
    
    27
    
    
    
    56Inventory receipts
    
    
    500
    
    
    
    117Accrued other
    
    
    734
    
    
    
    840$
    1,757
    
    
    $
    1,423
 4. DERIVATIVE FINANCIAL INSTRUMENTS
   5. CREDIT FACILITY
  F-13




---



##### Table of Contents



6. INCOME TAXES
  Year ended December 31,2005
    
    
    2004
    
    
    2003United States tax (benefit) provision
    
    $
    (10
    )
    
    $
    (89
    )
    
    $
    (245
    )Foreign provision (benefit)
    
    
    228
    
    
    
    (33
    )
    
    
    33Income tax provision (benefit)
    
    $
    218
    
    
    $
    (122
    )
    
    $
    (212
    )
  Year ended December 31,2005
    
    
    2004Current deferred tax assets:Inventories
    
    $
    1,313
    
    
    $
    1,249Accounts receivable
    
    
    14
    
    
    
    14Deferred revenue
    
    
    45
    
    
    
    34Other accruals
    
    
    177
    
    
    
    610Total current deferred tax assets
    
    $
    1,549
    
    
    $
    1,907Noncurrent deferred tax assets:Assets:Depreciation
    
    $
    45
    
    
    $
    4Amortization
    
    
    369
    
    
    
    433Net operating loss
    
    
    6,412
    
    
    
    4,169Total noncurrent deferred tax assets
    
    $
    6,826
    
    
    $
    4,606Valuation allowance for deferred tax assets
    
    
    (8,375
    )
    
    
    (6,513
    )Deferred tax assets, net of valuation allowance
    
    $
    
    
    
    $
    
   F-14




---



##### Table of Contents



Year ended December 31,2005
    
    
    2004
    
    
    2003Income taxes at statutory rate
    
    $
    (708
    )
    
    $
    543
    
    
    $
    (334
    )Benefit for French research and
development tax credit
    
    
    (239
    )
    
    
    (144
    )
    
    
    State (benefit) provision
    
    
    (119
    )
    
    
    22
    
    
    
    62Benefit recorded for favorable outcome
of tax audits
    
    
    
    
    
    
    (102
    )
    
    
    (245
    )French permanent items
    
    
    244
    
    
    
    (133
    )
    
    
    (292
    )Extraterritorial income exclusion benefit
    
    
    (75
    )
    
    
    (389
    )
    
    
    (386
    )Adjustment to deferred tax assets
    
    
    (747
    )
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    (33
    )
    
    
    Change in valuation allowance
    
    
    1,862
    
    
    
    114
    
    
    
    983Provision (benefit) for income taxes
    
    $
    218
    
    
    $
    (122
    )
    
    $
    (212
    )
   F-15




---



##### Table of Contents



7. EXIT ACTIVITIES
  8. RESTRUCTURING CHARGE
   F-16




---



##### Table of Contents



9. EARNINGS PER SHARE
  Years ended December 31,2005
    
    2004
    
    2003Basic (loss) income per share:Net (loss) income
    
    $
    (2,299
    )
    
    $
    1,718
    
    
    $
    (769
    )Weighted average common shares outstanding
    
    
    5,758
    
    
    
    5,719
    
    
    
    5,544Basic (loss) income per share
    
    $
    (0.40
    )
    
    $
    0.30
    
    
    $
    (0.14
    )Diluted (loss) income per share:Net (loss) income
    
    $
    (2,299
    )
    
    $
    1,718
    
    
    $
    (769
    )Weighted average common shares outstanding
    
    
    5,758
    
    
    
    5,719
    
    
    
    5,544Dilutive stock options
    
    
    
    
    
    
    593
    
    
    
    Weighted average common shares outstanding  assuming dilution
    
    
    5,758
    
    
    
    6,312
    
    
    
    5,544Diluted (loss) income per share
    
    $
    (0.40
    )
    
    $
    0.27
    
    
    $
    (0.14
    )Outstanding stock options that were not included in the diluted calculation
because their effect would be anti-dilutive
    
    
    2,084
    
    
    
    808
    
    
    
