===============================================================================

                                  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 SEPTEMBER 30, 1999

                                       OR

  [_]   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: 000-24647
                                --------------

                      TERAYON COMMUNICATION SYSTEMS, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


                  DELAWARE                               77-0328533
       (STATE OR OTHER JURISDICTION OF                 (IRS EMPLOYER
        INCORPORATION OR ORGANIZATION)               IDENTIFICATION NO.)

                             2952 BUNKER HILL LANE
                         SANTA CLARA, CALIFORNIA 95054
                                 (408) 727-4400
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF THE
                   REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
                                --------------

Indicate by check mark whether the registrant (1) has filed all reports required
by Section 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.  [X] Yes     [ ] No

  The number of outstanding shares of the registrant's Common Stock, $0.001 par
value, was 21,817,441 at November 8, 1999

 ===============================================================================
<PAGE>




SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
This report on Form 10-Q contains forward-looking statements of Terayon
Communication Systems, Inc. within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934 which are subject to the "safe harbor" created by those sections.
These forward-looking statements include, but are not limited to:
statements related to industry trends and future growth in the markets
for cable modem systems; industry standards activities; our strategies
for reducing the cost of our products; our product development efforts;
the effect of GAAP accounting pronouncements on our recognition of
revenues; our future research and development; the timing of our
introduction of new products; the timing and extent of deployment of our
products by our customers; and future profitability.  Discussions
containing such forward-looking statements may be found in "Management's
Discussion and Analysis of Financial Condition and Results of
Operations."  These forward-looking statements involve certain risks and
uncertainties that could cause actual results to differ materially from
those in such forward-looking statements.  We disclaim any obligation to
update these forward-looking statements as a result of subsequent
events.  The business risks on pages 19 through 23, among other things,
should be considered in evaluating our prospects and future financial
performance.

<PAGE>


TERAYON COMMUNICATION SYSTEMS, INC.

INDEX


PAGE

PART I: FINANCIAL INFORMATION
Item 1. Financial Statements

Condensed Consolidated Balance Sheets - September 30, 1999 and
December 31, 1998

Condensed Consolidated Statements of Operations - Three and Nine
Months Ended September 30, 1999 and 1998

Condensed Consolidated Statements of Cash Flows -- Nine Months
Ended September 30, 1999 and 1998

Notes to Condensed Consolidated Financial Statements

Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations

Item 3.  Quantitative and Qualitative Disclosures About Market
Risk

PART II: OTHER INFORMATION
Item 1. Legal Proceedings

Item 2. Changes in Securities and Use of Proceeds

Item 3. Defaults Upon Senior Securities

Item 4. Submission of Matters to a Vote of Security Holders

Item 5. Other Information

24
Item 6. Exhibits and Reports on Form 8-K

Signature

<PAGE>

                      TERAYON COMMUNICATION SYSTEMS, INC.
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                       (IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
                                                     September 30,  December 31,
                                                        1999          1998
                                                     ------------  ------------
                                                            (unaudited)
<S>                                                  <C>           <C>
                               ASSETS
Current assets:
  Cash and cash equivalents........................      $23,971       $14,342
  Short-term investments...........................       82,287        14,538
  Accounts receivable, less allowance for doubtful
   accounts of $1,258 in 1999 and $594 in 1998.....        9,323         2,090
  Accounts receivable from related party...........        2,705         1,549
  Inventory........................................        5,530         3,950
  Other current assets.............................        2,662         1,856
                                                     ------------  ------------
Total current assets...............................      126,478        38,325
Property and equipment, net........................        5,798         3,593
Officer note receivable............................       --               100
Intangibles and other assets......................        98,464           128
                                                     ------------  ------------
Total assets.......................................     $230,740       $42,146
                                                     ============  ============

           LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable.................................      $14,708        $8,600
  Accrued payroll and related expenses.............        3,751         2,475
  Other accrued liabilities........................        9,626         2,799
  Current portion of capital lease obligations.....            5            29
                                                     ------------  ------------
    Total current liabilities......................       28,090        13,903
Long-term portion of capital lease obligations.....            8            10
Deferred rent......................................          126           130

Commitments and contingencies

  Common stock, $.001 par value....................           22            16
  Additional paid-in capital.......................      333,635       114,594
  Accumulated deficit..............................     (129,424)      (84,301)
  Deferred compensation............................       (1,711)       (2,184)
  Stockholders' notes receivable...................           (6)          (22)
                                                     ------------  ------------
Total stockholders' equity.........................      202,516        28,103
                                                     ------------  ------------
Total liabilities and stockholders' equity.........     $230,740       $42,146
                                                     ============  ============
</TABLE>
                            See accompanying notes.
<PAGE>

                      TERAYON COMMUNICATION SYSTEMS, INC.
                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                  (UNAUDITED)
<TABLE>
<CAPTION>
                                           Three Months Ende    Nine Months Ended
                                            September 30,        September 30,
                                       -------------------  --------------------
                                         1999      1998       1999      1998
                                       --------- ---------  --------- ----------
<S>                                    <C>       <C>        <C>       <C>
Revenues:
  Product revenues....................  $17,625    $5,853    $42,073    $10,131
  Related party product revenues......    5,764     3,547     16,271      8,645
                                       --------- ---------  --------- ----------
         Total revenues...............   23,389     9,400     58,344     18,776
                                       --------- ---------  --------- ----------
Cost of goods sold:
  Cost of product revenues............   13,674     7,327     35,692     14,196
  Cost of related party product
   revenues...........................    3,272     3,179     10,483      7,827
                                       --------- ---------  --------- ----------
         Total cost of goods sold.....   16,946    10,506     46,175     22,023
                                       --------- ---------  --------- ----------
Gross profit (loss)....................   6,443    (1,106)    12,169     (3,247)
                                       --------- ---------  --------- ----------
Operating expenses:
  Research and development............    4,563     2,779     11,669      7,702
  Cost of product development assistance
    agreement........................    11,178     --        23,971      --
  Sales and marketing.................    3,242     1,846      9,094      4,815
  General and administrative..........    1,977       813      4,689      2,095
  In-process research and development.   11,000     --        11,000      --
  Amortization of goodwill.............     443     --           443      --
                                       --------- ---------  --------- ----------
         Total operating expenses.....   32,403     5,438     60,866     14,612
                                       --------- ---------  --------- ----------
Loss from operations..................  (25,960)   (6,544)   (48,697)   (17,859)
Net interest income..................     1,377        58      3,575         26
                                       --------- ---------  --------- ----------
Net loss..............................  (24,583)   (6,486)   (45,122)   (17,833)
Series F convertible preferred
 stock dividend.......................      --        --         --     (23,910)
                                       --------- ---------  --------- ----------
Net loss applicable to common
 stockholders......................... ($24,583)  ($6,486)  ($45,122)  ($41,743)
                                       ========= =========  ========= ==========
Historical basic and diluted net
 loss per share applicable to common
 stockholders.........................   ($1.18)   ($0.63)    ($2.27)    ($6.39)
                                       ========= =========  ========= ==========
Shares used in computing historical
 basic and diluted net loss per share
 applicable to common stockholders....   20,876    10,306     19,915      6,530
                                       ========= =========  ========= ==========
Pro forma basic and diluted net
 loss per share applicable to common
 stockholders.........................             ($0.44)               ($3.21)
                                                 =========            ==========
Shares used in computing pro forma
 basic and diluted net loss per share
 applicable to common stockholders....             14,631                12,991
                                                 =========            ==========
</TABLE>
                            See accompanying notes
<PAGE>

                      TERAYON COMMUNICATION SYSTEMS, INC.
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (IN THOUSANDS)
                                  (UNAUDITED)
<TABLE>
<CAPTION>
                                                        Nine Months Ended
                                                         September 30,
                                                    ----------------------
                                                       1999        1998
                                                    ----------  ----------
<S>                                                 <C>         <C>
Cash Used in Operating Activities...................  ($4,943)   ($15,030)
                                                    ----------  ----------

Investing Activities:
 Purchase of short-term investments................  (189,273)     (2,948)
 Proceeds from sales and maturities of
   short-term investments..........................   121,387         418
 Purchase of property and equipment................    (2,618)     (1,221)
 Purchase of developed technology.................       (750)         --
 Purchase of other assets..........................      (177)          0
 Pre-acquisition loans to Imedia...................    (1,800)          0
 Cash received from Imedia acquisition.............       202           0
                                                    ----------  ----------
 Net cash used in investing activities............    (73,029)     (3,751)
                                                    ----------  ----------

Financing Activities:
 Principal payments on capital leases..............       (26)        (54)
 Principal payments on long-term debt..............        --      (2,812)
 Exercise of options and warrant to purchase
   common stock...................................     11,316         623
 Proceeds from issuance of preferred stock.........        --       6,387
 Proceeds from issuance of redeemable
   preferred stock.................................        --       7,500
 Principal payments on common stockholder
   notes receivable ...............................        16          60
 Proceeds from issuance of common stock............    76,295      35,144
                                                    ----------  ----------
Net cash provided by financing activities..........    87,601      46,848
                                                    ----------  ----------
Net increase in cash and cash
  equivalents......................................     9,629      28,067
Cash and cash equivalents at beginning
  of period........................................    14,342       1,569
                                                    ----------  ----------
Cash and cash equivalents at end of period.........   $23,971     $29,636
                                                    ==========  ==========
</TABLE>
                            See accompanying notes
<PAGE>

1. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and in accordance with the
instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly,
they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal
recurring accruals) necessary for a fair presentation of the financial
statements at September 30, 1999 and for the three and nine month periods
ended September 30, 1999 and 1998 have been included.

