The market for home networking and audio/video connectivity in the digital home is experiencing rapid growth.

The number of homes with broadband access continues to grow. According to IDC, total households worldwide with broadband service are projected to increase from 206 million in 2005 to 396 million in 2010, a compound annual growth rate of 14.0%. At the same time, data rates to the home are expected to continue to increase with improvements in cable modem and digital subscriber line (DSL) technologies and the adoption of higher-throughput access technologies like fiber-to-the-home.

This additional capacity is driving increased use of the Internet for the delivery of video. According to eMarketer Inc., the average number of online users in the United States who download or stream video content is expected to increase from an estimated 108 million in 2006 to 157 million in 2010.

In addition, telephone companies in North America, Europe and Asia are beginning to use broadband technology to deliver IPTV, providing consumers a competitive television offering to that provided by traditional cable and satellite operators. According to eMarketer Inc., IPTV is projected to grow at a 60.2% compound annual growth rate from 2006 to 2010.

The Company’s HomePlug-based ICs include third-generation HomePlug 1.0 IC, first generation HomePlug 1.0 with Turbo IC, and first and second generation HomePlug AV-based ICs.

The Company’s HomePlug 1.0 ICs principally target data and basic broadband connectivity. The Company’s HomePlug 1.0 with Turbo ICs are based on and interoperate with HomePlug 1.0, but feature proprietary functionality that gives these ICs more throughput, expanding the capability for higher speed broadband and standard-definition television connectivity. Both the Company’s HomePlug 1.0 and 1.0 with Turbo ICs feature built-in 56-bit data encryption standard (DES) security.

The Company’s newest products, HomePlug AV-based ICs, have increased throughput that enables gamers, television viewers and music listeners to distribute standard or HD video and audiophile quality audio over existing electrical wiring in the digital home. These ICs provide advanced forward error correction, channel adaptation and quality of service guarantees to improve the quality of video.

The Company sells all of its HomePlug-based products, except the INT6000, with both a baseband transceiver component, which transmits and receives the signal, and an analog front-end component, which performs analog-to-digital signal conversion. The Company packages these components either as a single multi-component module or as a chipset.

In addition to its HomePlug-based products, the Company sells its earlier generation command and control ICs, which are used primarily in the trucking industry for anti-lock braking system monitoring. The Company’s command and control ICs are the P485 baseband transceiver and P111 analog front-end ICs. These products are based on two industry standards, EIA-600 (the CEBus standard) and SAE J2497 (the brake monitoring solution for tractor-trailer trucks).

The Company also offers its customers development tools that are necessary for them to develop products using its powerline communications ICs.

Cost of revenue was $5.5 million in the three months ended March 31, 2007 and $4.5 million in the same period in the prior year, an increase of $1.0 million, or 22.2%.

Gross profit was $4.2 million, or 43.3% of revenue, in the three months ended March 31, 2007 and $2.8 million, or 38.7% of revenue, in the same period in the prior year.

Research and development expense, including the amortization of intangibles, was $3.2 million in the three months ended March 31, 2007 and $2.5 million in the same period in the prior year, an increase of $0.7 million, or 28.0%.

Sales and marketing expense was $2.2 million in the three months ended March 31, 2007 and $1.7 million in the same period in the prior year, an increase of $0.5 million, or 29.9%.