    1,199
 10. COMMON STOCK
 2004 Long-Term Stock Incentive Plan:
 Amended and Restated Stock Option Plan:
 F-17




---



##### Table of Contents



France Stock Option Sub-Plan:
 Amended and Restated Director Stock Option Plan:
  Number of
    
    
    Weighted AverageOptions
    
    
    Option PriceBalance, December 31, 2002
    
    
    2,415
    
    
    
    9.49Granted
    
    
    413
    
    
    
    6.25Exercised
    
    
    (166
    )
    
    
    5.61Canceled
    
    
    (84
    )
    
    
    10.66Balance, December 31, 2003
    
    
    2,578
    
    
    
    9.18Granted
    
    
    226
    
    
    
    10.84Exercised
    
    
    (71
    )
    
    
    5.97Canceled
    
    
    (79
    )
    
    
    10.92Balance, December 31, 2004
    
    
    2,654
    
    
    
    9.35Granted
    
    
    
    
    
    
    N/AExercised
    
    
    (15
    )
    
    
    4.24Canceled
    
    
    (53
    )
    
    
    9.78Balance, December 31, 2005
    
    
    2,586
    
    
    
    9.38Exercisable at December 31, 2005
    
    
    2,586
    
    
    $
    9.38
 F-18




---



##### Table of Contents



Options Outstanding
    
    Options ExercisableWeighted-AverageNumber
    
    Remaining
    
    Weighted
    
    Number
    
    WeightedRange of
    
    Outstanding at
    
    Contractual Life
    
    Average Exercise
    
    Exercisable at
    
    Average ExerciseExercise Prices
    
    12/31/05
    
    (years)
    
    Price
    
    12/31/05
    
    Price$3.09-$4.60
    
    
    304
    
    
    
    5.90
    
    
    $
    4.22
    
    
    
    304
    
    
    $
    4.22$4.65-$6.50
    
    
    701
    
    
    
    6.14
    
    
    
    5.58
    
    
    
    701
    
    
    
    5.58$7.20-$10.63
    
    
    783
    
    
    
    4.42
    
    
    
    8.19
    
    
    
    783
    
    
    
    8.19$11.25-$15.75
    
    
    473
    
    
    
    5.88
    
    
    
    12.90
    
    
    
    473
    
    
    
    12.90$17.25-$24.06
    
    
    315
    
    
    
    3.96
    
    
    
    19.76
    
    
    
    315
    
    
    
    19.76$31.00
    
    
    10
    
    
    
    3.90
    
    
    
    31.00
    
    
    
    10
    
    
    
    31.00Total
    
    
    2,586
    
    
    
    5.27
    
    
    $
    9.38
    
    
    
    2,586
    
    
    $
    9.38
 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
 F-19




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##### Table of Contents



Restricted Stock:
 Restricted Stock SharesShares at December 31, 2004
    
    
    Grant
(average fair value of $5.60)
    
    
    145,652Vested
    
    
    Cancelled/Forefeited
    
    
    9,600Shares at December 31, 2005
    
    
    136,052
 Rights Agreement:
  Pro Forma Net Loss:
 F-20




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##### Table of Contents



2005
    
    2004
    
    2003Weighted average risk free interest rates
    
    
    N/A
    
    
    
    2.39
    %
    
    
    2.36
    %Weighted average life (in years)
    
    
    N/A
    
    
    
    4.10
    
    
    
    3.87Volatility
    
    
    N/A
    
    
    
    88
    %
    
    
    130
    %Expected dividend yield
    
    
    N/A
    
    
    
    
    
    
    
    Weighted average grant-date fair value per
share of options granted
    
    
    N/A
    
    
    $
    6.99
    
    
    $
    5.02
 11. RELATED PARTY TRANSACTIONS
  12. EMPLOYEE BENEFIT PLAN
  13. OTHER FINANCIAL INFORMATION
 Major Customers
  F-21




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##### Table of Contents



Commitments:
 Year ending December 31:2006
    
    $
    7362007
    
    $
    7362008
    
    $
    6562009
    
    $
    152
  Year ending December 31:2005
    
    $
    7572004
    
    $
    7912003
    
    $
    932
  14. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
   F-22




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##### Table of Contents



15. SEGMENT DATA
   Long Lived Assets
    
    2005
    
    
    2004North America
    
    $
    1,078
    
    
    $
    1,321Europe
    
    
    309
    
    
    
