UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June 30~~December 31, 2005

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 0-28450

Netopia, Inc.

(Exact name of registrant as specified in its charter)

Delaware

94-3033136

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

6001 Shellmound Street, 4^th Floor

Emeryville, California 94608

(Address of principal executive offices, including Zip Code)

(510) 420-7400

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, ~~(as~~or ~~defined~~a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act).

~~Yes~~Large accelerated filer ¨ Accelerated filer þ No Non-accelerated filer ¨

AsIndicate ofby ~~August~~check 5,mark ~~2005,~~whether ~~there~~the ~~were 25,241,431~~registrant ~~shares~~is ofa ~~the~~shell ~~Registrant’s~~company ~~common~~(as ~~stock~~defined ~~outstanding~~in Rule 12b-2 of the Exchange Act.): Yes ¨ No þ

As of February 7, 2006, there were 25,711,104 shares of the Registrant’s common stock outstanding.

NETOPIA, INC.

Form 10-Q

Table of Contents

		~~Page~~	Page
PART I.	FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements	1	1
	Condensed Consolidated Balance Sheets at June 30, 2005 and September 30, 2004	1
		Condensed Consolidated Balance Sheets at December 31, 2005 and September 30, 2005	1
	Condensed Consolidated Statements of Operations for the three and nine months ended June 30, 2005 and 2004	2
		Condensed Consolidated Statements of Operations for the three months ended December 31, 2005 and 2004	2
	Condensed Consolidated Statements of Cash Flows for the nine months ended June 30, 2005 and 2004	3
		Condensed Consolidated Statements of Cash Flows for the three months ended December 31, 2005 and 2004	3
	Notes to Condensed Consolidated Financial Statements	4
		Condensed Consolidated Statements of Stockholders’ Equity and Comprehensive Income for the three months ended December 31, 2005 and 2004	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
		Notes to Condensed Consolidated Financial Statements	5
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		17
Item 4.	Controls and Procedures	36
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		35
PART II.	OTHER INFORMATION
Item 4.	Controls and Procedures		35
Item 1.	Legal Proceedings	38
PART II.	OTHER INFORMATION
Item 6.	Exhibits and Reports on Form 8-K	41
Item 1.	Legal Proceedings		35
Signatures		42
Item 6.	Exhibits and Reports on Form 8-K		38
Certifications
Signatures			39
Certifications

PART I — FINANCIAL INFORMATION

~~Our~~ITEM Annual Report on Form 10-K for the fiscal year ended September 30, 2004 (the “2004 10-K”) amended our Annual Reports on Form 10-K previously filed for the fiscal years ended September 30, 2003 and September 30, 2002, and our previously filed reports on Form 10-Q for the fiscal quarters ended March 31, 2004 and December 31, 2003, to reflect the restatements of our consolidated financial statements for all such previously reported periods1. ~~This~~CONDENSED ~~Form~~CONSOLIDATED ~~10-Q~~FINANCIAL ~~should be read in conjunction with the 2004 10-K, in which we explain the restatements of our consolidated financial statements.~~ STATEMENTS

ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NETOPIA, INC.

Condensed Consolidated Balance Sheets

	June 30,2005 (Unaudited)			September 30,2004 (1)
	(in thousands)
Assets
Current assets:
Cash and cash equivalents	$	22,825		$	23,973
Trade accounts receivable, net of allowances for doubtful accounts of $81 and $111, respectively		18,345			17,812
Inventories		5,543			6,280
Prepaid expenses and other current assets		975			1,226
Total current assets		47,688			49,291
Furniture, fixtures and equipment, net		2,631			2,694
Acquired technology and other intangible assets, net		2,781			4,016
Goodwill		1,668			1,668
Long-term investments		1,032			1,032
Deposits and other assets		525			886
TOTAL ASSETS		56,325			59,587
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable		13,109			9,827
Accrued compensation		2,300			2,582
Accrued liabilities		2,438			3,806
Deferred revenue		1,354			1,679
Current portion of borrowings under term loans		—			104
Other current liabilities		65			53
Total current liabilities		19,266			18,051
Long-term liabilities:
Other long-term liabilities		389			406
Total liabilities		19,655			18,457
Stockholders’ equity:
Common stock: $0.001 par value, 50,000,000 shares authorized; 25,225,223 and 24,717,503 shares issued and outstanding at June 30, 2005 and September 30, 2004, respectively		167,598			166,270
Other Comprehensive Income (loss)		(3	)		—
Accumulated deficit		(130,925	)		(125,140	)
Total stockholders’ equity		36,670			41,130
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	56,325		$	59,587

(in thousands, except share and per share amounts)

(1) Derived from the audited consolidated balance sheet dated September 30, 2004 included in the 2004 10-K.


	December 31, 2005			September 30, 2005 (1)
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	22,465		$	22,234
Trade accounts receivable, net of allowances for doubtful accounts of $140 and $144, respectively		14,436			16,208
Inventories		7,418			8,718
Prepaid expenses and other current assets		1,472			1,102

Total current assets		45,791			48,262
Property and equipment, net		2,511			2,623
Acquired technology and other intangible assets, net		2,044			2,369
Goodwill		1,668			1,668
Long-term investments		1,032			1,032
Deposits and other assets		441			481

TOTAL ASSETS	$	53,487		$	56,435

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable		10,278			12,525
Accrued compensation		2,115			1,890
Accrued liabilities		2,658			2,772
Deferred revenue		3,252			2,946
Other current liabilities		84			75

Total current liabilities		18,387			20,208
Long-term liabilities:
Deferred revenues, long term		182			109
Other long-term liabilities		224			246

TOTAL LIABILITIES		18,793			20,563

Stockholders’ equity:
Common stock: $0.001 par value, 50,000,000 shares authorized; 25,469,173 and 25,428,412 shares issued and outstanding at December 31, 2005 and September 30, 2005, respectively		25			25
Additional paid-in capital		169,394			168,075
Accumulated Comprehensive Income		40			45
Accumulated deficit		(134,765	)		(132,273	)

Total stockholders’ equity		34,694			35,872

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	53,487		$	56,435

~~See~~(1) ~~accompanying~~Derived ~~notes~~from tothe ~~Condensed~~audited ~~Consolidated~~consolidated ~~Financial~~balance ~~Statements.~~sheet dated September 30, 2005 included in Netopia’s Annual Report on 10-K for the fiscal year ended September 30, 2005.

See accompanying notes.

Page 1

NETOPIA, INC.

Condensed Consolidated Statements of Operations

Unaudited

	Three Months EndedJune 30,						Nine Months EndedJune 30,
	2005			2004			2005			2004 (1)
	(in thousands, except per share amount)
REVENUES:
Broadband equipment	$	25,103		$	21,891		$	73,547		$	63,426
Broadband software and services		2,726			3,543			8,823			12,074
Total revenues		27,829			25,434			82,370			75,500
COST OF REVENUES:
Broadband equipment		18,655			16,757			54,907			45,780
Broadband software and services		489			267			1,139			706
Amortization of acquired technology		300			300			900			900
Total cost of revenues		19,444			17,324			56,946			47,386
GROSS PROFIT		8,385			8,110			25,424			28,114
OPERATING EXPENSES:
Research and development		3,400			3,846			10,009			11,854
Selling and marketing		4,582			5,199			14,249			15,262
General and administrative		2,561			1,184			6,785			3,591
Amortization of intangible assets		86			86			259			259
Restructuring costs		—			—			98			—
Total operating expenses		10,629			10,315			31,400			30,966
OPERATING LOSS		(2,244	)		(2,205	)		(5,976	)		(2,852	)
Other income (expense), net		(44	)		(52	)		259			193
Provision for income taxes		24			19			68			65
NET LOSS	$	(2,312	)	$	(2,276	)	$	(5,785	)	$	(2,724	)
Per share data, net loss:
Basic and diluted net loss per share	$	(0.09	)	$	(0.09	)	$	(0.23	)	$	(0.12	)
Common shares used in the per share calculations		25,215			24,033			25,000			23,247

(in thousands, except per share amounts)

(1) See the 2004 10-K for a description of the restatements of financial results for prior periods.


	Three Months Ended December 31,
	2005			2004
REVENUES:
Broadband equipment	$	21,051		$	26,197
Broadband software and services		2,847			3,121

Total revenues		23,898			29,318

COST OF REVENUES:
Broadband equipment		14,511			19,945
Broadband software and services		528			266
Amortization of acquired technology		300			300

Total cost of revenues		15,339			20,511

GROSS PROFIT		8,559			8,807

OPERATING EXPENSES:
Research and development		3,929			3,206
Selling and marketing		4,853			5,085
General and administrative		2,419			2,195
Amortization of intangible assets		—			86

Total operating expenses		11,201			10,572

OPERATING LOSS		(2,642	)		(1,765	)
Other income, net		164			148
Provision for income taxes		14			24

NET LOSS	$	(2,492	)	$	(1,641	)

Per share data, net loss:
Basic and diluted net loss per share	$	(0.10	)	$	(0.07	)
Common shares used in the per share calculations		25,450			24,748

See accompanying notes. Net income for the first quarter of fiscal year 2006 included stock-based compensation expense of $1,214,000 under Statement of Financial Accounting Standards (“SFAS”) 123(R), “Share Based Payment.” There was no stock-based compensation expense under SFAS 123, “Accounting for Stock-Based Compensation,” in the first quarter of fiscal year 2005 because the Company did not adopt the recognition provisions of SFAS 123. Net loss including pro forma stock-based compensation expense as previously disclosed in the notes to the Condensed Consolidated Financial Statements in the Form 10-Q for the first quarter of fiscal year 2005 was $3.0 million or a loss of $0.12 per basic and diluted share. See Note 7 to the Condensed Consolidated Financial Statements for additional information.

Page 2

NETOPIA, INC.

Condensed Consolidated Statements of Cash Flows

Unaudited

	Nine Months EndedJune 30,
	2005			2004
	(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(5,785	)	$	(2,724	)
Reconciliation of net loss to net cash used in operating activities:
Depreciation and amortization		2,695			3,344
Changes in allowance for doubtful accounts		(30	)		(79	)
Cumulative translation adjustment		(3	)		—
Restructure costs		(459	)		—
Charge for impairment of capitalize software costs		99			—
Changes in operating assets and liabilities:
Trade accounts receivable		(503	)		(155	)
Inventories		737			(3,208	)
Prepaid & other current assets		251			(20	)
Deposits and other assets		9			72
Accounts payable and accrued liabilities		3,021			(1,220	)
Deferred revenue		(325	)		(114	)
Other liabilities		(935	)		(504	)
Net cash used in operating activities		(1,228	)		(4,608	)
Cash flow from investing activities:
Purchase of furniture, fixtures and equipment		(1,151	)		(1,296	)
Acquisition of intangibles		—			(300	)
Acquisition of business		—			(146	)
Net cash used in investing activities		(1,151	)		(1,742	)
Cash flow from financing activities:
Repayments of term loans		(104	)		(188	)
Proceeds from the issuance of common stock		1,335			7,865
Net cash provided by financing activities		1,231			7,677
Net increase (decrease) in cash and cash equivalents		(1,148	)		1,327
Cash and cash equivalents, beginning of period		23,973			22,208
Cash and cash equivalents, end of period	$	22,825		$	23,535

(in thousands)

See accompanying notes to Condensed Consolidated Financial Statements.


	Three Months Ended December 31,
	2005			2004
Cash flows from operating activities:
Net loss	$	(2,492	)	$	(1,641	)
Reconciliation of net loss to net cash provided by operating activities:
Depreciation and amortization		771			981
Stock-based compensation related to employee stock options and employee stock purchases		1,231			—
Changes in allowance for doubtful accounts		(4	)		—
Restructure costs		—			(439	)
Changes in operating assets and liabilities:
Trade receivables		1,777			275
Inventories		1,300			(1,044	)
Prepaid expenses and other assets		(371	)		256
Accounts payable and accrued liabilities		(2,136	)		3,486
Deferred revenues		379			—
Other liabilities		(13	)		(1,539	)

Net cash provided by operating activities		442			335

Cash flow from investing activities:
Purchase of property, equipment and capitalized software		(294	)		(495	)

Net cash used in investing activities		(294	)		(495	)

Cash flow from financing activities:
Principal payments on short term loan		—			(62	)
Proceeds from the issuance of common stock		88			114

Net cash provided by financing activities		88			52

Effect of changes in foreign exchange rates		(5	)		(27	)
Net increase (decrease) in cash and cash equivalents		231			(135	)
Cash and cash equivalents at the beginning of period		22,234			23,973

Cash and cash equivalents at the end of the period	$	22,465		$	23,838

See accompanying notes.

Page 3

~~NETOPIA~~Netopia, ~~INC~~Inc.

~~Notes to~~ Condensed Consolidated ~~Financial~~ Statements of Stockholders’ Equity and Comprehensive Loss

~~(1)~~Unaudited ~~The Company~~

~~Netopia, Inc.~~ (~~“Netopia”~~in thousands, ~~the~~except ~~“Company”~~share ~~or “we”~~amounts) ~~develops and markets broadband customer premise equipment, remote management software and broadband services.~~

Our broadband equipment includes a family of telecommunications carrier-class broadband customer premise equipment, including modems, routers and gateways (collectively referred to as “gateways”), and related accessories, including wireless (Wi-Fi) adapters. Our gateways provide a link between telecommunication carrier’s lines and residential and distributed business networks. The gateways provide functionality, including converting electronic and analog signals to digital communication, network routing, and wired and wireless networked connectivity for simultaneous voice, video, data and other applications.


	Common Stock			Additional Paid-in Capital		Accumulated Deficit			Accumulated Comprehensive Income (Loss)			Total Stockholders’ Equity
	Shares	Amount		Additional Paid-in Capital		Accumulated Deficit			Accumulated Comprehensive Income (Loss)			Total Stockholders’ Equity
Three Months Ended December 31, 2004:
Balance, September 30, 2004	24,717,503	$	25	$	166,245	$	(125,140	)	$	—		$	41,130
Exercise of stock options	71,110				114								114
Net loss							(1,641	)					(1,641	)
Translation reserve										(27	)		(27	)

Comprehensive loss													(1,668	)

Balance, December 31, 2004	24,788,613		25		166,359		(126,781	)		(27	)		39,576

Three Months Ended December 31, 2005:
Balance, September 30, 2005	25,428,412		25		168,075		(132,273	)		45			35,872
Exercise of stock options	40,761				88								88
Stock based compensation expense related to employee stock options and employee stock purchases					1,231								1,231
Net loss							(2,492	)					(2,492	)
Translation reserve										(5	)		(5	)

Comprehensive loss													(2,497	)

Balance, December 31, 2005	25,469,173	$	25	$	169,394	$	(134,765	)	$	40		$	34,694

~~Our~~See ~~products~~accompanying provide broadband solutions to our customers, the largest of which are telecommunication carriers and Internet Service Providers, for the delivery of broadband services to their residential and business-class customersnotes. ~~Our solutions enable carriers and broadband service providers to (i) deliver our feature-rich gateways to their customers, (ii) utilize our software that allows remote~~ management of equipment located at their customers’ premises in order to reduce customer support costs, and (iii) provide value added services, including combined voice, video and data services (commonly referred to as “triple-play” services).

Our remote management software products enable remote control, monitoring and service provisioning of broadband equipment, networked devices such as set top boxes and Web cams, as well as the personal computers with which they interact. Our software solutions are designed to meet the requirements of a full range of users: individual-to-individual, carrier-to-customer, and help desk-to-users.

Our broadband services include Wi-Fi hot spots for local and nationwide networks of small venues, web site and remote control hosting, retail broadband point-of-sale services and parental controls.

(2) Pro Forma Stock Compensation Expense

We maintain stock option plans under which we may grant incentive stock options and non-statutory stock options. Statement of Financial Accounting Standards (“SFAS”) No. 123, Accounting for Stock-Based Compensation, encourages, but does not require, companies to record compensation cost for stock-based employee compensation plans based on the fair market value of options granted. We account for stock based compensation using the intrinsic value method prescribed in Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. Because the grant price equals the market price on the date of grant for all options we issued, we did not recognize compensation expense for stock options granted to our employees and directors. In accordance with SFAS No. 123, we recognize as an expense, the fair value of options and other equity instruments granted to non-employees other than to our directors. We have not issued any stock options to non-employees since fiscal year 2001 other than to our directors. In December 2002, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 148, Accounting for Stock Based Compensation – Transition and Disclosure, which amends SFAS No. 123. SFAS No. 148 requires more prominent and frequent disclosures about the effects of stock-based compensation. We will continue to account for our stock based compensation according to the provisions of APB No. 25, through the end of the fiscal year ending September 30, 2005. SFAS No. 148 requires the disclosure of pro forma net income and earnings per share. Under SFAS No. 148, the fair value of stock-based awards to employees is calculated through the use of option pricing models, even though such models were developed to estimate the fair value of freely tradable, fully transferable options without vesting restrictions, which significantly differ from the Company’s stock option awards. These models also require subjective assumptions, including future stock price volatility and expected time to exercise, which greatly affect the calculated values.

Page 4

~~The Company’s calculations were made using the Black-Scholes Option-Pricing Model with the following~~ ~~weighted~~NETOPIA, ~~average~~INC. ~~assumptions for options granted:~~

Three Months Ended June 30,	2005		2004
Expected life (in years)	3.23		3.23
Expected volatility	354	%	313	%
Risk-free interest rate	3.67		3.16
Expected dividend yield	—		—

Notes to Condensed Consolidated Financial Statements

~~Under~~(1) ~~the~~Description ~~Employee Stock Purchase Plan, rights to purchase shares are only granted during the second and fourth quarter~~ of ~~each fiscal year. The value of rights to purchase shares granted were estimated at the date of grant using the following weighted average assumptions:~~ Business

Three Months Ended June 30,	2005		2004
Expected life (in years)	2		2
Expected volatility	221	%	133	%
Risk-free interest rate	3.66		2.70
Expected dividend yield	—		—

Netopia, Inc. (the “Company”) is a developer and provider of high performance broadband customer premises networking equipment and carrier-class software for the remote management of broadband services and end point equipment. The Company also develops and provides broadband enabled services and remote management software for enterprises’ technical support, help-desks and personal computers.

~~The~~(2) ~~following~~Summary ~~table illustrates~~of ~~the~~Significant ~~effect~~Accounting ~~on our net loss and net loss per share if we had recorded compensation costs based on the estimated grant date fair value defined by SFAS No. 123 for all granted stock-based awards:~~ Policies

	Three Months EndedJune 30,						Nine Months EndedJune 30,
	2005			2004			2005			2004
	(in thousands, except per share data)
Net loss, as reported	$	(2,312	)	$	(2,276	)	$	(5,785	)	$	(2,724	)
Add: Total stock-based employee compensation expense included in the determination of net loss, as reported		—			—			—			—
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards		1,152			1,707			3,735			4,970
Net loss, pro forma	$	(3,464	)	$	(3,983	)	$	(9,520	)	$	(7,694	)
Basic and diluted net loss per share – As reported	$	(0.09	)	$	(0.09	)	$	(0.23	)	$	(0.12	)
Basic and diluted net loss per share – Pro Forma	$	(0.14	)	$	(0.17	)	$	(0.38	)	$	(0.33	)

Fiscal Year: The Company’s fiscal year is the 12-months ended September 30.

Basis of Presentation: The ~~Black-Scholes~~accompanying unaudited condensed ~~Single~~consolidated ~~Option~~financial ~~weighted~~statements ~~average~~have ~~fair~~been ~~value~~prepared ofin ~~employee~~accordance ~~stock~~with ~~options~~United ~~granted~~States ~~during~~generally ~~the~~accepted ~~three~~accounting ~~months~~principles ~~ended~~for ~~June~~interim ~~30,~~financial ~~2005~~information and ~~2004~~with ~~was~~the ~~$3.46~~instructions to Form 10-Q and $5Rule 10-01 of Regulation S-X.78 Accordingly, they ~~respectively~~do not include all of the information and footnotes required by generally accepted accounting principles in the United States for complete financial statements. The ~~Black-Scholes~~accompanying ~~Single~~condensed ~~Option~~consolidated ~~weighted~~financial ~~average~~statements ~~fair~~should ~~value~~be ofread ~~employee~~in conjunction ~~stock~~with ~~options granted~~the ~~during~~consolidated financial statements and notes thereto included in the ~~nine~~Company’s ~~months~~Annual ~~ended~~Report ~~June~~on ~~30,~~Form ~~2005~~10-K ~~and~~for ~~2004~~the ~~was~~fiscal ~~$3.18~~year ~~and~~ended ~~$8.43~~September 30, ~~respectively~~2005.

In the opinion of management, the unaudited interim financial statements included herein reflect all adjustments, consisting of normal recurring adjustments, necessary to present fairly the Company’s consolidated financial position and the results of operations and cash flows for the three month period ended December 31, 2005. The results of operations for the three-month period ended December 31, 2005 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2006 (“fiscal year 2006”).

Stock-Based Compensation: On October 1, 2005, the Company adopted SFAS 123(R), which requires the measurement and recognition of compensation expense for all share-based payment awards made to the Company’s employees and directors, including employee stock options and employee stock purchases related to the Employee Stock Purchase Plan, based on estimated fair values.

The Company adopted SFAS 123(R) using the modified prospective method, which requires us to record compensation expense for all awards granted after the date of adoption, and for the unvested portion of previously granted awards that remain outstanding at the date of adoption. Accordingly, prior period amounts presented herein have not been restated to reflect the adoption of SFAS 123(R). The fair value concepts were not changed significantly in SFAS 123(R); however, in adopting SFAS 123(R), companies must choose among alternative valuation models and amortization assumptions. After assessing alternative valuation models and amortization assumptions, the Company will continue using both the Black-Scholes option-pricing formula and straight-line amortization of compensation expense over the requisite service period of the grant. The Company will reconsider use of this model if additional information becomes available in the future that indicates another model would be more appropriate, or if grants issued in future periods have characteristics that cannot be reasonably estimated using this model. Under SFAS No. 123, “Accounting for Stock Based Compensation” (“SFAS 123”), the Company was not required to estimate forfeitures in expense calculation for the stock compensation pro forma footnote disclosure; however, SFAS 123(R) requires an estimate of forfeitures and upon adoption the Company changed methodology to include an estimate of forfeitures. The adoption of SFAS 123(R) had no effect on cash flows from operating activities.

Page 5

~~The~~Per ~~following~~Share ~~table~~Calculations: ~~summarizes~~Basic ~~activity~~net ~~under~~loss per share is computed using the ~~Company’s~~weighted-average number of common shares outstanding during the period. Diluted net loss per share is computed using the weighted-average number of common shares and excludes dilutive potential common shares outstanding, as their effect is antidilutive. Dilutive potential common shares consist of employee stock ~~option~~options, ~~plans:~~which in aggregate were approximately 6.1 million options outstanding at December 31, 2005.

Stock options	Shares underOptions		Weightedaverageexercise price
Outstanding as of September 30, 2004	5,971,110		$	4.59
Options granted	449,000			2.74
Options exercised	(71,110	)		1.61
Options cancelled	(817,234	)		4.86
Outstanding as of December 31, 2004	5,531,766			4.44
Options granted	197,500			3.39
Options exercised	(152,080	)		3.00
Options cancelled	(179,659	)		5.19
Outstanding as of March 31, 2005	5,397,527			4.41
Options granted	562,000			3.46
Options exercised	(22,879	)		1.54
Options cancelled	(163,909	)		3.90
Outstanding as of June 30, 2005	5,772,739			4.35
Exercisable	3,830,465		$	4.71

Estimates: The preparation of financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and judgments that affect the amounts reported in the Condensed Consolidated Financial Statements and accompanying notes. Estimates are used for revenue recognition, allowance for doubtful accounts and sales returns, reserves for excess and obsolete inventory, warranty costs, investment impairments, income taxes, service costs, and loss contingencies, among others. The actual results experienced by the Company may differ materially from management’s estimates.

~~(3)~~Reclassifications: ~~Basis~~Certain ofreclassifications ~~Presentation~~have been made to prior year balances in order to conform to the current year’s presentation.