The unaudited condensed consolidated financial statements include the
accounts of Terayon Communication Systems, Inc. (the "Company") and  its
majority owned subsidiaries, Terayon Communication Systems Europe and
Terayon do Brasil. The Company completed its acquisition of Imedia
Corporation on September 16, 1999.  The acquisition was accounted for under
the purchase method of accounting and, accordingly, the unaudited combined
consolidated financial statements include the results of Imedia for the
period following September 16, 1999.  As a result, the information contained
herein may not be comparable to results in previous quarters.  The minority
interest in net losses of Terayon Communication Systems Europe and Terayon
do Brasil were not significant for all periods presented.  All material
intercompany balances and transactions have been eliminated.

Results for the three and nine months ended September 30, 1999 are not
necessarily indicative of results for the entire fiscal year or future
periods. These financial statements should be read in conjunction with the
consolidated financial statements and the accompanying notes included in the
Company's Form 10-K dated March 23, 1999 as filed with the U.S. Securities
and Exchange Commission.  The accompanying balance sheet at December 31,
1998 is derived from audited financial statements at that date.

Cash Equivalents and Short-Term Investments

The Company invests its excess cash in money market accounts and debt
instruments and considers all highly liquid debt instruments purchased with
an original maturity of three months or less to be cash equivalents.
Investments with an original maturity at the time of purchase of over three
months are classified as short-term investments regardless of maturity date,
as all such instruments are classified as available-for-sale and can be
readily liquidated to meet current operational needs.  At September 30,
1999, all of the Company's total cash equivalents and short-term investments
were classified as available-for-sale and were obligations issued by U.S.
government agencies and multinational corporations, maturing within two
years.

Inventory

Inventory is stated at the lower of cost (first-in, first-out) or market.
The components of inventory are as follows (in thousands):

<TABLE>
<CAPTION>
                                       September 30,  December 31,
                                          1999          1998
                                       ------------  ------------
<S>                                    <C>           <C>
  Finished goods....................        $4,140        $3,355
  Work-in-process...................           787           170
  Raw materials.....................           603           425
                                       ------------  ------------
                                            $5,530        $3,950
                                       ============  ============
</TABLE>

Net Loss Per Share Applicable to Common Stockholders

Historical basic and diluted net loss per share applicable to
common stockholders were computed using the weighted average number of
common shares outstanding. Options, warrants, restricted stock and
preferred stock were not included in the computation of diluted net
loss per share applicable to common stockholders because the effect
would be antidilutive.

Pro forma net loss per share applicable to common stockholders was
computed as described above and also gives effect, even if
antidilutive, to common equivalent shares from preferred stock that
automatically converted upon the closing of the Company's initial
public offering (using the as-if-converted method).

A reconciliation of shares used in the calculation of historical and
pro forma basic and diluted net loss per share applicable to common
stockholders follows (in thousands, except per share date):

<TABLE>
<CAPTION>

                                        Three Months End    Nine Months Ended
                                         September 30,       September 30,
                                    ------------------- -------------------
                                      1999      1998      1999      1998
                                    --------- --------- --------- ---------
<S>                                 <C>       <C>       <C>       <C>
Net loss applicable to common
stockholders.....................   ($24,583)  ($6,486) ($45,122) ($41,743)
                                    ========= ========= ========= =========
Shares used in computing
historical basic and diluted net
loss per share applicable to common
stockholders.....................     20,876    10,306    19,915     6,530
                                     ========  ========  ========  ========
Historical basic and diluted net
loss per share applicable to
common stockholders..............     ($1.18)   ($0.63)   ($2.27)   ($6.39)
                                     ========  ========  ========  ========
Shares used in computing
historical basic and diluted net
loss per share applicable to
common stockholders..............               10,306               6,530

Adjustment to reflect the effect
of the assumed conversion of
weighted average shares of
convertible preferred stock
outstanding to common stock.....                 4,325               6,461
                                              ---------           ---------
Shares used in computing pro
forma basic and diluted net loss
per share applicable to common
stockholders.....................               14,631              12,991
                                               ========            ========
Pro forma basic and diluted net
loss per share applicable to
common stockholders..............               ($0.44)             ($3.21)
                                              =========           =========

</TABLE>

Comprehensive Net Loss

        The Company has adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" (FAS 130). FAS 130 requires that all
items required to be recognized under accounting standards as components of
comprehensive income (comprehensive net loss) be reported in a financial
statement that is displayed with the same prominence as other financial
statements. The Company's comprehensive net loss was the same as its net
loss for the three and nine months ended September 30, 1999 and 1998.

Segments of an Enterprise and Related Information

The Company operates principally in one business segment, the sale of
cable modem access systems, which it sells primarily to customers within the
cable and communications industries. The TeraPro and TeraLink are sold
together as part of an entire system, and the Company accordingly does not
report revenue derived from these components.

The Chief Executive Officer has been identified as the Chief Operating
Decision Maker (CODM) because he has final authority over resource
allocation decisions and performance assessment. The CODM does not receive
discrete financial information about the individual components.

Impact of Recently Issued Accounting Standards

In September 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (FAS 133).  FAS 133 provides
a comprehensive and consistent standard for the recognition and measurement
of derivatives and hedging activities.  FAS 133 was effective for fiscal
years beginning after September 15, 1999.  In July 1999, the Financial
Accounting Standards Board issued Statement of Financial Accounting
Standards No. 137, "Accounting for Derivative Instruments and Hedging
Activities -Deferral of the Effective Date of FASB Statement No. 133" (FAS
137).  FAS 137 defers for one year the effective date of FAS 133 which will
now apply to all fiscal quarters of all fiscal years beginning after June
15, 2000. The Company believes that the adoption of  FAS 137 will not have a
significant impact on the Company's operating results or cash flows.

2. Stockholders' Equity

Public Offering

In January 1999, the Company completed a public offering of 3,250,000
shares of common stock, of which 1,750,000 shares were offered by the
Company and 1,500,000 shares were offered by existing stockholders.  The
public offering resulted in proceeds to the Company of approximately
$62,500,000, net of underwriting discounts, commissions and other offering
costs.  In February 1999, the underwriters purchased 487,500 additional
shares of common stock as a result of the exercise of the over-allotment
option, of which 351,946 and 135,554 shares of common stock were purchased
from the Company and certain existing stockholders, respectively.  This
additional sale of common stock resulted in proceeds of approximately
$12,700,000 to the Company, net of underwriting discounts and commissions.

Shaw Warrant Exercise

On March 11, 1999, Shaw Communications, Inc. ("Shaw") purchased 1,500,000
unregistered shares of the Company's common stock at $6.50 per share,
resulting in net proceeds to the Company of approximately $9,750,000.  The
shares were purchased pursuant to the exercise of a warrant to purchase
3,000,000 shares of the Company's common stock issued to Shaw in 1998.

During 1998, the Company also issued a warrant (the "Anti-Dilution
Warrant") to Shaw to purchase an indeterminate number of shares of the
Company's common stock. The Anti-Dilution Warrant is exercisable at the
option of Shaw during the period that Shaw owns equity securities of the
Company (purchased in April 1998) and in the event the Company issues new
equity securities at below the current market price as defined in the Anti-
Dilution Warrant. The aggregate exercise price is $1.00.  Should the Company
be required to issue to Shaw certain additional shares of its common stock
under the Anti-Dilution Warrant, future material charges may arise that
would adversely affect the Company's results of operations. The Company
recorded cost of goods sold of approximately $140,000 and $440,000 for the
three and nine months ended September 30, 1999, respectively,  relating to
shares issuable pursuant to the Anti-Dilution Warrant (none during the three
and nine month period ended September 30, 1998).

3.  Product Development Assistance Agreement

On March 18, 1999, the Company entered into a one-year Product
Development Assistance Agreement ("Development Agreement") with Rogers
Communications Inc. ("Rogers Communications"). Under the terms of the
Development Agreement, Rogers Communications will provide the Company
assistance with the characterization and testing of the Company's
subscriber-end and head-end voice-over-cable equipment.  In addition, Rogers
Communications will provide the Company with technology to assist the
Company in connection with its efforts to develop high quality, field proven
technology solutions that are DOCSIS -compliant and packet cable-compliant.
In consideration of Rogers Communications entering into the Development
Agreement, the Company issued Rogers Communications two fully vested and
non-forfeitable warrants, each to purchase 1,000,000 shares of common stock.
One warrant provides for an exercise price of $1.00 per share and one
warrant provides for an exercise price of $37.00 per share.  The warrants
may be exercised at any time in full or in part through March 31, 2000.  The
fair value of the two warrants is estimated to be approximately $45,000,000
and will result in a noncash charge included in operations over the one-year
term of the Development Agreement.  For the three and nine months ended
September 30, 1999, the Company incurred approximately $11,200,000 and
$24,000,000, respectively, of product development expense related to the
Development Agreement.

