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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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Form 10-Q



(Mark One)

|þ | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------



For the three month period ended September 30, 2005



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 000-30741



OCCAM NETWORKS, INC.

(Exact name of registrant as specified in its charter)



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 77-0442752                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)



|                                             |  |           
|-------------------------------------------- |  | ----------
|77 Robin Hill Road Santa Barbara, California |  | 93117     
|(Address of principal executive office)      |  | (Zip Code)



(805) 692-2900

(Registrants telephone number, including area code)



N/A

(Former name, former address and former fiscal year, if changed since last report)



Indicate by check mark whether the registrant (1) has filed all documents and reports required to be filed 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. Yes x    No ̈



Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ̈No x



Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ̈No x



Indicate the number of shares outstanding of each of the issuers classes of common
stock, as of the latest practicable date.



Number of shares of Common Stock
outstanding as of October 31, 2005, 271,957,996 shares (596,974,351 shares including 325,016,355 shares of common stock issuable upon conversion of outstanding series A-2 preferred stock.)



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##### Table of Contents

INDEX



|              |  |                                                                                       |  |     
|------------- |  | ------------------------------------------------------------------------------------- |  | ----
|              |  |                                                                                       |  | Page
|Part I        |  | Financial Information                                                                 |  |     
|              |  |                                                                                      
|Item 1.       |  | Financial Statements (unaudited)                                                      |  | 1   
|              |  |                                                                                      
|              |  | Consolidated Balance Sheets                                                           |  | 1   
|              |  |                                                                                      
|              |  | Consolidated Statements of Operations                                                 |  | 2   
|              |  |                                                                                      
|              |  | Consolidated Statements of Cash Flows                                                 |  | 3   
|              |  |                                                                                      
|              |  | Consolidated Statements of Redeemable Preferred Stock and Stockholders Deficit       |  | 4   
|              |  |                                                                                      
|              |  | Notes to Consolidated Financial Statements                                            |  | 5   
|              |  |                                                                                      
|Item 2.       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 11  
|              |  |                                                                                      
|Item 3.       |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 27  
|              |  |                                                                                      
|Item 4.       |  | Controls and Procedures                                                               |  | 27  
|              |  |                                                                                      
|Part II       |  | Other Information                                                                     |  |     
|              |  |                                                                                      
|Item 1.       |  | Legal Proceedings                                                                     |  | 28  
|              |  |                                                                                      
|Item 2.       |  | Unregistered Sale of Equity Securities and Use of Proceeds                            |  | 29  
|              |  |                                                                                      
|Item 4.       |  | Submission of Matters to a Vote of Security Holders                                   |  |     
|              |  |                                                                                      
|Item 6.       |  | Exhibits                                                                              |  | 29  
|              | 
|Signatures    |  | 30                                                                                   
|              | 
|Exhibit Index |  | 32                                                                                   



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##### Table of Contents

PART I. FINANCIAL INFORMATION

|ITEM 1. | FINANCIAL STATEMENTS
|------- | --------------------



OCCAM NETWORKS INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)



|                                                                                                                                                                                                                                                                                                |  |                   |          |   |                  |   |          |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | -------- | - | ---------------- | - | -------- | -
|                                                                                                                                                                                                                                                                                                |  | September 30,2005 |          |   | December 31,2004 |  
|                                                                                                                                                                                                                                                                                                |  | (Unaudited)       |          |   |                  |  
|ASSETS                                                                                                                                                                                                                                                                                          |  |                   |          |   |                  |   |          |  
|Current assets:                                                                                                                                                                                                                                                                                 |  |                   |          |   |                  |   |          |  
|Cash and cash equivalents                                                                                                                                                                                                                                                                       |  | $                 | 7,431    |   |                  | $ | 4,432    |  
|Restricted cash                                                                                                                                                                                                                                                                                 |  |                   | 3,009    |   |                  |   | 2,101    |  
|Accounts receivable, net                                                                                                                                                                                                                                                                        |  |                   | 7,002    |   |                  |   | 5,217    |  
|Inventories                                                                                                                                                                                                                                                                                     |  |                   | 2,874    |   |                  |   | 6,611    |  
|Prepaid and other current assets                                                                                                                                                                                                                                                                |  |                   | 918      |   |                  |   | 794      |  
|                                                                                                                                                                                                                                                                                                |  |                   |          |   |                  |   |          |  
|Total current assets                                                                                                                                                                                                                                                                            |  |                   | 21,234   |   |                  |   | 19,155   |  
|Property and equipment, net                                                                                                                                                                                                                                                                     |  |                   | 1,865    |   |                  |   | 1,692    |  
|Other assets                                                                                                                                                                                                                                                                                    |  |                   | 205      |   |                  |   | 213      |  
|                                                                                                                                                                                                                                                                                                |  |                   |          |   |                  |   |          |  
|Total assets                                                                                                                                                                                                                                                                                    |  | $                 | 23,304   |   |                  | $ | 21,060   |  
|                                                                                                                                                                                                                                                                                                |  |                   |          |   |                  |   |          |  
|LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS DEFICIT                                                                                                                                                                                                                               |  |                   |          |   |                  |   |          |  
|Current liabilities:                                                                                                                                                                                                                                                                            |  |                   |          |   |                  |   |          |  
|Accounts payable                                                                                                                                                                                                                                                                                |  | $                 | 3,213    |   |                  | $ | 6,277    |  
|Accrued expenses                                                                                                                                                                                                                                                                                |  |                   | 3,223    |   |                  |   | 3,330    |  
|Current portion of long-term debt and capital lease obligations                                                                                                                                                                                                                                 |  |                   | 1,234    |   |                  |   | 863      |  
|                                                                                                                                                                                                                                                                                                |  |                   |          |   |                  |   |          |  
|Total current liabilities                                                                                                                                                                                                                                                                       |  |                   | 7,670    |   |                  |   | 10,470   |  
|Long-term debt and capital lease obligations                                                                                                                                                                                                                                                    |  |                   | 1,604    |   |                  |   | 2,987    |  
|                                                                                                                                                                                                                                                                                                |  |                   |          |   |                  |   |          |  
|Total liabilities                                                                                                                                                                                                                                                                               |  |                   | 9,274    |   |                  |   | 13,457   |  
|Commitments and contingencies (note 4)                                                                                                                                                                                                                                                          |  |                   |          |   |                  |   |          |  
|Redeemable preferred stock                                                                                                                                                                                                                                                                      |  |                   |          |   |                  |   |          |  
|Series A-2 convertible preferred stock, $.001 par value, authorized 4,300 shares, 3,560 and 2,224 issued and outstanding at
September 30, 2005 and at December 31, 2004, respectively, liquidation preference of $106,800 and $66,723 at September 30, 2005 and December 31, 2004, respectively |  |                   | 34,869   |   |                  |   | 20,993   |  
|Series A-2 convertible preferred stock warrant                                                                                                                                                                                                                                                  |  |                   | 73       |   |                  |   | 503      |  
|Stockholders deficit:                                                                                                                                                                                                                                                                          |  |                   |          |   |                  |   |          |  
|Common stock, $0.001 par value, 750,000 shares authorized; 271,852 and 268,570 shares issued and outstanding at September 30, 2005 and
December 31, 2004, respectively                                                                                                                          |  |                   | 272      |   |                  |   | 269      |  
|Additional paid-in capital                                                                                                                                                                                                                                                                      |  |                   | 87,656   |   |                  |   | 87,294   |  
|Warrants                                                                                                                                                                                                                                                                                        |  |                   | 559      |   |                  |   | 559      |  
|Deferred stock compensation                                                                                                                                                                                                                                                                     |  |                   | (136     | ) |                  |   | (633     | )
|Accumulated deficit                                                                                                                                                                                                                                                                             |  |                   | (109,263 | ) |                  |   | (101,382 | )
|                                                                                                                                                                                                                                                                                                |  |                   |          |   |                  |   |          |  
|Total stockholders deficit                                                                                                                                                                                                                                                                     |  |                   | (20,912  | ) |                  |   | (13,893  | )
|                                                                                                                                                                                                                                                                                                |  |                   |          |   |                  |   |          |  
|Total liabilities, redeemable preferred stock and stockholders deficit                                                                                                                                                                                                                         |  | $                 | 23,304   |   |                  | $ | 21,060   |  
|                                                                                                                                                                                                                                                                                                |  |                   |          |   |                  |   |          |  



The accompanying notes
are an integral part of these consolidated financial statements.



