Service providers are facing an increasing array of challenges given the ongoing regulatory changes and technological advances in the communications industry. Global deregulation is promoting competition to incumbent service providers from both new entrants and operators in adjacent industries, such as wireless, satellite and cable television service providers. At the same time, end user demands are rapidly evolving. While in the past, communications traffic consisted primarily of traditional voice communications and basic data traffic, such as email and facsimiles, end users are increasingly seeking fast, personalized, content-rich, easy-to-use communications applications and are relying on them in both their professional and personal lives. Accordingly, this trend is increasing demand for high-speed access services, including voice, video, data and wireless.

The combination of competitive pressures and end user demands is placing pressure on service providers to add new services to their existing offerings quickly, with the flexibility to continue to add functionality and to scale as needed. Many new and incumbent service providers presently offer a bundle of voice, video and data services to end users, often referred to as “triple-play.” These services may include both traditional and enhanced voice services, broadcast television and on-demand video, and high-speed Internet data access delivered over a converged broadband connection to the home or office. Service providers also are increasingly adding wireless to the triple-play bundle, referred to as “quad-play,” which has contributed to consolidation between telecommunications and wireless service providers. The bundling of services enables service providers to generate new sources of revenue and increase customer penetration and retention.

As voice, video and data traffic travels over communications networks, it typically passes through the core and access networks before arriving at the customer premise, or destination. The growing demand for Internet bandwidth over the last decade prompted service providers to make significant capacity investments in the core network, which is the part of the network that is responsible for transporting large volumes of traffic between and within cities. Service providers have also made significant investments in upgrading the core network to a predominantly IP-based infrastructure to more efficiently manage the increased data traffic.

The Company offers its customers access to the source software and tools underlying its solutions. The software development environment incorporates the Company’s proprietary language used to program its data path engines, the source code underlying its common software interface, and a variety of other tools that can be used for functions such as debugging, simulation and verification.

The Company’s architecture is scalable through the addition of data path engines, with its existing solutions incorporating one, two or four engines. For solutions requiring multiple data path engines, the Company’s architecture utilizes proprietary methodologies for automatically allocating processing tasks between these engines. In addition, the Company’s architecture allows multiple data path engines to appear to software developers as one processing engine, which simplifies the use of its products.

The Company has developed an extensive portfolio of networking software that supports over 50 traditional and emerging communications protocols. The Company’s networking software enables the translation of multiple protocols simultaneously and supports varying levels of quality of service, facilitating the integration of new and existing networks.

The Company has developed a common software interface, referred to as WinPath Device Driver Interface, or WDDI, which is used across all of its products.

The Company’s software development environment consists of proprietary language to program its data path engines and additional tools that facilitate functions such as simulation of architecture blocks for protocol verification, system modeling, debugging and performance analysis.

The Company’s WLS software enables additional functionality to be implemented in its solutions. Programmed using Linux software, WLS runs on the Company’s control path processor and performs functions such as bridging and routing.

Gross profit was $15.3 million for the year ended December 31, 2005 compared to $7.2 million for the year ended December 31, 2004, representing an increase of 112%.

Research and development expenses were $8.7 million for the year ended December 31, 2005 compared to $8.1 million for the year ended December 31, 2004, representing an increase of 7%.

Sales and marketing expenses were $4.3 million for the year ended December 31, 2005 compared to $2.9 million for the year ended December 31, 2004, representing an increase of 47%.

Financial expenses were $0.2 million for the year ended December 31, 2005 and $0.2 million for the year ended December 31, 2004.