~~The~~Fair ~~accompanying~~Value ~~unaudited~~of ~~condensed~~Financial ~~consolidated~~Instruments: ~~financial~~The ~~statements~~fair ~~have~~value ~~been~~of ~~prepared~~cash ~~in accordance with United States generally accepted accounting principles for interim financial information~~ and ~~with~~cash ~~the~~equivalents, ~~instructions~~accounts toreceivable ~~Form 10-Q~~ and ~~Rule~~accounts ~~10-01~~payable offor ~~Regulation S-X. Accordingly, they do not include~~ all ofperiods ~~the~~presented ~~information~~approximates ~~and~~their ~~footnotes~~respective ~~required~~carrying byamounts ~~generally~~because ~~accepted~~of ~~accounting principles in~~ the ~~United~~short ~~States~~maturity ~~for~~of ~~complete~~these financial ~~statements~~instruments. The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2004.

~~In the~~(3) ~~opinion~~Goodwill of management, the unaudited interim financial statements included herein reflect all adjustments, consisting of normal recurring adjustments, necessary to present fairly the Company’s consolidated financial position and ~~the~~Purchased ~~results of~~Intangible operations and cash flows at June 30, 2005 and for all periods presented. The results of operations for the three- and nine-month periods ended June 30, 2005 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2005 (“fiscal year 2005”). Assets

~~Estimates~~Goodwill: The ~~preparation~~Company’s ofgoodwill ~~financial~~resulted ~~statements~~from ~~and~~the ~~related~~acquisitions ~~disclosures~~of inJadeSail ~~conformity with accounting principles generally accepted~~ in ~~the~~October ~~United~~2003 ~~States requires management to make estimates~~ and ~~assumptions~~WebOrder ~~that affect the amounts reported~~ in ~~the~~March ~~financial statements and accompanying notes. Estimates are used for~~2000, ~~but~~each ~~not~~of ~~limited~~which ~~to, the accounting for the allowance for doubtful accounts, sales reserves, inventory write-downs, customer support service accruals, warranty~~became ~~obligations,~~part ~~depreciation and amortization, contingencies and potential asset impairment~~ of ~~investments,~~to ~~intangible~~the ~~assets,~~broadband ~~goodwill~~software and ~~other~~services ~~assets~~segment. ~~Actual results could differ from estimates.~~

~~Cash~~Purchased ~~and~~Intangibles: ~~Cash~~At ~~equivalents:~~December 31, ~~The~~2005, the Company’s ~~records~~purchased ~~all~~intangible ~~investments~~assets ~~with~~consisted of developed product technology and a ~~maturity~~ marketing agreement. The table below presents details of ~~less~~the ~~than~~Company’s 90purchased intangible ~~days~~assets. asThe ~~cash~~Company’s ~~equivalents~~purchased intangible assets are allocated primarily to the broadband equipment segment.


(in thousands)	Technology			Marketing Agreement			Total
Balance, September 30, 2005		2,232			137			2,369
Amortization		(300	)		(25	)		(325	)

Balance, December 31, 2005	$	1,932		$	112		$	2,044

The Company’s purchased intangible assets are estimated to be almost fully amortized by the end of fiscal year 2007. Estimated future amortization is $975,000 in the remaining nine months of fiscal year 2006; and $1,020,000 and $49,000, in fiscal years 2007 and 2008, respectively.

Page 6

(4)

Inventories

~~Inventories:~~At ~~Inventories~~December 31, ~~are~~2005 ~~stated~~and atSeptember 30, ~~the lower of cost (first-in~~2005, ~~first-out)~~inventories orconsisted ~~market~~of ~~(estimated~~the ~~net realizable value). Inventories were as follows~~following:

	June 30,2005		September 30,2004
(in thousands)	December 31,2005		September 30,2005
	(in thousands)
Raw materials	$	934	$	1,783
Raw materials	$	1,318	$	1,595
Work in process		820		43
Work in process		47		448
Finished goods		5,664		6,892
Finished goods		4,178		4,237
Total	$	7,418	$	8,718
Inventories, net	$	5,543	$	6,280

(5) ~~Recent~~Property ~~Accounting~~and ~~Pronouncements~~Equipment

InAt ~~May~~December 31, 2005, ~~the~~and ~~FASB issued SFAS No. 154~~September 30, ~~Accounting Changes and Error Corrections~~2005, aproperty ~~replacement of APB No. 20~~ and ~~FASB~~equipment ~~Statement~~consisted ~~No. 3 (“SFAS No. 154”). SFAS No. 154 requires retrospective application to prior periods’ financial statements~~ of a voluntary change in accounting principle unless it is impracticable. APB Opinion No. 20 “Accounting Changes,” previously required that most voluntary changes in accounting principle be recognized by including in net income of the ~~period~~following: of the change the cumulative effect of changing to the new accounting principle. This statement is effective for our Company as of January 1, 2006. The Company does not believe that the adoption of SFAS No. 154 has had nor will have a material impact on our consolidated financial statements.

In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment (“SFAS No. 123R”), which replaces SFAS No. 123 Accounting for Stock-Based Compensation and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees. SFAS No. 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values. The pro forma disclosures previously permitted under SFAS No. 123 no longer will be an alternative to financial statement recognition. We are required to adopt SFAS No. 123R in the first quarter of fiscal year 2006, beginning October 1, 2005. Under SFAS No. 123R, we must determine the appropriate fair value model to be used for valuing share-based payments and the amortization method for compensation cost. We are evaluating the requirements of SFAS No. 123R and expect that the adoption of SFAS No. 123R will have a material impact on our consolidated results of operations and earnings per share. We have not yet determined the effect of adopting SFAS No. 123R, and we have not determined whether the adoption will result in amounts that are similar to the current pro forma disclosures under SFAS No. 123.


(in thousands)	December 31, 2005			September 30, 2005
Computers	$	7,240		$	7,064
Machinery and equipment		3,418			3,415
Furniture and fixtures		1,684			1,684
Manufacturing tooling		1,378			1,310
Leasehold improvements		392			376

		14,112			13,849
Less: accumulated deprecation		(11,601	)		(11,226	)

Total	$	2,511		$	2,623

~~In March 2005, the SEC issued Staff Accounting Bulletin~~ (~~“SAB”~~6) ~~No.~~Warranty 107, which expresses the views of the SEC regarding the interaction between SFAS No. 123R and certain SEC rules and regulations. SAB No. 107 provides guidance related to the valuation of share-based payment arrangements for public companies, including assumptions such as guidance related to share-based payment transactions with non-employees, expected volatility, expected term and the accounting for income tax effects of share-based payment arrangements upon adoption of SFAS No. 123R. The Company will apply the principles of SAB 107 in conjunction with its adoption of SFAS No. 123R. Liability

InWarranty ~~March~~liability ~~2004,~~is ~~the~~recorded ~~FASB~~as ~~ratified~~a ~~the recognition~~component ~~and~~of ~~measurement~~accrued ~~guidance~~liabilities ~~and~~on ~~certain~~the ~~disclosure~~Company’s ~~requirements~~Condensed ~~for~~Consolidated ~~impaired~~Balance ~~securities~~Sheets. asFor ~~described~~the inCompany’s broadband ~~Emerging~~equipment ~~Issues~~products, ~~Task~~the ~~Force~~Company ~~(EITF)~~generally ~~Issue~~provides ~~No.~~a 03one-1,year ~~The~~warranty ~~Meaning~~to ofdomestic ~~Other-Than-Temporary~~purchasers ~~Impairment~~ and ~~Its~~a ~~Application~~two-year warranty to ~~Certain Investments.~~European ~~EITF Issue No~~purchasers. ~~03-1~~The ~~provides~~Company ~~new~~generally ~~guidance~~does ~~for~~not ~~determining~~offer ~~and~~a ~~recording~~warranty ~~impairment~~on ~~for~~its ~~both~~broadband ~~debt~~software and ~~equity~~services ~~securities~~products. The ItCompany ~~also~~accrues ~~requires additional disclosure~~ for ~~declines~~its inestimated ~~investments~~product ~~that~~warranty ~~are~~costs ~~deemed~~at ~~to be temporary under~~ the ~~standard.~~ Intime ~~September 2004, the FASB approved the issuance~~ of ~~a FASB Staff Position to delay certain measurement and recognition guidance contained in EITF Issue No~~shipment. ~~03-1.~~Product Wewarranty docosts ~~not~~are ~~expect~~estimated ~~that~~based ~~the~~upon ~~adoption of~~ the ~~recognition~~Company’s ~~and~~historical ~~measurement~~ experience.

The following table summarizes the activity related to the product warranty liability:


	Three Months Ended December 31,
(in thousands)	2005			2004
Balance at beginning of period	$	310		$	140
Utilized		(58	)		(65	)
Charges to costs and expenses		25			95

Balance at end of period	$	277		$	170

Page 7

~~provisions~~(7) ~~will~~Stock ~~have~~Option a material impact on our consolidated balance sheet or statement of operations. The disclosure requirements are effective for fiscal years ending after June 15, 2004, and are required only for annual periods. Plans

InThe ~~November~~Company ~~2004,~~has ~~the~~three ~~FASB~~share-based ~~issued~~plans ~~SFAS~~under ~~No.~~which ~~151,~~non-qualified ~~“Inventory Costs—an amendment of ARB No. 43, Chapter 4.” This statement clarifies the accounting for abnormal amounts of facility expense, freight, handling costs~~ and ~~wasted~~incentive ~~materials~~stock ~~(spoilage)~~options tohave ~~require~~been ~~them~~granted to beemployees, ~~recognized as current~~non-~~period~~employees ~~charges~~and board members. ~~This~~Stock ~~statement~~options isgenerally ~~effective~~vest ~~for~~over ~~inventory~~service ~~costs~~periods ~~incurred~~that ~~during~~range ~~fiscal~~from ~~years~~2 ~~beginning~~to ~~after~~4 ~~June 15, 2005~~years. ~~Earlier~~We ~~application~~also ~~is permitted. The adoption of this standard is not expected to~~ have aan ~~material~~employee ~~impact~~stock onpurchase ~~the~~plan ~~Company’s~~for ~~consolidated~~all ~~balance~~eligible ~~sheet or statement of operations~~employees.

1996 Stock Option Plan. In April 1996, the Company adopted the 1996 Stock Option Plan (6the 1996 Plan) ~~Goodwill~~providing for the issuance of incentive or non-statutory options to directors, employees, and ~~Other~~non-employee ~~Intangible~~consultants. ~~Assets~~Options are granted at the discretion of the Board of Directors or the Compensation Committee of the Board of Directors. Incentive stock options may be granted at not less than 100% of the fair market value per share and non-statutory stock options may be granted at not less than 85% of the fair market value per share at the date of grant as determined by the Board of Directors or the Compensation Committee, except for options granted to a person owning greater than 10% of the total combined voting power of all classes of stock of the Company, for which the exercise price of the options must be not less than 110% of the fair market value. Included in the 1996 Plan is a provision for the automatic grant of non-statutory options to non-employee directors of the Company. The current provisions relating to the automatic grant of options to directors are described below.

~~The~~2000 Stock Incentive Plan. In October 2000, the Company’s ~~intangible~~adopted ~~assets~~the at2000 ~~June~~Stock 30Incentive Plan (the 2000 Plan) providing for issuance of non-statutory options and restricted stock to employees, ~~2005~~officers, ~~consist~~directors, consultants, independent contractors and advisors of ~~goodwill~~the ~~acquired~~Company inor ~~connection~~any subsidiary of the Company. Options and restricted stock awards granted under the 2000 Plan are granted at the discretion of the Board of Directors or the Compensation Committee of the Board of Directors. The 2000 Plan is not a stockholder approved stock option plan and is intended to comply with the ~~acquisitions~~exception for broadly based option plans in which a majority of ~~JadeSail~~the participants are rank and ~~WebOrder~~file employees not officers or directors, ~~which~~and a majority of the grants are made to such employees. Only ~~Company~~nonqualified isstock options that do not ~~amortizing,~~qualify as incentive stock options within the meaning of Section 422(b) of the Code may be granted under this Plan. The Board of Directors or the Compensation Committee will determine the exercise price of an option when the option is granted and ~~other~~may ~~intangible~~be ~~assets~~not ~~acquired~~less inthan ~~connection~~the ~~with~~par value of the ~~acquisitions~~shares on the date of ~~JadeSail~~grant. Officers and ~~Cayman,~~directors ~~which~~will not receive any additional awards under the 2000 Plan. A restricted stock award is an offer by the Company to sell to an eligible person shares that are subject to restrictions. The purchase price of shares sold pursuant to a restricted stock award will be determined by the Compensation Committee on the date the restricted stock award is ~~amortizing~~granted and may be not less than the par value of the shares on athe ~~straight-line~~date ~~basis~~of ~~over~~grant. Restricted stock awards shall be subject to such restrictions as the ~~estimated~~Board ~~useful~~of ~~lives~~Directors or the Compensation Committee may impose. As of December 31, 2005, there were no restricted stock awards granted under the 2000 Plan.

~~Goodwill~~2002 asEquity Incentive Plan. In December 2001, the Company adopted the 2002 Equity Incentive Plan (the 2002 Plan) providing for the issuance of ~~June~~incentive 30or non-statutory options, ~~2005~~stock awards and ~~September~~other 30equity awards to directors, ~~2004~~employees, ~~was~~and ~~maintained~~non-employee consultants. The Company’s stockholders approved the 2002 Plan at the Annual Stockholder Meeting in ~~our~~January 2002. The 2002 Plan is a successor to the 1996 Plan. Options and other awards are granted at the discretion of the Board of Directors or ~~broadband~~the ~~software~~Compensation Committee of the Board of Directors. Incentive stock options may be granted at not less than 100% of the fair market value per share and ~~services~~non-statutory ~~segment~~stock options may be granted at not less than 85% of the fair market value per share at the date of grant as ~~follows:~~determined by the Board of Directors or the Compensation Committee. Included in the 2002 Plan is a provision for the automatic grant of non-statutory options to non-employee directors of the Company. The current provisions relating to the automatic grant of options to directors are described below.

	Acquisitiondate	Goodwill
		(in thousands)
JadeSail	Oct-03	$	1,149
WebOrder	Mar-00		519
Total Goodwill		$	1,668

The initial number of shares of common stock available for issuance under the 2002 Plan was 750,000 shares. The number of shares of common stock available for issuance under

Acquired intangible assets are amortized over their estimated useful lives, which range from three to five years. The carrying amounts and amortization expense by segment of the acquired intangible assets as of June 30, 2005 and September 30, 2004 are as follows:

	EstimatedLife	Acquisitiondate	Balance atSeptember 30,2004		Amortizationexpense			Balance atJune 30,2005
	(in thousands)
Broadband equipment:
Acquired technology	5.0 years	Oct-03	$	197	$	(37	)	$	160
Acquired technology	5.4 years	Oct-01		3,234		(865	)		2,369
Sales channel relationships	5.4 years	Oct-01		345		(259	)		86
Subtotal				3,776		(1,161	)		2,615
Broadband software and services:
Marketing license	3.0 years	Mar-04		240		(74	)		166
Subtotal				240		(74	)		166
Total Other Intangibles			$	4,016	$	(1,235	)	$	2,781

Page 8

~~The~~ the ~~total~~2002 ~~expected~~Plan ~~future~~automatically ~~amortization~~increases ~~related~~on the first trading day of each calendar year beginning 2003 by an amount equal to ~~intangible~~four ~~assets~~and asthree-quarter ~~follows:~~percent (4.75%) of the shares of common stock outstanding on December 31 of the immediately preceding calendar year, provided, however, that no such automatic annual increase may exceed 1,000,000 shares. As a result of this automatic increase provision, an additional 1,000,000, 1,000,000, 1,000,000 and 898,081 shares of common stock became available on January 3, 2006, January 3, 2005, January 2, 2004 and January 2, 2003, respectively, for issuance under the 2002 Plan.

(In thousands)	Amortization
Fiscal Year 2005*	$	412
Fiscal Year 2006		1,646
Fiscal Year 2007		674
Fiscal Year 2008		49
Totals	$	2,781

Automatic Option Grant Programs in Stock Option Plans. Amendments to the Company’s Automatic Option Grant Programs that are included in the 1996 Stock Option Plan and 2002 Equity Incentive Plan to increase the number of options granted to non-employee directors of the Company were approved at the Company’s Annual Meeting of Stockholders in January 2003. As amended, the Automatic Option Grant Programs provide that each non-employee director who is first elected or appointed on or after the date of the 2003 Annual Meeting of Stockholders will receive the grant of an option to purchase 50,000 shares of common stock. This initial grant vests ratably over a four year period, subject to continued service as a director. The Automatic Option Grant Programs also provide for the grant on the date of each annual stockholder meeting beginning with the 2003 Annual Meeting of Stockholders of (a) an option to purchase 15,000 shares of common stock to each non-employee director, and (b) an additional option to purchase 5,000 shares of common stock to each non-employee director who is a member of the Audit Committee of the Company’s Board of Directors. The automatic annual grant vests one year after the grant date, subject to continued service as a director.

*On ~~Represents~~October 1, ~~amortization~~2005, the Company adopted SFAS 123(R), which requires the measurement and recognition of compensation expense for all share-based payment awards made to the ~~remaining~~Company’s ~~three~~employees ~~months~~and directors, including employee stock options and employee stock purchases related to the Employee Stock Purchase Plan. Accordingly, stock-based compensation cost is measured at grant date, based on the estimated fair value of ~~fiscal~~the ~~year~~award, ~~2005~~and is recognized as expense over the employee requisite service period. The Company’s stock compensation is accounted for as an expense and an addition to equity. The Company previously applied Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees”, and related interpretations and provided the required pro forma disclosures of SFAS 123, “Accounting for Stock-Based Compensation”.

~~(7)~~Prior ~~Per~~to ~~Share~~the ~~Calculations~~adoption of SFAS 123(R)

~~Basic~~Prior ~~net~~to ~~loss~~the ~~per~~adoption ~~share~~of isSFAS ~~calculated~~123(R), ~~from~~ the ~~weighted~~Company ~~average~~provided ~~number~~the ofdisclosures ~~shares~~required ofunder ~~common~~SFAS ~~stock~~123 ~~outstanding~~as ~~during~~amended ~~the~~by ~~period.~~SFAS ~~Diluted~~148, ~~net~~“Accounting ~~loss per~~for ~~share~~Stock-Based isCompensation ~~calculated~~– ~~from~~Transition ~~the~~and ~~weighted~~Disclosures.” ~~average~~No ~~number~~employee ofstock-based ~~shares~~compensation ofwas ~~common~~reflected ~~stock~~in ~~outstanding~~net ~~during~~loss for the period ~~plus~~ended ~~potential~~December 31, ~~dilutive~~2004, ~~shares~~because ~~from~~all options ~~outstanding~~granted ~~using~~under ~~the~~those ~~treasury~~plans ~~stock~~had ~~method.~~an ~~All~~exercise ~~options~~price ~~outstanding have been excluded from the~~equal ~~computation~~to of the ~~diluted~~market ~~loss~~value ~~per~~of ~~share for~~ the ~~three~~underlying ~~and~~common ~~nine~~stock ~~months ended June 30, 2005 and 2004, because their effect~~ on the ~~loss~~date ~~per~~of ~~share was anti-dilutive~~grant. ~~The following table details the per share calculations:~~

	Three Months EndedJune 30,						Nine Months EndedJune 30,
	2005			2004			2005			2004
	(in thousands; except per share amounts)
Calculation of basic and diluted net loss per share:
Net loss	$	(2,312	)	$	(2,276	)	$	(5,785	)	$	(2,724	)
Weighted average basic and diluted shares outstanding		25,215			24,033			25,000			23,247
Basic and diluted net loss per share	$	(0.09	)	$	(0.09	)	$	(0.23	)	$	(0.12	)

Impact of adoption of SFAS 123(R)

~~For~~The Company elected to adopt the modified prospective application method as provided by SFAS 123(R). Accordingly, during the three months ended ~~June 30~~December 31, 2005, ~~and~~the ~~2004,~~Company recorded stock-based compensation cost totaling the ~~computation~~amount ofthat ~~diluted~~would ~~loss~~have ~~per~~been ~~share~~recognized ~~excluded~~had ~~“in~~the fair value method been applied since the ~~money”~~effective ~~options~~date toof ~~purchase~~SFAS ~~common~~123. Previously reported amounts have not been restated. The following table summarizes stock-based ~~totaling~~compensation ~~365,502~~expense related to employee stock options and 2employee stock purchases under SFAS 123(R) for the three months ended December 31,~~043,976~~ ~~shares~~2005, ~~respectively.~~which was allocated as follows:

For the nine months ended June 30, 2005 and 2004, the computation of diluted loss per share excluded “in the money” options to purchase common stock totaling 368,782 and 3,613,129 shares, respectively.

Page 9

(8) Segment, Geographic and Significant Customer Information


(in thousands)	Three Months Ended December 31, 2005
Cost of revenues – broadband equipment	$	29
Research and development		548
Selling and marketing		226
General and administrative		411

Stock-based compensation expense included in operating expenses		1,185

Stock-based compensation expense included in net loss	$	1,214

~~Segment Information:~~ The ~~Company’s~~table ~~reportable~~below reflects ~~segments~~basic ~~are~~and ~~broadband~~diluted ~~equipment~~net ~~and~~loss ~~broadband~~per ~~software~~share ~~and~~for ~~services.~~the ~~The~~three ~~Company evaluates~~months ~~performance~~ended ~~based~~December 31, on2005 ~~net~~compared ~~revenues~~with ~~and~~the ~~gross~~pro ~~profits~~forma ~~from~~information ~~operations~~for ofthe ~~these~~three ~~two~~months ~~segments~~ended December 31, ~~which~~2004 ~~are~~(in ~~shown~~thousands ~~below~~except per-share amounts):

	2005									2004
Three Months Ended December 31,	2005			2004
Three months ended June 30,	Broadbandequipment			BroadbandSoftware &Services			Total			Broadbandequipment			BroadbandSoftware &Services			Total
Net loss - as reported for the prior period		N/A		$	(1,641	)
	(in thousands)
Stock-based compensation expense related to employee stock options and employee stock purchases	$	1,214		$	1,371
Revenue	$	25,103		$	2,726		$	27,829		$	21,891		$	3,543		$	25,434
Net loss, including the effect of stock-based compensation expense	$	(2,492	)	$	(3,012	)
Cost of revenues		18,655			489			19,144			16,757			267			17,024
Basic and diluted loss per share – as reported for the prior period		N/A		$	(0.07	)
Amortization of acquired technology		288			12			300			288			12			300
Basic and diluted loss per share, including the effect of stock-based compensation	$	(0.10	)	$	(0.12	)
Gross profit		6,160			2,225			8,385			4,846			3,264			8,110
Gross margin		25	%		82	%		30	%		22	%		92	%		32	%
Unallocated operating expenses		—			—			10,629			—			—			10,315
Operating loss							$	(2,244	)							$	(2,205	)
	2005									2004
Nine months ended June 30,	Broadbandequipment			BroadbandSoftware &Services			Total			Broadbandequipment			BroadbandSoftware &Services			Total
	(in thousands)
Revenue	$	73,547		$	8,823		$	82,370		$	63,426		$	12,074		$	75,500
Cost of revenues		54,907			1,139			56,046			45,780			706			46,486
Amortization of acquired technology		864			36			900			864			36			900
Gross profit		17,776			7,648			25,424			16,782			11,332			28,114
Gross margin		24	%		87	%		31	%		26	%		94	%		37	%
Unallocated operating expenses		—			—			31,400			—			—			30,966
Operating loss							$	(5,976	)							$	(2,852	)

~~Geographic~~As of October 1, ~~Information:~~2005, ~~The~~the Company ~~sells~~had ~~its~~an ~~products~~unrecorded ~~and~~deferred ~~provides~~stock-based ~~services~~compensation ~~worldwide~~balance ~~through~~related ~~our~~to ~~own~~stock ~~sales~~options ~~force,~~of ~~independent~~$5.7 ~~distributors~~million ~~and~~before ~~value-added~~estimated ~~resellers~~forfeitures. ~~The~~In the Company’s ~~operates~~pro ~~primarily~~forma indisclosure ~~two~~prior ~~regions:~~to the ~~United~~adoption ~~States~~of ~~and~~SFAS ~~Europe.~~123(R), the Company ~~Revenues~~accounted ~~outside~~for offorfeitures upon occurrence. SFAS 123(R) requires forfeitures to be estimated at the ~~United~~time ~~States~~of ~~are~~grant ~~primarily~~and ~~export~~revised ~~sales~~if ~~denominated~~necessary in ~~United~~subsequent ~~States~~periods ~~Dollars~~if oractual ~~Euros~~forfeitures differ from those estimates. ~~Revenues~~Accordingly, byas ~~geographic~~of ~~regions~~October 1, 2005, ~~for~~the Company estimated that the ~~three~~stock ~~and~~based ~~nine~~compensation ~~months~~awards ~~ended~~not ~~June~~expected ~~30,~~to ~~2005~~vest was $0.9 million, and ~~2004~~therefore, ~~are~~the asunrecorded ~~follows:~~deferred stock-based compensation balance related to stock options was adjusted to $4.8 million after forfeitures.

