Computing and storage systems such as servers, supercomputers and storage arrays handling large volumes of data require high-performance interconnect solutions which enable fast transfer of data and efficient sharing of resources. Interconnect solutions are based on ICs that handle data transfer and associated processing which are added to server, storage, communications infrastructure equipment and embedded systems by either integrating the ICs on circuit boards or by inserting adapter cards that contain these ICs into slots on the circuit board. Demand for computing power and data storage capacity is rising at a high rate, fueled by the increasing reliance of enterprises on information technology, or IT, for everyday operations. Because enterprises rely on compute- and data-intensive applications that create greater amounts of information to be processed, stored and retrieved, they need high-performance computing and high-capacity storage systems that optimize price/performance, minimize total cost of ownership and simplify management.

InfiniBand is an industry standard, high-performance interconnect architecture that effectively addresses the challenges faced by the IT industry by enabling cost-effective, high-speed data communications. The physical connection of multiple HCAs and switches is commonly known as an InfiniBand fabric. InfiniBand has gained significant market share within the HPC market, including clustered computing deployments for government, academic, scientific and research oriented applications. According to IDC, InfiniBand’s share of the HPC cluster interconnect revenue has grown from 1.7% in 2003 to 17.2% in 2005.

IDC predicts that of the 7.7 million servers that will ship to the entire server market in 2006, approximately 4% will integrate InfiniBand products. Further, IDC estimates that from 2006 to 2010, usage of InfiniBand in servers will increase at a 40% compound annual growth rate, resulting in over 1.1 million InfiniBand servers in 2010. In addition to servers, storage systems represent another significant opportunity for InfiniBand products. According to IDC, shipments of Fibre Channel adapters is expected to increase from 1.8 million in 2005 to 4.7 million in 2010.

The Company provides complete solutions based on the InfiniBand standard, including HCA and switch ICs, HCA cards and software.

The Company provides HCAs to server, storage, communications infrastructure and embedded systems OEMs as ICs or standard card form factors with PCI-X or PCI Express interfaces. HCAs are incorporated into OEM server and storage systems to provide InfiniBand connectivity. The Company is currently in production with its third generation of HCA products. The Company’s HCAs interoperate with standard programming interfaces and are compatible with previous generations, providing broad industry support. The Company also supports server operating systems including Linux, Windows, AIX, HPUX, OSX, Solaris and VxWorks.

The Company’s InfiniScale switch ICs are used by server, storage, communications infrastructure and embedded systems OEMs to create switching equipment that are at the core of InfiniBand fabrics. To deploy an InfiniBand fabric, any number of server or storage systems that contain an HCA can be connected to an InfiniBand-based communications infrastructure system such as an InfiniBand switch. The Company is currently in production with its third generation of switch ICs.

Gross profit was approximately $13.4 million for the six months ended June 30, 2006 compared to approximately $10.5 million for the six months ended June 30, 2005, representing an increase of 28%.

Research and development expenses were approximately $7.2 million for the six months ended June 30, 2006 compared to approximately $6.1 million for the six months ended June 30, 2005, representing an increase of 18%.

Sales and marketing expenses were approximately $4.0 million for the six months ended June 30, 2006 compared to approximately $3.3 million for the six months ended June 30, 2005, representing an increase of 21%.

Other income, net was approximately $131,000 for the six months ended June 30, 2006 compared to approximately $218,000 for the six months ended June 30, 2005, representing a decrease of 40%.