The performance requirements for critical computing applications are dramatically increasing as enterprises and institutions use the information that is created, stored and accessed by these applications to enhance their competitiveness. This dependence on information for fundamental business processes is causing enterprises and institutions to seek higher-performance data center information technology, or IT, resources.

IT personnel must balance the increasing demand for high-performance computing, while at the same time managing the cost and complexity of these environments. Traditionally, enterprises and institutions have met their high-performance computing and capacity requirements by adding monolithic systems, such as mainframe computers and high-end servers.

These systems require large up-front investments, have long order lead times, are challenging to integrate into broader data center architectures and are typically built around proprietary architectures. These factors result in low initial levels of efficiency, an inability to scale-out quickly in response to expanding computing needs and reduced data center management flexibility.

As a result of these limitations, enterprises and institutions are increasingly seeking computing solutions that provide improved performance in a cost-effective manner by adopting more modular and open computing solutions commonly referred to as server and storage clusters. These clusters consist of off-the-shelf industry-standard server and storage systems organized in racks and connected through specialized switches.

The Company’s Grid Director director-class switches and Grid Switch edge switches are used to create low latency, high-bandwidth connections of up to 20 Gigabit/second to servers and storage devices. The Company offers high-performance, multi-service switches with InfiniBand, Ethernet and Fibre Channel capacity integrated into a single chassis that supports large grids.

The Company offers a line of management tools that provide information on the topology of the grid, configuration of the individual switches within the grid and real-time monitoring of performance. The Company’s GridVision fabric management software offers summary management reports at various levels, error correlation and alarms, fabric-wide performance monitoring and centralized port and virtual local area network configuration.

The Company’s GridVision Enterprise software is a grid provisioning solution, which offers customers a method of dynamically allocating resources based on pre-defined configurations. GridVision Enterprise software also delivers extensive automated monitoring and diagnostics for servers, which enable customers to perform corrective measures and/or to shift resources to meet changing demands.

The Company’s GridStack software is a comprehensive set of host drivers and protocols that enable any application to utilize the performance of RDMA and high-performance storage connectivity. Based on an open-source standard, GridStack allows both Windows-and Linux-based applications to run in an InfiniBand environment.

The Company’s routers enable customers to consolidate InfiniBand-, Fibre Channel- and Ethernet-based servers, network and storage connectivity into a single high-performing fabric. Currently, the Company offers the Internet Protocol Router, as well as the Fibre Channel Router. The Company’s Internet Protocol Router is based on third-generation Ethernet-to-InfiniBand FPGA, and offers a range of intelligent layer 2 through 7 capabilities, which can be performed at high speed. The Company’s Fibre Channel Router is an RDMA-capable Fibre Channel-to-InfiniBand router that can operate as a transparent Fibre Channel bridge and can be integrated with existing storage networks, as well as storage virtualization tools.

The Company’s host channel adapters, or HCAs, provide connectivity to high performance InfiniBand-based grids, storage and networking devices.

Cost of revenues increased by $2.6 million, or 89.4%, to $5.4 million in the three months ended March 31, 2007 from $2.8 million in the three months ended March 31, 2006.

Gross research and development expenses increased by $0.7 million, or 35.5% to $2.7 million in the three months ended March 31, 2007 from $2.0 million in the three months ended March 31, 2006.

Sales and marketing expenses increased by $0.5 million, or 31.3%, to $2.1 million in the three months ended March 31, 2007 from $1.6 million in the three months ended March 31, 2006.

Financial and other income (expenses) changed to a loss of $0.4 million in the three months ended March 31, 2007 from income of $0.1 million in the three months ended March 31, 2006.