Intense competition in the telecommunications industry has driven service providers to seek ways to lower costs, deploy more efficient networks, offer new value-added services and enhance their competitive position. Many service providers are combining separate voice and data networks onto one converged network using IP technologies to offer VoIP and other new multimedia communications services.

The VoIP market is growing rapidly and Gartner predicts that the worldwide VoIP number of residential and business lines will grow from 22.1 million in 2005 to 218.1 million in 2010, representing a compound annual growth rate of 58%.

Historically, telecommunications companies globally have been either government-owned or heavily regulated with the primary objective of providing voice services. This trend limited the innovation of telecommunications technology and service offerings. In addition, providers of different types of services, such as telephony, cable television, wireless and Internet services generally did not compete across each others’ markets, either due to prevailing regulatory restrictions or lack of technical capabilities. Instead, these service providers developed single purpose networks suitable for the type of service they provided using then-prevailing technology.

Declining service prices and margins are forcing service providers to explore the most efficient and cost-effective migration paths to IP networks, while complying with current and emerging industry standards, such as IMS. At the same time, service providers need interoperable solutions that allow legacy and next generation equipment and applications to co-exist, maximizing returns on their existing infrastructure investments.

• The Company’s ControlSwitch is a highly scalable and fully distributed software solution that provides control and management of calls in wireline and wireless networks. ControlSwitch software runs on off-the-shelf computing platforms and performs the following broad functions: Call Control, Call Policy and Element Management System

• The Company’s high density I-Gate 4000 PRO and lower density I-Gate 4000 EDGE media gateways are hardware devices that transport and convert the voice traffic between PSTN and IP networks.

 The I-Gate 4000 PRO, with up to 12,960 redundant compressed voice channels in a single shelf, is designed for medium and large-scale Central Office or co-location points of presence deployments used by service providers.

 The I-Gate 4000 EDGE, with up to 480 redundant compressed voice channels, is designed for low-density applications to extend the reach of service providers’ networks to low density markets and enterprises.

• The Company’s DTX-600 DCME product can simultaneously compress voice, fax, data and signaling traffic between any two legacy networks. It is designed to serve as a network optimization platform for diverse network applications over heavy-traffic international and domestic routes or Point-Of-Presence, or POP.

• The Company also provides Secure Communications Software as an enhancement to the core technology of its DTX-600 and I-Gate 4000 EDGE. Secure Communications Software adds specific security protocols to enable transport and compression of secure voice, fax and other communications over satellite and other communication technologies used in security applications.

Total cost of revenues increased by $4.8 million, or 29.7%, from $16.2 million for the six months ended June 30, 2005 to $21.0 million for the six months ended June 30, 2006.

Gross profit increased by $3.4 million, or 16.6%, from $20.3 million for the six months ended June 30, 2005 to $23.7 million for the six months ended June 30, 2006.

Sales and marketing expenses increased by $0.8 million, or 6.5%, from $12.4 million for the six months ended June 30, 2005 to $13.2 million for the six months ended June 30,

Net loss increased $3.1 million, or 46.9% from $6.6 million for the six months ended June 30, 2005 to $9.7 million for the six months ended June 30, 2006.