In addition, on March 18, 1999, the Company entered into a Supply
Agreement with Rogers Cablevision Limited ("Rogers Cablevision"), a
subsidiary of Rogers Communications.  Under the Supply Agreement, the
Company agreed to make available to Rogers Cablevision its current TeraLink
Gateway and TeraLink 1000 Master Controller, and TeraPro Cable Modems and
specified software. The Company also committed to certain product pricing
and specifications.  Under the terms of the Supply Agreement, Rogers retains
the right to return to the Company all product purchased until certain
conditions are met by the Company.  Accordingly, the Company does not
recognize revenue on shipments to Rogers until the milestones have been
achieved or Rogers has waived the right to return the product.  For the
three and nine months ended September 30, 1999, Rogers waived their right to
return certain product purchased and the Company recognized approximately
$5.0 million in revenues from sales to Rogers.

The Supply Agreement and the Development Agreement do not constitute a
commitment by either Rogers Cablevision or Rogers Communications to purchase
or deploy any particular volume or quantity of the Company's product.  No
such commitment will be made unless Rogers Cablevision or Rogers
Communications issues a purchase order to the Company.

4.  Contingencies

In the normal course of business, the Company from time to time receives
inquiries with regard to various legal proceedings. In the opinion of
management, any liability resulting from these inquiries has been accrued
and will not have a material adverse effect on the Company's financial
position or results of operations.

5.  Business Combination

In July 1999, the Company entered into an Agreement and Plan of
Reorganization (the "Agreement") to acquire Imedia Corporation ("Imedia"), a
California corporation. Imedia produces routing and re-multiplexing systems
for digital video that enable cable operators to select and customize their
program lineup for viewer preferences, while maximizing video capacity and
quality over standards-based set-top boxes. The Imedia acquisition was
completed on September 16, 1999 (the "Closing Date").

In accordance with the Agreement, the shareholders, vested optionholders
and warrantholders are entitled to receive shares of the Company's common
stock in varying amounts in a series of three stock payments, the last of
which will occur on or before the 18-month anniversary of the Closing Date.
The aggregate number of shares of the Company's common stock issued under
the Agreement will depend, among other things, on the performance of the
Company's common stock over the period during which the payments are to be
made.  In no event, shall the number of shares issued exceed 3,000,000
shares, adjusted for any splits, combinations, stock dividends and the like.
The Agreement also provides for the payment by the Company of certain
Additional Consideration in the form of cash or additional shares of the
Company's common stock in the event that certain pricing conditions are not
satisfied.   The total value of the consideration that will ultimately be
paid, as measured by certain valuation formulae and based upon an average of
the price of the Company's common stock as reported on the Nasdaq National
Market, is not to exceed $99,000,000 nor be less than $69,000,000.  The
holders of unvested Imedia options also will receive options to purchase the
Company's common stock, the fair value of which will be included in the
purchase price. The Company issued 827,407 shares of common stock on the
Closing Date.

The acquisition was accounted for under the purchase method of
accounting.  The purchase price was allocated to the assets acquired and
liabilities assumed based on a determination from an independent appraisal
of their respective fair values. The approximate purchase price was
determined using $99,000,000 as the value of the consideration based on the
market value of the Company's common stock when the acquisition was
announced.  The Company may be required to issue additional consideration
should the market value of the Company's common stock decline between the
Closing and the 18-month anniversary.  The issuance of additional
consideration will not impact the determination of the purchase price.  The
consolidation of the assets and liabilities significantly affected the
Company's balance sheet at September 30, 1999, as depicted in the following
tables:

The approximate purchase price (in thousands):

<TABLE>
<S>                                    <C>

Purchase Price.........................   $107,738
Estimated transaction and other direct
 acquisition costs.....................      1,240
                                       ------------
                                          $108,978
                                       ============
</TABLE>

The allocation of the approximate purchase price was determined as
follows (in thousands):

<TABLE>

<S>                                    <C>

Historical net tangible assets of Imedia
   at September 16, 1999...............      ($355)
Forgivenss of Imedia note payable......     $1,000
                                       ------------
                                              $645
Intangible assets acquired:
Developed technology...................    $27,000
Assembled workforce....................     $2,500
Trademark..............................     $4,000
In-process research and development....    $11,000
Goodwill...............................    $63,833
                                       ------------
Total..................................   $108,978
                                       ============
</TABLE>

Tangible assets of Imedia principally include cash, accounts receivable
and property and equipment.  Liabilities principally include accounts
payable and accrued liabilities.  At the Closing Date, the Company forgave
Imedia's note payable obligation of $1.0 million.

To determine the value of the developed technology, the expected future
cash flow attributed to all existing technology was discounted, taking into
account risks related to the characteristics and application of the
technology, existing and future markets and assessments of the life cycle
stage of the technology.  The analysis resulted in a valuation of
approximately $27.0 million for developed technology which had reached
technological feasibility and therefore was capitalizable. The developed
technology is being amortized on a straight line basis over a six year
period.

The value of the assembled workforce was derived by estimating the costs
to replace the existing employees, including recruiting and hiring costs and
training costs for each category of employee.  The analysis yielded a
valuation of approximately $2.5 million for the assembled workforce.  The
asset is being amortized on a straight line basis over a two year period.

The projects identified as in-process are those that were underway at
Imedia at the time of the acquisition and will, after the Closing Date,
require additional effort in order to establish technological feasibility.
These projects have identifiable technological risk factors which indicate
that even though successful completion is expected, it is not assured.  The
preliminary estimate of in-process research and development is $11.0
million.

In-process technology acquired consists primarily of major additions to
Imedia's core technology, which is related to Imedia's planned development
of new features.  The majority of the intended functionality of these new
features is not supported by Imedia's current technology.  Intended new
features include offering high quality video service over the Internet and
multiplexing data with video.  The Company expects that in-process
technology will be successfully developed and that initial benefits from
these projects will begin in calendar 2001.  Notwithstanding the Company's
expectations, there remain significant technical challenges that must be
resolved in order to complete the in-process technology.

The following selected unaudited pro forma combined results of operations
of the Company and Imedia for the nine months ended September 30, 1999 and
1998 have been prepared assuming that the acquisition occurred at the
beginning of the period presented.  The following selected unaudited pro
forma financial information is not necessarily indicative of the results
that would have occurred had the acquisition been completed at the beginning
of the period indicated nor is it indicative of future operating results (in
thousands, except per share data):

<TABLE>
<CAPTION>
                                       Nine Months Ended
                                       September 30, September 30
                                       ------------- ------------
                                           1999          1998
                                       ------------- ------------
<S>                                    <C>           <C>

Revenues...............................    $61,911       $18,776
Net loss applicable to common
  stockholders (1) ....................   ($52,634)     ($60,609)
Net loss per share applicable to common
  stockholders (1).....................     ($2.44)       ($8.24)
Shares used in calculation of net loss
  per share applicable to common
  stockholders.........................     21,576         7,357


</TABLE>

(1)  The net loss and net loss per share does not include the $11.0
million in-process research and development charge.

6. Subsequent Events

In October 1999, the Company entered into a Share Purchase Agreement to
acquire Telegate Ltd (the "Telegate Agreement"), an Israeli company.
Telegate produces telephony and data access platforms that are deployed by
service providers to deliver efficient carrier-class voice services over
cable. Telegate also provides in-home networking capability for telephony
and data, based on the Digital Enhanced Cordless Telephony (DECT) standard.
In general, the Telegate shareholders and vested optionholders will receive
a total of 2,200,000 shares and options to purchase shares of the Company's
common stock and a cash payment equal to Telegate's net cash balance at
closing minus $2,000,000. The Telegate Agreement also provides for the
payment by the Company of certain Additional Consideration in the form of
cash or additional shares of the Company's common stock (at the Company's
sole discretion) on or before the nine month anniversary of the Closing, in
the event that certain pricing conditions are not satisfied.  The total
purchase price is estimated to be approximately $107,000,000.  The
transaction is subject to customary closing conditions and is expected to
close late in the fourth quarter of 1999.  The Company expects to account
for the acquisition as a purchase transaction.

In October 1999, the Company also entered into a Share Purchase Agreement
to acquire Radwiz Ltd (the "Radwiz Agreement"), an Israeli company.  Radwiz
produces communication access systems based on high-speed IP routing,
integrated with telephony.  Radwiz's systems include both central office
Digital Subscriber Line Access Multiplexers (DSLAMs) and customer premises
equipment for small office, home office (SOHO) business broadband services.
In general, the Radwiz shareholders and vested optionholders will receive a
total of  1,000,000 shares and options to purchase shares of the Company's
common stock.  The Radwiz Agreement also provides for the payment by the
Company of certain Additional Consideration in the form of cash or
additional shares of the Company's common stock (at the Company's sole
discretion) on or before the one year anniversary of the Closing, in the
event that certain pricing conditions are not satisfied.  The holders of
unvested Radwiz warrants also will receive options to purchase the Company's
common stock, the fair value of which will be included in the purchase
price.  The total purchase price is estimated to be approximately
$52,000,000. The transaction is subject to customary closing conditions and
is expected to close late in the fourth quarter of 1999.  The Company
expects to account for the acquisition as a purchase transaction.


