Organizations are becoming more geographically distributed, placing operations closer to customers and partners to improve efficiency and responsiveness. Businesses are becoming more global by expanding into new markets, migrating manufacturing facilities to lower-cost locations and outsourcing certain business processes. In addition, mergers, acquisitions, partnerships and joint ventures continue to expand the geographic scope of existing enterprises.

Application performance and effective access to data are critical to executing, maintaining and expanding business operations. Employees are increasingly dependent on a wide array of software applications to perform their jobs effectively, such as E-mail, document management, enterprise resource planning and customer relationship management.

As organizations have become more geographically distributed, installing and managing IT infrastructure has become increasingly costly and complex. Accordingly, IT managers often seek to consolidate IT infrastructure resources into headquarters or centralized datacenter locations, which can provide a number of benefits. Despite these benefits, many organizations have foregone or delayed consolidation projects because of performance problems.

Technological advances in computing, networking, semiconductor and storage technologies have improved users’ ability to access data and use applications rapidly across their LANs and store enormous amounts of information economically. However, these same applications and storage technologies, which were often designed to operate optimally on LANs, perform slowly across WANs and frequently exhibit the following performance challenges: delays in accessing, saving and transferring files; slow execution of critical software application functions; incomplete or inconsistent back-up and recovery of sensitive data; and loss of worker productivity and increased end-user frustration.

The Company’s Central Management Console (CMC) is a complementary product designed to centrally manage many Steelhead appliances distributed across a WAN, simplifying the tasks of deploying, configuring, monitoring, reporting and upgrading large numbers of Steelhead appliances.

The Company’s Interceptor is also a complementary product designed to simplify the deployment of Steelhead appliances in complex, high traffic data center environments. The Interceptor enables flexible and scalable deployment of a cluster of Steelhead appliances without requiring complex network reconfiguration, making the deployment of a Riverbed-based solution simpler, faster and more scalable than alternatives.

The Optimization System (RiOS) is the Company’s proprietary software platform that provides the core intelligence for its Steelhead appliances. To achieve performance improvements across a broad range of applications, RiOS integrates four key sets of technologies: Data Streamlining, Transport Streamlining, Application Streamlining and Management Streamlining.

The Company’s Data Streamlining technologies address bandwidth limitations in existing networks. The Company’s patented approach can be applied to all data and applications that run over TCP to reduce bandwidth consumption by dramatically reducing the need to send the same data multiple times over the WAN. Transport Streamlining enhances the performance of the TCP protocol by increasing the amount of data carried per TCP round trip, thereby reducing the number of round trips required to move a given amount of data over the WAN. Application Streamlining provides a further mechanism to enhance the performance of specific applications. Many applications were designed for use over a LAN and require hundreds to thousands of interactions between client and server to execute even simple requests, such as opening a file. Management Streamlining allows for simplified implementation and administration of the Company’s Steelhead appliances.

Gross profit increased to $20.8 million in the six months ended June 30, 2006 compared to $2.9 million in the six months ended June 30, 2005.

Sales & marketing expenses increased to $19.6 million in the six months ended June 30, 2006 compared to $7.3 million in the six months ended June 30, 2005.

Reasearch & development expenses increased to $7.8 million in the six months ended June 30, 2006 compared to $3.3 million in the six months ended June 30, 2005.