1



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##### Table of Contents

OCCAM NETWORKS, INC.

STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)



|                                                      |  |                                  |         |   |                                 |   |         |      |  |   |         |   |  |   |         |  
|----------------------------------------------------- |  | -------------------------------- | ------- | - | ------------------------------- | - | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                                      |  | Three months ended September 30, |         |   | Nine months ended September 30, |  
|                                                      |  | 2005                             |         |   | 2004                            |   |         | 2005 |  |   | 2004    |  
|Sales                                                 |  | $                                | 10,663  |   |                                 | $ | 4,424   |      |  | $ | 26,324  |   |  | $ | 10,849  |  
|Cost of sales                                         |  |                                  | 7,709   |   |                                 |   | 3,686   |      |  |   | 19,597  |   |  |   | 11,227  |  
|                                                      |  |                                  |         |   |                                 |   |         |      |  |   |         |   |  |   |         |  
|Gross profit (loss)                                   |  |                                  | 2,954   |   |                                 |   | 738     |      |  |   | 6,727   |   |  |   | (378    | )
|Operating expenses:                                   |  |                                  |         |   |                                 |   |         |      |  |   |         |   |  |   |         |  
|Research and product development                      |  |                                  | 1,948   |   |                                 |   | 1,910   |      |  |   | 5,417   |   |  |   | 5,895   |  
|Sales and marketing                                   |  |                                  | 2,562   |   |                                 |   | 1,475   |      |  |   | 6,206   |   |  |   | 4,690   |  
|General and administrative                            |  |                                  | 1,365   |   |                                 |   | 548     |      |  |   | 2,770   |   |  |   | 1,657   |  
|                                                      |  |                                  |         |   |                                 |   |         |      |  |   |         |   |  |   |         |  
|Total operating expenses                              |  |                                  | 5,875   |   |                                 |   | 3,933   |      |  |   | 14,393  |   |  |   | 12,242  |  
|Loss from operations                                  |  |                                  | (2,921  | ) |                                 |   | (3,195  | )    |  |   | (7,666  | ) |  |   | (12,620 | )
|Interest expense, net                                 |  |                                  | (46     | ) |                                 |   | (15     | )    |  |   | (215    | ) |  |   | (75     | )
|                                                      |  |                                  |         |   |                                 |   |         |      |  |   |         |   |  |   |         |  
|Loss before income taxes                              |  |                                  | (2,967  | ) |                                 |   | (3,210  | )    |  |   | (7,881  | ) |  |   | (12,695 | )
|Provision for income tax                              |  |                                  |        |   |                                 |   |        |      |  |   |        |   |  |   |        |  
|                                                      |  |                                  |         |   |                                 |   |         |      |  |   |         |   |  |   |         |  
|Net loss                                              |  |                                  | (2,967  | ) |                                 |   | (3,210  | )    |  |   | (7,881  | ) |  |   | (12,695 | )
|Beneficial conversion feature                         |  |                                  |        |   |                                 |   | (131    | )    |  |   | (1,822  | ) |  |   | (3,198  | )
|                                                      |  |                                  |         |   |                                 |   |         |      |  |   |         |   |  |   |         |  
|Net loss attributable to common stockholders          |  |                                  | (2,967  | ) |                                 |   | (3,341  | )    |  |   | (9,703  | ) |  |   | (15,893 | )
|                                                      |  |                                  |         |   |                                 |   |         |      |  |   |         |   |  |   |         |  
|Net loss per share:                                   |  |                                  |         |   |                                 |   |         |      |  |   |         |   |  |   |         |  
|Basic and diluted                                     |  | $                                | (0.01   | ) |                                 | $ | (0.01   | )    |  | $ | (0.04   | ) |  | $ | (0.06   | )
|                                                      |  |                                  |         |   |                                 |   |         |      |  |   |         |   |  |   |         |  
|Weighted average shares:                              |  |                                  |         |   |                                 |   |         |      |  |   |         |   |  |   |         |  
|Basic and diluted                                     |  |                                  | 270,761 |   |                                 |   | 268,222 |      |  |   | 269,622 |   |  |   | 267,622 |  
|                                                      |  |                                  |         |   |                                 |   |         |      |  |   |         |   |  |   |         |  
|Amortization of stock-based compensation included in: |  |                                  |         |   |                                 |   |         |      |  |   |         |   |  |   |         |  
|Research and product development                      |  | $                                | 137     |   |                                 | $ | 161     |      |  | $ | 419     |   |  | $ | 540     |  
|Sales and marketing                                   |  |                                  | 20      |   |                                 |   | 25      |      |  |   | 62      |   |  |   | 97      |  
|General and administrative                            |  |                                  | 2       |   |                                 |   | 3       |      |  |   | 5       |   |  |   | 37      |  
|                                                      |  |                                  |         |   |                                 |   |         |      |  |   |         |   |  |   |         |  
|Total amortization of stock-based compensation        |  | $                                | 159     |   |                                 | $ | 189     |      |  | $ | 486     |   |  | $ | 674     |  
|                                                      |  |                                  |         |   |                                 |   |         |      |  |   |         |   |  |   |         |  



The accompanying notes
are an integral part of these consolidated financial statements



2



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OCCAM WORKS, INC.

STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



|                                                                                         |  |                                 |        |   |      |   |         |  
|---------------------------------------------------------------------------------------- |  | ------------------------------- | ------ | - | ---- | - | ------- | -
|                                                                                         |  | Nine months ended September 30, |       
|                                                                                         |  | 2005                            |        |   | 2004 |  
|Operating activities                                                                     |  |                                 |        |   |      |   |         |  
|Net loss                                                                                 |  | $                               | (7,881 | ) |      | $ | (12,695 | )
|Adjustments to reconcile net loss to net cash used in operating activities:              |  |                                 |        |   |      |   |         |  
|Depreciation and amortization                                                            |  |                                 | 759    |   |      |   | 1,136   |  
|Non-cash charges relating to stock options, grants and warrants                          |  |                                 | 608    |   |      |   | 674     |  
|Writeoff of note receivable                                                              |  |                                 | 399    |   |      |   |        |  
|Changes in operating assets and liabilities:                                             |  |                                 |        |   |      |   |         |  
|Accounts receivable                                                                      |  |                                 | (1,785 | ) |      |   | (1,315  | )
|Inventory                                                                                |  |                                 | 3,737  |   |      |   | (1,599  | )
|Prepaid expenses and other assets                                                        |  |                                 | (544   | ) |      |   | (176    | )
|Accounts payable and accrued expenses                                                    |  |                                 | (3,171 | ) |      |   | 1,261   |  
|                                                                                         |  |                                 |        |   |      |   |         |  
|Net cash used in operating activities                                                    |  |                                 | (7,878 | ) |      |   | (12,714 | )
|                                                                                         |  |                                
|Investing activities                                                                     |  |                                 |        |   |      |   |         |  
|Purchases of property and equipment                                                      |  |                                 | (906   | ) |      |   | (826    | )
|Restricted cash                                                                          |  |                                 | (908   | ) |      |   |        |  
|Other assets                                                                             |  |                                 | 3      |   |      |   | 10      |  
|                                                                                         |  |                                 |        |   |      |   |         |  
|Net cash used in investing activities                                                    |  |                                 | (1,811 | ) |      |   | (816    | )
|                                                                                         |  |                                
|Financing activities                                                                     |  |                                 |        |   |      |   |         |  
|Proceeds from issuance of series A-2 preferred stock and warrants, net of issuance costs |  |                                 | 12,826 |   |      |   | 5,141   |  
|Proceeds from the exercise of stock options                                              |  |                                 | 339    |   |      |   | 99      |  
|Payments of capital lease obligations and long-term debt                                 |  |                                 | (477   | ) |      |   | (567    | )
|                                                                                         |  |                                 |        |   |      |   |         |  
|Net cash provided by financing activities                                                |  |                                 | 12,688 |   |      |   | 4,673   |  
|Net increase in cash and cash equivalents                                                |  |                                 | 2,999  |   |      |   | (8,857  | )
|Cash and cash equivalents, beginning of period                                           |  |                                 | 4,432  |   |      |   | 14,586  |  
|                                                                                         |  |                                 |        |   |      |   |         |  
|Cash and cash equivalents, end of period                                                 |  | $                               | 7,431  |   |      | $ | 5,729   |  
|                                                                                         |  |                                 |        |   |      |   |         |  
|Supplemental disclosure of cash flow information:                                        |  |                                 |        |   |      |   |         |  
|Interest paid                                                                            |  | $                               | 313    |   |      | $ | 20      |  
|Conversion of note payable and accrued interest to Series A-2 preferred stock            |  | $                               | 535    |   |      |   |        |  



The accompanying notes
are an integral part of these consolidated financial statements.