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS  OF OPERATIONS

 Overview

Our core line of business is to develop, market and sell broadband access
systems based upon our S-CDMA technology.  Our objective is to be the
leading provider of broadband access systems to cable operators seeking to
provide broadband access services to residential and commercial end users.
Since our inception in January 1993, we have focused on the development of
our S-CDMA technology, as well as certain other core technologies, to enable
broadband transmission of data over cable networks. We began the
specification and design of our first ASIC in October 1994 and produced the
first version of this ASIC in September 1996. At the same time, we developed
an end-to-end broadband access system, the TeraComm system, around the ASIC.
During late 1996 and through 1997, we began limited field trials of the
TeraComm system with several cable operators. We commenced volume shipments
to a small number of cable operators in the first quarter of 1998. We had
revenues of  $23.4 million for three months ended September 30, 1999 and
$58.3 million for the nine months ended September 30, 1999.  This compares
to revenues of $9.4 million for the three months ended September 30, 1998
and $18.8 million for the nine months ended September 30, 1998.

We sell our products both in the United States and internationally, and
we market our products primarily to cable operators and distributors. Our
strategy is to supply leading cable operators worldwide.  Consistent with
this strategy, our initial target market consists of the ten largest cable
companies in each major geographic area.  In most markets, a small number of
large cable operators often provide services to a majority of the
subscribers in a specific region and thus influence the purchase decisions
of smaller cable operators.  To date, four of the largest North American
cable operators, Rogers Cablevision, Shaw Communications Inc., Cablevision
Systems, Inc. and TCA Cable TV, Inc. (a subsidiary of Cox Communications,
Inc.), are deploying the TeraComm system. In Japan, through our partner
Sumitomo Corporation, we have established ourselves as the market leader.
In Europe, we have a contract to ship 225,000 modems to United Pan-Europe
Communications ("UPC"), Europe's largest cable operator.  As a result of the
nature of the cable industry and our strategic focus, a small number of
customers have accounted for the majority of our revenues to date, and we
expect that the majority of our revenues will continue to be generated from
a small number of customers for the foreseeable future. In addition, we
anticipate that the timing and maturity of these customers' deployments of
the TeraComm system will result in variations in the quarterly revenues
generated from these customers.  In the three months ended September 30,
1999, sales to Shaw represented approximately 25% of our revenues, sales to
Rogers represented approximately 21% of our revenues, sales to UPC
represented approximately 16% of our revenues and sales to Sumitomo
represented approximately 13% of our revenues.  This is compared to
approximately 28% of revenues from sales to Cablevision, approximately 24%
of our revenues from sales to Shaw and approximately 14% of revenues from
sales to Sumitomo in the three months ended September 30, 1998.  In the nine
months ended September 30, 1999, sales to Shaw represented approximately 28%
of our revenues, sales to Sumitomo represented approximately 15% of our
revenues and sales to UPC represented approximately 11% of our revenues.
This compares to 32% of revenues from sales to Shaw, 19% of revenues from
sales to Cablevision and 14% of revenues from sales to Sumitomo in the nine
months ended September 30, 1998.

 The market for broadband access products and services is characterized by
rapid technological change, new product development, product obsolescence
and evolving industry standards. A significant element of our strategy is to
advance industry standards and to extend our technology leadership and
achieve rapid time to market.  In November 1998, we were selected by
CableLabs to co-author DOCSIS 1.2, an enhanced version of the DOSCIS cable
modem specification based in part on our S-CDMA technology. Since then
CableLabs has reaffirmed its intention to add advanced upstream physical
layer ("PHY") capabilities to the DOCSIS specifications as enhancements;
however, CableLabs has modified its plans for how the specifications will be
created. In September 1999, CableLabs indicated that it wants to proceed
with the advanced PHY work on two parallel tracks; one for the inclusion of
Terayon S-CDMA technology, as proposed by Terayon, and one for the inclusion
of Advanced TDMA technology, as proposed by other companies.   CableLabs
wants work to proceed in parallel on these two complementary technologies,
but the intention remains to include both as operating modes in a future
version of the DOCSIS specification, consistent with the original plans for
DOCSIS 1.2.  As part of the new plan to add advanced physical layer
capabilities to DOCSIS, CableLabs has dropped reference to DOCSIS 1.2, the
name given in November 1998 by CableLabs to the specification that includes
advanced PHY. In order to advance the standardization of cable modem
technology, we have given CableLabs assurances that we will contribute some
aspects of our S-CDMA technology to the DOCSIS intellectual property pool
upon completion and acceptance of a specification that includes our S-CDMA
technology.  We intend to develop future products that are standards
compliant and are actively participating in the development of additional
industry standards. As part of our efforts to offer standards compliant
products we introduced a CableLabs certified DOCSIS 1.0 cable modem to the
market in the third quarter of 1999.

 The rapid evolution of broadband has resulted in cable television
operators seeking to leverage the cable infrastructure to provide a bundle
of voice, data and video services to their subscribers.  Consistent with our
objective to be a leading provider of broadband access systems to cable
operators seeking to provide broadband access services to residential and
commercial end users, we plan to offer a complete broadband portfolio to
support high-speed delivery of voice, data and video services over cable.
In support of this objective, we recently announced our acquisition of
Imedia Corporation and our agreements to acquire Telegate Ltd. and Radwiz
Ltd. Each of these acquisitions brings to us technology necessary to develop
a common multimedia platform to deliver current and advanced broadband
services.

 The intensely competitive nature of the market for broadband access
systems has resulted in significant price erosion over time.  We have
experienced and expect to continue to experience downward pressure on our
unit average selling price ("ASP"). We had negative gross margins from
inception until the fourth quarter of 1998 when we achieved a positive gross
margin for the first time as a result of our execution of cost reduction
strategies. A key component of our strategy is to decrease the cost of
manufacturing our products to improve our gross margins.  For example, in
the fourth quarter of 1998, we introduced a cable modem using a single-board
design, which has higher gross margins than our original dual board design.
Subsequent to the introduction of the single-board design, we have
successfully introduced additional cost reduction programs that have allowed
us to continue to improve gross margin performance despite ongoing ASP
declines.  We intend to continue to engage in and implement cost reduction
efforts, including the further integration of ASIC components, other design
changes and manufacturing efficiencies.

We sustained net losses applicable to common stockholders of  $24.6
million for the three months ended September 30, 1999 and $6.5  million for
the same period of 1998. For the nine months ended September 30, 1999, we
sustained net losses applicable to common stockholders of $45.1 million
compared to $41.7 million for the same period of 1998. As a result, we had
an accumulated deficit of $129.4 million as of September 30, 1999. Our
operating expenses are based in part on our expectations of future sales,
and we expect that a significant portion of our expenses will be committed
in advance of sales. We expect to increase significantly our expenditures in
technical development and sales and marketing as we engage in activities
related to product enhancement, cost reduction and increasing market
penetration. Additionally, we expect to increase our capital expenditures
and other operating expenses in order to support and expand our operations.
We anticipate that we will spend approximately $6.5 million on capital
expenditures and approximately $22.6 million on research and development
during the 12 months ended September 30, 2000. Anticipated capital
expenditures consist of purchases of additional test equipment to support
higher levels of production and computer hardware, software and equipment
for newly hired employees. As a result of these anticipated increased
operating expenses, we expect to continue to incur losses for the
foreseeable future.

Acquisition of Imedia Corporation

In July 1999, we entered into an Agreement and Plan of Reorganization
(the "Agreement") to acquire Imedia Corporation ("Imedia"), a California
corporation. Imedia produces routing and re-multiplexing systems for digital
video that enable cable operators to select and customize their program
lineup for viewer preferences, while maximizing video capacity and quality
over standards-based set-top boxes. The Imedia acquisition was completed on
September 16, 1999 (the "Closing Date"). The acquisition was accounted for
under the purchase method of accounting and, accordingly, this Report on
Form 10-Q presents our financial results through the entire period and
combined results with Imedia for the portion of the period following
September 16, 1999.  As a result, the information contained herein may not
be comparable to results in previous quarters.

Recent Developments

In October 1999, we entered into a Share Purchase Agreement to acquire
Telegate Ltd (the "Telegate Agreement"), an Israeli company.  Telegate
produces advanced and highly integrated telephony and data access platforms
that are deployed by leading service providers to deliver efficient carrier-
class voice services over cable. Telegate also provides in-home networking
capability for telephony and data, based on the Digital Enhanced Cordless
Telephony (DECT) standard. In general, the Telegate shareholders and vested
optionholders will receive a total of 2.2 million  shares and options to
purchase shares of our common stock and a cash payment equal to Telegate's
net cash balance at closing minus $2.0 million. The Telegate Agreement also
provides for the payment of certain Additional Consideration in the form of
cash or additional shares of our common stock (at our sole discretion) on or
before the nine month anniversary of the Closing, in the event that certain
pricing conditions are not satisfied.  The total purchase price is estimated
to be approximately $107.0 million.  The transaction is subject to customary
closing conditions and is expected to close late in the fourth quarter of
1999.  We expect to account for the acquisition as a purchase transaction.