    379Total
    
    $
    1,387
    
    
    $
    1,700
 Revenues
    
    2005
    
    
    2004
    
    
    2003North America
    
    $
    16,912
    
    
    $
    21,049
    
    
    $
    23,037Europe
    
    
    8,804
    
    
    
    8,528
    
    
    
    4,312Pacific Rim
    
    
    5,136
    
    
    
    5,438
    
    
    
    5,141Total
    
    $
    30,852
    
    
    $
    35,015
    
    
    $
    32,490
  Product Revenue
    
    2005
    
    
    2004
    
    
    2003Broadband telecom
    
    $
    20,293
    
    
    $
    20,151
    
    
    $
    17,773Enterprise SlotOptimizer
    
    
    7,577
    
    
    
    10,713
    
    
    
    11,422LAN
    
    
    485
    
    
    
    1,088
    
    
    
    1,368Storage
    
    
    714
    
    
    
    814
    
    
    
    522WAN
    
    
    40
    
    
    
    188
    
    
    
    152Other
    
    
    1,743
    
    
    
    2,061
    
    
    
    1,253Total
    
    $
    30,852
    
    
    $
    35,015
    
    
    $
    32,490
 F-23




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##### Table of Contents



16. QUARTERLY FINANCIAL DATA (Unaudited)
 
 Quarter EndedMarch 31
    
    
    June 30
    
    
    September 30
    
    
    December 31Revenues
    
    $
    8,780
    
    
    $
    7,592
    
    
    $
    6,924
    
    
    $
    7,556Gross margin
    
    
    4,752
    
    
    
    4,050
    
    
    
    3,491
    
    
    
    3,804Income (loss) before
income taxes
    
    
    191
    
    
    
    (390
    )
    
    
    (876
    )
    
    
    (1,006
    )Net income (loss)
    
    
    155
    
    
    
    (471
    )
    
    
    (912
    )
    
    
    (1,071
    )Earnings (loss) per
share:Basic EPS
    
    $
    0.03
    
    
    $
    (0.08
    )
    
    $
    (0.15
    )
    
    $
    (0.19
    )Diluted EPS
    
    $
    0.03
    
    
    $
    (0.08
    )
    
    $
    (0.15
    )
    
    $
    (0.19
    )
 
 Quarter EndedMarch 31
    
    
    June 30
    
    
    September 30
    
    
    December 31Revenues
    
    $
    9,198
    
    
    $
    10,129
    
    
    $
    8,294
    
    
    $
    7,394Gross margin
    
    
    4,903
    
    
    
    5,613
    
    
    
    4,666
    
    
    
    3,989Income (loss) before
income taxes
    
    
    218
    
    
    
    1,134
    
    
    
    525
    
    
    
    (281
    )Net income (loss)
    
    
    275
    
    
    
    1,095
    
    
    
    500
    
    
    
    (152
    )Earnings (loss) per
share:Basic EPS
    
    $
    0.05
    
    
    $
    0.19
    
    
    $
    0.09
    
    
    $
    (0.03
    )Diluted EPS
    
    $
    0.04
    
    
    $
    0.18
    
    
    $
    0.08
    
    
    $
    (0.03
    )
  F-24




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##### Table of Contents



INDEX TO EXHIBITS
 Exhibits
 2    (a)
    
    Stock Purchase Agreement, dated as of June 29, 1996, among Interphase Corporation,
Synaptel and Philippe Oros, Xavier Sutter, Francois Lecerf, Schroder Ventures French
Enterprise Fund LPI (USA), Schroder ventures French Enterprise Fund UKLP (UK) and Schroder
Ventures Holding Limited (UK). (3)3    (a)
    
    Certificate of Incorporation of the registrant. (1)3    (b)
    
    Amendment to Articles of Incorporation of the registrant. (5)3    (c)
    
    Amended and Restated Bylaws of the registrant adopted on December 5, 1995 and
amended on January 19, 1999. (7)4    (a)
    