	Three months ended June 30,								Nine months ended June 30,
	2005				2004				2005				2004
	(in thousands)
Europe	$	10,218	37	%	$	9,427	37	%	$	27,627	34	%	$	29,422	39	%
Canada		170	1	%		235	1	%		691	0	%		594	1	%
Asia Pacific and other		365	1	%		462	2	%		1,464	2	%		171	0	%
Subtotal international revenue		10,753	39	%		10,124	40	%		29,782	36	%		30,187	40	%
United States		17,076	61	%		15,310	60	%		52,588	64	%		45,313	60	%
Total revenues	$	27,829	100	%	$	25,434	100	%	$	82,370	100	%	$	75,500	100	%

During the three months ended December 31, 2005, the Company granted 525,000 stock options with an estimated total grant-date fair value of $1.4 million. Of this amount, the Company estimated that the stock-based compensation for awards not expected to vest was $0.1 million.

~~The~~During ~~Company~~the ~~has~~three ~~no material~~months ~~operating~~ended ~~assets~~December 31, ~~outside~~2005, the ~~United~~Company ~~States~~recorded stock-based compensation related to stock options of $0.9 million.

As of December 31, 2005, the unrecorded deferred stock-based compensation balance related to stock options was $4.8 million net of estimated forfeitures and will be recognized over an estimated weighted average 3.65 years. The amount of stock based compensation capitalized as inventory on December 31, 2005 was $17,000. The Company elected not to capitalize any stock-based compensation to inventory at October 1, 2005 when the provisions of SFAS 123(R) were initially adopted.

Stock Option Plans

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model using the following estimates:

Page 10

Customer Information: The Company sells its products to incumbent local exchange carriers (“ILECs”), competitive local exchange carriers (“CLECs”), distributors, Internet Service Providers (“ISPs”), and end-users. Revenues from customers that accounted for 10% or more of revenue for one or more of the three and nine months ended June 30, 2005 and 2004 follows:


Three Months Ended December 31,	2005		2004
Expected life (in years)	3.09		3.28
Expected volatility	227	%	345	%
Risk-free interest rate	4.35		3.25
Expected dividend yield	—		—

	Three months ended June 30,								Nine Months ended June 30,
	2005				2004				2005				2004
	(in thousands)
Swisscom AG (Swisscom)	$	6,372	23	%	$	3,744	15	%	$	14,218	17	%	$	15,436	20	%
BellSouth		5,798	21	%		2,905	11	%		16,918	21	%		5,156	7	%
Eircom		3,089	11	%		1,511	6	%		8,403	10	%		4,398	6	%
SBC Communications, Inc.		2,311	8	%		2,781	11	%		7,185	9	%		7,748	10	%

The Black-Scholes weighted average fair value of employee stock options granted during the three months ended December 31, 2005 and 2004 was $2.59 and $2.74, respectively

~~For~~The ~~the~~following ~~three~~table ~~months ended~~summarizes ~~June~~activity ~~30,~~under ~~2005 and 2004, there were three customers, that each individually represented at least 10% of revenues and in~~ the ~~aggregate,~~Company’s ~~accounted~~stock ~~for~~option ~~55%~~plans: and 37%, respectively, of total revenues. For the nine months ended June 30, 2005 and 2004, there were three customers and two customers, respectively, that each individually represented at least 10% of revenues and in the aggregate, accounted for 48% and 30%, respectively, of total revenues.

The following table sets forth the accounts receivable balance for customers with balances at June 30, 2005 and 2004, which were at least 10% of the total accounts receivable balance at one or more period end:


Stock options	Shares under Options		Weighted average exercise price
Outstanding as of September 30, 2005	5,709,856		$	4.33
Options granted	525,000			2.68
Options exercised	(40,761	)		2.17
Options cancelled	(45,734	)		3.84

Outstanding as of December 31, 2005	6,148,361			4.20
Exercisable as of December 31, 2005	4,096,612		$	4.64

June 30,	2005				2004
	(in thousands)
Swisscom AG	$	5,941	32	%	$	3,718	23	%
Eircom		2,814	15	%		674	4	%
BellSouth		2,431	13	%		1,920	12	%
SBC		1,644	9	%		1,586	10	%

Employee Stock Purchase Plan

~~(9)~~Under ~~Investment~~the inEmployee ~~Non-Public~~Stock ~~Entities~~Purchase Plan, rights to purchase shares are only granted during the second and fourth quarter of each fiscal year. The value of rights to purchase shares granted were estimated at the date of grant using the following weighted average assumptions:

At June 30, 2005 the Company owned 1,850,000 shares of MegaPath Networks, Inc., which represents approximately a 1.8% interest in this private company. MegaPath offers high-speed broadband access to small and medium size businesses. The carrying value of our investment was $1.0 million at June 30, 2005 and was accounted for using the cost method.


Three Months Ended December 31,	2005		2004
Expected life (in years)	0.5 to 2		0.5 to 2
Expected volatility	227	%	202	%
Risk-free interest rate	4.35		3.49
Expected dividend yield	—		—

~~During~~(8) ~~the~~Commitments ~~three months ended June 30, 2005~~ and 2004, MegaPath purchased $2 thousand and $0.5 million, respectively, of the Company’s products. During the nine months ended June 30, 2005 and 2004, MegaPath purchased $18 thousand and $1.1 million, respectively, of the Company’s products. During the nine months ended June 30, 2005, MegaPath has purchased the Company’s products mostly through an independent distributor, and not directly from the Company. Contingencies

AtOperating ~~June~~Lease ~~30,~~Commitments. ~~2004,~~The ~~MegaPath’s~~Company ~~accounts~~conducts ~~receivable~~its ~~with~~operations ~~the~~in ~~Company~~leased ~~was~~facilities ~~$0.2~~under ~~million~~operating lease agreements expiring at various dates through 2014. The following is a summary of future minimum rental payments required under these leases that have initial or remaining non-cancelable lease terms in excess of one year (the 2006 amount is for nine months remaining in the fiscal year):

(10) Restructuring Cost


	Year ended September 30,
(in thousands)	2006		2007		2008		2009		2010		Thereafter		Total
Property lease obligations	$	1,021	$	1,394	$	1,091	$	452	$	338	$	110	$	4,406

~~During~~Purchase Commitments ~~our~~with ~~second~~Outsourcing ~~quarter~~Manufacturers ~~ending~~and ~~March~~Suppliers. ~~31,~~The ~~2005, the~~ Company ~~recorded~~has apurchase ~~restructuring~~commitments ~~charge~~with ofits ~~$98,000,~~outsourcing ~~primarily~~manufacturers. ~~consisting~~Our ofoutsourcing ~~employee~~manufacturers ~~termination costs,~~procure ~~wind~~component ~~down~~inventory ~~costs~~on ~~associated~~our ~~with~~behalf ~~the~~based ~~closure~~on ofour aproduction ~~sales~~orders. ~~office~~The Company inis ~~the~~obligated ~~Netherlands~~to ~~and~~purchase ~~additional~~component ~~wind~~inventory ~~down~~that ~~costs~~the ~~associated~~outsourcing ~~with~~manufacturer ~~the~~procures ~~prior~~in ~~closure~~accordance ofwith the ~~Germany~~orders, ~~office~~unless incancellation ~~the~~is ~~quarter~~given ~~ended~~within ~~September~~applicable ~~30,~~lead ~~2004~~times. These

Page 11

~~Detail~~ commitments ofare ~~the~~reflected ~~remaining~~in ~~liabilities~~our ~~relating~~financial tostatements ~~restructuring~~as ~~activities~~a asliability ofonce ~~June~~goods 30or services have been received or payments related to the obligations become due. At December 31, 2005, ispurchase ~~as follows:~~commitments totaled $17.5 million.

	Severanceand Related Charges			Facilities			Totals
	(in thousands)
Accrued liabilities at September 30, 2004	$	473		$	27		$	500
Amount paid		(423	)		(16	)		(439	)
Accrued liabilities at December 31, 2004		50			11			61
Restructuring charges		52			46			98
Amount paid		(64	)		(37	)		(101	)
Accrued liabilities at March 31, 2005		38			20			58
Amount paid		—			(19	)		(19	)
Accrued liabilities at June 30, 2005	$	38		$	1		$	39

Foreign Currency Derivatives. The Company has entered into foreign currency forward contracts to hedge foreign currency denominated receivables. Forward contracts involve agreements to sell foreign currency at specified rates at future dates. The following table presents the carrying amount (which approximates fair value) of currency exchange forward contracts:

The total $39,000 accrued liability as of June 30, 2005 is comprised primarily of severance related charges estimated to be paid during the remaining three months of fiscal year 2005.

December 31, 2005

September 30, 2005

(Carrying amount in thousands)

Principal (notional) amounts in U.S. dollars:

Carrying
Amount

Spot
Rate

Settlement
Date

Carrying
Amount

Spot
Rate

Settlement
Date

Currency exchange forward contract

1,896

1.185

Jan-06

2,148

1.211

Oct-05

Litigation. On December 3, 2004, the United States District Court for the Northern District of California issued an order consolidating previously filed purported class action cases under the name In re Netopia, Inc. Securities Litigation, and appointing lead plaintiffs and plaintiffs’ counsel. On June 29, 2005, the lead plaintiffs filed their consolidated amended complaint. The consolidated amended complaint alleges violations of Sections 10(11b) ~~Commitments~~and 20(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The consolidated amended complaint alleges that during the purported class period, November 6, 2003 through August 16, 2004, we made false and ~~Contingencies~~misleading statements or failed to disclose material facts, and that the market price of our common stock was artificially inflated as a result of such alleged conduct. We believe that we have strong defenses to the claims asserted in the consolidated amended complaint. We intend to defend the case vigorously. We currently cannot estimate the extent of the potential damages in this dispute.

AsIn August 2004, the first of ~~June~~four ~~30,~~purported ~~2005~~derivative actions, weFreeport ~~had~~Partners, ~~commitments~~LLC, ~~that~~Derivatively ~~consisted~~on Behalf of ~~facilities~~Nominal ~~and~~Defendant ~~equipment~~Netopia, ~~under~~Inc., ~~operating~~v. ~~lease~~Alan B. ~~agreements~~Lefkof, ~~and~~William ~~purchase~~D. ~~commitments~~Baker, ~~primarily~~Reese ~~for inventory~~M. ~~Our~~Jones, ~~purchase~~Harold ~~commitments~~S. ~~relate~~Wills, toRobert ~~component~~Lee ~~inventory~~and ~~procured~~Netopia, byInc., ~~our~~was ~~contract~~filed ~~manufacturers~~in onthe ~~our~~United ~~behalf~~States ~~based~~District onCourt ~~our~~for ~~production~~the ~~orders~~Northern District of California. WeTwo purported derivative actions are ~~obligated~~pending toin ~~purchase~~the ~~such~~United ~~component~~States District ~~inventory~~Court ~~unless~~for ~~orders~~the Northern District of California, and two related purported derivative actions are ~~cancelled~~pending ~~within~~in ~~agreed~~the Superior Court of California for the County of Alameda. These actions make claims against our officers and directors arising out ~~upon~~of ~~lead~~the ~~times~~alleged misstatements described above in connection with the purported class action described above. AsIn November 2004, the derivative plaintiffs agreed to coordinate the four derivative actions. The parties have agreed to a stay of ~~June~~the federal 30derivative actions, which was ordered by the court in January 2005,. ~~purchase~~The ~~commitments~~state ~~totaled~~actions ~~$15~~have been consolidated under the name In re Netopia, Inc.8 ~~million~~Derivative Litigation. The ~~following~~plaintiffs ~~table~~have ~~summarizes~~not ~~future~~filed ~~minimum~~their ~~lease~~consolidated ~~payments:~~amended complaint. We believe that we have strong defenses to the claims asserted in the complaints as initially filed. We intend to defend the cases vigorously. We currently cannot estimate the extent of the potential damages in this dispute.

	Fiscal Years
	2005 (a)	2006	2007	2008	2009	Thereafter	Totals
	(In thousands)
Contractual obligation
Property lease obligations	304	1,261	1,294	903	303	204	4,269

On October 29, 2004, we were advised by the United States Securities and Exchange Commission (“SEC”) that an informal inquiry previously commenced by the SEC had become the subject of a formal order of investigation. This investigation is to determine whether the federal securities laws have been violated. We cooperated fully with the informal inquiry, and we have been cooperating fully with the formal investigation.

(On July 22, 2005, we announced that following discussions with the SEC staff, we had made a) ~~Represents~~settlement ~~cash~~offer ~~commitments~~to ~~for~~the SEC to resolve the ~~remaining~~investigation into ~~three~~our ~~months~~disclosures and accounting practices, primarily related to our restatement of financial statements for the fiscal ~~year~~years ~~2005~~ended September 30, 2003 and 2002. Without admitting or denying any wrongdoing, we offered to consent to the entry of an order with respect to violations of Sections 13(a) and 13(b)(2)(A)-(B) of the Exchange Act, and Rules 12b-20, 13a-1, 13a-11 and 13a-13 promulgated thereunder. The SEC staff has agreed to recommend that the SEC approve the

(12) Warranty Liability

Warranty liability is recorded as a component of accrued liabilities on the Company’s Condensed Consolidated Balance Sheet. For the Company’s broadband equipment products, the Company generally provides a one-year warranty to domestic purchasers and a two-year warranty to international purchasers. The Company generally does not offer a warranty on its broadband software and services products. We analyze our estimated warranty liability based upon historic return rates and record adjustments to our warranty liability as necessary.

The following table summarizes the changes in accrued warranty during the three and nine months ended June 30, 2005 and 2004:

	Three Months EndedJune 30,						Nine Months EndedJune 30,
	2005			2004			2005			2004
	(In thousands)
Beginning balance	$	(138	)	$	(193	)	$	(140	)	$	(200	)
Cost of warranty replacements		91			62			220			258
Provision		(86	)		36			(213	)		(153	)
Ending balance	$	(133	)	$	(95	)	$	(133	)	$	(95	)

Page 12

~~(13)~~ offer ~~Credit~~of ~~Facility~~settlement. The proposed settlement is subject to completion of mutually agreeable settlement language and final approval by the SEC.

~~The~~On ~~Company~~July 22, ~~amended~~2005, ~~its~~we ~~credit~~also ~~facility~~announced ~~agreement~~that ~~with~~we ~~Silicon~~had ~~Valley~~learned ~~Bank,~~that ~~effective~~the ~~June~~SEC staff ~~27,~~has ~~2005.~~agreed ~~Under~~to recommend that the ~~amended~~SEC ~~credit~~approve ~~facility,~~an ~~the~~offer ~~credit~~of ~~limit is~~settlement ~~$10~~with ~~million,~~Alan ~~the~~B. ~~interest~~Lefkof, ~~rate~~our isPresident ~~Silicon~~and ~~Valley~~Chief ~~Bank’s~~Executive ~~prime~~Officer. ~~rate~~Mr. Lefkof, ~~the~~without ~~term~~admitting or ~~maturity~~denying ~~date~~any ~~is June 27~~wrongdoing, ~~2007,~~offered ~~and~~to ~~the~~consent ~~facility is subject~~ to ~~certain~~the ~~covenants.~~entry ~~Covenants~~of ~~require~~an ~~that~~order ~~the~~with respect ~~Company~~to ~~maintain~~violations anof ~~adjusted~~Sections ~~quick ratio~~ 17(~~described below~~a) (2)-(3) of ~~1.25 and~~ the ~~credit~~Securities ~~facility~~Act ~~will~~of be1933, ~~subject~~as toamended, ~~formula~~and ~~based~~Rule ~~credit~~13b2-1 ~~limits~~promulgated ifunder the ~~adjusted~~Exchange ~~quick~~Act, ~~ratio~~and ~~falls~~aiding ~~below~~and ~~1.50.~~abetting ~~Covenants~~our ~~also~~violations ~~require~~of ~~the~~Sections ~~Company to maintain~~ 13(a) ~~minimum~~and ~~tangible net worth~~ 13(b)(2)(A)-(B) of ~~$19~~the ~~million~~Exchange ~~through~~Act, and ~~August~~Rules ~~2005;~~12b-20 and ~~for~~ ~~subsequent~~13a-11 ~~periods~~promulgated ~~the~~thereunder, ~~minimum~~in ~~will~~connection bewith ~~reset.~~a ~~The~~Report ~~facility~~on isForm ~~secured~~8-K byand ~~substantially~~exhibit ~~all~~furnished ofto the ~~assets~~SEC ofon ~~the~~July 6, ~~Company~~2004. The ~~adjusted~~proposed ~~quick~~settlement ~~ratio~~with isMr. Lefkof ~~the~~contemplates ~~ratio~~a ofmonetary ~~(i)~~payment. ~~the~~The ~~Company’s~~proposed ~~unrestricted cash, cash equivalents and investments~~settlement ~~maintained~~is atsubject ~~Silicon Valley Bank plus net receivables~~ to ~~(ii)~~completion ~~the~~of ~~Company’s~~mutually ~~current~~agreeable ~~liabilities~~settlement ~~plus~~language ~~the~~and ~~outstanding~~final ~~principal~~approval ~~amount~~by ~~of any borrowings under~~ the ~~facility less deferred revenues~~SEC.

~~The~~Responding ~~Company~~to ~~may~~the ~~borrow~~formal ~~under~~order of investigation of the ~~credit~~SEC ~~facility~~has inrequired ~~order~~significant toattention ~~finance~~and ~~working~~resources of management. Our proposed settlement ~~capital~~described ~~requirements~~above ~~for~~is ~~new~~subject ~~products~~to ~~and~~final ~~customers~~approval by the SEC. In addition, ~~and~~even ~~otherwise~~though ~~for~~we ~~general~~have ~~corporate~~announced ~~purposes~~the inproposed settlement with the ~~normal~~SEC, ~~course~~the ofinvestigation ~~business~~by the SEC is ongoing, and may continue to require significant attention and resources. AsIf either ofwe ~~June~~and/or 30Mr. Lefkof are unable to complete the proposed settlements and the SEC elects to pursue an enforcement action against us and/or Mr. Lefkof, ~~2005~~the defense could be costly and require additional management resources. If we were unsuccessful in defending against this or other investigations or proceedings, we ~~had~~could noface ~~outstanding~~civil ~~borrowings~~or ~~under~~criminal ~~the~~penalties ~~credit~~that ~~facility~~would seriously harm our business and results of operations.

~~(14)~~In ~~Other~~April ~~Income (Loss)~~2005, ~~Net~~we learned that the United States Attorney for the Northern District of California has opened an investigation following a referral by the SEC. We do not know the scope or focus of the investigation.

~~Other~~In ~~income~~January 2005, we were notified by the Occupational Health and Safety Administration (~~loss~~“OSHA”), ~~net~~that ~~primarily~~we ~~consisted~~were ofnamed ~~interest~~in ~~income~~an ~~earned~~administrative complaint onfiled ~~cash~~by two former employees alleging violations of Section 806 of the Corporate and ~~cash~~Criminal ~~equivalents~~Fraud Accountability Act of 2002, ~~interest~~18 ~~expense~~U.S.C. ~~related~~§ to1514A, also known as the ~~credit~~Sarbanes-Oxley ~~facility~~Act. ~~and~~The former employees alleged that we ~~term~~terminated ~~loans~~them in retaliation for their participation in the internal accounting review conducted by the audit committee in 2004. On May 11, 2005, following its investigation, OSHA advised us that the complaint was determined to have no merit. On August 31, 2005, the two former employees refiled these claims in the United States District Court for the Northern District of Texas in an action entitled Frankl v. Netopia et al . The complaint names the Company and ~~gains~~certain current and ~~losses~~former onofficers ~~foreign~~and ~~currency~~directors ~~transactions~~as defendants. The ~~following~~plaintiffs ~~table~~will ~~summarizes~~be ~~other~~filing ~~income~~a ~~(loss),~~motion ~~net:~~to stay this action. We believe that our defenses to this action are strong and intend to defend it vigorously. We currently cannot estimate the extent of the potential damages in this dispute.

	Three Months EndedJune 30,						Nine Months EndedJune 30,
	2005			2004			2005			2004
	(in thousands)
Interest income	$	137		$	42		$	338		$	134
Interest expense		(10	)		(29	)		(23	)		(17	)
Other income (expense)		(171	)		(65	)		(56	)		76
Total other income (loss), net	$	(44	)	$	(52	)	$	259		$	193

Defending against the government investigations, the private securities class action, the derivative actions and other litigation matters described above will likely require significant attention and resources of management and, regardless of the outcome, result in significant legal expense. If our defenses ultimately are unsuccessful, or if we are unable to achieve a favorable settlement, we could be liable for large damage awards that could seriously harm our business and results of operation. While we have provided notice of the government investigations and the litigation matters described above to our directors and officers liability insurance carriers, the insurance carriers have raised certain coverage issues and to date have not reimbursed us for all legal expenses incurred, and may not agree that they are responsible to pay any damages that ultimately could be awarded to the plaintiffs. Furthermore, we have only a limited amount of insurance, and even if our insurers agree to make payments under the policies, the legal expenses and damage awards or settlements may be greater than the amount of insurance, and we would in all cases be liable for any amounts in excess of our insurance policy limits.

(15) Financial Instruments

To hedge a portion of the Company’s currency risk arising from fluctuations in foreign exchange rates on our Euro-denominated accounts receivables, we use forward rate agreements, which are derivative instruments. The Company’s use of derivative instruments is intended to mitigate the risk of significant balance sheet fluctuations caused by foreign exchange rate movements. We recognize gains and losses resulting from changes in the fair value of derivative instruments in other income (loss), net.

As of June 30, 2005, the Company had entered into a foreign currency forward contract that had the effect of fixing the exchange rate on Euro 1,570,000 at $1.192 through the settlement date in August 2005.

Page 13

We were named as a defendant in an action in the United States Bankruptcy Court for the Northern District of California entitled E. Lynn Schoenmann, trustee of NorthPoint Communications, Inc. v. Netopia. In this action, the trustee of the bankruptcy estate of NorthPoint Communications, Inc. (16“NorthPoint”) ~~Comprehensive~~sought ~~Loss~~to recover approximately $1.2 million that NorthPoint paid to us within the 90-day preference period before NorthPoint filed for bankruptcy in January 2001. In January 2006, we agreed to settle this action by making a payment to the plaintiff in the amount $300,000 in consideration of a release of all claims. The settlement was recorded as an expense in the three months ended December 31, 2005.

~~The~~In ~~table~~addition ~~below~~to ~~presents~~ the ~~comprehensive~~lawsuits ~~loss~~described ~~for~~above, ~~the~~from ~~three~~time ~~and~~to ~~nine~~time ~~months~~we ~~ended~~are ~~June~~involved ~~30,~~in ~~2005~~other ~~and~~litigation ~~2004,~~or ~~and~~disputes ~~includes~~that are incidental to the ~~translation~~conduct of our ~~foreign~~ ~~subsidiaries~~business. ~~into~~We are not party to any such other incidental litigation or dispute that in our ~~reporting~~opinion ~~currency,~~is ~~the~~likely ~~United~~to ~~States~~seriously ~~Dollar:~~harm our business. Legal fees are expensed as incurred.

