Since the advent of the Internet, service providers have delivered voice and data services separately over the Public Switched Telephone Network, or PSTN, and the Internet. The PSTN, also known as the voice or traditional telephone network, was created decades ago to provide seamless, reliable and secure global voice communications services. Users are accustomed to the high reliability and security of the PSTN, and have high confidence in utilizing it to share personal information and engage in activities such as banking and commerce. The PSTN is limited, however, in its ability to support high bandwidth video and other interactive multimedia services.

In recent years, service providers have experienced a significant decrease in wireline voice revenue due to the competition from VoIP and mobile voice services. This phenomenon has challenged service providers\\\\\\\' business models, causing a decline in profitability and a significant reduction in capital expenditure budgets. Service providers are focusing their efforts on introducing new revenue-generating opportunities, while rationalizing capital and network operations costs.

IP networks can be designed and operated more cost-effectively than the PSTN. In addition, IP networks are capable of delivering converged voice, video and data service packages to businesses and consumers. Service providers are seeking to provide these next-generation services to enhance their profitability by generating incremental revenue and by reducing subscriber turnover. However, managing two distinct networks—the PSTN and an IP network—is not a viable economic alternative. As a result, service providers are beginning to migrate to a single IP network architecture to serve as the foundation for their next-generation service offerings. In order to successfully transition to a single IP network, however, service providers must maintain the same reliability and security that have for decades exemplified their delivery of voice services.

The Net-Net OS is the Company’s software platform. It operates on all of the Net-Net 4000 and 9000 series SBC hardware platforms. It offers rich border control functionality in terms of architectural flexibility, signaling protocol breadth, control feature depth, and carrier-class availability and manageability.

The Net-Net 4000, 4000 PAC and 9000 hardware platforms address a broad range of service provider requirements for performance, capacity and bandwidth. Each of these hardware platforms may be configured to support either an integrated or a decomposed SBC. Configurations supporting subscriber access in each case are available with and without IMS signaling control functionality to complement the IMS products offered by the Company’s distribution partners.

The Net-Net Element Management System, or Net-Net EMS, is a network element management application for the Company’s Net-Net family of SBCs. Net-Net EMS is designed to enable service providers to rapidly deploy and easily manage single or multiple Net-Net SBCs. As a standalone management system, Net-Net EMS is designed to support all required configuration, fault, performance and security management functions through an easy-to-use, browser-based graphical user interface. Net-Net EMS can efficiently integrate into existing and next-generation operational support systems, through industry-standard interfaces.

The Company’s SBCs support next-generation, converged fixed-mobile service architectures including 3GPP IMS, ETSI TISPAN, ATIS, the Multi-Service Forum, PacketCable and the DSL Forum. They support both subscriber access and network interconnect border requirements in wireline, cable and wireless networks.

Cost of revenue was $4.3 million for the three months ended March 31, 2006 and $2.3 million for the three months ended March 31, 2005, an increase of $2.0 million, or 85%.

Gross profit was $14.6 million for the three months ended March 31, 2006 and $6.1 million for the three months ended March 31, 2005, an increase of $8.5 million, or 140%.

Total operating expenses were $8.6 million for the three months ended March 31, 2006 and $5.8 million for the three months ended March 31, 2005, an increase of $2.8 million, or 48%.

Income from operations was $6.0 million for the three months ended March 31, 2006 and $267,000 for the three months ended March 31, 2005, an increase of $5.7 million, or 1,153%.