Cable operators and telephone companies derive most of their revenue from consumer subscriptions for video, voice or data services and from advertising. To attract and retain subscribers, service providers are increasingly bundling video, voice and data services, often called a “triple-play” offering. As of December 2006, Yankee Group Research, an independent industry research group, estimates that, on average, consumers spend $68 per month for digital video services compared to $47 for voice and $35 for data services. As a result, video presents the greatest opportunities and greatest challenges in delivering the triple-play bundle.

The competition for video subscriptions has been increasing over time, and this competition has fueled recurring cycles of network investment as service providers seek to capture increasing revenues from subscribers by offering additional services. Satellite broadcasters, starting in 1994, began offering improved digital video services. They started to capture video subscribers from cable operators and, by the end of the third quarter of 2005, had gained an estimated 28% of the total U.S. paid television subscribers according to IDC, an independent industry research firm. In response, cable operators upgraded their coaxial networks to provide comparable digital video services.

The competition for control over the delivery of triple-play services, particularly video, to the home has dramatically increased with the recent entrance of the telephone companies into the market in 2005. Historically, telephone companies built networks to offer voice services, while cable operators built networks for broadcast television. The two did not directly compete with one another. In recent years, additional regulatory, technological and competitive factors have enabled service providers to compete directly and aggressively in each others’ markets.

The Company combines rich media processing, modular software and high-speed switching and routing with carrier-class hardware configurations into product applications designed to address specific service provider needs. The Company’s product applications enable service providers to deliver high-quality video, voice and data services and offer more effective video advertising. The Company’s key product applications include Digital Simulcast, TelcoTV, Switched Broadcast, and High-Speed Data and Voice-over-IP.

The Company delivers product applications that provide rich media processing and high-speed switching and routing, which enable service providers to offer advanced video, voice and data services to subscribers and advertisers. The Company’s product applications are a combination of its video or data hardware platforms and key software modules that run inside its carrier-class hardware platforms and deliver the application-specific functions.

The Company’s Digital Simulcast product application enables service providers to create a digital version of analog inputs and deliver both analog and digital video streams to subscribers.

Telephone companies use the Company’s BMR to provide a very high-quality viewing experience, while still benefiting from the use of digital video transport throughout their networks. The Company enables telephone companies to leverage their existing Synchronous Optical Network, or SONET, infrastructure, which was originally designed for voice communications, to transport video content throughout the network. The Company’s TelcoTV product application integrates its core media processing modules with its BMR with built-in radio frequency, or RF, modulation, analog decoding and local content insertion.

The Company’s Switched Broadcast application enables service providers to transmit video channels to subscribers only when the subscribers in a smaller subset of subscribers within a network, called a service group, are in the process of watching those channels.

The Company’s High-Speed Data product application enables cable operators to offer real-time services, such as VoIP and streaming video content over the Internet.

Gross profit for the nine months ended September 30, 2006 was $57.4 million compared to $26.8 million for the comparable period of 2005, an increase of $30.6 million, or 114.2%.

Research and development expense was $26.6 million for the nine months ended September 30, 2006, compared to $22.8 million in the comparable period of 2005.

Sales and marketing expense was $21.0 million, or 18.5% of net revenues, for the nine months ended September 30, 2006 compared to $16.2 million, or 22.7% of net revenues, during the comparable period of 2005.

Other expense, net includes interest income, interest expense and other expense, net was $1.5 million during the nine months ended September 30, 2006, compared to $1.1 million in the comparable period of 2005.