	Three Months EndedJune 30,						Nine Months EndedJune 30,
	2005			2004			2005			2004
Net loss	$	(2,312	)	$	(2,276	)	$	(5,785	)	$	(2,724	)
Cumulative translation adjustments		17			63			(3	)		(8	)
Comprehensive income (loss)	$	(2,295	)	$	(2,213	)	$	(5,788	)	$	(2,732	)

(9)

Segment, Geographic and Major Customer Information

Segment Information: The Company generates revenues from two primary groups, (17i) broadband ~~Litigation~~equipment and (ii) broadband software and services. Financial information regarding the operating segments was as follows:

On December 3, 2004, the United States District Court for the Northern District of California issued an order consolidating previously filed purported class action cases under the name In re Netopia, Inc. Securities Litigation, and appointing a lead plaintiff and plaintiff’s counsel. On June 29, 2005, the lead plaintiff filed its consolidated amended complaint. The consolidated amended complaint alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The consolidated amended complaint alleges that during the purported class period, November 6, 2003 through August 16, 2004, we made false and misleading statements or failed to disclose material facts, and that the market price of our common stock was artificially inflated as a result of such alleged conduct. We believe that we have strong defenses to the claims asserted in the consolidated amended complaint. We intend to defend the case vigorously.


	Three months ended December 31,
	2005									2004
(in thousands)	Broadband equipment			Broadband Software & Services			Total			Broadband equipment			Broadband Software & Services			Total
Revenues	$	21,051		$	2,847		$	23,898		$	26,197		$	3,121		$	29,318
Cost of revenues		14,799			540			15,339			20,233			278			20,511

Gross profit		6,252			2,307			8,559			5,964			2,843			8,807
Gross margin		30	%		81	%		36	%		23	%		91	%		30	%
Unallocated operating expenses								11,201			—			—			10,572

Operating loss							$	(2,642	)							$	(1,765	)

~~In August 2004, the first of four~~Geographic ~~purported~~Information: ~~derivative~~The ~~actions,~~Company ~~Freeport~~sells ~~Partners,~~most ~~LLC, Derivatively on Behalf~~ of ~~Nominal~~its ~~Defendant~~products ~~Netopia,~~through ~~Inc.,~~its v.field ~~Alan~~sales ~~B. Lefkof~~organization, ~~William~~with D.a ~~Baker,~~small ~~Reese~~portion M.of ~~Jones,~~sales ~~Harold~~through S.distributors ~~Wills, Robert Lee~~ and ~~Netopia, Inc~~resellers., ~~was~~Most ~~filed~~of in the ~~United~~Company’s ~~States District~~sales ~~Court~~are ~~for~~to ~~the~~telecommunication ~~Northern~~carriers ~~District~~and ofservice providers ~~California. Two purported derivative actions are pending~~ in the United States ~~District Court for the Northern District of California,~~ and ~~two~~Europe ~~related~~through ~~purported derivative actions are pending in the Superior Court of California for the County of Alameda. These actions make claims against~~ our ~~officers~~field ~~and~~sales ~~directors arising out of the alleged misstatements described above in connection with the purported class action described above~~force. InOur ~~November 2004,~~field ~~the~~sales ~~derivative~~force ~~plaintiffs~~is ~~agreed~~geographically todisbursed ~~coordinate~~within the ~~four~~United ~~derivative~~States ~~actions.~~and ~~The~~Europe ~~parties~~and we have ~~agreed to~~ a ~~stay~~sales ofoffice ~~the federal derivative actions, which was ordered by the court~~ in ~~January 2005. The state actions have been consolidated under the name In re Netopia~~Paris, ~~Inc~~France. ~~Derivative~~Most ~~Litigation.~~of ~~The~~our ~~plaintiffs~~sales ~~have~~in ~~not~~Europe ~~filed~~are ~~their consolidated amended complaint. We believe that we have strong defenses~~ to ~~the claims asserted~~ customers in ~~the~~Switzerland ~~complaints~~and ~~as initially filed~~Ireland. ~~We intend to defend the cases vigorously.~~

OnSales ~~October~~outside ~~29,~~of ~~2004, we were advised by~~ the United ~~States~~ ~~Securities~~States ~~and~~are ~~Exchange~~primarily ~~Commission~~export ~~(“SEC”)~~sales ~~that~~denominated anin ~~informal~~United ~~inquiry~~States ~~previously~~Dollars ~~commenced~~or ~~by the SEC had become the subject of a formal order of investigation~~Euros. ~~This~~Information ~~investigation~~regarding ~~is to determine whether~~ the ~~federal~~Company’s ~~securities~~revenues ~~laws~~by ~~have~~geographic ~~been violated.~~region Wewas ~~cooperated~~as ~~fully~~follows: ~~with the informal inquiry, and we have been cooperating fully with the formal investigation.~~

On July 22, 2005, we announced that following discussions with the SEC staff, we had made a settlement offer to the SEC to resolve the investigation into our disclosures and accounting practices, primarily related to our restatement of financial statements for the fiscal years ended September 30, 2003 and 2002. Without admitting or denying any wrongdoing, we offered to consent to the entry of an order with respect to violations of Sections 13(a) and 13(b)(2)(A)-(B) of the Exchange Act, and Rules 12b-20, 13a-1, 13a-11 and 13a-13 promulgated thereunder. The SEC staff has agreed to recommend that SEC approve the offer of settlement. The proposed settlement is subject to completion of mutually agreeable settlement language and final approval by the SEC.


	Three months ended December 31,
(in thousands)	2005				2004
Europe	$	8,722	36	%	$	9,121	31	%
Other international		443	2	%		906	3	%

Total international revenue		9,165	38	%		10,027	34	%
United States		14,733	62	%		19,291	66	%

Total revenues	$	23,898	100	%	$	29,318	100	%

The Company has no material operating assets outside the United States.

Page 14

OnCustomer ~~July~~Information: ~~22,~~The ~~2005,~~Company’s welargest ~~also~~customers ~~announced~~are ~~that~~service ~~we had learned that the SEC staff has agreed to recommend that the SEC approve an offer of settlement with Alan B~~providers. Lefkof, our President and Chief Executive Officer. Mr. Lefkof, without admitting or denying any wrongdoing, offered to consent to the entry of an order with respect to violations of Sections 17(a)(2)-(3) of theThey ~~Securities~~include ~~Act of 1933~~regional, ~~as amended~~national, and ~~Rule~~international ~~13b2-1~~telecommunications ~~promulgated under the Exchange Act~~carriers, ~~and~~as ~~aiding~~well ~~and~~as ~~abetting~~Internet ~~our~~Service violations of Sections 13(a) and 13(b)(2)(A)-(B) of the Exchange Act, and Rules 12b-20 and 13a-11 promulgated thereunder, in connection with a Report on Form 8-K and exhibit furnished to the SEC on July 6, 2004Providers. ~~The proposed settlement with Mr. Lefkof contemplates a monetary payment. The proposed settlement is subject to completion of mutually agreeable settlement language and final approval by the SEC.~~

WeFour ~~have~~customers ~~been~~accounted ~~informed~~for ~~that~~10% or more of revenues in the ~~SEC staff~~three ~~has~~months ~~issued~~ended ~~“Wells~~December 31, ~~Notices”~~2005 toand ~~(a)~~two acustomers ~~former~~accounted ~~chief~~for ~~financial~~10% ~~officer,~~or ~~(b)~~more aof revenues ~~former~~in ~~senior~~the ~~sales~~three ~~vice~~months ~~president~~ended December 31, ~~and~~2004. ~~(c)~~Sales ato ~~former~~BellSouth ~~software~~Telecommunications, ~~sales~~Inc. ~~vice~~were ~~president~~approximately 17% and 24% of revenues in the ~~Company.~~three Amonths ~~“Wells~~ended ~~Notice”~~December 31, ~~indicates~~2005 ~~that~~and ~~the~~2004, ~~SEC~~respectively. ~~staff~~Sales ~~has~~to Swisscom AG were ~~made~~approximately a21% ~~preliminary~~and ~~decision~~14% toof ~~recommend~~revenues ~~that~~in the ~~SEC~~three ~~bring~~months aended ~~civil~~December 31, ~~enforcement~~2005 ~~action~~and ~~against~~2004, ~~the~~respectively. ~~recipients~~Sales ~~for~~to ~~possible~~eircom ~~violations~~Group ofplc ~~federal~~were ~~securities~~approximately ~~laws.~~12% ~~Recipients~~ of ~~Wells~~revenues ~~Notices~~in ~~have~~ the ~~opportunity~~three tomonths ~~respond~~ended inDecember 31, ~~writing~~2005. ~~before~~Sales ~~the~~to ~~SEC~~AT&T ~~staff~~Corporation ~~makes~~were ~~its~~approximately ~~formal~~10% ~~recommendation~~of onrevenues ~~whether~~in the ~~SEC~~three ~~should~~months ~~bring~~ended ~~any~~December 31, ~~action~~2005.

~~Responding~~The tofollowing ~~the~~tables ~~formal~~sets ~~order~~forth ~~of investigation of the SEC has required significant attention and resources of management. Our proposed settlement described above is subject to final approval by the SEC. In addition~~December 31, ~~even~~2005 ~~though we have announced the proposed settlement with the SEC, the investigation by the SEC is ongoing,~~ and may continue to require significant attention and resources. If either we and/or Mr. Lefkof are unable to complete the proposed settlements and the SEC elects to pursue an enforcement action against us and/or Mr. LefkofSeptember 30, ~~the~~2005 ~~defense~~customer ~~could~~balances beaccounting ~~costly~~for ~~and~~10% ~~require additional management resources. If we were unsuccessful in defending against this~~ or ~~other~~more ~~investigations~~of oraccounts ~~proceedings, we could face~~receivable ~~civil~~along orwith ~~criminal~~such ~~penalties~~data ~~that~~expressed ~~would~~as ~~seriously~~a ~~harm~~percentage ~~our~~of ~~business~~total ~~and~~accounts ~~results~~receivable: ~~of operations.~~

In April 2005, we learned that the United States Attorney for the Northern District of California has opened an investigation following a referral by the SEC. We do not know the scope or focus of the investigation.


(in thousands)	December 31, 2005
Swisscom	$	3,466	24	%
eircom	$	2,386	17	%
Bellsouth Telecommunications	$	1,671	12	%

(in thousands)	September 30, 2005
Swisscom	$	3,326	21	%
BellSouth Telecommunications	$	2,612	16	%
eircom	$	1,682	10	%

~~In January 2005, we were notified by the Occupational Health and Safety Administration~~ (~~“OSHA”~~10) ~~that~~Credit we were named in an administrative complaint filed by two former employees alleging violations of Section 806 of the Corporate and Criminal Fraud Accountability Act of 2002, 18 U.S.C. § 1514A, also known as the Sarbanes-Oxley Act. The former employees alleged we terminated them in retaliation for their participation in the internal accounting review conducted by the audit committee in 2004. On May 11, 2005, following its investigation, OSHA advised us that the complaint was determined to have no merit. The complainants subsequently requested a hearing before an Administrative Law Judge to review this determination. The complainants have filed their complaint and we have filed our answer with the Administrative Law Judge. We believe that we have strong defenses and intend to defend the complaint vigorously. Facility

InUnder ~~February~~the ~~2005,~~Company’s weamended ~~were~~credit ~~served~~facility agreement with aSilicon ~~complaint~~Valley byBank, ~~these~~the ~~same~~credit ~~two~~limit ~~former~~is ~~employees~~$10 million, the interest rate is Silicon Valley Bank’s prime rate, and the term or maturity date is June 27, 2007. The ~~complaint~~amended ~~names~~credit facility contains financial covenants related to liquidity and net worth as well as other nonfinancial covenants. Covenants require that the Company maintain an adjusted quick ratio (described below) of 1.25 and ~~Alan~~the ~~Lefkof~~credit asfacility ~~defendants~~will be subject to formula based credit limits if the adjusted quick ratio falls below 1.50. Covenants also require the Company to maintain a minimum tangible net worth of $28 million at September 30, 2005; subsequently the minimum tangible new worth declines every few months to $24 million at September 30, 2006 and ~~asserts~~thereafter, ~~claims~~unless reset. The facility is secured by substantially all of the assets ~~for~~of ~~defamation~~the Company. The adjusted quick ratio is the ratio of (i) the Company’s unrestricted cash, cash equivalents and ~~breach~~investments maintained at Silicon Valley Bank plus net receivables to (ii) the Company’s current liabilities plus the outstanding principal amount of ~~contract~~any borrowings under the facility less deferred revenues. The ~~case~~Company ismay ~~pending~~borrow inunder the ~~United~~credit ~~States~~facility ~~District~~in ~~Court~~order to finance working capital requirements for new products and customers, and otherwise for general corporate purposes in the ~~Northern~~normal ~~District~~course of ~~Texas~~business. As of December 31, ~~Dallas~~2005, ~~Division.~~the WeCompany ~~believe~~was ~~that~~in wecompliance ~~have~~with ~~strong~~the ~~defenses~~covenants, ~~and~~had ~~intend~~access to ~~defend~~approximately $9.5 million of the ~~case~~credit ~~vigorously~~facility, had no outstanding borrowings and approximately $500,000 of outstanding letters of credit.

~~Defending~~(11) ~~against~~Other ~~the government investigations~~Income, the private securities class action, the derivative actions and other litigation matters described above will likely require significant attention and resources of management and, regardless of the outcome, result in significant legal expense. If our defenses ultimately are unsuccessful, or if we are unable to achieve a favorable settlement, we could be liable for large damage awards that could seriously harm our business and results of operation. While we have provided notice of the government investigations and the litigation matters described above to our directors and officers liability insurance carriers, the insurance carriers have raised certain coverage issues and to date have not reimbursed us for any legal expenses incurred, and may not agree that they are responsible to pay any damages that ultimately could be awarded to the plaintiffs. Furthermore, we have only a limited amount of insurance, and even if our insurers agree to make payments under the policies, the damage awards or settlements may be greater than the amount of insurance, and we would in all cases be liable for any amounts in excess of our insurance policy limits. Net

Other income, net primarily consisted of interest income earned on cash and cash equivalents, interest expense related to the credit facility and term loans, and gains and

Page 15

~~We are named as a defendant in an action pending in the United States Bankruptcy Court for the Northern District of~~ ~~California~~realized ~~entitled~~and E.unrealized ~~Lynn~~gains ~~Schoenmann,~~and ~~trustee~~losses ~~of NorthPoint Communications, Inc. v. Netopia. In this action commenced~~ on ~~January~~foreign ~~11,~~currency ~~2003, the trustee of the bankruptcy estate of NorthPoint Communications, Inc~~transactions. ~~(“NorthPoint”)~~The ~~is seeking~~following totable ~~recover~~summarizes ~~approximately $1.2 million that NorthPoint paid to us within~~ the ~~90 day preference period before NorthPoint filed for bankruptcy in January 2001. NorthPoint~~Company’s ~~trustee~~other ~~is claiming that NorthPoint was insolvent at the time it made these payments~~income, ~~and~~net: that therefore the payments are recoverable preferences within the meaning of the Bankruptcy Code. We believe that we have defenses to the claims asserted by NorthPoint’s trustee, and we intend to continue to defend ourselves vigorously. We do not believe that the outcome of this lawsuit is likely to harm our business seriously.

In addition to the lawsuits described above, from time to time we are involved in other litigation or disputes that are incidental to the conduct of our business. We are not party to any such other incidental litigation or dispute that in our opinion is likely to seriously harm our business.


	Three Months Ended December 31,
(in thousands)	2005			2004
Interest income	$	219		$	92
Interest expense		(11	)		(3	)
Other income (expense)		(44	)		59

Total other income, net	$	164		$	148

Page 16

PART I — FINANCIAL INFORMATION

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Some of the information in this Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. You can identify these statements by forward-looking words such as “may,” “will,” “should,” “expect,” “anticipate,” “potential,” “believe,” “estimate,” “intends” and “continue” or similar words. You should read statements that contain these words carefully because they: (i) discuss our expectations about our future performance; (ii) contain projections of our future operating results or of our future financial condition; or (iii) state other “forward-looking” information. There will be events in the future that we are not able to predict or over which we have no control, which may adversely affect our future results of operations, financial condition or stock price. The risk factors described in this Form 10-Q, as well as any cautionary language in this Form 10-Q, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we described in our forward-looking statements. You should be aware that the occurrence of any of the risks, uncertainties, or events described in this Form 10-Q could seriously harm our business and that, upon the occurrence of any of these events, the price of our common stock could decline. All forward-looking statements included in this Form 10-Q are based on information available to us on the date hereof. We assume no obligation to update any such forward-looking statements.

Company Overview

We ~~develop~~are a developer and ~~market~~provider of high performance broadband customer ~~premise~~premises networking equipment, and carrier-class software for the remote management ~~software,~~of broadband services and end point equipment. We also develop and provide broadband enabled services and remote management software for enterprises’ technical support, help-desks and personal computers.

Our ~~products provide~~ broadband ~~solutions~~equipment toincludes ~~our customers~~modems, ~~the~~ ~~largest~~routers ofand gateways, ~~which~~and ~~are~~related ~~telecommunication~~accessories ~~carriers~~for ~~and~~use ~~Internet~~at ~~service~~the ~~providers,~~premises. ~~for~~Our ~~the~~equipment ~~delivery~~enables ofadvance high-speed broadband ~~services~~access toand ~~their~~services. ~~residential~~DSL technologies and ~~business-class~~standards ~~customers.~~used ~~Our~~to ~~solutions~~transmit ~~enable~~data ~~carriers~~over ~~and~~copper ~~broadband~~lines, ~~service~~including ~~providers~~integrated towireless (ior Wi-Fi) ~~deliver~~access, ~~our~~are ~~feature-rich~~a ~~broadband~~technology ~~modems,~~focus ~~routers,~~for ~~and~~our ~~gateways~~equipment. toThe ~~their~~largest customers; ~~(ii)~~for ~~utilize~~ our ~~software~~equipment ~~that~~are ~~allows~~telecommunications ~~remote~~carriers. ~~management~~These ofcustomers ~~broadband~~deploy our equipment ~~and networked devices located~~ at their broadband customers’ premises, ~~in order to reduce customer support costs; and (iii) provide value added services,~~ including ~~combined~~residences ~~voice, video,~~ and ~~data services (commonly referred to as “triple play” services)~~distributed businesses.

Our ~~remote~~ management software ~~platform~~enables ~~and~~carriers ~~related~~to ~~applications~~remotely ~~enable~~manage ~~remote control~~our gateways, ~~monitoring~~as well as gateways from third party suppliers, and ~~service~~to ~~provisioning~~deploy ofnew broadband ~~equipment,~~ ~~networked~~services. ~~devices~~Our ~~such~~software asenables ~~set~~broadband ~~top~~service ~~boxes~~providers ~~(STBs)~~ and ~~Web~~enterprises ~~cams~~to remotely respond to service problems and calls and to automate the ~~personal~~maintenance ~~computers~~of ~~with~~the gateways ~~which~~and ~~they~~broadband ~~interact~~services. Our ~~software~~solution ~~solutions~~also ~~are~~provides ~~designed~~for ~~to meet~~ the ~~requirements~~efficient delivery of avalue ~~full~~added ~~range~~services. ofNBBS, ~~users:~~or ~~individual-to-individual~~Netopia Broadband Server, ~~carrier-to-customer~~ is the brand name for our remote management software, ~~and~~which ~~help~~we ~~desk-to-user~~license on both a server license and hosted basis.

~~Our~~We ~~broadband~~also ~~services~~license ~~include Wi-Fi~~and ~~hot~~host ~~spots~~software for ~~local~~remotely managing networks of personal computers. This software is licensed under the brand names Timbuktu and ~~nationwide~~eCare. ~~networks~~eCare ofis ~~small~~a ~~venues,~~solution ~~Web~~designed ~~site~~for enterprise technical service support and help desks. Our solutions enable remote ~~control~~problem ~~hosting,~~solving ~~retail~~and ~~broadband~~management ~~point-~~of~~-sale~~ distributed ~~services,~~desktop ~~and~~or ~~parental~~personal ~~controls~~computers.

~~Broadband~~We ~~Equipment.~~sell ~~Our~~Web ~~family~~site ofservices, including ~~telecommunications~~Web ~~carrier-class~~site ~~broadband customer premise equipment includes modems~~hosting, ~~routers~~development, and ~~gateways~~tools ~~(collectively~~for ~~referred~~Web tosite ~~as “gateways”), and related accessories such as Wi-Fi adapters~~development. ~~Our~~We ~~gateways~~offer ~~provide~~ a ~~critical~~Hot-Spot ~~link~~solution ~~between telecommunication carriers’ lines~~ and ~~residential~~service ~~and~~for distributed ~~business~~ ~~local~~enterprises, ~~area~~such ~~networks.~~as ~~The~~restaurants, ~~gateway~~hotels ~~provides~~and ~~critical~~other ~~functionality,~~venues ~~including~~that ~~converting~~offer ~~electronic~~wireless ~~and~~Internet ~~analog~~access ~~signals~~ to ~~digital~~their ~~communication,~~customers. We ~~network~~offer ~~routing,~~a ~~and~~Parental ~~wired~~Controls ~~and~~service ~~wireless~~that ~~networked~~provides ~~connectivity~~content ~~for~~filtering ~~simultaneous~~and ~~voice,~~other ~~video, data~~controls ~~and~~over ~~other~~access ~~applications~~to the Internet.

Our gateways connect to carrier lines and enable the transport of broadband, high-speed data over carrier networks including the local copper wires (often referred to as “loop”) and new deployments of fiber-optic networks.

Our gateways serve many carrier network interfaces, including digital subscriber line (ADSL, ADSL2+, Bonded ADSL and VDSL2), Ethernet, and T1. For users’ devices on the LAN-side of our gateways, our products support both wireless (often referred to as Wi-Fi) and Ethernet network connectivity. We are

Page 17

Our broadband equipment is manufactured by outsourced manufacturers in Thailand, China and Mexico. The components ~~developing~~included ~~products~~in ~~using~~our ~~emerging~~equipment ~~new~~are ~~technologies~~high-quality ~~such~~industry asstandard ~~multimedia~~components ~~over~~provided ~~coaxial~~by ~~cable~~leading ~~(MoCA~~vendors. We work closely with the providers of silicon chips, circuits and ~~HCNA)~~switches, antennae and RJother high-11technology ~~phone~~components ~~wiring~~in ~~(HPNA3)~~the development of our products. We develop and maintain the embedded software called firmware included in our equipment.

AsThe ~~carrier-class~~markets ~~gateways,~~in ~~our~~which ~~products~~we compete are ~~designed~~highly tocompetitive. ~~deliver~~We ~~high~~continuously ~~performance,~~strive ~~quality~~to ~~of service,~~make ~~excellent~~advances ~~reliability,~~and ~~scalability,~~compete ~~and~~based ~~affordability,~~on ~~and~~forward-looking totechnology beand aservice ~~platform~~innovations, ~~from~~superior ~~which~~performance ~~carrier~~and quality, and ~~service~~by identifying ~~providers~~solutions ~~can~~and ~~offer~~opportunities ~~their~~for our customers ~~additional~~to ~~broadband~~attract ~~services~~ and ~~applications~~retain customers, ~~especially~~improve ~~triple~~productivity, ~~play~~reduce ~~voice~~costs, ~~video~~ and ~~data services~~achieve competitive advantage.

WeOverview ~~believe~~of ~~our~~Operating ~~gateways~~Results ~~are differentiated by:~~

•We ~~Carrier-class~~are focusing on revenue growth for both our broadband networking equipment and our software and services. Our objective is to increase sales to existing customers and to attract new customers. Our goal is to leverage our strengths in DSL technologies to meet market requirements for higher bandwidth services, ~~high~~including ~~quality~~IPTV, being provided by telecommunications and ~~high~~Internet service providers. This focus includes achieving design wins and field trials for higher performance; gateways utilizing new technologies, including VDSL2 and ADSL2+ Bonded technologies as well as other innovations. Software and services revenue growth is largely dependent on sales and revenue from our NBBS remote management software.

•We ~~Comprehensive~~believe ~~interoperability~~that during the first quarter ended December 31, 2005, we made progress toward our 2006 revenue growth goals with ~~leading~~a ~~carrier~~new ~~central~~VDSL2 ~~office~~product ~~DSL~~design ~~equipment;~~win and a field trial with a prospective new customer in Europe. We believe that we will generate revenues from this new customer and this product design win later in fiscal year 2006.