In October 1999, we also entered into a Share Purchase Agreement to
acquire Radwiz Ltd (the "Radwiz Agreement"), an Israeli company.  Radwiz
produces communication access systems based on high-speed IP routing,
integrated with telephony.  Radwiz's systems include both central office
Digital Subscriber Line Access Multiplexers (DSLAMs) and customer premises
equipment for small office, home office (SOHO) business broadband services.
In general, the Radwiz shareholders and vested optionholders will receive a
total of 1.0 million shares and options to purchase shares of our common
stock.  The Radwiz Agreement also provides for the payment of certain
Additional Consideration in the form of cash or additional shares of our
common stock (at our sole discretion) on or before the one year anniversary
of the Closing, in the event that certain pricing conditions are not
satisfied.  The holders of unvested Radwiz warrants also will receive
options to purchase our common stock, the fair value of which will be
included in the purchase price.  The total purchase price is estimated to be
approximately $52.0 million. The transaction is subject to customary closing
conditions and is expected to close late in the fourth quarter of 1999.  We
expect to account for the acquisition as a purchase transaction.

Results of Operations

Three and Nine months Ended September 30, 1999 and 1998

        Revenues.  Revenues consist primarily of sales of broadband access
systems consisting of cable modems and headend equipment to new and existing
customers. We generally recognize revenues upon shipment of products to
customers.  Our revenues increased to $23.4 million for the three months
ended September 30, 1999 from $9.4 million for the same period in 1998.  For
the nine months ended September 30, 1999, our  revenues increased to $58.3
million from $18.8 million for the same period in 1998.  Our revenues
increased during the three and nine months ended September 30, 1999,
compared to the same periods in 1998, due to shipments to new customers,
such as UPC and Rogers, as well as increased shipments to existing
customers, such as Shaw and Sumitomo. Cable modem and headend equipment are
sold together as part of an entire broadband access system and, accordingly,
we do not report revenues derived from each component.

On March 18, 1999, we entered into a Supply Agreement with Rogers
Cablevision Limited ("Rogers Cablevision"), a subsidiary of Rogers
Communications.  Under the Supply Agreement, we agreed to make available to
Rogers Cablevision our current TeraLink Gateway and TeraLink 1000 Master
Controller, and TeraPro Cable Modems and specified software. We also
committed to certain product pricing and specifications.  Under the terms of
the Supply Agreement, Rogers retains the right to return to us all product
purchased until we meet certain conditions.  Accordingly, we do not
recognize revenue on shipments to Rogers until the milestones have been
achieved or Rogers has waived the right to return the product.  For the
three and nine months ended September 30, 1999, Rogers waived their right to
return certain product purchased and we recognized approximately $5.0
million in revenues from sales to Rogers. There is no guarantee that we will
be able to achieve the condition specified in the Supply Agreement or obtain
waivers from Rogers in future quarters.

        Cost of Goods Sold. Cost of goods sold consists of direct product costs
and the cost of our manufacturing operations group.  The cost of our
manufacturing operations group consists of assembly, test and quality
assurance for products, warranty costs and associated costs of personnel and
equipment. For the three months ended September 30, 1999, we incurred cost
of goods sold of $16.9 million compared to $10.5 million for the three
months ended September 30, 1998. We incurred cost of goods sold of $46.2
million for the nine months ended September 30, 1999 compared to $22.0
million for the same period in 1998. Our cost of goods sold increased during
the three and nine months ended September 30, 1999, compared to the same
periods, in 1998 primarily due to increased product shipments.  Cost of
goods sold for the nine months ended September 30, 1998 included a charge of
$1.3 million relating to the write-off of obsolete inventory and the
transition of manufacturing operations to Solectron during the first quarter
of 1998.

        Gross Profit (Loss).  We achieved a gross profit of $6.4 million for the
three months ended September 30, 1999 compared to a gross loss of $1.1
million for the same period in 1998.  Gross profit for the nine months ended
September 30, 1999 was $12.2 million compared to a gross loss of $3.2
million for the six month period ended September 30, 1998. The gross profit
for the three months ended September 30, 1999 represents the fourth
consecutive quarter we have achieved positive margins. This improvement in
our gross margin is largely the result of the introduction of our lower
cost, single-board modem and our continued cost reduction efforts. We are
continuing to pursue further cost reductions in our products. We also expect
continued decreases in the average sales price of our modem.  It is
anticipated that these price decreases could offset, at least partially, any
further cost reductions that we may be able to achieve.

Our gross profit also is influenced by the sales mix of TeraLink Master
Controllers, TeraLink Gateways and TeraPro cable modems and the maturity of
TeraComm system deployments in any quarter.  TeraPro cable modems have lower
margins than the TeraLink Master Controllers and TeraLink Gateway headend
products. New deployments of TeraComm systems typically include a higher mix
of headend equipment and involve smaller quantities of product sold.
Products sold in connection with new deployments thus generally are sold at
higher margins than products associated with more mature deployments of the
TeraComm system, which generally involve larger quantities of products,
primarily cable modems. We expect that the introduction of new customers and
the relationship of revenues generated from the sale of TeraPro cable modems
to our overall revenue will result in fluctuations in our gross profit in
future quarters.

        Research and Development. Research and development expenses consist
primarily of personnel costs, as well as design expenditures, equipment and
supplies required to develop and enhance our products. Research and
development expenses increased to $4.6 million for the three months ended
September 30, 1999, from $2.8 million for the three months ended September
30, 1998, primarily due to increased personnel. For the nine months ended
September 30, 1999, research and development expenses were $11.7 million
compared to $7.7 million for the same period in 1998, also primarily due to
increased personnel.  We intend to increase investment in research and
development programs in future periods for the purpose of enhancing current
products, reducing the cost of current products and developing new products.

        Cost of Product Development Assistance Agreement.  In March 1999, we
entered into a one-year Product Development Assistance Agreement with Rogers
Communications Inc. Under the terms of the Development Agreement, Rogers
will assist us with the characterization and testing of our subscriber-end
and head-end voice-over-cable equipment.  In addition, Rogers will provide
us with technology to assist us with our efforts to develop high quality,
field proven technology solutions that are DOCSIS-compliant and packet
cable-compliant.  The Development Agreement has a term of one year.  In
consideration of Rogers entering into the Development Agreement, we issued
Rogers two fully vested and non-forfeitable warrants, each to purchase 1.0
million  shares of common stock.  One warrant has an exercise price of $1.00
per share and one warrant has an exercise price of $37.00 per share.  The
warrants may be exercised at any time in full or in part through March 31,
2000.  The fair value of the two warrants is estimated to be approximately
$45.0 million and will result in a noncash charge included in operations
over the one-year term of the Development Agreement.   As a result of the
Development Agreement, our results for the three months ended September 30,
1999 include a noncash charge of  $11.2 million and our results for the nine
months ended September 30, 1999 include a noncash charge of $24.0 million.

       Sales and Marketing. Sales and marketing expenses consist primarily of
salaries and commissions for sales, marketing and customer service and
support personnel and costs related to trade shows, consulting and travel.
Sales and marketing expenses increased to $3.2 million for the three months
ended September 30, 1999 from $1.8 million for the three months ended
September 30, 1998. For the nine months ended September 30, 1999, sales and
marketing expenses increased to $9.1 million from $4.8 million for the same
period in 1998. The increase in sales and marketing expenses was primarily
due to increased payroll and commission costs related to additional sales
and support personnel required to support higher sales in 1999. We expect
sales and marketing expenses to increase in the future as we expand our
sales, marketing and customer support capabilities through increases in both
our direct sales staff and our marketing staff, as well as increased
relationships with distributors.

       General and Administrative. General and administrative expenses consist
primarily of salaries and benefits for administrative officers and support
personnel, travel expenses, legal, accounting and consulting fees. General
and administrative expenses increased to $2.0 million for the three months
ended September 30, 1999 from $800,000 for the three months ended September
30, 1998. General and administrative expenses increased to $4.7 million for
the nine months ended September 30, 1999 from $2.1 million for the nine
months ended September 30, 1998. The increase was primarily a result of the
additional reporting requirements imposed on us as a public company and the
increased infrastructure required to support our expanded activities. We
expect that general and administrative expenses will continue to increase in
the near term as a result of these factors.

       In-Process Research and Development.  We incurred charges of $11.0
million for the three and nine months ended September 30, 1999 related to
research and development projects in process at Imedia at the time of the
acquisition.  The projects identified as in-process will, after the Closing
Date, require additional effort in order to establish technological
feasibility.  These projects have identifiable technological risk factors
which indicate that even though successful completion is expected, it is not
assured.

In-process technology acquired consists primarily of major additions to
Imedia's core technology, which is related to Imedia's planned development
of new features.  The majority of the intended functionality of these new
features is not supported by Imedia's current technology.  Intended new
features include offering high quality video service over the Internet and
multiplexing data with video.  We expect that in-process technology will be
successfully developed and that initial benefits from these projects will
begin in calendar 2001.  However, there remain significant technical
challenges that must be resolved in order to complete the in-process
technology.