3



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##### Table of Contents

CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERED STOCK AND STOCKHOLDERS DEFICIT

(In thousands)

(Unaudited)

Nine months ended
September 30, 2005



|                                                                                       |  |                            |  |        |                      |   |                |              |      |        |  |         |  |          |     |                      |   |     |                           |   |      |                    |  |   |        |   |  |   |          |   |  |   |         |  
|-------------------------------------------------------------------------------------- |  | -------------------------- |  | ------ | -------------------- | - | -------------- | ------------ | ---- | ------ |  | ------- |  | -------- | --- | -------------------- | - | --- | ------------------------- | - | ---- | ------------------ |  | - | ------ | - |  | - | -------- | - |  | - | ------- | -
|                                                                                       |  | Series A-2 Preferred Stock |  |        | Series A-2 Preferred |   |                | Common Stock |      |        |  |         |  |          |     |                      |   |     |                           |   |      |                   
|                                                                                       |  | Shares                     |  | Amount |                      |   | Stock Warrants |              |      | Shares |  | Amount  |  | Warrants |     | DeferredCompensation |   |     | AdditionalPaid in Capital |   |      | AccumulatedDeficit |  |   | Total  |  
|Balance at December 31, 2004                                                           |  | 2,224                      |  | $      | 20,993               |   |                | $            | 503  |        |  | 268,570 |  | $        | 269 |                      | $ | 559 |                           | $ | (633 | )                  |  | $ | 87,294 |   |  | $ | (101,382 | ) |  | $ | (13,893 | )
|Exercise of stock options                                                              |  |                           |  |        |                     |   |                |              |     |        |  | 2,843   |  |          | 2   |                      |   |    |                           |   |     |                    |  |   | 337    |   |  |   |         |   |  |   | 339     |  
|Stock grant to officer, net                                                            |  |                           |  |        |                     |   |                |              |     |        |  | 439     |  |          | 1   |                      |   |    |                           |   |     |                    |  |   | 121    |   |  |   |         |   |  |   | 122     |  
|Amortization of deferred stock-based compensation                                      |  |                           |  |        |                     |   |                |              |     |        |  |        |  |          |    |                      |   |    |                           |   | 497  |                    |  |   | (11    | ) |  |   |         |   |  |   | 486     |  
|Issuance of series A-2, redeemable preferred stock and warrants, net of issuance costs |  | 1,336                      |  |        | 13,876               |   |                |              | (515 | )      |  |        |  |          |    |                      |   |    |                           |   |     |                    |  |   |       |   |  |   |         |   |  |   |        |  
|Record beneficial conversion feature                                                   |  |                           |  |        | (1,737               | ) |                |              |     |        |  |        |  |          |    |                      |   |    |                           |   |     |                    |  |   | 1,737  |   |  |   |         |   |  |   | 1,737   |  
|Amortize beneficial conversion feature                                                 |  |                           |  |        | 1,737                |   |                |              | 85   |        |  |        |  |          |    |                      |   |    |                           |   |     |                    |  |   | (1,822 | ) |  |   |         |   |  |   | (1,822  | )
|Net loss                                                                               |  |                           |  |        |                     |   |                |              |     |        |  |        |  |          |    |                      |   |    |                           |   |     |                    |  |   |       |   |  |   | (7,881   | ) |  |   | (7,881  | )
|                                                                                       |  |                            |  |        |                      |   |                |              |      |        |  |         |  |          |     |                      |   |     |                           |   |      |                    |  |   |        |   |  |   |          |   |  |   |         |  
|Balance at September 30, 2005                                                          |  | 3,560                      |  | $      | 34,869               |   |                | $            | 73   |        |  | 271,852 |  | $        | 272 |                      | $ | 559 |                           | $ | (136 | )                  |  | $ | 87,656 |   |  | $ | (109,263 | ) |  | $ | (20,912 | )
|                                                                                       |  |                            |  |        |                      |   |                |              |      |        |  |         |  |          |     |                      |   |     |                           |   |      |                    |  |   |        |   |  |   |          |   |  |   |         |  



The accompanying notes
are an integral part of these consolidated financial statements.



4



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##### Table of Contents

OCCAM NETWORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All interim information relating to the three and nine-month periods ended

September 30, 2005 and 2004 is unaudited)



|1. | BUSINESS AND BASIS OF PRESENTATION
|-- | ----------------------------------



Occam Networks, Inc. (Occam or the Company) develops and markets a suite of broadband loop carriers (BLCs), including innovative Ethernet and
IP-based loop carrier platforms that enable Incumbent Local Exchange Carriers (ILECs) to deliver a variety of traditional and packet voice, broadband and IP services from a single, converged all-packet access network.



On May 14, 2002, Accelerated Networks, Inc. a Delaware corporation (Accelerated
Networks) acquired Occam Networks Inc., a California corporation (Occam CA), in a merger transaction in which Occam CA became a subsidiary of Accelerated Networks. After the completion of the merger, Accelerated Networks filed a
certificate of amendment to its amended and restated certificate of incorporation in order to change the name of the corporation to Occam Networks, Inc. Occam CA also filed an amendment to its articles of incorporation following the merger to change
its name to Occam Networks (California), Inc..



The accompanying
financial statements have been prepared on the basis that the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The Company
has incurred significant operating losses and negative cash flows since its inception, and it has funded its operations primarily through the sale of equity securities and debt borrowings.



The Companys viability as a going concern is dependent upon its ability to successfully
carry out its business plan. Since inception, the Company has devoted substantial effort and capital resources to develop and market its products. Based on the Companys current operating plans, management believes that the recent equity
investments and debt financing will be sufficient to fund the Company through twelve months from September 30, 2005.



In addition, managements plans to attain profitability and generate additional cash flows depend upon increasing revenues from new and existing customers, focusing
on cost reductions, and launching additional products. There can be no assurance that management will be successful with these plans. If events and circumstances occur such that the Company does not meet its current operating plan, and the Company
is unable to raise additional financing, the Company may be required to reduce certain discretionary spending, which could have a material adverse effect on the Companys ability to achieve its intended business objectives. The financial
statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.



Basis of Presentation



The accompanying consolidated financial statements are unaudited. The consolidated balance sheet at December 31, 2004 is derived from
Occams audited financial statements included in its Annual Report on Form 10-K. These financial statements reflect all material adjustments, consisting only of normal recurring adjustments, which, in the opinion of management, are necessary to
fairly state our financial position, results of operations and cash flows for the interim periods. The results of operations for the current interim periods are not necessarily indicative of results to be expected for the entire year.



These consolidated financial statements have been prepared in accordance with the rules and
regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America have
been condensed or omitted pursuant to such rules and regulations. These consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for
the year ended December 31, 2004.



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Occam manages its activities based on 13-week accounting quarters. Accordingly, the actual period end dates for the
periods ended September 30, 2005 and September 30, 2004 were September 25, 2005 and September 26, 2004, respectively. Occams reporting period is based upon a calendar quarter, which includes activity through the last Sunday
of the preceding calendar quarter. Certain amounts in the consolidated financial statements have been reclassified to conform to the current presentation.



Use of Estimates



The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements
and the accompanying notes. Actual results could differ from those estimates and such differences may be material to the financial statements.