    Rights Agreement dated as of December 7, 2000 by and between the Company and
Computershare Investor Services, LLC as Rights Agent. (6)10    (a)
    
    Registrants Amended and Restated Stock Option Plan and Amendment No. 1 and 2 thereto.*(4)10    (b)
    
    Registrants Amended and Restated Stock Option Plan Amendment No. 4. *(5)10    (c)
    
    Directors Stock Option Plan and Amendment No. 1 thereto. *(2)10    (d)
    
    Directors Stock Option Plan Amendment No. 2. *(5)10    (e)
    
    Registrants France Incentive Stock Option Sub-Plan. *(7)10     (f)
    
    Lease on Facility at Parkway Center, Phase I, Plano, Texas. (8)10    (g)
    
    Lease on Facility at 2105 Luna Road, Carrolton, Texas. (8)10    (h)
    
    Note and Credit Agreement between Interphase Corporation and Comerica Bank, including
Amendment dated November 5, 2004. (11)10     (i)
    
    Employment Agreement with Gregory B. Kalush, dated March 12, 1999. *(13)10     (j)
    
    Employment Agreement for Chief Technology Officer with Felix V. Diaz,
dated May 22, 1996. *(13)10    (k)
    
    Employment, Confidentiality, and Non-Competition Agreement with Thomas N. Tipton, Jr.,
dated December 19, 2005. *(13)10     (l)
    
    Employment, Confidentiality, and Non-Competition Agreement with Randall E. McComas,
dated February 15, 2002. *(13)10   (m)
    
    Employment Agreement with Deborah A. Shute, dated November 24, 1999. *(13)10    (n)
    
    Employment, Confidentiality, and Non-Competition Agreement with James W. Gragg,
dated November 1, 2004. *(13)10    (o)
    
    Employment, Confidentiality, and Non-Competition Agreement with Prasad Kallur,
dated May 23, 2005. *(13)10    (p)
    
    Employment Agreement with Steven P. Kovac, dated May 11, 1999. *(13)10    (q)
    
    Interphase Corporation 2004 Long-Term Stock Incentive Plan *(12)16    (a)
    
    Letter regarding change in certifying accountant. (10)21    (a)
    
    Subsidiaries of the Registrant. (9)23    (a)
    
    Consent of Independent Registered Public Accounting Firm. (13)23    (b)
    
    Consent of Independent Registered Public Accounting Firm. (13)31    (a)
    
    Rule 13a-14(a)/15d-14(a) Certification. (13)31    (b)
    
    Rule 13a-14(a)/15d-14(a) Certification. (13)32    (a)
    
    Section 1350 Certification. (13)32    (b)
    
    Section 1350 Certification. (13)
 E-1




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##### Table of Contents



(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 October 31, 1995, and
incorporated herein by reference.(3)
    
    Filed as an exhibit to Report on Form 8-K on August 6, 1996, and incorporated herein by
reference.(4)
    
    Filed as an exhibit to Report on Form 10-K for the year ended December 31, 1996, and
incorporated herein by reference.(5)
    
    Filed as an exhibit to Report on Form 10-K for the year ended December 31, 1999, and
incorporated herein by reference.(6)
    
    Filed as an exhibit to Form 8-K on January 9, 2001, and incorporated herein by
reference.(7)
    
    Filed as an exhibit to Report on Form 10-K for the year ended December 31, 2001, and
incorporated herein by reference.(8)
    
    Filed as an exhibit to Report on Form 10-Q for the quarter ended September 30, 2002, and
incorporated herein by reference.(9)
    
    Filed as an exhibit to Report on Form 10-K for the year ended December 31, 2002, and
incorporated herein by reference.(10)
    
    Filed as an exhibit to Form 8-K on September 13, 2004, and incorporated herein by
reference.(11)
    
    Filed as an exhibit to Report on Form 10-K for the year ended December 31, 2004, and
incorporated herein by reference.(12)
    
    Filed as an exhibit to Schedule 14a on March 31, 2005 and incorporated herein by reference.(13)
    
    Filed herewith.*
    
    Management contract or compensatory plan or arrangement. E-2