       Amortization of Goodwill.  The Imedia acquisition was completed on
September 16, 1999 and was accounted for as a purchase transaction.  The
total purchase price, representing the fair value of our shares issued and
transaction and direct acquisition costs, was approximately $109.0 million.
The purchase price was allocated based on an independent appraisal between
the net tangible assets of Imedia on the date of acquisition (approximately
$700,000), in-process research and development (approximately $11.0 million)
and intangible assets acquired (approximately $97.3 million).  Intangible
assets consist of developed technology (approximately $27.0 million),
assembled workforce (approximately $2.5 million), trademark (approximately
$4.0 million) and goodwill (approximately $63.8 million).  The intangible
assets will be amortized straight line over lives ranging from 2 to 6 years.
The amortization of developed technology will impact cost of goods sold in
future periods.  The amortization of the other intangibles will principally
impact operating expenses in future periods.  We expect amortization of
goodwill and other intangibles related to the acquisition Imedia, as well as
subsequent acquisitions, to increase in  future periods.

        Series F Convertible Preferred Stock Dividend. We recorded a dividend of
$23.9 million in the nine months ended September 30, 1998. The dividend
represented the fair value of a warrant to purchase 3,000,000 shares of our
common stock (the "Shaw Warrant"), and was recorded under the provision of
the Financial Accounting Standards Board's Emerging Issues Task Force Issue
No. 96-13, "Accounting for Derivative Financial Instruments Indexed to, and
Potentially Settled in, a Company's Own Stock." The Shaw Warrant was issued
in connection with the sale of $5.0 million of convertible preferred stock
to Shaw (the "Shaw Financing"). Our accounting conclusion was that the sale
of preferred stock was, in substance, a financing transaction and not the
issuance of equity instruments in exchange for goods or services. When we
issued the $5.0 million of convertible preferred stock and the Shaw Warrant
on April 6, 1998, our singular objective was to obtain sufficient liquidity
to continue as a going concern. At the time of the Shaw Financing, our
ability to continue as a going concern was in serious doubt. At March 31,
1998, we had only $109,000 in cash, but were using cash of approximately
$1.0 million, net, per month in operations.  In addition, we had a deficit
in working capital of $8.8 million.  On March 11, 1999, Shaw purchased
1,500,000 shares of our common stock under the terms of the above warrant,
resulting in net proceeds to us of $9.8 million.

        Net Interest Income (Expense). Net interest income was $1.4 million for
the three months ended September 30, 1999 compared to $58,000 for the three
months ended September 30, 1998. Net interest income was $3.6 million for
the nine months ended September 30, 1999 compared to $26,000 for the same
period in 1998. The increases were due to higher cash balances resulting
from the proceeds of our initial public offering in August 1998 and our
subsequent follow-on public offering in January 1999.

        Income Taxes.  We have not generated net income to date and therefore we
have not incurred or accrued any income taxes since our inception.

Liquidity and Capital Resources

        At September 30, 1999, we had approximately $24.0 million in cash and
cash equivalents, $82.3 million in short-term investments and a $10.0
million revolving line of credit. There were no outstanding borrowings under
the line of credit and approximately $3.5 million was available.

        On January 21, 1999, we completed a public offering of 3,250,000 shares
of common stock at a public offering price of $38.00 per share. Of the
3,250,000 shares, we sold 1,750,000 shares and selling stockholders sold
1,500,000 shares. We received net proceeds of $62.5 million, after the
underwriting discount of approximately $3.3 million and offering expenses of
approximately $700,000. The proceeds from this offering have been designated
for general corporate purposes. On February 9, 1999, the underwriters
exercised their option to purchase 487,500 additional shares of common stock
to cover over-allotments, of which 351,946 shares were purchased from us and
135,554 shares were purchased from selling stockholders.  Our net proceeds
from the exercise of the over-allotment option were $12.7 million.

        On March 11, 1999, Shaw purchased 1,500,000 unregistered shares of our
common stock at $6.50 per share, resulting in net proceeds to us of $9.8
million.  The shares were purchased pursuant to the exercise of a warrant to
purchase 3,000,000 shares of our common stock issued to Shaw in 1998.

        Cash used in operating activities in the first nine months of 1999 was
$4.9 million compared to $15.0 million in the first nine months of 1998.
Cash used in operating activities declined in the first nine months of 1999
primarily due to a decrease in the net loss.  Cash used in investing
activities was $73.0 million in the first nine months of 1999 compared to
$3.8 in the first nine months of 1998.  Investment activities consisted
primarily of the purchase of short-term investments in 1999 and the purchase
of property and equipment in 1998.  Cash provided by financing activities
was $87.6 million for the nine months ended September 30, 1999 compared to
$46.9 million for the nine months ended September 30, 1998.  Financing
activities consisted primarily of proceeds from the issuance of common stock
in 1999 and from the issuance of common stock and preferred stock in 1998.

        As of September 30, 1999, we had approximately $24.5 million of
unconditional purchase obligations. We anticipate that we will pay
approximately $18.7 million of these obligations by December 31, 1999. We
intend to make these payments out of available working capital.

      We believe that our current cash balances will be sufficient to satisfy
our cash requirements for at least the next 12 months.

Year 2000

      The Year 2000 issue is the result of computer programs written using two
digits rather than four to define the applicable year (the "Year 2000
Issue"). Computer programs that have date-sensitive software like this may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices or engage in similar normal business activities.

      We are heavily dependent upon the proper functioning of our own
computer or data-dependent systems. This includes, but is not limited to,
our systems in information, business, finance, operations, manufacturing and
service. Any failure or malfunctioning on the part of these or other systems
could harm us in ways that are not currently known, discernible,
quantifiable or otherwise anticipated.

      We established an internal task force to evaluate those areas of our
business that may be affected by the Year 2000 Issue.  The task force
developed and implemented a plan for timely Year 2000 compliance (the
"Plan"). The Plan consisted of four identifiable activities.

* Inventory and Assessment.  This activity involved identifying and
compliance classifying products and internal systems and assessing the
potential impact to critical business processes and business continuity in
the event the products and systems are non-compliant. In addition, this
activity included formal communication with significant suppliers, large
customers and development partners to determine the extent to which we are
vulnerable to these third parties' failures to remedy their own Year 2000
issues.

* Testing and Remediation. This activity involved testing our products
and internal systems and upgrading and replacement of non-compliant products
and systems.

* Contingency Planning. This activity involved the development of
contingency plans for situations that may result if we are unable to achieve
Year 2000 readiness of our critical operations.

* Internal Audit. This ongoing activity involves assuring complete and
continued compliance of our products and systems.

     The Plan has been implemented and has been substantially completed.  We
have developed and conducted tests to determine whether our products are
Year 2000 compliant.  All TeraComm System hardware and software passed the
compliance tests.  Based on these results, we believe our products are Year
2000 compliant and we will continue to test our products to ensure
continuing compliance.

     The inventory, assessment and remediation of Terayon's internal systems
in finance, operations, manufacturing and service  should allow our business
processes to operate uninterrupted into and beyond the turn of the century.
Based on the testing and remediation performed, we believe our internal
systems are Year 2000 compliant and we will continue to conduct procedures
to ensure ongoing readiness. In some instance we achieved Year 2000
compliance through standard upgrades to our existing systems.  There is a
potential that some or all of the upgrades will not effectively address the
Year 200 issue. If the upgrades are not are not successful, we may be unable
to conduct our business or manufacture our products. Furthermore, there can
be no guarantee that the systems of other companies on which our systems
rely will be timely converted. In addition, a failure to convert by another
company, or a conversion that is incompatible with our systems, would harm
our business.

     We also are in the process of attempting to determine whether our key
suppliers and customers are Year 2000 compliant. To date, we have only
limited information on the Year 2000 compliance of our customers.  We have
contacted all of our  critical suppliers.  Most of the suppliers have
responded to our inquiries and confirmed that they are Year 2000 compliant.
We will continue our efforts to determine the Year 2000 compliance of our
customers and suppliers.  The operations of our key suppliers and customers
could be harmed in the event they do not successfully and timely achieve
Year 2000 compliance. Our business and results of operations could suffer if
our key suppliers were to experience Year 2000 issues that caused them to
delay manufacturing or shipment of key components to us. In addition, our
results of operations may be harmed if any of our key customers encounter
Year 2000 issues that cause them to delay or cancel substantial purchase
orders or delivery of our product.

      To date, we have not incurred significant costs associated with our
efforts to become Year 2000 compliant, as the majority of the costs have
occurred as a result of normal upgrade procedures. Furthermore, we believe
that future costs associated with our Year 2000 compliance efforts will not
be material.

      Contingency planning takes a risk management approach to assess
potential problems and to develop workable, operational capabilities to
effectively mitigate and work around various failure scenarios.  The focus
of our Plan is preparedness; therefore, we have developed contingency plans
that will allow us to continue to conduct critical business operations in
the event of an interruption.  We will continue to monitor these plans on a
regular basis.

 Recent Financial Accounting Pronouncement

     In September 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("FAS 133"). FAS 133 provides
a comprehensive and consistent standard for the recognition and measurement
of derivatives and hedging activities. FAS 133 was effective for fiscal
years beginning after September 15, 1999. In July 1999, the Financial
Accounting Standards Board issued Statement of Financial Accounting
Standards No. 137, "Accounting for Derivative Instruments and Hedging
Activities -Deferral of the Effective Date of FASB Statement No. 133" (FAS
137).  FAS 137 defers for one year the effective date of FAS 133 which will
now apply to all fiscal quarters of all fiscal years beginning after June
15, 2000. The Company believes that the adoption of  FAS 137 will not have a
significant impact on the Company's operating results or cash flows.