Revenue Recognition



Occam recognizes revenue when persuasive evidence of sales arrangements exists, delivery has occurred or services have been rendered, the buyers price is fixed or determinable and collectibility is reasonably
assured. Occam allows credit for products returned within its policy terms. Occam provides training and post-sales technical support and maintenance to its customers as needed to assist them in installation or use of its products. These costs are
expensed in the quarter in which they occur. Occam further warrants its products for periods up to 5 years and records an estimated warranty cost when revenue is recognized.



In certain circumstances, Occam enters into arrangements with customers who receive financing support in the form of long-term,
low-interest-rate loans from the United States Department of Agricultures Rural Utilities Service (RUS). The terms of the RUS contracts provide that in certain instances transfer of title of Occams products does not occur until payment
has been received. In these cases, Occam does not recognize revenue until payment has been received, assuming the remaining revenue recognition criteria are met.



|2. | INVENTORIES
|-- | -----------



Inventories consist of the following (in thousands):



|3. | OTHER CURRENT ASSETS
|-- | --------------------



|                |  |                   |       |                  |   |      
|--------------- |  | ----------------- | ----- | ---------------- | - | -----
|                |  | September 30,2005 |       | December 31,2004
|Raw materials   |  | $                 | 37    |                  | $ | 294  
|Work-in-process |  |                   |      |                  |   | 256  
|Finished goods  |  |                   | 2,837 |                  |   | 6,061
|                |  |                   |       |                  |   |      
|                |  | $                 | 2,874 |                  | $ | 6,611
|                |  |                   |       |                  |   |      



In 2003, the company sold its India
operations in exchange for a note receivable of $608,000. In the third quarter of 2005, the purchaser defaulted on the note and the Company wrote off the remaining loan balance of $399,000.



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|4. | NET LOSS PER SHARE
|-- | ------------------



The following table sets forth the computation of basic and diluted net loss per share (in thousands, except per share data):



|                                                                             |  |                                  |         |   |                                 |   |         |      |  |   |         |   |  |   |         |  
|---------------------------------------------------------------------------- |  | -------------------------------- | ------- | - | ------------------------------- | - | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                                                             |  | Three months ended September 30, |         |   | Nine months ended September 30, |  
|                                                                             |  | 2005                             |         |   | 2004                            |   |         | 2005 |  |   | 2004    |  
|Numerator:                                                                   |  |                                  |         |   |                                 |   |         |      |  |   |         |   |  |   |         |  
|Net loss attributable to common stockholders                                 |  | $                                | (2,967  | ) |                                 | $ | (3,341  | )    |  | $ | (9,703  | ) |  | $ | (15,893 | )
|                                                                             |  |                                  |         |   |                                 |   |         |      |  |   |         |   |  |   |         |  
|Denominator (basic and diluted):                                             |  |                                  |         |   |                                 |   |         |      |  |   |         |   |  |   |         |  
|Weighted average shares outstanding                                          |  |                                  | 270,763 |   |                                 |   | 268,241 |      |  |   | 269,624 |   |  |   | 267,767 |  
|Less: Weighted average common shares subject to repurchase                   |  |                                  | (2      | ) |                                 |   | (19     | )    |  |   | (2      | ) |  |   | (145    | )
|                                                                             |  |                                  |         |   |                                 |   |         |      |  |   |         |   |  |   |         |  
|Weighted average shares used to compute basic and diluted net loss per share |  |                                  | 270,761 |   |                                 |   | 268,222 |      |  |   | 269,622 |   |  |   | 267,622 |  
|                                                                             |  |                                  |         |   |                                 |   |         |      |  |   |         |   |  |   |         |  
|Basic and diluted net loss per share attributable to common shareholders     |  | $                                | (0.01   | ) |                                 | $ | (0.01   | )    |  | $ | (0.04   | ) |  | $ | (0.06   | )
|                                                                             |  |                                  |         |   |                                 |   |         |      |  |   |         |   |  |   |         |  



The following table presents common
stock equivalents (potential common stock) that are not included in the diluted net loss per share calculation above because their effect would be antidilutive for the periods indicated (shares in thousands):



|                                                                      |  |               |  |        
|--------------------------------------------------------------------- |  | ------------- |  | -------
|                                                                      |  | September 30,
|                                                                      |  | 2005          |  | 2004   
|Unvested shares of common stock subject to repurchase                 |  | 2             |  | 19     
|Common stock warrants                                                 |  | 3,412         |  | 1,972  
|Common stock equivalents of convertible preferred stocks and warrants |  | 325,016       |  | 222,810
|Stock options                                                         |  | 71,819        |  | 48,489 
|                                                                      |  |               |  |        
|Common stock                                                          |  | 400,249       |  | 273,290
|                                                                      |  |               |  |        



|5. | COMMITMENTS AND CONTINGENCIES
|-- | -----------------------------



Occam leases its office facilities and certain equipment under noncancelable lease agreements, which expire at various dates through 2008. Approximate minimum commitments
under noncancelable operating leases are as follows (in thousands):



|                             |  |                  |    
|---------------------------- |  | ---------------- | ---
|                             |  | Operating leases
|Period ending September 30,  |  |                  |    
|2006                         |  | $                | 648
|2007                         |  |                  | 58 
|2008                         |  |                  | 60 
|                             |  |                  |    
|Total minimum lease payments |  | $                | 766
|                             |  |                  |    



Purchase Commitments



As of September 30, 2005, Occam had $482,000 in accrued expenses for
purchase commitments and outstanding payments due to a former contract manufacturer.



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Indemnifications and Guarantees



Occam enters into indemnification provisions under its agreements with other companies in its ordinary course of business, typically with
its contractors, customers and landlords. Under these provisions, Occam generally indemnifies and holds harmless the indemnified party for losses suffered or incurred by the indemnified party as a result of Occams activities or, in some cases,
as a result of the indemnified partys activities under the agreement. These indemnification provisions generally survive termination of the underlying agreement. In addition, Occam has entered into indemnification agreements with its officers
and directors that indemnify such persons for certain liabilities they may incur in connection with their services as an officer or director, and Occam has agreed to indemnify certain investors for liabilities they may incur in connection with the
exercise of registration rights. The maximum potential amount of future payments Occam could be required to make under these indemnification provisions is generally unlimited. Occam has not incurred material costs to defend lawsuits or settle claims
related to these indemnifications agreements. As a result, Occam believes the estimated fair value of these agreements is minimal. Accordingly, Occam had no liabilities recorded for these agreements as of September 30, 2005 and
December 31, 2004.



Purchase Orders



Under the terms of Occams contract manufacturer agreements, Occam is required to place
orders with its contract manufacturer to meet the estimated sales demand. Occams contract manufacturer agreements include certain lead-time and cancellation provisions. At September 30, 2005, open purchase orders with contract
manufacturers were $8.3 million.



Warranty



Occam provides standard warranties with the sale of products generally for up to 5 years
from date of shipment. The estimated cost of providing the product warranty is recorded at the time revenue is recognized. Occam maintains product quality programs and processes including actively monitoring and evaluating the quality of its
suppliers. Occam quantifies and records an estimate for warranty related costs based on Occams actual history, projected return and failure rates and current repair costs. A summary of changes in Occams accrued warranty liability that is
included in accrued liabilities is as follows (in thousands):



|                                              |  |                                      |      |   |      |   |        |  
|--------------------------------------------- |  | ------------------------------------ | ---- | - | ---- | - | ------ | -
|                                              |  | Nine-month period endedSeptember 30, |     
|                                              |  | 2005                                 |      |   | 2004 |  
|Warranty liability at the beginning of period |  | $                                    | 675  |   |      | $ | 331    |  
|Accruals during period                        |  |                                      | 715  |   |      |   | 1,568  |  
|Warranty utilization                          |  |                                      | (398 | ) |      |   | (1,368 | )
|                                              |  |                                      |      |   |      |   |        |  
|Warranty liability at end of period           |  | $                                    | 992  |   |      | $ | 531    |  
|                                              |  |                                      |      |   |      |   |        |  



Litigation



IPO Allocation Cases



In June 2001, three putative stockholder class action lawsuits were filed against
Accelerated Networks (Occams name prior to the merger with Occam CA), certain of its then officers and directors and several investment banks that were underwriters of Accelerated Networks initial public offering. The cases, which have
now been consolidated, were filed in the United States District Court for the Southern District of New York. The Court appointed a lead plaintiff on April 16, 2002, and plaintiffs filed a Consolidated Amended Class Action Complaint (the
Complaint) on April 19, 2002. The Complaint was filed on behalf of investors who purchased Accelerated Networks stock