•For ~~High~~the first ~~performing~~quarter of fiscal year 2006, ~~high~~revenues ~~quality~~from ~~common~~both ~~firmware~~broadband ~~deployed~~equipment ~~across~~and software and services were down compared with the first quarter of the prior fiscal year and up sequentially from the fourth quarter of the prior fiscal year. Overall gross margin rates for the first quarter improved year-over-year and sequentially from the previous quarter. The first quarter of fiscal year 2006 was our ~~broadband~~first ~~gateways;~~quarter to include stock compensation expense in our Statement of Operations and this caused an increase in operating expenses and an increase in our net loss, both year-over-year and sequentially from the previous quarter.

•Revenues ~~Performance-enhancing~~for ~~wireless~~the ~~technology~~first ~~branded~~quarter aswere $23.9 million, down 18% from the first quarter of the prior fiscal year; and up 2%, sequentially from the previous quarter. Deferred revenue increased 12% to $3-D.4 ~~Reach®~~million ~~technology~~as of December 31, ~~which~~2005. weThe ~~believe~~quarterly ~~gives~~revenue ~~our~~decline Wiof 18%, year-Fiover-year, ~~products~~resulted ~~leading~~principally ~~wireless~~from ~~range~~lower broadband equipment revenue. While broadband equipment sales in the first quarter of fiscal year 2006 were fairly flat compared with the fourth quarter of fiscal year 2005, we expect a sequential increase in broadband equipment revenue in the second quarter of fiscal year 2006. However, this increase is largely dependent on the successful completion of a field trial for a new European customer. While software and ~~coverage;~~services revenues were down 9% in the first quarter of fiscal year 2006, compared with the first quarter of the prior fiscal year, these revenues were up 12% sequentially from the fourth quarter of fiscal year 2005. We expect software and services revenues will increase in the quarter that we recognize the revenue associated with the license of our NBBS remote management software to BellSouth. A large portion of deferred revenue as of December 31, 2005 relates to the license to BellSouth.

•The ~~Our~~gross ~~quality~~margin ofrate ~~service~~for ~~(QoS)-enhancing~~the ~~virtual~~first ~~gateway~~quarter ~~technology~~was 36%, ~~branded~~including as30% ~~VGx~~for ~~technology,~~broadband ~~which~~equipment ~~provides~~and ~~gateway~~81% ~~service~~for ~~segmentation~~software ~~for~~and ~~high~~services. ~~quality~~This ~~voice~~was a 6 percentage point improvement, ~~video~~year-over-year, and ~~data~~a ~~services~~1 percentage point improvement, sequentially from the previous quarter. This improvement mostly reflected the benefit of cost reductions, and secondarily from a greater mix of Wi-Fi broadband equipment sales and a greater mix of business-class broadband equipment sales.

Most of our revenues are generated from sales of our DSL gateways to major telecommunication carriers, who, in turn, include our gateways as part of their broadband service offerings to their customers. Our DSL and other broadband gateways are often bundled with virtual private networking (“VPN”) capabilities that allow secure communications over the Internet, firewall protection, parental controls, hot spot access, Web content filtering, and combined voice, video, data, and other services.

During the three months ended June 30, 2005 and 2004, revenue from the sale of our broadband equipment accounted for 90% and 86%, respectively, of our total revenues. During the nine months ended June 30, 2005 and 2004, revenue from the sale of our broadband equipment accounted for 89% and 84%, respectively, of our total revenues. When reading our condensed consolidated statement of operations, revenues and cost of revenues related to the sale of our gateways and related accessories are classified as “broadband equipment.”

Broadband Software and Services. We offer remote management software, Wi-Fi hot spots for local and nationwide networks of small venues, Web site and remote control hosting, retail broadband point-of-sale services, and parental controls:

• Remote management software. We offer two principal remote management software solutions: Netopia Broadband Server and Timbuktu®.

• Our Netopia Broadband Server (“NBBS”) software solution enables carrier-to-customer remote support and management of installed broadband gateways and centralized service delivery (provisioning) for value-added broadband services such as voice, video, data, parental controls, and hot spot access. Utilizing the TR-069 protocol adopted by the DSL Forum as well as other standard methodologies, this solution allows carriers and broadband service providers to provision services and provides support to their customers on a remote basis, which minimizes the cost of installation and broadband service provisioning over the lifetime of the relationship with their customer. NBBS can be leveraged to manage both Netopia gateways and other third party devices. The NBBS platform includes optional modules that perform different functions:

Zero-Touch provisioning for the initial installation of broadband equipment at the customer premises;

Element Management System for ongoing remote provisioning, administration, and support of broadband customer premises equipment and security policies including VPN and firewall management;

Hot Spot Manager for the provisioning, authentication, and management of hot spot venue access; and

Parental Controls for Web content filtering and email and chat management; VPN Policy Manager for the setup and administration of secure VPN-enabled wide area networks (WANs).

Page 18

• Business-class ~~Timbuktu~~and ~~Pro~~Wi-Fi ~~software~~equipment ~~provides~~sales ~~remote~~generally ~~control~~carry ~~and~~a ~~computing~~higher ~~individual-to-individual~~gross ~~and~~margin ~~help~~than ~~desk~~residential-~~to-users,~~class ~~for~~broadband ~~secure~~equipment. ~~remote~~Looking ~~control~~forward, ofgross ~~both~~margin rates ~~Mac~~are ~~and~~expected ~~Windows~~to ~~personal~~be ~~computers.~~volatile ~~This~~because ~~solution~~of ~~serves~~fluctuations ~~enterprise~~in ~~help~~the ~~desk~~mix ~~customers~~of ~~and~~revenues ITfrom ~~organizations,~~equipment ~~allowing~~and ~~help~~software ~~desks~~and toservices ~~provide~~for ~~support~~the ~~and~~remainder ~~configuration~~of onfiscal ayear ~~remote~~2006. ~~basis~~For ~~when~~example, ~~computer~~the ~~users~~gross ~~experience~~margin ~~problems~~is orexpected ~~require~~to ~~additional~~be ~~software~~higher ~~upgrades~~as ~~for~~a ~~desktop~~result orof ~~laptop~~a ~~computers.~~higher ~~Remote~~mix ~~control~~ of software ~~distant~~and ~~computers~~services ~~can~~revenues ~~use~~in ~~connections~~the ~~over~~quarter ~~the~~that ~~Internet,~~we ~~local~~recognize ~~network,~~the orrevenue ~~modem-to-modem.~~from ~~The~~the ~~software~~license ~~enables~~of ~~other~~remote ~~users~~management software to ~~view~~BellSouth. ~~all~~In addition, orwe ~~part~~expect ofbroadband aequipment ~~computer’s~~revenues ~~screen;~~in ~~file~~fiscal ~~sharing;~~year ~~secure,~~2006 ~~encrypted~~to ~~connections;~~grow, ~~and~~in ~~communication~~part, byfrom ~~voice~~sales ~~intercom,~~of residential-class ~~text~~broadband ~~chat~~equipment, orwhich ~~instant~~carry ~~message.~~a ~~The~~lower ~~remote~~gross ~~control~~margin ~~can~~rate bethan ~~from~~sales ~~Mac~~of tobusiness-class PCequipment, orwhich PCcould tocause ~~Mac,~~a ordecline ~~across~~in ~~like~~the ~~platforms~~gross margin rate.

•Our ~~Web~~operating ~~site~~expenses and ~~Web~~net ~~store~~income ~~hosting~~for the first quarter of fiscal year 2006 included $1.2 ~~Our~~million ~~eCommerce~~of ~~solutions~~stock ~~provide~~compensation ~~“no~~expense. ~~assembly~~This stock ~~required”~~compensation ~~Web~~expense ~~sites~~was the primary cause of the year-over-year and ~~online~~sequential ~~stores~~increase in operating expenses and net loss. The assumptions that we ~~call~~used ~~eSites~~to ~~and~~value ~~eStores,~~stock ~~and~~options ~~include~~included a ~~wide~~high ~~variety~~volatility factor based on the history of ~~vertical~~high volatility ~~market~~in ~~content~~the ~~packages~~price of Netopia common stock. This high volatility assumption resulted in stock option valuations that were near the grant price or exercise price of the option. For example, if a stock option’s exercise price was $3 per share, our calculated fair value, using the Black-Scholes valuation model, was nearly $3 per option. We cannot predict that the price of Netopia common stock will increase commensurate with these stock option valuations. Stock compensation expenses will impact future quarters with similar or increasing levels of expenses as a result of new stock option grants made to ~~suit~~both ~~many~~new ~~business~~and ~~needs~~current employees, ~~from~~and ~~franchisees~~these expenses will impact to ~~sole~~year-over-year ~~proprietors~~trends. We continue to grant stock options to employees as part of our intent to align key employees interests with the interests of shareholders as well as to attract and retain key employees.

•Beginning ~~Remote~~in ~~control~~fiscal ~~hosting.~~year ~~For help desks~~2006, ~~customer~~we ~~service~~adopted ~~and~~SFAS ~~call~~123(R) ~~centers,~~on ~~we offer~~ a ~~hosted~~modified ~~remote~~prospective ~~control~~basis. ~~solution~~The ~~that~~following ~~leverages~~table ~~the~~provides ~~core~~a ~~technology~~comparison of ~~Timbuktu.~~net ~~Marketed~~income, asif ~~eCare,~~the ~~this~~effect ~~hosted~~of stock-based ~~service~~compensation ~~enables~~as ~~customer~~disclosed ~~support~~in ~~agents~~the notes to ~~support~~the ~~their~~Consolidated ~~customers~~Financial ~~over~~Statements ~~the~~prior ~~Internet~~to ~~through~~fiscal ~~instant~~year ~~Web-enabled,~~2006 ~~on-demand~~were ~~screen~~included ~~sharing,~~for ~~remote~~prior ~~control~~periods (in thousands, ~~chat~~except ~~and~~per-share ~~diagnostic~~amounts): ~~services.~~

• Wireless hot spots. Our Wi-Fi hot spot services provide high-speed Internet access to a venue’s customers and provide venues with a marketing tool that includes customizable log-in pages, the ability to control access to the hot spot, Family Friendly Surfing content controls, and complete e-Commerce solutions.


	Q1FY2006			Q4FY2005			Q3FY2005			Q2FY2005			Q1FY2005
Net loss - as reported for the prior period (1)		N/A		$	(1,348	)	$	(2,312	)	$	(1,832	)	$	(1,641	)
Stock-based compensation expense related to employee stock options and employee stock purchases (2)	$	1,214		$	1,228		$	1,152		$	1,211		$	1,371
Net loss, including the effect of stock-based compensation expense (3)	$	(2,492	)	$	(2,576	)	$	(3,464	)	$	(3,043	)	$	(3,012	)

Basic and diluted loss per share – as reported for the prior period (1)		N/A		$	(0.05	)	$	(0.09	)	$	(0.07	)	$	(0.07	)

Basic and diluted loss per share, including the effect of stock-based compensation (3)	$	(0.10	)	$	(0.10	)	$	(0.14	)	$	(0.12	)	$	(0.12	)

•(1) ~~Merchant~~Net ~~service.~~loss ~~This~~and ~~broadband~~net ~~service~~loss isper ~~marketed~~share asprior ~~the~~to ~~Netopia~~fiscal ~~Merchant~~year ~~Success~~2006 ~~POS~~did ~~Bundle~~not ~~and~~include ~~provides high~~stock-~~speed~~based ~~wireless~~compensation ~~Internet~~expense ~~Protocol~~related ~~(IP)~~to ~~networking~~employee ~~solutions~~stock ~~for~~options ~~merchants. This secure solution is designed for retail locations~~ and ~~provides~~employee ~~merchants~~stock ~~with~~purchases ~~the~~under ~~benefits~~SFAS of123 ~~faster~~because ~~credit~~we ~~card~~did ~~payment~~not ~~processing~~adopt ~~and~~ the ~~ability~~recognition toprovisions ~~implement~~of ~~other~~SFAS ~~value-added services, including real-time check and age authorization, gift cards, ATM and lottery machines, and Wi-Fi hot spots~~123.

•(2) ~~Parental~~Stock-based ~~controls.~~compensation ~~Our~~expense ~~parental~~prior ~~controls~~to ~~service~~fiscal ~~enables~~year ~~gateway~~2006 ~~blocking~~is ofcalculated ~~adult~~based ~~content~~on ~~and supervision of Internet access. This solution enables control of~~ the ~~home~~pro ~~Internet~~forma ~~network.~~application ~~This protection includes for each identified user: restricting Internet access by time~~ of ~~day;~~SFAS ~~managing~~123 ~~e-mail,~~as ~~chat,~~previously ~~and~~disclosed ~~instant~~in ~~messaging; filtering Web sites by category, specific site lists, or high bandwidth. Unlike many competitive products, Netopia’s parental controls operate through~~ the ~~gateway,~~notes ~~rather~~to ~~than~~ the ~~desktop,~~Consolidated ~~which~~Financial ~~we believe results in a more secure solution~~Statements.

During the three months ended June 30, 2005 and 2004, revenue from the sale of our broadband software and services accounted for 10% and 14%, respectively, of our total revenues. During the nine months ended June 30, 2005 and 2004, revenue from the sale of our broadband software and services accounted for 11% and 16%, respectively, of our total revenues. When reading our condensed consolidated statement of operations, revenues and cost of revenues related to the sale of our broadband software and solutions are classified as “Broadband software and services.”

We primarily market and sell our products in the United States and in Europe through our sales organization, distributors and value-added resellers. Most of our broadband equipment products are sold to telecommunication carriers and Internet service providers. Our broadband software and services products are generally sold directly to telecommunication carriers and end-users. Our sales channels are summarized below.

• Telecommunication carriers, including: incumbent local exchange carriers (“ILECs”), including Swisscom AG, SBC Communications Inc., BellSouth Telecommunications, Inc. and eircom Ltd.; competitive local exchange carriers (“CLECs”), including Covad Communications Group, Inc. and

Page 19

~~NextGenTel;~~(3) Net loss and ~~Internet~~net ~~service~~loss ~~providers~~per ~~(“ISPs”)~~shares ~~and~~prior ~~managed~~to ~~service~~fiscal ~~providers~~year ~~(“MSPs”),~~2006 ~~including~~represents ~~EarthLink,~~pro ~~Inc.,~~forma ~~MegaPath~~information ~~Networks,~~based ~~Inc.~~on ~~and~~SFAS ~~Netifice~~123 ~~Communications,~~as ~~Inc~~previously disclosed in the notes to the Consolidated Financial Statements.;

•Operating ~~Distributors~~expenses in the first quarter were $11.2 million and our net loss was $2.5 million. In the prior fiscal year, ~~including~~our ~~Ingram~~net ~~Micro~~loss ~~Inc~~was approximately $1.6 million and ~~Tech~~$1.0 ~~Data~~million ~~Corporation;~~for first quarter of fiscal year 2005 and the fourth quarter of fiscal year 2005, respectively. In the first quarter of fiscal year 2006, we recorded a $300,000 charge related to settlement of a bankruptcy preference claim related to a customer that went bankrupt several years ago. We will make a payment in this amount.

•When ~~Directly~~we evaluate our core operating performance trends and potential to ~~end~~generate cash in the future, we use non-~~users~~GAAP measures that exclude a number of items, including non-cash stock compensation, non-cash amortization of acquisition-related intangibles, and the settlement charge. Using a non-GAAP measure, excluding stock compensation costs of $1.2 million and amortization acquisition-related intangibles of $300,000, our net loss was approximately $1.0 million for the first quarter of fiscal year 2006, or roughly flat sequentially (excluding approximately $400,000 of amortization of acquisition-related intangibles from the approximately $1.3 million net loss in the fourth quarter of fiscal year 2005). While we find it helpful to exclude certain items in evaluating trends and our potential to generate cash, we believe that financial measures based on GAAP are the best overall measure of our operating performance and non-GAAP measures are not intended to be a substitute for GAAP measures.

Cash of $22.5 million at December 31, 2005, remained fairly flat compared with September 30, 2005. We expect to use cash in the second ~~success~~quarter of ~~our~~fiscal ~~operations~~year to2006 ~~remain~~as ~~substantially~~we ~~dependent~~build ~~upon~~inventory ~~our~~and ~~ability~~record toaccounts ~~develop~~receivable ~~products~~if ~~that~~we ~~meet~~successfully complete the ~~needs~~field oftrial ~~both~~associated ~~the~~with ~~residential~~a new European customer and ~~business~~ramp ~~telecommunications~~our ~~markets~~sales to that customer. We continue to have no long-term debt and a $10 million credit line, with approximately $9.5 million available.

Telecommunications Market Opportunities and Risks

We expect that the telecommunications market will continue to evolve quickly over the next several years. This change and evolution provides us with significant growth opportunities and risks.

Incumbent local exchange carriers are responding to competitive challenges in their core voice business particularly from the cable television network operators, which are beginning to use a bundle of voice, video and high-speed data (often referred to as “triple play” services) to gain market share. In response, ILECs are pursuing various strategies of network modernization and service differentiation. We believe that ILECs will add digital video and other services to their offerings, which already includes voice and high-speed data. Examples of other services include streaming live video, music and pictures.

The strategies that ILECs are pursuing to modernize their networks include the deployment of all fiber networks and hybrid fiber/copper networks without end-to-end fiber connection by leveraging advanced digital subscriber line technology.

The all fiber network strategy is often referred to as fiber to the premises (“FTTP”). FTTP provides fiber’s high reliability, ease of service provisioning, and almost unlimited bandwidth. The hybrid fiber/copper network strategy is often referred to as fiber to the neighborhood (“FTTN”) or fiber to the curb (“FTTC”). FTTN and FTTC provide sufficient bandwidth to meet the needs of digital video and other applications. FTTN and FTTC requires the use of very-high-speed digital subscriber line (“VDSL”), a new high performance version of DSL for the connection to the premises. The three largest domestic ILECs, SBC Communications, Verizon and BellSouth, all have announced that they are making substantial investments in the expansion of their fiber optic networks to residences. The fiber lines enable the ILECs to offer voice, video and high-speed data over one connection. We currently are developing gateways that could be deployed for these new services.

The shift from circuit-switched networks for voice and broadcast networks for video to Internet Protocol-based networks is expected to have a significant impact on the structure of the telecommunications market. This shift may increasingly separate network access and data transport from the services delivered over those networks. For example, there are new companies entering the voice market offering Internet-based phone service.

All of these changes will impact the gateway and gateway software management market in which we compete. For example, as ILECs implement FTTP, FTTN or FTTC as well as new residential home networking solutions, companies that provide gateways, such as ours, may have the opportunity to increasingly compete against incumbent suppliers to best achieve the cost and performance requirements for gateways within the modernized network. While we are positioning our products for this evolving market and will compete vigorously to win new and retain existing telecommunication customers, attracting new or expanded customer relationship could positively benefit our operating performance, while conversely losing customer relationships could negatively harm our operating performance. Given this change, we expect the next several years to be a period of intense competition among gateway providers with both significant opportunities for growth as well as risk of failure.

Critical Accounting Policies and Estimates

Management’s discussion and analysis of our financial condition and results of operations are based upon our Condensed Consolidated Financial Statements, which have been prepared in accordance with United States generally accepted accounting principles. We review the accounting policies used in reporting our financial results on a regular basis. The preparation of these Condensed Consolidated Financial Statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, we evaluate our processes used to develop estimates, including those related to the allowance for doubtful accounts, sales reserves, inventory write-downs, customer support service accruals, warranty obligations, depreciation and amortization, contingencies and potential asset impairment of investments, intangible assets, goodwill and other assets. We base our estimates on historical experience, expectations of future results, and on various other assumptions that are believed to be reasonable for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates due to actual outcomes being different from those on which we based our assumptions. Management on an ongoing basis reviews these estimates and judgments. The Audit Committee of our Board of Directors reviews any changes in our methodology for arriving at our estimates, and discusses the appropriateness of any such changes with management and our independent auditors on a quarterly basis.

~~Page~~You 20should read our Annual Report on Form 10-K for the fiscal year ended September 30, 2005 for information pertaining to our critical accounting policies, which include the following:

United States generally accepted accounting principles. We review the accounting policies used in reporting our financial results on a regular basis. The preparation of these Condensed Consolidated Financial Statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, we evaluate our processes used to develop estimates, including those related to the allowance for doubtful accounts, sales reserves, inventory write-downs, customer support service accruals, warranty obligations, depreciation and amortization, contingencies and potential asset impairment of investments, intangible assets, goodwill and other assets. We base our estimates on historical experience, expectations of future results, and on various other assumptions that are believed to be reasonable for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates due to actual outcomes being different from those on which we based our assumptions. Management on an ongoing basis reviews these estimates and judgments. The Audit Committee of our Board of Directors reviews any changes in our methodology for arriving at our estimates, and discusses the appropriateness of any such changes with management and our independent auditors on a quarterly basis.

You should read our 2004 10-K for information pertaining to our critical accounting policies, which include the following:

•

Revenue recognition;

•

Goodwill;

• Impairment evaluation on long-lives assets, including other intangible assets;

• Allowance for doubtful accounts; ~~and~~

•

Allowance for sales returns;

Page 20

•

Service accrual;

•

Product warranty; and

•

Excess and obsolete inventory.

Liquidity and Capital Resources

The following sections discuss the effects of changes in our balance sheets, cash flows and commitments on our liquidity and capital resources. As of ~~June 30~~December 31, 2005, our principal sources of liquidity included cash and cash equivalents in the amount of $22.85 million and a credit facility, which ~~was amended and~~ has a credit limit of $10 million. We had no outstanding borrowings against our credit facility at December 31, ~~June~~2005 30and approximately $500,000 used for letters of credit. We believe our cash and cash equivalents and cash expected to be generated by our business activities will be sufficient to meet our working capital needs for at least the ~~2005~~next twelve months.

Cash and Cash Equivalents.

	June 30,2005		September 30,2004		Decrease
	December 31,		September 30,		Increase
					$				%
(in thousands)	2005		2005		$			%
	(in thousands)
Cash and cash equivalents	$	22,465	$	22,234	$	231		1	%
Cash and cash equivalents	$	22,825	$	23,973	$	(1,148	)		-5	%

For the ~~nine~~three months ended ~~June 30,~~ December 31, 2005, cash and cash equivalents ~~decreased~~increased primarily ~~due~~as toa ~~the~~result ~~use~~ of cash toprovided ~~fund~~by ~~our~~ operating activities, ~~including increased legal~~ and ~~professional~~proceeds ~~fees~~from ~~incurred~~issuance inof ~~connection~~common ~~with~~stock, ~~the~~offset ~~securities~~by ~~litigation~~capital ~~and~~equipment ~~government~~purchases. ~~investigations~~We ~~related to~~did ~~the~~not ~~restatements~~have ofany ~~our previously filed financial statements described elsewhere in this Form 10~~off-Qbalance ~~and~~sheet transactions inat ~~the 2004 10-K~~December 31, ~~and~~2005 ~~capital~~or ~~equipment~~September 30, ~~purchases~~2005.

Net Cash Provided ~~Used~~by in Operating Activities

Net cash ~~used~~provided inby ~~our~~ operating activities totaled $10.24 million for the ~~nine~~three months ended ~~June 30~~December 31, 2005, compared to $40.63 million for the ~~nine~~three months ended ~~June 30~~December 31, 2004. ~~Net~~ ~~cash~~Excluding ~~used~~the changes in operating ~~activities~~assets ~~resulted~~and ~~primarily~~liabilities, ~~from~~our aoperating ~~net~~activities ~~loss of~~ used $50.85 million of cash for the ~~nine~~three months ended ~~June 30~~December 31, 2005 primarily due to our net loss, partially offset by depreciation, amortization and non-cash ~~depreciation~~charges ~~and~~for ~~amortization~~unearned ofstock-based compensation. Changes in our operating assets and liabilities provided $20.69 million, ~~which~~of ~~was~~cash ~~included~~primarily inas ~~the~~a ~~net~~result ~~loss~~of decreases in accounts receivable and ~~the net~~inventory ~~impact~~partially ofoffset ~~changes~~by decreases in ~~assets~~accounts payable and accrued liabilities.