 CERTAIN BUSINESS RISKS

  We Have a Limited Operating History and a History of Losses.

         We have a very limited operating history, and it is difficult to
predict our future operating results. We were incorporated in January 1993
and began shipping products commercially in September 1997. We have only
been shipping products in volume since the first quarter of 1998. As of
September 30, 1999, we had an accumulated deficit of $129.4 million. We
believe that we will continue to experience net losses for the foreseeable
future. Most of our expenses are fixed in advance, and we generally are
unable to reduce our expenses significantly in the short term to compensate
for any unexpected delay or decrease in anticipated revenues. We expect to
increase expense levels in each of the next several quarters to support
increased sales and marketing activities and technical support costs. Any
significant delay in our anticipated revenues or commercialization of new
products would harm our business. The revenue and profit potential of our
business and our industry are unproven. We had negative gross margins from
our inception until the fourth quarter of 1998, and any future growth in
revenues may not result in positive gross margins or operating profits in
future periods.

 Our Operating Results May Fluctuate.

   Our quarterly revenues are likely to fluctuate significantly in the
future due to a number of factors, many of which are outside our control.
Factors that could affect our revenues include the following:

* variations in the timing of orders and shipments of our products;

* variations in the size of the orders by our customers;

* new product introductions by competitors;

* delays in introducing new products;

* delays of orders forecast by our customers;

* delays by our customers in the completion of upgrades of cable
infrastructure;

* variations in capital spending budgets of cable operators; and

* delays in obtaining regulatory approval for commercial deployment of
cable modem systems.

   Our expenses generally will vary from quarter to quarter depending on
the level of actual and anticipated business activities. Research and
development expenses will vary as we begin development of new products and
as our development programs move to wafer fabrication, which results in
higher engineering expenses.

   We have a limited backlog of orders, and net sales for any future
quarter are difficult to predict. Supply, manufacturing or testing
constraints could result in delays in the delivery of our products. Any
delay in the product deployment schedule of one or more of the cable
operators that we target would have an adverse effect on our operating
results for a particular period. In addition, due to the large dollar size
of a typical transaction in comparison to our total revenues, any delay in
the closing of a transaction could have a significant impact on our
operating results for a particular period.

   A variety of factors affect our gross margin, including the following:

* the sales mix of our products;

* the volume of products manufactured;

* the type of distribution channel through which we sell our products;

* the average selling prices or "ASPs" of our products; and

* the effectiveness of our cost reduction measures.

   We anticipate that the ASPs of our products will decline in the future.
This could cause a decrease in the gross margins for these products. In
addition, the maturity of TeraComm system deployments affects our gross
margin. New deployments of the TeraComm system involve the sale of headend
equipment (which has higher margins) and generally involve smaller
quantities of product. New deployments typically are sold at higher margins
than the larger volume sales of product associated with more mature
deployments of the TeraComm system. The sales mix of TeraLink 1000 Master
Controllers, TeraLink Gateways and TeraPro cable modems also affects our
gross margin. The TeraPro cable modems have significantly lower margins than
the TeraLink 1000 Master Controller and TeraLink Gateway headend products.
We expect to achieve only nominal margins on the TeraPro cable modems for
the foreseeable future. Further, we expect that sales of TeraPro cable
modems will continue to constitute a significant portion of our revenues for
the foreseeable future.

 We Are Dependent on a Small Number of Customers.

         Three customers accounted for approximately 54% of our revenues in the
first nine months of 1999 and for approximately 65% of our revenues in the
first nine months of 1998. We believe that a substantial majority of our
revenues will continue to be derived from sales to a relatively small number
of customers for the foreseeable future. In addition, we believe that sales
to these customers will be focused on a small number of projects. The cable
industry is undergoing significant consolidation in the United States and
internationally, and a limited number of cable operators controls an
increasing number of cable systems. As a result, our sales will be largely
dependent upon product acceptance by the leading cable operators. Currently,
ten cable operators in the United States own and operate facilities passing
approximately 86% of total homes passed. The timing and size of each
customer's order is critical to our operating results. Our major customers
are likely to have significant negotiating leverage and may attempt to
change the terms, including pricing, on which we do business with them.
These customers also may require longer payment terms than we anticipate,
which could require us to raise additional capital to meet our working
capital requirements. Our success will depend on our cable modems being
widely deployed and our ability to sell to new customers.

Acquisitions of Other Companies Could Result in Dilution, Operating
Difficulties and Other Harmful Consequences

        If appropriate opportunities present themselves, we intend to acquire
businesses, technologies, services or products that we believe are
strategic.  In September 1999, we acquired Imedia Corporation.  In October
1999, we signed agreements to acquire Telegate Ltd. and Radwiz Ltd. The
process of integrating an acquired business into our business and operations
may result in unforeseen operating difficulties and expenditures.
Integrating any business will require significant management resources that
would otherwise be available for the ongoing development of our business.
Moreover, the anticipated benefits of any acquisition may not be realized.
Future acquisitions could result in us issuing potentially dilutive equity
securities, incurring debt, contingent liabilities or amortization expenses
related to goodwill and other intangible assets, any of which could harm our
business.  Future acquisitions may require us to obtain additional equity or
debt financing, which may not be available on favorable terms or at all.
Even if available, this financing may be dilutive.

 The Sales Cycle for Our Products Is Lengthy.

        The sales cycle associated with our products typically is lengthy, often
lasting nine months to a year. Our customers typically conduct significant
technical evaluations of competing technologies prior to the commitment of
capital and other resources. In addition, purchasing decisions may be
delayed because of our customers' internal budget approval procedures. Sales
also generally are subject to customer trials, which typically last three
months. Because of the lengthy sales cycle and the large size of customers'
orders, if orders forecasted for a specific customer for a particular
quarter do not occur in that quarter, our operating results for that quarter
could suffer.

There are Many Risks Associated with Our Participation in the Establishment
of Advanced Physical Layer specifications to be added to DOCSIS.

      In November 1998, CableLabs selected us to co-author a technical
specification for DOCSIS 1.2, an enhanced version of the DOCSIS cable modem
standard based in part on our S-CDMA technology.  Since then, CableLabs has
reaffirmed its intention to add advanced upstream physical layer ("PHY")
capabilities to the DOCSIS specifications as enhancements; however,
CableLabs has modified its plans for how the specifications  will be
created.  In September, 1999, CableLabs indicated that it wants to proceed
with the advanced PHY work on two parallel tracks: one for the inclusion of
our S-CDMA technology, as proposed by Terayon; and, one for the inclusion of
Advanced TDMA technology, as proposed by other companies.   CableLabs wants
work to proceed in parallel on these two complementary technologies, but the
intention remains to include both as operating modes in a future version of
the DOCSIS specification, consistent with the original plans for DOCSIS 1.2.
As part of the new plan to add advanced PHY capabilities to DOCSIS,
CableLabs has dropped reference to what was formerly called DOCSIS 1.2, the
name given in November to the specification that includes advanced PHY.

      CableLabs has requested that we submit a prototype of a DOCSIS system
that incorporates an S-CDMA advanced PHY capability for testing.  CableLabs
has stated that if the testing of this prototype reveals that the S-CDMA
advanced PHY works as claimed, and if the costs for adding S-CDMA to DOCSIS
products are in line with estimates, then it is highly likely that it will
add S-CDMA advanced PHY capabilities to a future version of the DOCSIS
specification.  There can be no guarantee that the prototype we submit to
CableLabs will demonstrate the level of performance that CableLabs seeks,
or, that even if it does meet performance expectations that CableLabs will
incorporate the technology into a future version of DOCSIS specifications.
In addition, if CableLabs does proceed to include S-CDMA in a future DOCSIS
specification, there can be no guarantee that the DOCSIS S-CDMA
specification will be the same as the specification we incorporated in the
prototype submitted for tests.

      If CableLabs does not adopt an enhancement to the DOCSIS specifications
based on S-CDMA technology, or if it adopts a version that is substantially
different than what we propose, it is likely our future revenues and
operating results will be adversely affected. It may also cause us to incur
substantial additional research and development expenditures to adapt our
specifications to the version adopted by CableLabs.

     CableLabs has not established a schedule for adding either the S-CDMA or
Advanced TDMA capabilities to the DOCSIS specifications; although, CableLabs
has indicated that they want to proceed expeditiously. Delays in the
establishment of a firm specification for S-CDMA in DOCSIS could harm our
plans to sell DOCSIS compatible modems and headend equipment.  In
particular, if the final DOCSIS S-CMDA specification is not approved prior
to the time when the company is ready to ship DOCSIS products with S-CDMA
features included, then we could face two choices.  The first would be to
delay the introduction of those products until the DOCSIS S-CDMA
specification is released.  The second would be to introduce the S-CDMA
features as proprietary enhancements on top of a standard DOCSIS product.
Either one of the choices could harm revenues and operating results.