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between June 22, 2000 and December 6, 2000 and alleges violations of Sections 11 and 15 of the Securities Act of 1933, as amended, and Sections
10(b) and 20(a) and Rule 10b-5 of the Securities Exchange Act of 1934, as amended, against one or both of Accelerated Networks and the individual defendants. The claims are based on allegations that the underwriter defendants agreed to allocate
stock in Accelerated Networks initial public offering to certain investors in exchange for excessive and undisclosed commissions and agreements by those investors to make additional purchases in the aftermarket at pre-determined prices.
Plaintiffs allege that the prospectus for Accelerated Networks initial public offering was false and misleading in violation of the securities laws because it did not disclose these arrangements. These lawsuits are part of the massive
IPO allocation litigation involving the conduct of underwriters in allocating shares of successful initial public offerings. The Company believes that over three hundred other companies have been named in more than one thousand similar
lawsuits that have been filed by some of the same plaintiffs law firms. In October 2002, the plaintiffs voluntarily dismissed the individual defendants without prejudice. On February 19, 2003 a motion to dismiss filed by the issuer
defendants was heard and the court dismissed the 10(b), 20(a) and Rule 10b-5 claims against the Company. On July 31, 2003, the Company agreed, together with over three hundred other companies similarly situated, to settle with the Plaintiffs. A
Memorandum of Understanding (MOU), along with a separate agreement and a performance bond of $1 billion issued by the insurers, for these companies is a guarantee, allocated pro rata amongst all issuer companies, to the plaintiffs
as part of an overall recovery against all defendants including the underwriter defendants who are not a signatory to the MOU. Any recovery by the plaintiffs against the underwriter defendants reduces the amount to be paid by the issuer companies.
There is a fairness hearing scheduled for April 24, 2006 to obtain final approval of the settlement by the members of the class of plaintiffs and the court. Occam cannot predict whether such approval will be obtained. The Company has not
recorded any accrual related to this proposed settlement because it expects any settlement amounts to be covered by its insurance policies.



|6. | CAPITAL STOCK
|-- | -------------



On September 12, 2005, the Board of Directors of Occam Networks, Inc., based on the recommendation of its Compensation Committee, approved a restricted stock grant to Robert Howard-Anderson, the Companys
Chief Executive Officer. The restricted stock grant consisted of 600,000 shares of the Companys Common Stock, subject to applicable tax withholding and to the terms and conditions of the Executive Officer Stock Grant ProgramRestricted
Stock Grant Agreement. On September 12, 2005, the Company entered into the restricted stock grant agreement with Mr. Howard-Anderson and issued to him a net of 438,716 shares of the Companys Common Stock, reflecting a reduction of
161,284 in the number of shares otherwise issuable to Mr. Howard-Anderson to satisfy tax withholding obligations. All of the shares subject to the restricted stock grant were fully vested upon issuance to Mr. Howard-Anderson. Accordingly,
the company recorded compensation expense of $165,600 which is equal to the fair-market value of the shares on the date of issuance.



|7. | STOCK OPTIONSFAIR VALUE DISCLOSURES
|-- | ------------------------------------



Occam accounts for stock option grants to employees and directors in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees (APB 25) and the disclosure provisions of SFAS No. 123, Accounting for Stock-Based Compensation (SFAS 123). Under APB 25, compensation expense is based on the difference, if any, on the date of grant between the
estimated fair value of Occams common stock and the stock option exercise price.



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The following table illustrates the effect on net loss and net loss per share if Occam had applied the fair value
recognition provisions of SFAS No. 123 (in thousands, except per share data):



|                                                                           |  |                                  |        |   |                                 |   |        |      |  |   |         |   |  |   |         |  
|-------------------------------------------------------------------------- |  | -------------------------------- | ------ | - | ------------------------------- | - | ------ | ---- |  | - | ------- | - |  | - | ------- | -
|                                                                           |  | Three months ended September 30, |        |   | Nine months ended September 30, |  
|                                                                           |  | 2005                             |        |   | 2004                            |   |        | 2005 |  |   | 2004    |  
|Net loss, as reported:                                                     |  | $                                | (2,967 | ) |                                 | $ | (3,341 | )    |  | $ | (9,703  | ) |  | $ | (15,893 | )
|Add: Stock-based compensation, intrinsic value method reported in net loss |  |                                  | 159    |   |                                 |   | 189    |      |  |   | 486     |   |  |   | 674     |  
|Deduct: Pro forma stock-based compensation fair value method               |  |                                  | (445   | ) |                                 |   | (327   | )    |  |   | (1,237  | ) |  |   | (1,062  | )
|Net loss, pro forma                                                        |  |                                  | (3,253 | ) |                                 |   | (3,479 | )    |  |   | (10,454 | ) |  |   | (16,281 | )
|Basic and diluted loss per share:                                          |  |                                  |        |   |                                 |   |        |      |  |   |         |   |  |   |         |  
|As reported                                                                |  | $                                | (0.01  | ) |                                 | $ | (0.01  | )    |  | $ | (0.04   | ) |  | $ | (0.06   | )
|Pro forma                                                                  |  | $                                | (0.01  | ) |                                 | $ | (0.01  | )    |  | $ | (0.04   | ) |  | $ | (0.06   | )



Basic and diluted loss per share has
been computed by dividing the sum of the net loss and the beneficial conversion feature charges by the weighted average number of shares.



The effects of applying SFAS No. 123 in the above pro forma disclosure are not indicative of future amounts, and additional awards in future years are anticipated.
For purposes of pro forma disclosures, the estimated fair value of the options was amortized ratably over the options vesting period.



|8. | SERIES A-2 REDEEMABLE CONVERTIBLE PREFERRED STOCK
|-- | -------------------------------------------------



In January 2005, Occam raised $5.6 million from the issuance of Series A-2 preferred stock to its existing shareholders. In March 2005, Occam raised $4.9 million through
an additional issuance of Series A-2 preferred stock to its existing investors and Tellabs, Inc (Tellabs). In addition, in March 2005, a related party and holder of an outstanding promissory note converted $535,000 of outstanding
principal and accrued interest into 53,479 shares of Series A-2 preferred stock. From November 2003 through the end of 2004, Occam raised an aggregate of $22.2 million through the issuance of Series A-2 preferred stock.



Occam recorded a beneficial conversion feature (BCF) charge to net loss
attributable to common stockholders of $1,737,000 relating to the issuance of the Series A-2 preferred stock in March 2005. In March 2004, Occam issued Series A-2 preferred stock and a preferred stock warrant to Alta Partners, a new investor. In
connection with the March 2004 issuance of Series A-2 preferred stock, Occam recorded a BCF charge to net loss attributable to common stockholders of $2,893,000. The BCFs were calculated using the fair value of the common stock on the dates of
issuance, subtracting the accounting conversion price and then multiplying the resulting amount by the sum of the number of shares of common stock into which the Series A-2 preferred stock is convertible. Also in March 2004, Occam recorded a BCF on
the preferred stock warrant issued to Alta (the warrant BCF) of $480,000 (as an adjustment to the warrant and additional paid in capital) that was amortized using the interest method over the life of the warrant. For the nine-month
periods ended September 30, 2005 and 2004, the Company recorded $85,000 and $305,000, respectively, of amortization of the warrant BCF. The warrant BCF of $480,000 was calculated by subtracting the sum of the relative proceeds allocated to the
warrant and the exercise price from the fair value of the common stock underlying the warrant.



In April 2005, Occams Board of Directors approved an amendment of the preferred stock warrants previously issued to Alta Partners to permit Alta to immediately exercise its Series A-2 preferred stock warrants to
purchase 226,800 shares of Series A-2 preferred stock at an exercise price of $10 per share. Pursuant to the original terms of the warrants, the number of shares exercisable would have been decreased to the extent that Occam raised additional
proceeds from a proposed rights offering. The Board approved the amendment because the commencement of the



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rights offering had been substantially delayed from the anticipated schedule at the time the warrants were issued, because the warrants would otherwise
expire in September 2005, and because it was not clear if the rights offering would be concluded before the expiration of the warrants. On April 20, 2005, Alta exercised the warrants in full, acquiring 226,800 shares of Series A-2
preferred stock for an aggregate purchase price of $2.3 million.