Net Cash Used in Investing Activities

Net cash used in investing activities totaled $10.23 million for the ~~nine~~three months ended ~~June 30~~ December 31, 2005, compared to $10.75 million for the ~~nine~~three months ended ~~June 30~~December 31, 2004. Investing activities ~~for the nine months ended June 30, 2005~~ consisted of the purchase of capital equipment.

Net Cash Provided by Financing Activities

Net cash provided from financing activities totaled $0.1 million for the three months ended December 31, 2005, compared to $0.1 million for the three months ended December 31, 2004. For the three months ended December 31, 2005, financing activities consisted of the issuance of common stock upon the exercise of stock options. For the three months ended December 31, 2004, financing activities consisted of the issuance of common stock upon the exercise of stock options offset by repayments of term loans.

Page 21

Net Cash Provided by Financing Activities

Net cash provided from financing activities totaled $1.2 million for the nine months ended June 30, 2005, compared to $7.7 million for the nine months ended June 30, 2004. Financing activities primarily consisted of the issuance of common stock upon the exercise of stock options and the issuance of shares of common stock under the Company’s Employee Stock Purchase Plan.

Commitments

AsOperating ofLease ~~June~~Commitments. ~~30,~~The ~~2005,~~Company weconducts ~~had~~its ~~commitments~~operations ~~that~~in ~~consisted~~leased of facilities ~~and equipment~~ under operating lease agreements ~~and~~expiring ~~purchase~~at ~~commitments~~various ~~primarily~~dates through ~~for inventory~~2014. ~~Our~~The ~~purchase~~following ~~commitments~~is ~~relate~~a tosummary ~~component~~of ~~inventory~~future ~~procured~~minimum byrental ~~our~~payments ~~contract~~required ~~manufacturers~~under onthese ~~our~~leases ~~behalf~~that ~~based~~have oninitial ~~our~~or ~~production~~remaining ~~orders.~~non-cancelable Welease ~~are~~terms ~~obligated~~in toexcess ~~purchase such component inventory unless orders are cancelled within agreed upon lead times. As~~ of ~~June~~one ~~30,~~year ~~2005~~(the ~~purchase~~2006 ~~commitments~~amount ~~totaled~~is ~~$15.8~~for ~~million.~~nine ~~The~~months ~~following~~remaining ~~table~~in ~~summarizes~~the ~~future~~fiscal ~~minimum lease payments~~year):

	Fiscal Years
	Year ended September 30,
	2005 (a)		2006		2007	2008		2009		Thereafter	Totals
(in thousands)	2006			2007		2008			2009		2010		Thereafter		Total
	(In thousands)
Property lease obligations	$	1,021		$	1,394	$	1,091		$	452	$	338	$	110	$	4,406
Contractual obligation
Property lease obligations	304		1,261		1,294	903		303		204	4,269

~~(a)~~Purchase Commitments ~~Represents~~with ~~cash~~Outsourcing Manufacturers and Suppliers. The Company has purchase commitments ~~for~~with its outsourcing manufacturers. Our outsourcing manufacturers procure component inventory on our behalf based on our production orders. The Company is obligated to purchase component inventory that the ~~remaining~~outsourcing ~~three~~manufacturer ~~months~~procures ofin ~~fiscal~~accordance ~~year~~with the orders, unless cancellation is given within applicable lead times. These commitments are reflected in our financial statements as a liability once goods or services have been received or payments related to the obligations become due. At December 31, 2005, purchase commitments totaled $17.5 million.

WeForeign ~~believe~~Currency ~~our~~Derivatives. ~~cash~~The ~~and~~Company ~~cash~~has ~~equivalents~~entered ~~and~~into ~~cash~~foreign ~~expected~~currency toforward becontracts ~~generated~~to byhedge ~~our~~foreign currency ~~business~~denominated ~~activities~~receivables. ~~will~~Forward becontracts ~~sufficient~~involve agreements to ~~meet~~sell ~~our~~foreign ~~working capital~~currency ~~needs~~at ~~for~~specified rates at ~~least~~future dates. The following table presents the ~~next~~carrying ~~twelve~~value ~~months~~(which approximates fair value) of currency exchange forward contracts, in United States dollars, at December 31, 2005 and September 30, 2005.

(Carrying amount in thousands)

December 31, 2005

September 30, 2005

Principal (notional) amounts in U.S. dollars:

Carrying
Amount

Spot
Rate

Settlement
Date

Carrying
Amount

Spot
Rate

Settlement
Date

Currency exchange forward contract # 1

1,896

1.185

Jan-06

2,148

1.211

Oct-05

Results of Operations for the Three Months Ended December 31, 2005 and 2004

This data has been derived from the Statements of Operations elsewhere in this Form 10-Q and in the 2005 10-K. The operating results for any period should not be considered indicative of results for any future period. This information should be read in conjunction with the Financial Statements and Notes thereto included elsewhere in this Form 10-Q and in the Annual Report on Form 10-K for the Fiscal Year ended September 30, 2005.

REVENUES


	Three Months Ended December 31,								Increase (decrease) from prior year
(in thousands & percent of revenues)	2005				2004				2005
REVENUES:
Broadband equipment	$	21,051	88	%	$	26,197	89	%	(20	%)
Broadband software and services		2,847	12	%		3,121	11	%	(9	%)

Total revenues	$	23,898	100	%	$	29,318	100	%	(18	%)

Total revenues for the three months ended December 31, 2005 were $23.9 million, an 18% decrease from total revenues of $29.3 million for the three months ended December 31, 2004. Primary factors were a decrease in broadband equipment unit sales and reduced revenue from sales of broadband software.

Broadband Equipment. Broadband equipment revenue for the three months ended December 31, 2005 was $21.1 million, a 20% decrease from broadband equipment revenue of $26.2 million for the three months ended December 31, 2004. The decrease was the result of lower unit sales.

Page 22

~~Results~~ Most of ~~Operations~~the ~~for~~decline ~~the~~related ~~Three~~to fluctuations in sales to existing customers and ~~Nine~~reduced ~~Months~~sales ~~Ended~~to ~~June~~BellSouth ~~30,~~for ~~2005~~its ~~and~~wholesale ~~2004~~customers.

~~The~~Broadband ~~table~~Software ~~below~~and ~~sets forth certain unaudited financial data~~Services. ToBroadband ~~help~~software ~~understand~~and ~~the~~services ~~data, each item is also shown as a percentage of total~~ revenues ~~along~~for ~~with~~ the three ~~dollar~~months ~~and~~ended ~~percentage~~December 31, ~~change~~2005 ~~from~~were ~~the corresponding period in the prior fiscal year~~$2.8 ~~This~~million, ~~data~~a ~~has~~9% ~~been~~decrease ~~derived~~ from ~~the~~broadband ~~Condensed~~software ~~Consolidated Statements of Operations elsewhere in this Form 10-Q~~ and inservices ~~the~~revenues ~~2004~~of ~~10-K,~~$3.1 inmillion ~~which we describe the restatement adjustments~~ for the ~~same~~three ~~period~~months inended ~~the~~December 31, ~~prior year~~2004. The ~~operating~~decrease ~~results~~was ~~for~~the ~~any~~result ~~period~~of ~~should~~lower ~~not~~license besales ~~considered~~of ~~indicative~~our system ofmanagement ~~results~~software, ~~for~~Timbuktu ~~any~~and ~~future~~netOctopus ~~period~~Enterprise. ~~This information~~Revenues ~~should~~from bemost ~~read~~of ~~in conjunction with~~ the ~~Condensed~~other ~~Consolidated~~areas ~~Financial~~of ~~Statements~~broadband ~~and~~software ~~Notes thereto included elsewhere in this Form 10-Q~~ and inservices ~~the 2004 10-K~~increased.

											Increase /(Decrease)
Three Months Ended June 30,	2005					2004					$			%
	(in thousands)
REVENUES:
Broadband equipment	$	25,103		90	%	$	21,891		86	%	$	3,212		15	%
Broadband software and service		2,726		10	%		3,543		14	%		(817	)	-23	%
Total revenues		27,829		100	%		25,434		100	%		2,395		9	%
GROSS MARGIN:
Broadband equipment		6,160		25	%		4,846		22	%		1,314		27	%
Broadband software and service		2,225		82	%		3,264		92	%		(1,039	)	-32	%
Total gross margin		8,385		30	%		8,110		32	%		275		3	%
OPERATING EXPENSES:
Research and development		3,400		12	%		3,846		15	%		(446	)	-12	%
Selling and marketing		4,582		16	%		5,199		20	%		(617	)	-12	%
General and administrative		2,561		9	%		1,184		5	%		1,377		116	%
Amortization of intangible assets		86		0	%		86		0	%		—		0	%
Total operating expenses		10,629		38	%		10,315		41	%		314		3	%
Operating loss		(2,244	)	-8	%		(2,205	)	-9	%		(39	)	2	%

Product Volumes and Average Selling Price Information

											Increase /(Decrease)
Nine Months Ended June 30,	2005					2004					$			%
	(in thousands)
REVENUES:
Broadband equipment	$	73,547		89	%	$	63,426		84	%	$	10,121		16	%
Broadband software and service		8,823		11	%		12,074		16	%		(3,251	)	-27	%
Total revenues		82,370		100	%		75,500		100	%		6,870		9	%
GROSS MARGIN:
Broadband equipment		17,776		24	%		16,782		26	%		994		6	%
Broadband software and service		7,648		87	%		11,332		94	%		(3,684	)	-33	%
Total gross margin		25,424		31	%		28,114		37	%		(2,690	)	-10	%
OPERATING EXPENSES:
Research and development		10,009		12	%		11,854		16	%		(1,845	)	-16	%
Selling and marketing		14,249		17	%		15,262		20	%		(1,013	)	-7	%
General and administrative		6,785		8	%		3,591		5	%		3,194		89	%
Amortization of intangible assets		259		0	%		259		0	%		—		0	%
Restructuring costs		98		0	%		—		0	%		98		100	%
Total operating expenses		31,400		38	%		30,966		41	%		434		1	%
Operating loss		(5,976	)	-7	%		(2,852	)	-4	%		(3,124	)	110	%

The following table sets forth for three months ended December 31, 2005 and 2004, volumes and average selling prices, excluding accessories, of our broadband equipment products.

GROSS MARGIN


	Three Months Ended December 31,								Increase (decrease) from prior year
(in thousands & percent of revenue)	2005				2004				2005
GROSS MARGIN:
Broadband equipment	$	6,252	30	%	$	5,964	23	%	5	%
Broadband software and services		2,307	81	%		2,843	91	%	(19	%)

	$	8,559	36	%	$	8,807	30	%	(3	%)

Our total gross margin of 36% for the three months ended December 31, 2005 was 6 percentage points higher than total gross margin of 30% for the three months ended December 31, 2004. Margin increase for broadband equipment was partially offset by margin decreases for broadband software and services.

Broadband Equipment. The broadband equipment margin for the three months ended December 31, 2005 was 30%, an improvement of 7 percentage points compared to 23% for the three months ended December 31, 2004. This improvement mostly reflected the benefit of cost reductions, and secondarily from a greater mix of Wi-Fi broadband equipment sales and a greater mix of business-class broadband equipment sales. Business-class and Wi-Fi equipment sales tend to carry a higher gross margin than residential-class broadband equipment.

Broadband Software and Services. Broadband software and services margins for the three months ended December 31, 2005 were 81%, compared to 91% for the three months ended December 31, 2004. Lower sales of licenses to Timbuktu and netOctopus Enterprise software was the primary cause of the decrease.

Page 23

~~REVENUES~~RESEARCH AND DEVELOPMENT

Total revenues for the three months ended June 30, 2005 increased from the three months ended June 30, 2004 to $27.8 million or 9% from $25.4 million due to a $3.2 million or 15% increase in revenues from the sale of our broadband equipment products partially offset by an $817,000 or 23% decrease in revenues from our broadband software and services. Total revenues for the nine months ended June 30, 2005 increased from the nine months ended June 30, 2004 to $82.4 million, up 9% from $75.5 million due to a $10.1 million or 16% increase in revenues from the sale of our broadband equipment products offset by $3.3 million or 27% decrease in revenues from our broadband software and services.


	Three Months Ended December 31,								Increase (decrease) from prior year
(in thousands & percent of revenues)	2005				2004				2005
Research and development	$	3,929	16	%	$	3,206	11	%	23	%

~~Broadband~~Research ~~equipment~~and ~~revenues~~development ~~increased~~(“R&D”) ~~for~~expenses ~~the~~consist ~~three~~primarily ~~and~~of ~~nine~~employee ~~months~~related ~~ended June 30~~expenses, ~~2005~~depreciation ~~compared with the same period for the prior year by 15%~~ and ~~16%~~amortization, ~~respectively.~~development ~~These~~related ~~increases~~expenses ~~reflected~~such ~~increased~~as ~~unit~~product ~~sales~~prototyping, ofdesign ~~residential-class ADSL products~~ and ~~accessories~~testing, ~~which typically~~and ~~sell at lower average selling prices than business-class products~~overhead.

~~Broadband~~For ~~software~~the ~~and~~three ~~services~~months ~~revenues~~ended ~~decreased~~December 31, ~~for~~2005, ~~the~~$548,000 ~~three~~of ~~and~~R&D ~~nine~~expense ~~months~~was ~~ended~~non-cash stock-based ~~June~~compensation 30expense recorded pursuant to the October 1, 2005 ~~compared~~prospective ~~with~~adoption ~~the~~of ~~same~~SFAS ~~periods~~123(R). This amounted to 2% of revenue for the ~~prior~~three ~~year~~months byended ~~23%~~December 31, 2005 and 2717% percentage points of the 23% increase in R&D expense from the three months ended December 31, ~~respectively~~2004. The ~~decreases~~remaining ~~were~~6% ~~attributable~~increase toin ~~lower~~R&D ~~sales~~expense ~~of licensed~~reflected ~~software~~an ~~and~~increase ~~associated~~in ~~maintenance~~R&D ~~service~~headcount ~~agreements~~and salaries.

~~Product Volumes~~We expect to continue to allocate substantial resources to product and ~~Average~~technological ~~Selling~~development ~~Price~~as ~~Information~~a percentage of revenue, and R&D expenses may increase in the future.

~~The~~SELLING ~~following~~AND ~~table~~MARKETING ~~sets forth for three months ended June 30, 2005 and 2004, volumes and average selling prices, excluding accessories, of our broadband equipment products.~~

Three months ended June 30,	2005		2004
	Three Months EndedDecember 31,								Increase(decrease)from prioryear
Product volumes		276,000		237,000
(in thousands & percent of revenues)	2005				2004				2005
Average selling prices	$	83	$	89
Selling and marketing	$	4,853	20	%	$	5,085	17	%	(5	%)

Nine months ended June 30,	2005		2004
Product volumes		830,000		711,000
Average selling prices	$	83	$	88

Selling and marketing expenses consist primarily of salary and commission expenses for our sales force and related travel expenses and advertising and promotional expenses.

~~Gross~~For ~~Margin~~the three months ended December 31, 2005, $226,000 of Selling and Marketing expense was non-cash stock-based compensation expense recorded pursuant to the October 1, 2005 prospective adoption of SFAS 123(R). This amounted to 1% of revenue for the three months ended December 31, 2005 and a 4% increase in the selling and marketing expense from the three months ended December 31, 2004. Excluding the impact of stock compensation expense, selling and marketing expense decreased by 9% and this decrease reflected an increase in the allocation of technical support expense to cost of sales.

~~The~~GENERAL ~~decreases~~AND inADMINISTRATIVE gross margins in the three and nine month periods ended June 30, 2005 compared with the corresponding period of the prior fiscal year were primarily the result of lower broadband software and services revenue, which have substantially higher gross margins than broadband equipment.

During the nine months ended June 30, 2005, we increased our accrual for the estimated cost to provide customer support by $730,000, of which $415,000 was accrued in the three months ended June 30, 2005. These estimated costs are related to our practice of providing ongoing customer support services through our call center. Approximately 90% of these costs related to our broadband equipment segment and 10% related to broadband software and services segment.


	Three Months Ended December 31,								Increase (decrease) from prior year
(in thousands & percent of revenues)	2005				2004				2005
General and administrative	$	2,419	10	%	$	2,195	7	%	10	%

~~Broadband~~General ~~equipment.~~and ~~The broadband equipment gross margin increased for the three months ended June 30, 2005 to 25% from 22% for the same period for the prior year~~administrative as(“G&A”) aexpenses ~~result~~consist ~~of lower average unit costs. The broadband equipment gross margin decreased for the nine months ended June 30, 2005 to 24% from 26% for the same period in the prior year~~ primarily ~~as a result~~ of ~~decreased~~employee ~~average~~related ~~selling~~expenses, ~~prices.~~legal ~~The lower~~and ~~average~~accounting ~~selling prices reflected a mix shift toward residential-class products~~fees, ~~which have lower average selling prices~~ and ~~lower~~insurance ~~margins than business-class products~~costs.

Broadband software and services. The broadband software and services gross margin decreased for the three months ended June 30, 2005 to 82% from 92% for the same period for the prior year and decreased for the nine months ended June 30, 2005 to 87% from 94% compared with the same period for the prior year. The decrease in broadband software and services gross margins primarily reflected lower software revenue with no decrease in the related cost of revenue.

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~~OPERATING~~For ~~EXPENSES~~the three months ended December 31, 2005, $411,000 of G&A expense was non-cash stock-based compensation expense recorded pursuant to the October 1, 2005 prospective adoption of SFAS 123(R). This was 2% of revenue for the three months ended December 31, 2005 and a 19% increase in G&A expense from the three months ended December 31, 2004. Excluding the impact of stock compensation expense, G&A expense decreased by 9% and this decrease reflected lower legal costs partially offset by a $300,000 litigation settlement charge and higher professional service fees related to compliance with Section 404 of the Sarbanes-Oxley Act in the first quarter of fiscal year 2005.

~~Research~~AMORTIZATION ~~and~~OF ~~Development.~~INTANGIBLE ~~Research~~ASSETS and development (“R&D”) expenses consist primarily of employee related expenses, depreciation and amortization, development related expenses such as product prototyping, design and testing, and overhead. The decrease for the three and nine months ended June 30, 2005 compared to the same periods in the prior year was primarily attributable to reduced compensation costs following our consolidation of certain R&D activities in the prior year.

WeAmortization ~~expect~~of toOther ~~continue~~Intangible toAssets ~~allocate~~included ~~substantial~~in ~~resources~~operating toexpenses ~~product~~was ~~and~~zero ~~technological~~for ~~development~~the asthree amonths ~~percentage~~ended ~~of revenue~~December 31, ~~and~~2005 ~~R&D~~compared ~~expenses~~to ~~may~~$86,000 ~~increase~~for in the ~~future~~three months ended December 31, 2004. The corresponding intangible asset was fully amortized at September 30, 2005.

Selling and Marketing. Selling and marketing expenses consist primarily of salary and commission expenses for our sales force and related travel expenses and advertising and promotional expenses. The decrease for the three and nine months ended June 30, 2005 compared to the same periods in the prior year was primarily the result of increased allocation of costs to cost of revenues.

We expect that selling and marketing expenses will remain near current levels for the remainder of the current fiscal year, and will fluctuate largely as a result of commission expenses and advertising and marketing initiatives that are related to increases or decreases in sales.

General and Administrative. General and administrative (“G&A”) expenses consist primarily of employee related expenses, legal and accounting fees, and insurance costs. The increase in G&A expenses for the three and nine months ended June 30, 2005 compared to the same periods in the prior year was primarily due to increased legal and professional fees incurred in connection with the securities litigation and government investigations related to the restatements of our previously filed financial statements described elsewhere in this Form 10-Q.

We anticipate that G&A expenses may remain at these levels for the remainder of the fiscal year ended September 30, 2005 as a result of the ongoing legal expenses related to the securities litigation and government investigations described elsewhere in this Form 10-Q, as well as increased expenses related to implementation of Section 404 of the Sarbanes-Oxley Act, which requires our management to assess the effectiveness of our internal controls over financial reporting.

Amortization of Other Intangible Assets. For the three and nine months ended June 30, 2005 and 2004, amortization of other intangible assets represents the amortization of intangible assets with identifiable lives related to our acquisitions of Cayman and JadeSail (See Note 6 of Notes to Unaudited Condensed Consolidated Financial Statements included in this Form 10-Q).

Restructuring Costs. During our second fiscal quarter ended March 31, 2005, we recorded a restructuring charge of $98,000, primarily consisting of employee termination costs and wind down costs associated with the closure of a sales office in the Netherlands and additional wind down costs associated with the prior closure of the Germany development office.

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Risk Factors

The risk factors discussed below should be considered carefully in evaluating our business because these factors may have a significant impact on our business, operating results and financial condition. As a result of these risk factors and other risks discussed elsewhere in this Form 10-Q, and the risks discussed in our other filings with the United States Securities and Exchange Commission (“SEC”), our actual results could differ materially from those projected in any forward-looking statements. You should carefully consider all these risks and other information in this report before investing in Netopia. The fact that certain risks are endemic to our industry does not lessen the significance of the risk.

We have a history of losses and negative cash flow. We may incur losses and negative cash flow in the future, which could significantly harm our business.

During the three months ended ~~June 30~~December 31, 2005 and 2004, we incurred a net ~~loss~~losses of $2.35 million and ~~used approximately~~ $1.26 million, ~~of cash for operating activities~~respectively. WeIn ~~incurred losses~~each ~~from continuing operations~~ of ~~$9.0~~the ~~million~~past ~~and~~three ~~$8.3 million for the~~ fiscal years ended September 30, ~~2004~~we ~~and~~used ~~2003~~approximately ~~respectively~~$1.8 million, ~~and used~~ $5.2 million and $5.4 million, respectively, of cash ~~during~~for ~~the~~operating ~~fiscal years ended September 30, 2004 and 2003, respectively~~activities. Our cash and cash equivalents totaled $22.85 million at ~~June 30~~December 31, 2005. We may not be able to reach, sustain or increase profitability or generate cash on a quarterly or annual basis, which could significantly harm our business.

We may find it difficult to raise needed capital in the future, which could delay or prevent introduction of new products or services, require us to reduce our business operations or otherwise significantly harm our business.

We must continue to enhance and expand our product and service offerings in order to maintain our competitive position and to increase our market share. As a result, and due to any future net losses and use of cash, the continuing operations of our business may require capital infusions. Whether or when we can achieve cash flow levels sufficient to support our operations cannot be accurately predicted. Unless such cash flow levels are achieved, we may require additional borrowings or the sale of debt or equity securities, sale of non-strategic assets, or some combination thereof, to provide funding for our operations. We believe we have cash, cash equivalents and borrowing capacity adequate to meet our anticipated capital needs for the next twelve months. However, if we are unable to obtain additional funds to finance our operations when needed, our financial condition and operating results would be materially and adversely affected and we would not be able to operate our business.

If we are unable to resolve pending the government investigations, the private securities action, the derivative actions and other litigation related to and arising out of the restatements of our consolidated financial statements for prior periods in a timely and economic manner, our business could be significantly harmed.

We currently are named as a defendant in a consolidated private securities action brought as a purported class action. In addition, there are purported derivative actions pending in state and federal court in California. We also are the subject of a formal order of investigation by the SEC to determine whether the federal securities laws have been violated. We also have learned that the United States Attorney for the Northern District of California has opened an investigation following a referral by the SEC. We do not know the scope or focus of the investigation by the United States Attorney’s office. Responding to the formal order of investigation of the SEC has required significant attention and resources of management. Although we ~~recently~~have announced a proposed settlement with the SEC, this settlement is subject to final approval by the SEC. In addition, even though we have announced proposed settlements with the SEC and us and Alan B. Lefkof, our President and Chief Executive Officer, the investigation by the SEC is ongoing, and may continue to require significant attention and resources. If we and/or Mr. Lefkof are unable to complete the proposed settlements and the SEC elects to pursue an enforcement action against us and/or Mr. Lefkof, the defense could be costly and require additional management resources. If we were unsuccessful in defending against this or other investigations or proceedings, we could face ~~civil~~ or criminal penalties that would seriously harm our business and results of operations. Defending against the government investigations, the private securities class action, the derivative actions and other litigation matters related to the ~~restatements also will likely require significant attention and resources of~~

Page 26

civil or criminal penalties that would seriously harm our business and results of operations. Defending against the government investigations, the private securities class action, the derivative actions and other litigation matters related to the restatements also will likely require significant attention and resources of management and, regardless of the outcome, result in significant legal expense. If our defenses ultimately are unsuccessful, or if we are unable to achieve a favorable settlement, we could be liable for large damage awards that could seriously harm our business and results of operations. While we have provided notice of the government investigations and the other litigation matters to our directors and officers liability insurance carriers, the insurance carriers have raised certain coverage issues and have not reimbursed us for ~~any~~all legal expenses incurred, and may not agree that they are responsible to pay any damages that ultimately could be awarded to the plaintiffs. Furthermore, we have only a limited amount of insurance, and even if our insurers agree to make payments under the policies, the legal expenses and damage awards or settlements may be greater than the amount of insurance, and we would in all cases be liable for any amounts in excess of our insurance policy limits.