      We have already given CableLabs assurances that we will contribute some
aspects of our proprietary S-CDMA technology  to a royalty-free intellective
property pool, if S-CDMA is included in a future version of DOCSIS
specifications..  This royalty-free pool has been established by CableLabs
to facilitate the participation of as many vendors as possible in providing
equipment that is compatible with the DOCSIS specifications. As a result,
any of our competitors who join the DOCSIS intellectual property pool would
have access to some aspects of our technology and will not be required to
pay us any royalties or other compensation. If a competitor is able to
duplicate the functionality and capabilities of our technology, we could
lose some or all of the time-to-market advantage we might otherwise have
which could harm our future revenues and operating results.

      We believe the addition of advanced upstream PHY capabilities to DOCSIS
will increase the overall market for DOCSIS-compatible products, and as such
will result in increased competition in the cable modem market. This
competition could come from existing competitors or from new competitors who
enter the market as a result of the enhancements to the specifications. This
increased competition is likely to result in lower ASPs of cable modem
systems and could harm revenues and gross margins. Because our competitors
will be able to incorporate some aspects of our technology into their
products, our current customers may choose alternate suppliers or choose to
purchase DOCSIS-compliant cable modems with advanced PHY capabilities from
multiple suppliers. We may be unable to produce DOCSIS compliant cable
modems with advanced PHY capabilities more quickly or at lower cost than our
competitors. The inclusion of our S-CDMA technology in DOCSIS could result
in increased competition for the services of our existing employees who have
experience with S-CDMA. The loss of these employees to one or more
competitors could harm our business.

         DOCSIS standards have not yet been accepted in Europe and Asia. If
standards that are not compatible with DOCSIS standards ultimately achieve
widespread acceptance outside of the United States and Canada, we could be
required to redesign our products for use in those markets.  We would also
be faced with the additional challenge of convincing additional standards
bodies that an advanced PHY based on S-CDMA technology should be included in
those standards.   There is no guarantee that we would be successful in
convincing them of this. Even if we were able to successfully redesign our
products to implement standards other than DOCSIS, this would likely
adversely affect our sales and gross margin results outside of the North
America.

 We Need to Develop New Products.

         Our future success will depend in part on our ability to develop,
introduce and market new products in a timely manner. We must also respond
to competitive pressures, evolving industry standards and technological
advances. Our current S-CDMA products are not DOCSIS-compliant, and we do
not expect to sell our DOCSIS compliant products with advanced PHY based on
S-CDMA until the Year 2000. As the Year 2000 approaches, existing or
potential customers may delay purchases of our current cable modem system in
order to purchase systems that comply with the DOCSIS standard. In addition,
potential new customers could decide to purchase DOCSIS compliant products
from one or more of our competitors rather than from us. As a result our
product sales in the first half of the Year 2000 may be lower than we
anticipate. As 2000 approaches, we may be required to reduce the price of
our current products for sales to existing customers. This would harm our
operating results and gross margin.

         It is expected that the DOCSIS specifications that include
specifications for advanced PHY will be based upon both S-CDMA and advanced
TDMA technology. In that event, we will have to incorporate advanced TDMA
technology into our DOCSIS compliant products. If we are unable to do this
effectively, or in a timely manner, we will lose some or all of the time-to-
market advantage we might otherwise have had.

 Average Selling Prices of Cable Equipment Typically Decrease.

       The cable equipment systems industry has been characterized by erosion
of average selling prices. We expect this to continue. This erosion is due
to a number of factors, including competition, rapid technological change
and price performance enhancements. The average selling prices for our
products may be lower than expected as a result of competitive pricing
pressures, our promotional programs and customers who negotiate price
reductionsin exchange for longer term purchase commitments. We anticipate
that ASPs and gross margins for our products will decrease over product life
cycles. In addition, we believe that the widespread adoption of industry
standards is likely to further erode ASPs, particularly for cable modems. It
is likely that the adoption of widespread industry standards also will
result in increased retail distribution of cable modems, which could put
further price pressure on our modems. Decreasing ASPs could result in
decreased revenues even if the number of units sold increases. As a result,
we may experience substantial period-to-period fluctuations in future
operating results due to ASP erosion. Therefore, we must continue to develop
and introduce on a timely basis next-generation products with enhanced
functionality that can be sold at higher gross margins. Our failure to do
this could cause our revenues and gross margin to decline.

 We Must Achieve Cost Reductions.

         Certain of our competitors currently offer cable modems at prices lower
than ours. Market acceptance of our products will depend in part on
reductions in the unit cost of our products. We expect that as headend
equipment becomes more widely deployed, the price of cable modems and other
products will decline. In particular, we believe that the widespread
adoption of industry standards such as DOCSIS will cause increased price
competition for cable modems. However, we may be unable to reduce the cost
of our modems sufficiently to enable us to compete with other cable modem
suppliers. Our cost reduction efforts may not allow us to keep pace with
competitive pricing pressures or lead to gross margin improvement.

          Some of our competitors are larger and manufacture products in
significantly greater quantities than we intend to for the foreseeable
future. Consequently, these competitors have more leverage in obtaining
favorable pricing from suppliers and manufacturers. In order to remain
competitive, we must significantly reduce the cost of manufacturing our
products  through redesign and engineering changes. We may not be. Even if
we are successful, our redesign may be delayed or may contain significant
errors and product defects. In addition, any redesign may not result in
sufficient cost reductions to allow us to significantly reduce ASPs of our
products or improve our gross margin. Reductions in our manufacturing costs
will require us to use more highly integrated components in future products
and may require us to enter into high volume or long-term purchase or
manufacturing agreements. Volume purchase or manufacturing agreements may
not be available on acceptable terms. We could incur expenses without
related revenues if we enter into a high volume or long-term purchase or
manufacturing agreement and then decide that we cannot use the products or
services offered by that agreement.

 We Face Many Other Risks.

     Also inherent in our business are additional risks, which include but are
not limited to the following:

* acceptance of cable modems by cable operators and end users of
broadband access services;

* our ability to develop additional distribution channels;

* our ability to convince cable operators to accept our technologies,
purchase our products and effectively market our product to end users;

* the magnitude and timing of capital spending by cable operators for
implementation of broadband access systems for cable networks;

* future customer agreements that may contain price protection
provisions and certain return rights.

* our limited experience manufacturing our products and our dependence
on the manufacturing capabilities of our contract manufacturers to
assemble and test our products;

* our dependence on key suppliers;

* our ability to develop products that utilize new semiconductor process
technologies;

* the risks associated with our international business activities, which
account for a substantial portion of our total revenues;

* the highly competitive nature of the market for broadband access
systems and the existence of many established competitors;

* our dependence on the Internet and the development of the Internet
infrastructure;

* our ability to manage growth;

* the sufficiency of cash resources and our ability to obtain additional
financing on favorable terms, if at all, if required;

* our dependence on key personnel;

* the risks of product returns, product liability and product defects;

* our ability to adequately protect or enforce our intellectual property
rights; and,

* communications industry and other regulatory approvals.

ITEM III:  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our market risk disclosures set forth in Item 7A of our Annual Report on
Form 10-K for the year ended December 31, 1998 have not changed
signficantly.

PART II: OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

     (d) Use of Proceeds from Sales of Registered Securities. We commenced our
initial public offering on August 18, 1998 pursuant to a Registration
Statement on Form S-1 (the "Registration Statement") (File No. 333-56911).
The managing underwriters of the public offering were BT Alex. Brown (now
known as Deutsche Banc Alex. Brown), Hambrecht & Quist, Lehman Brothers and
Salomon Smith Barney. In the offering, we sold an aggregate of 3,000,000
shares of our common stock for an initial price of $13.00 per share.

The aggregate proceeds from the offering were $39.0 million.  We paid
expenses of approximately $3.9 million, of which approximately $2.7 million
represented underwriting discounts and commissions and approximately $1.2
million represented expenses related to the offering. Net proceeds from the
offering were $35.1 million. Of the net proceeds, as of September 30, 1999,
approximately $12.0 million had been used to fund operating activities, $1.5
million had been used for payments on long-term debt and capital lease
obligations, $3.6 million had been used to purchase property and equipment
and $1.0 million had been used to purchase other assets. The use of proceeds
described in our Registration Statement. At September 30, 1999, the
remainder of the net proceeds were invested in short-term, interest-bearing,
investment grade securities.



ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        None

ITEM 5. OTHER INFORMATION

     None

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

     (a) Exhibits

<TABLE>
<CAPTION>

Exhibit
Number   Description of Document

<S>      <C>

10.26    Lease Agreement dated April 20, 1998 between Imedia Corporation
         and Martin CL Associate, L.P.

10.27    Sublease Agreement dated November 15, 1999 between Imedia
         Corporation and ISP Channel, Inc.

27.1     Financial Data Schedule

</TABLE>

      (b) Reports of Form 8-K

         1.  Terayon filed a current report on Form 8-K dated September
16, 1999 on October 1, 1999 reporting Terayon's acquisition of Imedia
Corporation.  The current report was amended on October 4, 19999 to include
the financial statements of Imedia and the pro forma financial information
reflecting the purchase combination of Terayon and Imedia.

       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.


TERAYON COMMUNICATION SYSTEMS, INC.



By: /s/ RAY M. FRITZ                    Date: November 15, 1999
 ------------------------------------
 Ray M. Fritz
 Chief Financial Officer
         (Principal Accounting and Financial Officer)

<PAGE>