Each
outstanding share of Series A-2 preferred stock is convertible into common stock at a conversion price of $0.11, subject to adjustments. In addition, all outstanding shares of Series A-2 preferred stock will automatically convert into
common stock upon the written consent of holders of not less than sixty-six and two-thirds percent (662/3%) of
the then outstanding shares of Series A-2 preferred stock. Holders of in excess of 662/3% of the Series A-2
preferred stock have agreed not to exercise their automatic conversion right without the specific consent of Alta Partners.



In October 2004, Occams shareholders approved an amendment to Companys Amended and Restated Certificate of Incorporation to increase the number of preferred
stock designated as Series A-2 from 3,000,000 shares to 3,250,000 shares. In March 2005, the number of authorized shares designated as Series A-2 preferred stock was increased to 4,300,000.



|ITEM 2: | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------



The following discussion should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in
this prospectus. Certain statements in this Managements Discussion and Analysis of Financial Condition and Results of Operations are forward-looking statements. These forward-looking statements are based on current expectations and
entail various risks and uncertainties that could cause our actual results to differ materially from those expressed in these forward-looking statements. Occam encourages you to review the information under the caption Risk Factors,
beginning on page 16, for a discussion of some of the risks and uncertainties facing Occam and its business.



Overview



From its inception through September 30, 2005, Occam has incurred cumulative net losses of approximately $109.3 million. Revenues have increased since 2003 and in
particular, since the second quarter of the 2004 fiscal year, primarily through increased acceptance and market penetration of our new products, primarily our BLC 6000 family of products.



We expect losses to decline if we continue to increase our revenues. Our financial statements have been prepared on a basis which assumes
that we will continue as a going concern and which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. We have funded our operations primarily through the sale of equity
securities and debt borrowings. From November 2003 through the end of 2004, Occam raised gross proceeds of approximately $22.2 million through the issuance of our Series A-2 preferred stock. Occam raised an additional $5.6 million in January 2005
and $4.9 million in March 2005 through additional issuance of Series A-2 preferred stock. Furthermore, in March 2005, a holder of an outstanding promissory note converted $535,000 of outstanding principal and accrued interest into shares of Series
A-2 preferred stock.



In a press release issued October 28, 2005, Occam
provided certain guidance relating to its future financial performance. In particular, Occam stated that its long term gross margin target was 40% and that it expects to report operating income on a pro-forma, non-GAAP basis that will be close to
break even in the fourth quarter of 2005, excluding non-cash charges for the amortization of stock option expense. Occam expects that it will continue to report operating losses on a GAAP basis, including amortization of stock option expense, for
the forseeable future. Occams ability to attain its gross margin target and its projected operating results, including reduction in net losses, is subject to numerous risks and uncertainties that could prevent Occams achieving these
forecasts. Occam cannot assure investors that it will be able to achieve these forecasts. Occams ability to achieve these forecasts is substantially dependent on its ability to increase its customer base and obtain follow-on sales from
existing



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customers. Occams success will also be subject to market uncertainties and product risks, including the willingness of telecommunication companies to
make substantial capital expenditures, the risk that our products may fail to perform to industry standards, changes in the business models of our customers, changes in the price of component parts and other operating expenses, and the other risks
and uncertainties identified under the caption Risk Factors beginning on page 17 of this Quarterly Report on Form 10-Q.



Occam may be required to secure additional funding in the future. Such financing, if available, could take the form of additional equity or debt. To the extent Occam
issues additional equity securities, it could result in substantial dilution to existing stockholders. In addition, the terms of any financing whether in the form of debt or equity, could contain restrictive covenants that would limit
managements flexibility. Occam cannot predict whether it will be able to obtain additional financing. Any failure to obtain financing could have a material adverse effect on Occams business, financial condition and results of operations.



In April 2005, Occams Board of Directors approved an amendment of the
preferred stock warrants previously issued to Alta Partners to permit Alta to immediately exercise its Series A-2 preferred stock warrants to purchase 226,800 shares of Series A-2 preferred stock at an exercise price of $10 per share. Pursuant
to the original terms of the warrants, the number of shares exercisable would have been decreased to the extent that Occam raised additional proceeds from a proposed rights offering. The Board approved the amendment because the commencement of the
rights offering had been substantially delayed from the anticipated schedule at the time the warrants were issued, because the warrants would otherwise expire in September 2005, and because it was not clear if the rights offering would be concluded
before the expiration of the warrants. On April 20, 2005, Alta exercised the warrants in full, acquiring 226,800 shares of Series A-2 preferred stock for an aggregate purchase price of $2.3 million.



During December 2004, we signed a senior loan and security agreement with Hercules Technology
Growth Capital, Inc., a specialty finance company, under which we borrowed $3.0 million, bearing interest at a rate of 11.95% per annum, with a maturity date of December 31, 2007. The agreement provides for seven monthly payments of
interest followed by 30 equal monthly installments of principal and interest. Our obligations under the agreement are collateralized by substantially all our assets. In connection with the loan agreement, we issued the lender warrants to purchase
1,666,667 shares of our common stock and 15,000 shares of our Series A-2 preferred stock. These warrants were valued using the Black-Scholes valuation model and $105,000 of the proceeds were allocated to the investment in common stock warrants and
$73,000 of the proceeds were allocated to the Series A-2 preferred stock warrants. The amounts allocated to the preferred stock and common stock warrants will be recorded as additional interest expense over the life of the loan. The warrant for
common stock is exercisable through December 2011 at an exercise price of $0.09 per share. The warrant for the Series A-2 preferred stock is exercisable through December 2009 at an exercise price of $10 per share. The Series A-2 preferred stock is
convertible into common stock at a conversion price of $0.11 per share. At September 30, 2005, the outstanding principal was $2.7 million, of which approximately $1.1 million was due within the next twelve months. The loan agreement contains
numerous covenants, including covenants regarding the payment of taxes and other obligations, maintenance of insurance and reporting requirements and covenants limiting our ability, among other things, to incur debt, grant liens, make acquisitions
and make certain restricted payments. The events of default under the credit facility include payment defaults, cross defaults with certain other indebtedness, breaches of covenants, failure to maintain specified revenues or tangible net worth
levels on a quarterly basis and bankruptcy events. In particular, an event of default would occur if we failed to maintain revenues of at least $5,000,000 for any fiscal quarter or a tangible net worth, as defined, of at least $7,000,000 for any
fiscal quarter after June 30, 2005. For the quarter ended September 30, 2005, the company was in compliance with the covenants under the loan agreement.



Since November 2001, we have implemented a number of expense reduction actions to reduce our operating losses and consumption of cash,
including reductions in force, change to a sequential product development plan, and non-renewal of certain facilities leases.



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##### Table of Contents

Results of Operations



Three-month periods ended September 30, 2005 and 2004



Sales



Our sales are composed primarily of sales of our BLC 6000 system product line, cabinets and related accessories. Sales increased by approximately $6.3 million to $10.7 million for the three-month period ended
September 30, 2005, compared to sales of $4.4 million for the three-month period ended September 30, 2004. We continued to expand our customer base throughout fiscal 2005 which combined with repeat orders from existing customers
contributed to the increased sales over the same period last year. We expect sales to continue to grow throughout fiscal 2005, subject to, among other things, continuing improvements in the market for telecommunications equipment and the other risks
and uncertainties identified under the caption Risk Factors on page 17.



Cost of revenue



Cost of revenues for these periods included
the cost of products shipped for which revenue was recognized and the costs of manufacturing yield problems, field replacements, rework costs, underabsorption of manufacturing overhead, and provisions for obsolete inventory. Cost of revenue was $7.7
million for the three-month period ended September 30, 2005, compared to $3.7 million for the three-month period ended September 30, 2004. Gross profits improved to 28% of sales in three-month period ended September 30, 2005 compared
to gross profits of 17% of sales for the same period in 2004. This gross profit improvement was primarily due to increased sales of BLC 6000 products, the substantial reduction of manufacturing yield problems, field replacements and rework costs as
well as the reduction in product manufacturing costs. During the December 2005 quarter, Occam will be moving its manufacturing to a lower-cost contract manufacturer. Occam believes the shift to the new contract manufacturer should lower our cost of
revenue per unit and improve margins, assuming our average selling prices do not decline by more than the cost reductions.