Substantial sales of our broadband equipment will not occur unless telecommunications carriers and service providers continue to expand their deployments of DSL and other broadband services, and without continued expansion our revenues may decline, which could significantly harm our business.

The success of our broadband equipment depends upon the extent to which telecommunications carriers and service providers continue to expand their deployments of DSL and other broadband services. Factors that have impacted such deployments include:

•

Lengthy approval processes followed by carriers and service providers, including laboratory tests, technical trials, marketing trials, initial commercial deployment and full commercial deployment;

•

Improved business opportunities provided by deployment of broadband services by our ILEC and other customers;

•

Lack of compatibility of DSL equipment that is supplied by different manufacturers;

•

Rapidly changing industry standards for DSL and other broadband technologies; and

•

Government regulations.

We offer to carriers and service providers the opportunity to bundle basic DSL connectivity with value-added features that enable the provider to bundle differentiated features and services that we believe can justify higher recurring revenues from end users. These features and services include dial backup, VPNs, remote management and configuration using our NBBS software platform, a parental controls service, and hosting of eSites and eStores. We can offer no assurance that our strategy of enabling bundled service offerings will be widely accepted. If telecommunications carriers and service providers do not continue to expand their deployments of DSL and other broadband services, our revenues could decline and our business could be significantly harmed.

We expect our revenues to be increasingly dependent on our ability to sell our broadband equipment to Incumbent Local Exchange Carriers (ILECs), and we may incur losses if we cannot successfully market and sell our products through ILEC channels.

ILECs have been aggressively marketing DSL services principally focusing on residential services. We have committed resources to expand our sales in the ILEC channel both domestically and internationally. There continue to be barriers associated with such sales including, but not limited to, lengthy product evaluation cycles, the difficulty in dislodging competitors whose products are currently being utilized, long-term product deployment cycles ~~and intense price competition. ILECs currently obtain equipment from our competitors, which include 2Wire, Inc., Westell~~ Technologies, Inc., Siemens AG (through its Siemens Subscriber Networks, Inc. subsidiary, formerly known as Efficient Networks), Thomson Corporation and ZyXEL Communications Co., which have proven to be strong competitors. All of these competitors are larger than us and may have greater financial resources. There is no guarantee we will be successful in expanding our presence in the ILEC market. If we fail to further penetrate the ILEC market for our products and services, our business may be materially and adversely affected.

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and intense price competition. ILECs currently obtain equipment from our competitors, which include 2Wire, Inc., Westell Technologies, Inc., Siemens AG (through its Siemens Subscriber Networks, Inc. subsidiary, formerly known as Efficient Networks), Thomson Corporation and ZyXEL Communications Co., which have proven to be strong competitors. All of these competitors are larger than us and may have greater financial resources. There is no guarantee we will be successful in expanding our presence in the ILEC market. If we fail to further penetrate the ILEC market for our products and services, our business may be materially and adversely affected.

We expect our revenues to be increasingly dependent on our ability to develop and sell our broadband equipment into the residential broadband gateway market.

Prior to our acquisition of Cayman in October 2001, we developed, marketed and sold broadband equipment products primarily to CLECs and ISPs serving the small business market for DSL Internet connectivity. With our current products and technology, we now are competing for sales of broadband equipment to ILECs serving the residential market. There are numerous risks associated with the residential broadband gateway market including, but not limited to:

•

The ability to design and develop products that meet the needs of the residential market;

•

The ability to market these products successfully to ILECs and to dislodge competitors that are currently supplying residential-class broadband gateways; and

•

Intense price pressure.

If we are unable to increase our sales into the residential broadband gateway market, our business will be materially and adversely affected.

The loss of, or decline in, purchases by one or more of our key customers would result in a significant decline in our revenues and harm our business.

We rely on a small number of customers for a large portion of our revenues. For the three months ended ~~June 30~~December 31, 2005 and ~~the fiscal year ended September 30,~~ 2004, there were ~~five~~four and two customers, respectively, that each individually represented at least 510% of our revenues and in the aggregate, accounted for 7060% and 6038%, respectively, of our total revenues. Our revenues will decline and our business may be significantly harmed if one or more of our significant customers stop buying our products, or reduce or delay purchases of our products.

Substantial portions of our revenues are derived from sales to international customers, and currency fluctuations can adversely impact our operations.

A substantial portion of our revenues is derived from sales to international customers, mainly in Europe. For the three months ended ~~June 30~~December 31, 2005 and ~~the fiscal year ended September 30,~~ 2004, our international sales represented 3938% and 4434%, respectively, of our total revenues. We expect sales to international customers to continue to comprise a significant portion of our revenues. Sales of broadband equipment products to certain of our European customers are denominated in Euros. For our international sales that continue to be denominated in United States dollars, fluctuations in currency exchange rates could cause our products and services to become relatively more expensive to our foreign customers, which could result in decreased sales of our products and services. In addition, changes in the value of the Euro relative to the United States dollar could adversely affect our operating results to the extent we do not adequately hedge sales denominated in Euros.

Additional risks associated with international operations could adversely affect our sales and operating results.

Our international operations, which principally are in Europe, are subject to a number of difficulties and special costs, including, but not limited to:

•

Costs of customizing products for foreign countries;

Page 28

•

Laws and business practices favoring local competitors;

• Dependence on local vendors;

• Uncertain regulation of electronic commerce;

•

Compliance with multiple, conflicting and changing governmental laws and regulations;

• Longer sales cycles;

•

Greater difficulty in collecting accounts receivable;

•

Import and export restrictions and tariffs;

~~Page~~• 28Difficulties staffing and managing foreign operations; and

~~Table~~• ofMultiple ~~Contents~~conflicting tax laws and regulations.

• Difficulties staffing and managing foreign operations;

• Multiple conflicting tax laws and regulations; and

• Political and economic instability.

In addition, if we establish more significant operations overseas, we may incur additional costs that would be difficult to reduce quickly because of employee-related laws and practices in those countries.

Because the markets for our products and services are intensely competitive and some of our competitors are larger, better established and have more cash resources, we may not be able to compete successfully against current and future competitors.

We sell products and services in markets that are highly competitive. We expect competition to intensify as current competitors expand their product and service offerings and new competitors enter the market. Increased competition is likely to result in price reductions, reduced gross margins and could cause loss of market share, any one of which could seriously harm our business. Competitors vary in size, scope and breadth of the products and services offered.

In the market for broadband equipment, we primarily compete with 2Wire, Inc., Westell Technologies, Inc., Siemens AG (through its Siemens Subscriber Networks, Inc. subsidiary, formerly known as Efficient Networks), Thomson Corporation and ZyXEL Communications Co. In the market for our broadband software and services products, we primarily compete with Motive, Inc., 2Wire, Inc., Altiris, Inc., Computer Associates International, Inc., CrossTec Corporation, Expertcity, Inc., LANDesk Software, Inc., Microsoft Corporation and Symantec Corporation.

Many of our current and potential competitors in all product areas have longer operating histories, significantly greater financial, technical, marketing and other resources, significantly greater name recognition and a larger base of customers than ours. In addition, many of our competitors have well-established relationships with our current and potential customers and have extensive knowledge of these industries. In the past, we have lost potential customers to competitors in all product areas for various reasons, including lower prices and other incentives not matched by us. In addition, current and potential competitors have established or may establish cooperative relationships among themselves or with third parties to increase the ability of their products and services to address customer needs. Accordingly, new competitors or alliances among competitors may emerge and rapidly acquire significant market share. We also expect that competition will increase as a result of industry consolidation.

Our quarterly operating results are likely to fluctuate because of many factors and may cause our stock price to fluctuate.

Our revenues and operating results have varied in the past and are likely to vary in the future from quarter to quarter. For example, during the past eight quarters ended ~~June 30~~December 31, 2005, our revenues have ranged from $21.8 million to $29.3 million, and our net ~~results~~loss ~~have~~has ranged from $1.26 million ~~of income~~ to ~~a loss of~~ $6.1 million. As a result, we believe that period-to-period comparisons of our operating results are not necessarily meaningful. Investors should not rely on the results of any one quarter or series of quarters as an indication of our future performance.

InPage ~~the~~29 quarter ended June 30, 2005 and in certain quarters in the past, our operating results were below the expectations of securities analysts. It is likely that in some future quarter, quarters or year, our operating results again will be below the expectations of securities analysts or investors. When our operating results are below such expectations, the market price of our common stock may decline significantly. In addition to the uncertainties and risks described elsewhere under this “Risk Factors” heading, variations in our operating results will likely be caused by factors related to the operation of our business, including, but not limited to:

In certain quarters in the past, our operating results were below the expectations of some securities analysts. It is likely that in some future quarter, quarters or year, our operating results again will be below the expectations of securities analysts or investors. When our operating results are below such expectations, the market price of our common stock may decline significantly. In addition to the uncertainties and risks described elsewhere under this “Risk Factors” heading, variations in our operating results will likely be caused by factors related to the operation of our business, including, but not limited to:

•

Variations in the timing and size of orders for our broadband equipment products;

•

Increased price competition for our broadband equipment products;

•

Our ability to license, and the timing of licenses, of our broadband software and services;

Page 29

•

The mix of products and services and the gross margins associated with such products and services, including the impact of our increased sales of lower margin broadband equipment as a percentage of our total revenues and increased sales of lower margin residential-class ADSL products within our family of broadband equipment;

•

The price and availability of components for our broadband equipment;

•

Foreign currency fluctuations; and

•

The timing and size of expenses, including operating expenses and expenses of developing new products and product enhancements.

Other technologies for the broadband gateway market compete with DSL services.

DSL services compete with a variety of different broadband services, including cable, satellite and other wireless technologies. Many of these technologies compete effectively with DSL services. If any technology competing with DSL technology is more reliable, faster, less expensive, reaches more customers or has other advantages over DSL technology, then the demand for our DSL products and services and our revenues and gross margins will decrease. We cannot guarantee that we will be able to develop and introduce products for these competing technologies.

We purchase the semiconductor chips for our broadband equipment from a limited number of suppliers, and the inability to obtain in a timely manner a sufficient quantity of chips at an economic price would adversely affect our business.

All of our broadband equipment products rely on special semiconductor chips that we purchase from fewer than five suppliers. We do not have volume purchase contracts with any of our suppliers and they could cease selling to us at any time. In addition, our suppliers change their selling prices frequently in response to market trends, which may include increased demand industry-wide. Because we generally have been unable to pass component price increases along to our customers, our gross margins and operating results have been harmed as a result of component price increases. If we are unable to obtain a sufficient quantity of these semiconductor chips in a timely manner for any reason, sales of our broadband equipment products could be delayed or halted. Further, we could also be forced to redesign our broadband equipment products and qualify new suppliers of semiconductor chip sets. The resulting stoppage or delay in selling our products and the expense of redesigning our products would adversely affect our business.

If we were unable to obtain components and manufacturing services for our broadband equipment from independent contractors and specialized suppliers, our business would be harmed.

We do not manufacture any of the components used in our products and perform only limited assembly on some products. All of our broadband equipment relies on components that are ~~supplied by independent contractors and specialized suppliers. Furthermore,~~ substantially all of our broadband equipment includes printed circuit boards that are manufactured by fewer than five contract manufacturers that assemble and package our products. We do not have guaranteed supply arrangements with these third parties and they could cease selling components to us at any time. Moreover, the ability of independent contractors and specialized suppliers to provide us with sufficient components for our broadband equipment also depends on our ability to accurately forecast our future requirements. If we are unable to obtain a sufficient quantity of components from independent contractors or specialized suppliers in a timely manner for any reason, sales of our broadband equipment could be delayed or halted. Similarly, if supplies of circuit boards or products from our contract manufacturers are interrupted for any reason, we will incur significant losses until we arrange for alternative sources. In addition, we may be required to pay premiums for components purchased from other vendors should our regular independent contractors and specialized suppliers be unable to timely provide us with sufficient quantity of components. To the extent we pay any premiums, our gross margins and operating results would be harmed. Further, we could also be forced to redesign our broadband equipment and qualify new suppliers of components. The resulting stoppage or delay in selling our products and the expense of redesigning our broadband equipment would seriously harm our reputation and business.

Page 30

supplied by independent contractors and specialized suppliers. Furthermore, substantially all of our broadband equipment includes printed circuit boards that are manufactured by fewer than five contract manufacturers that assemble and package our products. We do not have guaranteed supply arrangements with these third parties and they could cease selling components to us at any time. Moreover, the ability of independent contractors and specialized suppliers to provide us with sufficient components for our broadband equipment also depends on our ability to accurately forecast our future requirements. If we are unable to obtain a sufficient quantity of components from independent contractors or specialized suppliers in a timely manner for any reason, sales of our broadband equipment could be delayed or halted. Similarly, if supplies of circuit boards or products from our contract manufacturers are interrupted for any reason, we will incur significant losses until we arrange for alternative sources. In addition, we may be required to pay premiums for components purchased from other vendors should our regular independent contractors and specialized suppliers be unable to timely provide us with sufficient quantity of components. To the extent we pay any premiums, our gross margins and operating results would be harmed. Further, we could also be forced to redesign our broadband equipment and qualify new suppliers of components. The resulting stoppage or delay in selling our products and the expense of redesigning our broadband equipment would seriously harm our reputation and business.

Failure to develop, introduce and market new and enhanced products and services in a timely manner could harm our competitive position and operating results.

We compete in markets characterized by continuing technological advancement, changes in customer requirements and evolving industry standards. To compete successfully, we must design, develop, manufacture and sell new or enhanced products and services that provide increasingly higher levels of performance, reliability, compatibility, and cost savings for our customers. We will need to continue to integrate our DSL modem and router technology with the architectures of leading central office equipment providers in order to enhance the reliability, ease-of-use and management functions of our broadband equipment.

Our Netopia Broadband Server (NBBS) software platform enables network operations centers of broadband service providers the ability to remotely manage, support, and troubleshoot installed broadband gateways, thereby providing the potential for reducing support costs. We believe that NBBS can assist us in differentiating our products and services from those of our competitors. However, NBBS is a relatively new product that has required and is expected to continue to require significant investment of development resources and to date has not generated significant revenues, and we cannot provide any assurance that NBBS will be widely adopted by the customers to whom we are marketing it. In addition, we cannot provide any assurance that when and if deployed in mass scale, NBBS will perform as expected or that it has no hidden bugs or defects.

We may not be able to develop, introduce, enhance or market successfully these or other products and services necessary to our future success. In addition, any delay in developing, introducing or marketing these or other products would seriously harm our business. Many of our broadband equipment products and services are relatively new. You should consider our prospects in light of the difficulties we may encounter because these products are at an early stage of development in a rapidly evolving and intensely competitive market. For example, we may not correctly anticipate market requirements, or introduce rapidly new products that meet such requirements for performance, price, features and compatibility with other broadband equipment. Failure to continue to develop and market competitive products would harm our competitive position and operating results.

We may experience declining gross margins due to price competition and an increase in sales of lower margin broadband equipment as a percentage of our total ~~revenue~~revenues.

We expect that sales of our broadband equipment may account for a larger percentage of our total revenues in future periods. Because our broadband equipment products are sold at lower gross margins than our broadband software and services products, and sales volumes of our lower margin residential-class DSL products are increasing, our overall gross ~~margins~~margin ~~will~~rate ~~likely decrease. Further, we expect that the market for broadband equipment~~ will ~~remain highly competitive and as a result,~~ we will continue to lower the prices we charge for our broadband equipment. If the average selling price of our broadband equipment continues to decline faster than our ability to realize lower manufacturing and product costs, our gross margins related to such products, as well as our overall gross margins, are likely to decline.

We may incur greater losses if we cannot successfully sell our broadband software and services products. We derive a substantial portion of the recurring revenues from our broadband software and services products from a small number of large customers.

The majority of our broadband software and services revenues are derived from the sale of higher margin software products for corporate help desks, mostly Timbuktu. For the three months ended June 30, 2005 and the fiscal year ended September 30, 2004, revenues from help desk applications were 59% and 70%, respectively, of total revenues for our broadband software and services products. We anticipate that the market for Timbuktu may continue to decline or grow more slowly than the market for our other broadband software products and services. We also have not generated significant revenues to date from the NBBS software platform in which we have made and expect to continue to make a significant investment of development resources. In addition, we rely on a small number of licensees to promote the use of our broadband software and services for building web sites and stores. We derive the majority of the recurring revenues from our broadband software and services products from fewer than five

Page 31

~~customers~~likely decrease. ~~The~~Further, ~~extent~~we ~~and~~expect ~~nature~~that of the ~~promotions~~market byfor ~~licensees~~broadband ofequipment ~~our~~will ~~broadband~~remain ~~software~~highly competitive and ~~services~~as ~~are~~a ~~outside~~result, ofwe ~~our~~will ~~control.~~continue Ifto ~~licensees~~lower ofthe prices we charge for our ~~eSite and~~broadband ~~eStore~~equipment. ~~software~~If dothe ~~not~~average ~~successfully~~selling ~~promote~~price ~~web~~of ~~sites~~our ~~and~~broadband ~~stores~~equipment continues to ~~their~~decline ~~customers,~~faster than our ~~recurring~~ability ~~revenues~~to ~~may~~realize ~~decrease.~~lower Ifmanufacturing ~~these~~and ~~customers~~product ~~were~~costs, toour ~~choose~~gross amargins ~~competitive~~related ~~platform~~to such products, ~~our~~as ~~recurring~~well as ~~revenues~~our ~~would~~overall ~~decline~~gross ~~and~~margins, ~~adversely~~are ~~impact~~likely ~~our results~~to decline.

We anticipate that the market for Timbuktu may continue to decline or grow more slowly than the market for our other broadband software products and services. We also have not generated significant revenue to date from the NBBS software platform in which we have made and expect to continue to make a significant investment of development resources. We derive the majority of the recurring revenues from our broadband software and services products from fewer than five customers. If licensees of our eSite and eStore software do not successfully promote web sites and stores to their customers, our recurring revenues may decrease. If these licensees were to choose a competitive platform, our recurring revenues would decline and adversely impact our results.

If hosting services for our broadband software and services perform poorly, our revenue may decline and we could be sued.

We depend on our servers, networking hardware and software infrastructure, and third-party service and maintenance of these items to provide reliable, high-performance hosting for NBBS, eSite and eStore customers and subscribers to our parental controls service. In addition, our servers are located at third-party facilities. Failure or poor performance by third parties with which we contract for maintenance services could also lead to interruption or deterioration of our NBBS, parental controls, eSite and eStore hosting services. Additionally, a slowdown or failure of our systems for any reason could also lead to interruption or deterioration of our NBBS, parental controls, eSite and eStore hosting services. In such a circumstance, our hosting and subscription revenues may decline. In addition, if our NBBS, parental controls, eSite and eStore hosting services are interrupted, perform poorly, or are unreliable, we are at risk of litigation from our customers, the outcome of which could harm our business.

Failure to attract or retain key personnel could harm our business.

Our future performance depends on the continued service of our senior management, product development and sales personnel. The loss of the services of one or more of our key personnel could seriously harm our business. Competition for qualified personnel in our industry and geographic location is intense. Although we believe our personnel turnover rate is consistent with industry norms, our future success depends on our continuing ability to attract, hire, train and retain highly skilled managerial, technical, sales, marketing and customer support personnel. In addition, new hires frequently require extensive training before they achieve desired levels of productivity.

Our intellectual property may not be adequately protected, and our products may infringe upon the intellectual property rights of third parties, which may adversely impact our competitive position and require us to engage in costly litigation.

We depend on our ability to develop and maintain the proprietary aspects of our technology. To protect our proprietary technology, we rely primarily on a combination of contractual provisions, confidentiality procedures, trade secrets, and patent, copyright and trademark law. We presently have one United States patent issued that relates to our remote control technology incorporated in most of our software products. The term of this patent is through August 2010. We also have filed a patent ~~application~~applications relating to the design of our Wi-Fi gateways. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or obtain and use information that we regard as proprietary. Policing unauthorized use of our products is ~~difficult,~~ ~~and there is no guarantee that the safeguards that we employ will protect our intellectual property and other valuable competitive information.~~

There has been a substantial amount of litigation in the software and Internet industries regarding intellectual property rights. Although we have not been party to any such litigation, in the future third parties may claim that our current or potential future products infringe their intellectual property. The evaluation and defense of any such claims, with or without merit, could be time-consuming and expensive. Furthermore, such claims could cause product shipment delays or require us to enter into royalty or licensing agreements on financially unattractive terms, which could seriously harm our business.

If we are unable to license necessary software, firmware and hardware designs from third parties, our business could be harmed.

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~~cannot be certain that these third-party licenses will continue to be available to us on commercially reasonable terms. The loss of~~difficult, orand ~~inability~~there ~~to maintain,~~is ~~such~~no ~~licenses~~guarantee ~~could~~that ~~result~~the insafeguards ~~product~~that ~~shipment~~we ~~delays~~employ ~~until~~will ~~equivalent~~protect ~~firmware~~our isintellectual ~~developed~~property ~~or licensed,~~ and ~~integrated~~other ~~into~~valuable ~~our~~competitive ~~products, which would seriously harm our business~~information.

If we are unable to license necessary software, firmware and hardware designs from third parties, our business could be harmed.

We rely upon certain software, firmware and hardware designs that we license from third parties, including firmware that is integrated with our internally developed firmware and used in our products. We cannot be certain that these third-party licenses will continue to be available to us on commercially reasonable terms. The loss of, or inability to maintain, such licenses could result in product shipment delays until equivalent firmware is developed or licensed, and integrated into our products, which would seriously harm our business.

Our products are complex and may contain undetected or unresolved defects.

Our products are complex and may contain undetected or unresolved defects when first introduced or as new versions are released. Although we historically have not experienced material problems with product defects, if our products do contain undetected or unresolved defects, we may lose market share, experience delays in or losses of market acceptance or be required to issue a product recall. Similarly, although we have not experienced material warranty claims, if warranty claims exceed our reserves for such claims, our business would be seriously harmed. In addition, we would be at risk of product liability litigation because of defects in our products. Although we attempt to limit our liability to end users through disclaimers of special, consequential and indirect damages and similar provisions, we cannot assure you that such limitations of liability will be legally enforceable.

Our industry may become subject to changes in regulations, which could harm our business.

Our industry and industries on which our business depends may be affected by changes in regulations. For example, we depend on telecommunications service providers for sales of our broadband equipment, and companies in the telecommunications industry must comply with numerous regulations. If our industry or industries on which we depend become subject to regulatory changes that increase the cost of doing business or doing business with us, our revenues could decline and our business could be harmed. For example, if a regulatory agency imposed restrictions on DSL service that were not also imposed on other forms of high-speed Internet access, our business could be harmed.

Business interruptions that prevent our ability to deliver products and services to our customers could adversely affect our business.

Our operations are vulnerable to interruption by fire, earthquake, power loss, telecommunications failure, terrorist attacks, labor disputes by transportation providers, and other events beyond our control. In particular, our headquarters are located near earthquake fault lines in the San Francisco Bay area and may be susceptible to the risk of earthquakes. If there is an earthquake in the region, our business could be seriously harmed. We do not have a detailed disaster recovery plan. In addition, our business interruption insurance may not be sufficient to compensate us fully for losses that may occur and any losses or damages incurred by us in the event we are unable to deliver products and services to our customers could have a material adverse effect on our business.