Occams agreement with its new contract manufacturer is a non-exclusive and short-term agreement that can be terminated at any time by either Occam or the contract
manufacturer on 120 days written notice. The agreement does not create any fixed manufacturing commitments or obligations, and commitments are typically governed by purchase orders issued by Occam. If Occam terminates the agreement, it could
be liable for the contract manufacturers component purchase commitments based on a 3 month rolling forecast provided by Occam. Occam would also have liabilities to the contract manufacturer for completed inventory. In the event of a
termination of the contract manufacturing arrangement by either party, Occam believes substitute contract manufacturers could be identified based on currently available manufacturing capacity, but Occam has not qualified any additional contract
manufacturers. Occam cannot predict whether sufficient manufacturing capacity will be available in the future or whether Occam could negotiate a new contract manufacturing relationship on favorable terms within the required time frame. Any
unexpected interruption in or termination of Occams current contract manufacturing relationship could have an adverse effect on Occams business, revenues, and results of operations if Occam were unable for any reason to identify a
qualified contract manufacturer on a timely basis with pricing terms comparable to Occams current arrangement.



Research and product development expenses



Research and product development expenses consist primarily of salaries and other personnel-related costs, prototype component and assembly costs, third-party design
services and consulting costs, and other costs related to design, development, and testing of Occams products. Research and product development costs are expensed as incurred, except for capital expenditures, which are capitalized and
depreciated over their estimated useful lives, generally two to five years. Research and product development expenses were relatively flat at $1.9 million for both quarters ended September 30, 2004 and 2005. In September 2005 a strategic
partner paid for $0.1 million of our engineering expenses. We expect our research and product development expenditures for the remaining three months of 2005 to remain steady at $1.9 million as we continue to manage our spending.



Sales and marketing expenses



Sales and marketing expenses consist primarily of salaries and other personnel-related
costs, development and distribution of promotional materials, and other costs related to marketing, sales, public relations, and customer support activities. Sales and marketing expense increased by approximately $1.1 million to $2.6 million for the
three-month period ended September 30, 2005, compared to $1.5 million for the three months ended September 30, 2004. This increase was primarily due to increased head count, commissions and the expensing of trial equipment at customer
sites. We expect sales and marketing costs to decrease slightly over the remaining three months of the year as we currently anticipate requiring fewer field unit writeoffs. This reduction should be partially offset by an increase in sales
commissions and personnel costs, with the amount of the offset being dependent in part on our bookings in the fourth quarter.



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General and administrative expenses



General and administrative expenses consist primarily of salaries and other personnel-related costs for executive, finance, human resources,
and administrative personnel. Additionally, general and administrative expenses include professional fees, liability insurance and other costs of a general corporate nature (and bad debts). General and administrative expenses increased to $1.4
million for the three-month period ended September 30, 2005, compared to $0.5 million for the same period in 2004. General and administrative expenses increased, primarily due to the write off of a loan against the purchase of our subsidiary in
India and increased costs due to Sarbanes Oxley compliance. We expect our general and administrative expenditures to decrease over the remaining three months of 2005 since no other writeoffs are expected.



Nine-month periods ended September 30, 2005 and 2004



Sales



Sales increased by approximately $15.4 million to $26.3 million for the nine-month period ended September 30, 2005, compared to sales
of $10.9 million for the nine-month period ended September 30, 2004. We continued to expand our customer base throughout fiscal 2005 which combined with repeat orders from existing customers contributed to the increased sales over the same
period last year. We expect sales to continue to grow through the last quarter of fiscal 2005, subject to, among other things, continuing improvements in the market for telecommunications equipment and the risk and uncertainties described under the
caption Risk Factors beginning on page 17.



Cost of revenue



Cost of revenues for these periods included the cost of products shipped
for which revenue was recognized and the costs of manufacturing yield problems, field replacements, rework costs, underabsorption of manufacturing overhead, and provisions for obsolete inventory. Cost of revenue was $19.6 million for the nine-month
period ended September 30, 2005, compared to $11.2 million for the nine-month period ended September 30, 2004. Gross profits improved to 26% of sales in the nine-month period ended September 30, 2005 compared to a gross loss of 3% of
sales for the same period in 2004. This gross profit improvement was primarily due to increased sales of BLC 6000 products, the substantial reduction of manufacturing yield problems, field replacements and rework costs as well as the reduction in
product manufacturing costs.



Gross profits for the nine months ended
September 30, 2005 were reduced by write-downs totaling $460,000 of certain discontinued and obsolete inventory. Gross profits for the nine-month period ended September 30, 2004 were adversely affected by additional estimated costs of $2.6
million to cover yield problems on certain new products and unusually high warranty expenses for those products. Management believes these costs were necessary to maintain customer satisfaction. There were no returns for refunds related to these
product issues.



Research and product development expenses



Research and product development expenses consist primarily of salaries and other
personnel-related costs, prototype component and assembly costs, third-party design services and consulting costs, and other costs related to design, development, and testing of Occams products. Research and product development costs are
expensed as incurred, except for capital expenditures, which are capitalized and depreciated over their estimated useful lives, generally two to five years. Research and product development expenses were $5.4 million for the nine-month period ended
September 30, 2005, a decrease of 8% from the $5.9 million for the comparable period in 2004. This decrease was primarily due to managements continued expense controls throughout the nine months ended September 30, 2005 and $0.2
million of engineering expenses paid for by a strategic partner. We expect our research and product development expenditures for the remaining three months of 2005 to be flat.



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Sales and marketing expenses



Sales and marketing expenses consist primarily of salaries and other personnel-related costs, development and distribution of promotional
materials, and other costs related to marketing, sales, public relations, and customer support activities. Sales and marketing expenses increased by $1.5 million to $6.2 million for the nine-month period ended September 30, 2005, compared to
$4.7 million for the nine months ended September 30, 2004. This increase was primarily due to increased field evaluation equipment, head count, commissions and other promotional expenses incurred in an effort to increase revenues and market
penetration. We expect sales and marketing costs to increase slightly over the remaining three months of the year as we make additional expenditures to increase sales and expand our business but this should be more than offset by not having to write
off as much field trial equipment.



General and administrative expenses



General and administrative expenses consist primarily of salaries and
other personnel-related costs for executive, finance, human resources, and administrative personnel. Additionally, general and administrative expenses include professional fees, liability insurance and other costs of a general corporate nature.
General and administrative expenses increased to $2.8 million for the nine-month period ended September 30, 2005, compared to $1.7 million for the same period in 2004. General and administrative expenses increased, primarily due to the write
off of a loan against the purchase of our subsidiary in India and increased costs due to Sarbanes Oxley compliance. We expect our general and administrative expenditures to decrease in the remaining three months of 2005 since there should be no
further one-time writeoffs such as the note for the Indian subsidiary.



Stock-based compensation



Amortization of deferred stock-based
compensation included amortization of deferred stock-based compensation, net of reversals related to expense previously recorded on options, which were unvested and subsequently cancelled. Such amortization expense is included in operating expenses
in the accompanying consolidated statements of operations as follows (in thousands):



|                                                                                                           |  |                                 |     |      |   |    
|---------------------------------------------------------------------------------------------------------- |  | ------------------------------- | --- | ---- | - | ---
|                                                                                                           |  | Nine months ended September 30,
|                                                                                                           |  | 2005                            |     | 2004
|Amortization of deferred stock-based compensation and other stock-based compensation expenses included in: |  |                                 |     |      |   |    
|Research and product development                                                                           |  | $                               | 419 |      | $ | 540
|Sales and Marketing                                                                                        |  |                                 | 62  |      |   | 97 
|General and Administrative                                                                                 |  |                                 | 5   |      |   | 37 
|                                                                                                           |  |                                 |     |      |   |    
|                                                                                                           |  | $                               | 486 |      | $ | 674
|                                                                                                           |  |                                 |     |      |   |    



At September 30, 2005, Occam had
$136,000 of unamortized deferred stock compensation, which it will amortize over the remaining vesting period of the underlying options.