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Our stock price may be volatile, which may result in substantial losses for our stockholders.

The market price of our common stock may fluctuate significantly in response to many factors, some of which are beyond our control, including the following:

• Our ability to meet the listing standards and to obtain a relisting of our common stock on The ~~NASDAQ~~Nasdaq Stock Market or a listing on The ~~NASDAQ~~Nasdaq SmallCap Market;

•

Variations in our quarterly operating results, including shortfalls in revenues or earnings from securities analysts’ expectations;

•

Changes in securities analysts’ estimates of our financial performance;

•

Changes in market valuations and volatility generally of securities of other companies in our industry;

•

Announcements by us or our competitors of technological innovations, new products or enhancements, significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments; and

Page 33

•

General conditions in the broadband communications industry.

In recent years the stock market in general, and the market for shares of high technology stocks in particular, have experienced extreme price fluctuations, which often have been unrelated to the operating performance of affected companies. There can be no assurance that the market price of our common stock will not experience significant fluctuations in the future as it has in the past, including fluctuations that are unrelated to our performance. Securities class action litigation has often been brought against a company following periods of volatility in market price of its securities. We currently are and may in the future be the target of securities litigation. Securities litigation has resulted and is expected to continue to result in substantial costs and diversion of management’s attention and resources, which could seriously harm our business.

A third party may have difficulty acquiring us, even if doing so would be beneficial to our stockholders.

Provisions of our Amended and Restated Certificate of Incorporation, our Bylaws and Delaware law could make it difficult for a third party to acquire us, even if doing so would be beneficial to our stockholders.

Changes in the accounting treatment of stock options will adversely affect our results of operations.

In December 2004, the FASB issued SFAS 123R, which is a revision of SFAS 123. SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values and does not permit pro forma disclosure as an alternative to financial statement recognition. The adoption of the SFAS 123R fair value method effective as of October 1, 2005 will have a significant adverse impact on our results of operations because the stock-based compensation expense is charged directly against our reported earnings. See Note 1 and 6 to the Consolidated Condensed Financial Statements included in this Form 10-Q for further details.

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PART I — FINANCIAL INFORMATION

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risks

Our potential market interest rate risk for borrowings relates primarily to the rate charged by Silicon Valley Bank under our credit facility, from which we had no borrowings at ~~June 30~~December 31, 2005. The credit ~~facility~~ facility bears interest at a rate equal to the prime rate (the rate announced by Silicon Valley Bank as its “prime rate”). To the extent interest rates increase and we make borrowings under the credit facility, we would incur increased ~~interest~~ interest expense.

Foreign Currency Risks

Our exposure to foreign exchange risk relates primarily to sales and corresponding receivables made to international customers whose ~~related~~ transactions are denominated in Euros. We are subject to risks ~~typical~~related ~~of an international business including, but not limited~~ to, ~~differing~~fluctuations ~~economic~~in ~~conditions and tax structures, other regulations and restrictions and~~ foreign exchange ~~rate volatility~~rates. ~~Accordingly, our future results could be materially adversely affected by changes in these or other factors.~~ To minimize the effects of potential short-term fluctuations on our operating result stemming from our exposure to foreign currency ~~changes~~exchange fluctuations, we enter into ~~currency~~foreign exchange forward contracts. These contracts guarantee a predetermined exchange rate at the time the contract is purchased. Our currency exchange ~~contracts~~ contracts typically have maturities of less than three months. See Note 5 to the Consolidated Condensed Financial Statements included in this Form 10-Q for further details.

The table below presents the carrying value, in United States dollars, of accounts receivables denominated in Euros at June 30, 2005 and 2004. The accounts receivables at June 30, 2005 were valued at the United States/Euro exchange rate on June 30, 2005 and the accounts receivables at June 30, 2004 were valued at the United States/Euro exchange rate on June 30, 2004. The carrying values approximate fair value at June 30, 2005 and 2004.

	2005			2004
Three Months Ended June 30,	Carryingamounts		Exchangerate	Carryingamounts		Exchangerate
Principal (notional) amounts in United States Dollars:
Accounts receivable denominated in Euros	$	3,238	1.2066	$	2,437	1.2085

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PART I — FINANCIAL INFORMATION

ITEM 4.

CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures. Based on our management’s evaluation (with the participation of our principal executive officer and principal accounting officer), as of the end of the period covered by this report, our principal executive officer and principal accounting officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”)) are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms.

AsChanges ofin ~~the~~internal ~~end~~control ofover ~~the~~financial ~~period~~reporting. ~~covered~~There bywas ~~this~~no ~~report,~~change wein ~~carried~~our ~~out~~internal ancontrol ~~evaluation,~~over ~~under~~financial ~~the~~reporting ~~supervision~~during ~~and with the participation of~~ our ~~management,~~first ~~including~~quarter ~~our President and Chief Executive Officer and Chief Financial Officer,~~ of ~~the~~fiscal ~~effectiveness of the design and operation of our disclosure controls and procedures (as defined in Securities Exchange Act Rules 13a-15(e) and 15d-15(e)). Based upon this~~year ~~evaluation,~~2006 ~~our President and Chief Executive Officer and our Chief Financial Officer concluded~~ that ~~our~~has ~~disclosure~~materially ~~controls~~affected, ~~and~~or ~~procedures~~is ~~were~~reasonably ~~adequate~~likely to ~~ensure~~materially ~~that information required to be disclosed in the reports filed or submitted under the Exchange Act is recorded~~affect, ~~processed,~~our ~~summarized~~internal ~~and~~control ~~reported~~over ~~within~~financial ~~the time periods specified in the United States Securities and Exchange Commission rules and forms~~reporting.

Changes in internal controls

During the three months ended June 30, 2005, there were no changes in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

As described in greater detail in the 2004 10-K in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, we restated our financial statements for the fiscal years ended September 30, 2002 and 2003, and our interim financial statements for the fiscal quarters ended December 31, 2003 and June 30, 2004. As a result of the Internal Accounting Review commenced in July 2004, we filed the Forms 10-Q for the third fiscal quarter ended June 30, 2004 and the 2004 10-K on February 1, 2005, which was later than the designated filing deadlines.

In response to the matters discovered in connection with the Internal Accounting Review, we have taken steps, including the appointment of a new senior sales executive and a new Chief Financial Officer, and will continue to take steps to strengthen control processes and procedures to identify, rectify and prevent the recurrence of the circumstances that resulted in the restatement of prior period financial statements. With respect to such identified weaknesses, we intend to continue to improve our internal controls and procedures by taking the additional following steps, among others:

• Continuing to improve the quality and experience of in-house finance personnel with extensive software revenue recognition experience;

• Conducting and continuing to develop internal training programs for affected employees on applicable policies and procedures and sending finance personnel to external training and continuing education programs; and

• Continuing to improve the operational procedures for software transactions to ensure that proper documentation has been prepared and approved prior to recording revenue in accordance with the principles of Statement of Position (SOP) 97-2, Software Revenue Recognition, as amended.

We believe changes to our system of internal controls and our disclosure controls and procedures will be adequate to provide reasonable assurance that the objectives of these controls will be met. We intend to review and evaluate the design and effectiveness of our disclosure controls and procedures on an ongoing basis and to improve our controls and procedures over time and to correct any deficiencies that we may discover in the future. Our goal is to ensure that our senior management has timely access to all material financial and non-financial information concerning our business. While we believe the present design of our disclosure controls and procedures is effective to achieve our goal, future events affecting our business may cause us to modify our disclosure controls and procedures. Furthermore, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within the Company have been detected. These inherent limitations include

Page 36

the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake.

We are in the process of implementing the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 that requires our management to assess the effectiveness of our internal controls over financial reporting and include an assertion in our annual report as to the effectiveness of our controls. Burr Pilger & Mayer LLP, our independent auditors, will be required to attest (a) to whether our assessment of our internal controls over financial reporting is fairly stated in all material respects, and (b) to report separately on whether it believes we maintained, in all material respects, effective internal controls over financial reporting as of September 30, 2005. We are in the process of performing the system and process documentation, evaluation and testing required for management to make this assessment and for the auditors to provide its attestation report. We have not completed this process or its assessment, and this process will require significant amounts of management time and resources. In the course of evaluation and testing, management may identify deficiencies that will need to be addressed and remediated.

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PART II — OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

OnWe ~~December~~were 3,named ~~2004,~~as a defendant in an action in the United States ~~District~~Bankruptcy Court for the Northern District of California ~~issued~~entitled anE. ~~order~~Lynn ~~consolidating~~Schoenmann, ~~previously~~trustee ~~filed~~of ~~purported~~NorthPoint ~~class action cases under the name In re Netopia~~Communications, Inc. ~~Securities~~ ~~Litigation,~~v. ~~and appointing a lead plaintiff and plaintiff’s counsel~~Netopia. OnIn this ~~June 29~~action, ~~2005,~~ the ~~lead~~trustee ~~plaintiff~~of ~~filed~~the ~~its~~bankruptcy ~~consolidated~~estate ~~amended complaint. The consolidated amended complaint alleges violations~~ of ~~Sections~~NorthPoint ~~10(b)~~Communications, ~~and~~Inc. 20(a“NorthPoint”) of ~~the~~sought ~~Securities~~to ~~Exchange~~recover ~~Act~~approximately ~~of 1934, as amended (the “Exchange Act”)~~$1.2 ~~The~~million ~~consolidated~~that ~~amended~~NorthPoint ~~complaint~~paid ~~alleges~~to ~~that~~us ~~during~~within the ~~purported~~90-day ~~class~~preference period, ~~November~~before 6,NorthPoint ~~2003~~filed ~~through~~for bankruptcy ~~August~~in ~~16,~~January ~~2004,~~2001. weIn ~~made~~January ~~false~~2006, ~~and~~we ~~misleading~~agreed ~~statements or failed~~ to ~~disclose~~settle ~~material~~this ~~facts,~~action ~~and~~by ~~that~~making ~~the~~a ~~market~~payment ~~price~~to ofthe ~~our~~plaintiff ~~common~~in ~~stock~~the ~~was~~amount ~~artificially~~$300,000 ~~inflated~~in asconsideration of a ~~result~~release of ~~such~~all ~~alleged conduct~~claims. WeThe ~~believe~~settlement ~~that~~was werecorded ~~have~~as ~~strong~~an ~~defenses~~expense ~~to the claims asserted~~ in the ~~consolidated~~three ~~amended~~months ~~complaint.~~ended WeDecember 31, ~~intend to defend the case vigorously~~2005.

InOn ~~August~~December 3, 2004, the first of four purported derivative actions, Freeport Partners, LLC, Derivatively on Behalf of Nominal Defendant Netopia, Inc., v. Alan B. Lefkof, William D. Baker, Reese M. Jones, Harold S. Wills, Robert Lee and Netopia, Inc., was filed in the United States ~~District~~ District Court for the Northern District of California. ~~Two~~issued ~~purported~~an ~~derivative~~order ~~actions~~consolidating ~~are~~previously ~~pending~~filed inpurported ~~the~~class ~~United~~action ~~States~~cases ~~District~~under ~~Court for~~ the ~~Northern~~name ~~District~~In ofre ~~California~~Netopia, ~~and two related purported derivative actions are pending in the Superior Court of California for the County of Alameda~~Inc. ~~These~~Securities ~~actions~~Litigation, ~~make~~and ~~claims~~appointing ~~against~~lead ~~our~~plaintiffs ~~officers~~ and ~~directors~~plaintiffs’ ~~arising out of the alleged misstatements described above in connection with the purported class action described above~~counsel. On InJune 29, ~~November 2004~~2005, the ~~derivative~~lead plaintiffs ~~agreed~~filed totheir ~~coordinate~~consolidated ~~the~~amended ~~four derivative actions~~complaint. The ~~parties~~consolidated ~~have~~amended ~~agreed~~complaint toalleges aviolations ~~stay~~ of ~~the~~Sections ~~federal~~10(b) ~~derivative~~and ~~actions,~~20(a) ~~which~~of ~~was ordered by~~ the ~~court~~Securities inExchange ~~January~~Act ~~2005.~~of ~~The~~1934, ~~state~~as ~~actions~~amended ~~have been consolidated under~~ (the ~~name~~ ~~In re Netopia, Inc~~“Exchange Act”). ~~Derivative Litigation.~~ The ~~plaintiffs have not filed their~~ consolidated amended complaint. Wealleges ~~believe~~ that weduring ~~have strong defenses to~~ the ~~claims~~purported ~~asserted~~class inperiod, ~~the~~November 6, ~~complaints~~2003 asthrough ~~initially~~August 16, ~~filed.~~2004, Wewe ~~intend~~made tofalse ~~defend the cases~~ ~~vigorously.~~

Page 35

and misleading statements or failed to disclose material facts, and that the market price of our common stock was artificially inflated as a result of such alleged conduct. We believe that we have strong defenses to the claims asserted in the consolidated amended complaint. We intend to defend the case vigorously. We currently cannot estimate the extent of the potential damages in this dispute.

In August 2004, the first of four purported derivative actions, Freeport Partners, LLC, Derivatively on Behalf of Nominal Defendant Netopia, Inc., v. Alan B. Lefkof, William D. Baker, Reese M. Jones, Harold S. Wills, Robert Lee and Netopia, Inc., was filed in the United States District Court for the Northern District of California. Two purported derivative actions are pending in the United States District Court for the Northern District of California, and two related purported derivative actions are pending in the Superior Court of California for the County of Alameda. These actions make claims against our officers and directors arising out of the alleged misstatements described above in connection with the purported class action described above. In November 2004, the derivative plaintiffs agreed to coordinate the four derivative actions. The parties have agreed to a stay of the federal derivative actions, which was ordered by the court in January 2005. The state actions have been consolidated under the name In re Netopia, Inc. Derivative Litigation . The plaintiffs have not filed their consolidated amended complaint. We believe that we have strong defenses to the claims asserted in the complaints as initially filed. We intend to defend the cases vigorously. We currently cannot estimate the extent of the potential damages in this dispute.

On July 22, 2005, we announced that following discussions with the SEC staff, we had made a settlement offer to the SEC to resolve the investigation into our disclosures and accounting practices, primarily related to our restatement of financial statements for the fiscal years ended September 30, 2003 and 2002. Without admitting or denying any wrongdoing, we offered to consent to the entry of an order with respect to violations of Sections 13(a) and 13(b)(2)(A)-(B) of the Exchange Act, and Rules 12b-20, 13a-1, 13a-11 and 13a-13 promulgated thereunder. The SEC staff has agreed to recommend that the SEC approve the offer of settlement. The proposed settlement is subject to completion of mutually agreeable settlement language and final approval by the SEC.

On July 22, 2005, we also announced that we had learned that the SEC staff has agreed to recommend that the SEC approve an offer of settlement with Alan B. Lefkof, our President and Chief Executive Officer. Mr. Lefkof, without admitting or denying any wrongdoing, offered to consent to the entry of an order with respect to violations of Sections 17(a)(2)-(3) of the Securities Act of 1933, as amended, and Rule 13b2-1 promulgated under the Exchange Act, and aiding and abetting our violations of Sections 13(a) and 13(b)(2)(A)-(B) of the Exchange Act, and Rules 12b-20 and 13a-11 promulgated thereunder, in connection with a Report on Form 8-K and exhibit furnished to the SEC on July 6, 2004. The proposed settlement with Mr. Lefkof contemplates a monetary payment. The proposed settlement is subject to completion of mutually agreeable settlement language and final approval by the SEC.

We have been informed that the SEC staff has issued “Wells Notices” to (a) a former chief financial officer, (b) a former senior sales vice president, and (c) a former software sales vice president of the

Page 38

Company. A “Wells Notice” indicates that the SEC staff has made a preliminary decision to recommend that the SEC bring a civil enforcement action against the recipients for possible violations of federal securities laws. Recipients of Wells Notices have the opportunity to respond in writing before the SEC staff makes its formal recommendation on whether the SEC should bring any action.

Responding to the formal order of investigation of the SEC has required significant attention and resources of management. Our proposed settlement described above is subject to final approval by the SEC. In addition, even though we have announced the proposed settlement with the SEC, the investigation by the SEC is ongoing, and may continue to require significant attention and resources. If either we and/or Mr. Lefkof are unable to complete the proposed settlements and the SEC elects to pursue an enforcement action against us and/or Mr. Lefkof, the defense could be costly and require additional management resources. If we were unsuccessful in defending against this or other investigations or proceedings, we could face civil or criminal penalties that would seriously harm our business and results of operations.

Page 36

In January 2005, we were notified by the Occupational Health and Safety Administration (“OSHA”) that we were named in an administrative complaint filed by two former employees alleging violations of Section 806 of the Corporate and Criminal Fraud Accountability Act of 2002, 18 U.S.C. § 1514A, also known as the Sarbanes-Oxley Act. The former employees alleged that we terminated them in retaliation for their participation in the internal accounting review conducted by the audit committee in 2004. On May 11, 2005, following its investigation, OSHA advised us that the complaint was determined to have no merit. ~~The~~On ~~complainants~~August 31, ~~subsequently~~2005, ~~requested~~the two former employees refiled athese ~~hearing~~claims ~~before~~in the United States District Court for the Northern District of Texas in an ~~Administrative~~action ~~Law~~entitled ~~Judge~~Frankl tov. ~~review~~Netopia ~~this~~et ~~determination~~al . The ~~complainants~~complaint ~~have~~names ~~filed~~the ~~their~~Company ~~complaint~~and certain current and weformer ~~have~~officers ~~filed~~and ~~our~~directors ~~answer~~as ~~with~~defendants. ~~the~~The plaintiffs ~~Administrative~~will ~~Law~~be ~~Judge~~filing a motion to stay this action. We believe that weour ~~have~~defenses ~~strong~~to ~~defenses~~this action are strong and intend to defend ~~the complaint~~it vigorously. We currently cannot estimate the extent of the potential damages in this dispute.

InWe ~~February~~were ~~2005,~~named weas ~~were~~a ~~served~~defendant ~~with~~in aan ~~complaint~~action byin the United States Bankruptcy Court for the ~~these~~Northern ~~same~~District ~~two~~of ~~former~~California ~~employees~~entitled E. ~~The~~Lynn ~~complaint~~Schoenmann, ~~names~~trustee ~~the~~of ~~Company~~NorthPoint ~~and~~Communications, ~~Alan~~Inc. ~~Lefkof~~v. asNetopia. ~~defendants,~~In ~~and~~this ~~asserts~~action, ~~claims~~the ~~for~~trustee ~~defamation~~of ~~and~~the ~~breach~~bankruptcy estate of ~~contract~~NorthPoint Communications, Inc. ~~The~~(“NorthPoint”) ~~case~~was isseeking to ~~pending~~recover inapproximately $1.2 million that NorthPoint paid to us within the ~~United~~90-day ~~States~~preference ~~District~~period ~~Court~~before NorthPoint filed for ~~the~~bankruptcy ~~Northern~~in ~~District~~January of2001. ~~Texas~~In January, ~~Dallas~~ ~~Division.~~2006, Wethis ~~believe~~action ~~that~~was wesettled ~~have~~for ~~strong~~$300,000. ~~defenses~~The ~~and~~settlement ~~intend~~was torecorded ~~defend~~as an expense in the ~~case~~three ~~vigorously~~months ended December 31, 2005.

Defending against the government investigations, the private securities class action, the derivative actions and other litigation matters described above will likely require significant attention and resources of management and, regardless of the outcome, result in significant legal expense. If our defenses ultimately are unsuccessful, or if we are unable to achieve a favorable settlement, we could be liable for large damage awards that could seriously harm our business and results of operation. While we have provided notice of the government investigations and the litigation matters described above to our directors and officers liability insurance carriers, the insurance carriers have raised certain coverage issues and to date have not reimbursed us for all ~~any~~ legal expenses incurred, and may not agree that they are responsible to pay any damages that ultimately could be awarded to the plaintiffs. Furthermore, we have only a limited amount of insurance, and even if our insurers agree to make payments under the policies, the legal expenses and damage awards or settlements may be greater than the amount of insurance, and we would in all cases be liable for any amounts in excess of our insurance policy limits.

WePage ~~are~~37 named as a defendant in an action pending in the United States Bankruptcy Court for the Northern District of California entitled E. Lynn Schoenmann, trustee of NorthPoint Communications, Inc. v. Netopia. In this action commenced on January 11, 2003, the trustee of the bankruptcy estate of NorthPoint Communications, Inc. (“NorthPoint”) is seeking to recover approximately $1.2 million that NorthPoint paid to us within the 90 day preference period before NorthPoint filed for bankruptcy in January 2001. NorthPoint’s trustee is claiming that NorthPoint was insolvent at the time it made these payments, and that therefore the payments are recoverable preferences within the meaning of the Bankruptcy Code. We believe that we have defenses to the claims asserted by NorthPoint’s trustee, and we intend to continue to defend ourselves vigorously. We do not believe that the outcome of this lawsuit is likely to harm our business seriously.

Page 39

Page 40

ITEM 6.

EXHIBITS AND REPORTS ON FORM 8-K

(a)

Exhibits

ExhibitNumber		Description
10.15		Amendment to Loan Documents entered into between Netopia, Inc. and Silicon Valley Bank as of June 27, 2005
10.16		Amended and Restated Schedule to Loan and Security Agreement entered into between Netopia, Inc. and Silicon Valley Bank as of June 27, 2005
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(b) We filed the following Current Reports on Form 8-K during the three months ended ~~June~~December 3031, 2005:

• On ~~April~~October 115, 2005, we filed a Current Report on Form 8-K, reporting Items 12.~~01, 5.~~02 and 9.01, reporting ~~that we had entered into an Amendment to an Employment Agreement with Mark H. Perry, that we had entered into a letter agreement with Charles Constanti, that Mark H. Perry would serve as~~ our ~~Interim~~preliminary ~~Senior~~revenue ~~Vice~~results ~~President~~for ~~and~~the ~~Chief~~fourth ~~Financial~~fiscal ~~Officer~~quarter ~~through~~ended ~~May~~September 1530, 2005, ~~and that Charles Constanti would serve~~ as ~~our Vice President and Chief Financial Officer effective May 16, 2005, as~~ well as certain other information.

• On ~~April~~November 1810, 2005, we filed a Current Report on Form 8-K, reporting ~~Items~~Item 18.01 ~~and 9.01~~, reporting that weour ~~had~~common ~~entered~~stock ~~into~~has anbeen ~~Indemnification~~listed ~~Agreement~~for ~~and~~quotation aon ~~letter~~the ~~agreement~~OTC ~~with~~Bulletin ~~Charles~~Board ~~Constanti~~(OTCBB) System, as well as certain other information.

• On ~~April~~November 2610, 2005, we filed a Current Report on Form 8-K, reporting Items 2.02 and 9.01, reporting our financial results for ~~our~~the ~~second~~fourth fiscal quarter and fiscal year ended ~~March~~September 3130, 2005, as well as certain other information.

~~Page~~• 41On November 15, 2005, we filed a Current Report on Form 8-K, reporting Items 1.01, 5.02 and 9.01, reporting that J. Francois Crepin had been elected as a member of the Board of Directors and that we had entered into an Indemnification Agreement with J. Francois Crepin, as well as certain other information.

•

On November 23, 2005, we filed a Current Report on Form 8-K, reporting Item 5.02, reporting that David F. Marquardt had notified us that he would not stand for re-election as a member of the Board of Directors at the next annual meeting of shareholders.

•

On December 12, 2005, we filed a Current Report on Form 8-K, reporting Items 1.01 and 9.01, reporting that we entered into an Employment Agreement on December 9, 2005 with Alan B. Lefkof, our President and Chief Executive Officer, as well as certain other information.

Page 38

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: August 9, 2005	NETOPIA, INC.
Date: February 9, 2006	NETOPIA, INC. (Registrant)
	(Registrant)
	By:	/s/ Alan B. Lefkof
		Alan B. Lefkof
		Alan B. Lefkof President and Chief Executive Officer
		President and Chief Executive Officer
	By:	/s/ Charles Constanti
		Charles Constanti
		Charles Constanti Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)
		Vice President and Chief Financial Officer
		(Principal Financial and Accounting Officer)

Page 4239

Three months ended
December 31,

Product volumes

Average selling prices

Filing Compare · NETOPIA INC