Provision for income taxes



Occams effective federal tax rate for the nine month periods ended September 30, 2005 and 2004 was 0% due to Occams net operating losses.



As of September 30, 2005, Occams net operating loss carryforwards were
approximately $224.6 million for federal tax purposes, expiring through 2025, and $150.3 million for state tax purposes, expiring through 2015. Under the change in ownership provisions of Section 382 of the Internal Revenue Code, utilization of
the net operating loss carryforwards may be limited. The amount of such limitation, if any, has not been determined.



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Liquidity and Capital Resources



As of September 30, 2005, Occam had cash and cash equivalents, net of restricted cash, of $7.4 million compared with $4.4 million at
December 31, 2004. This net increase in cash was the result of additional sales of Series A-2 preferred stock of $5.6 million in January 2005, $4.9 million in March 2005 and $2.3 million in April 2005 offset by cash used in operations of $7.9
million. Restricted cash was $3.0 million and $2.1 million at September 30, 2005 and December 31, 2004, respectively.



Cash used in operating activities decreased from $12.7 million for the nine-month period ended September 30, 2004 to $7.9 million for the nine-month period ended
September 30, 2005. The decrease in cash used in operations was primarily driven by both reductions in our net losses and inventory. These improvements were partially offset by a significant reduction of our accounts payable. The reduction in
our net losses was primarily driven by increased sales and gross margins.



Cash
used in investing activities increased by $1.0 million to $1.8 million for the nine-month period ended September 30, 2005, compared to $0.8 million for the nine-month period ended September 30, 2004. This increase in cash usage was due to
the net purchase of $0.9 million of bonds to secure contracts with customers who receive financing support in the form of long-term, low-interest-rate loans from the United States Department of Agricultures Rural Utilities Service (RUS).



Cash provided by financing activities increased to $12.7 million for the
nine-month period ended September 30, 2005 from $4.7 million for the nine-month period ended September 30, 2004, an increase of $8.0 million. This increase was primarily attributable to Occam raising $5.6 million in January 2005, $4.9
million in March 2005 and $2.3 million in April 2005 from additional sales of Series A-2 preferred stock. In March 2004, Occam received proceeds of $3.8 million of cash from the sale of Series A-2 preferred stock. Additionally, in a non-cash
transaction in March 2005, a holder of an outstanding promissory note converted $535,000 of outstanding principal and accrued interest into shares of Series A-2 preferred stock.



We plan to continue to devote substantial capital resources to research and development activities, as well as our sales, marketing,
customer service and other corporate activities. Our consolidated financial statements have been prepared on the assumption that we will continue as a going concern, which contemplates the realization of assets and liquidation of liabilities in the
normal course of business.



Our viability as a going concern is dependent upon
our ability to successfully carry out our business plan. Since inception, we have devoted substantial effort and capital resources to developing and marketing our products. Based on our current operating plans, management believes that the recent
debt financing and equity investments will be sufficient to meet our capital requirements through the twelve month period starting September 30, 2005.



We may be required to secure additional funding in the future. Such financing, if available, could take the form of additional equity or debt. To the extent we issue
additional equity securities, it could result in substantial dilution to existing stockholders. In addition, the terms of any financing whether in the form of debt or equity, could contain restrictive covenants that would limit managements
flexibility. We cannot predict whether we will be able to obtain additional financing if necessary. Any failure to obtain financing could have a material adverse affect on our business, financial condition and results of operations.



Furthermore, managements plans to attain profitability and generate additional cash
flows include increasing revenues from new and existing customers, a continued focus on cost reductions, and the launch of additional products. However there is no assurance that management will be successful with these plans. If events and
circumstances occur such that we do not meet our current operating plan as expected, and we are unable to raise additional financing, we may be required to reduce certain discretionary spending, which could have a material adverse effect on our
ability to achieve our intended business objectives. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities
that may result from the outcome of this uncertainty.



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Working Capital



Working capital increased to $13.6 million at September 30, 2005, compared to $8.7 million at December 31, 2004, as Occam raised additional funds from
supplementary sales of Series A-2 preferred stock in January, March and April of 2005 for net proceeds of approximately $13.9 million.



RISK FACTORS



Before you invest in our securities, you should be aware that our business faces numerous financial and market risks, including those described below, as well as
general economic and business risks. Our securities are speculative, and you should not make an investment in Occam unless you can afford to bear the loss of your entire investment. The following discussion provides information concerning the
material risks and uncertainties that we have identified and believe may adversely affect our business, our financial condition and ability to continue as a going concern, and our results of operations. Before you decide whether to invest in our
securities, you should carefully consider these risks and uncertainties, together with all of the other information included in or incorporated by reference into this prospectus. The risks and uncertainties identified below are not the only risks
and uncertainties we face. If any of the material risks or uncertainties that we face were to occur, you could lose part or all of your investment.



To date, sales of our BLC 6000 system products have been limited and greater demand may not develop in the future.



Currently we have limited number of customers for our BLC 6000 product line. We cannot be
certain that there will be a demand for our products or that the demand will grow. Demand for our products will depend in part on the continued growth of data traffic volume and our prospective customers need to expand the capacity of existing
local distribution networks. We do not know if the volume of data traffic or the requirement for increased bandwidth in existing local distribution networks will continue to grow, or that the growth will create a demand for our products. It is
difficult to predict how the market for our products will develop and at what rate it will grow, if at all. During 2004, we experienced higher than expected product repairs relating to our products. Addressing these matters had an adverse effect on
our operating margins and increased use of cash in each of the first three quarters of 2004. Management believes these issues have been resolved but if they have not, they would continue to have an adverse effect on revenues and would impair our
financial condition.



We cannot predict whether our recent
strategic agreement with Tellabs will have any effect on our future revenues or operating results.



We have recently announced a strategic alliance with Tellabs, Inc. under which we granted to Tellabs subsidiaries exclusive rights for a limited period to sell certain of our BLC products to identified customers,
including three of the four regional Bell operating companies in the United States, five independent operating companies in the United States, and certain regional telecommunication service providers in Canada. We cannot predict what effect, if any,
the alliance with Tellabs will have on our revenues in future periods. In particular, we cannot predict whether granting exclusive rights to Tellabs with respect to the identified customers will improve our ability to access and sell into larger
telecommunication companies.



We have a history of losses,
and as a result, we may not be able to generate sufficient net revenue in the future to achieve or sustain profitability.



We have incurred significant losses since inception and expect that we will experience net losses and negative cash flow for the foreseeable future. As of
September 30, 2005, we had an accumulated deficit of approximately $109.3 million. We expect our net revenue to be unpredictable in the near future. Accordingly, there can be no assurances that we will ever generate sufficient net revenue to
achieve or sustain profitability.



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We have large fixed expenses and will continue to incur significant expenses for research and development, sales and
marketing, customer support and general and administrative expenses. Given the rate at which competition in the telecommunications equipment industry is intensifying, we may be unable to adequately control our costs and expenses or achieve or
maintain adequate operating margins. As a result, our ability to achieve and sustain profitability will depend on our ability to generate and sustain substantially higher revenue while maintaining reasonable cost and expense levels.



Our financial statements have been prepared on the assumption that we will continue as a
going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The independent registered public accounting firms report on our financial statements as of and for the fiscal year
ended December 31, 2004 included an explanatory paragraph which states that since inception we have incurred net operating losses and negative cash flows that raise substantial doubt about our ability to continue as a going concern.



We may be unable to raise additional capital to fund our future
operations, and any future financings could result in substantial dilution to existing stockholders.



We continue to operate at a loss and may require further infusion of cash. In particular, our cash requirements were higher in 2004 than previously anticipated because we were required to spend increased amounts to
address product warranty and repair issues. From November 2003 through September 2005, we raised $35 million through the issuance of Series A-2 preferred stock and $3 million under a secured loan facility. In addition, we have announced our
intention to conduct a rights offering of Series A-2 preferred stock in which we would offer holders of our common stock the opportunity to purchase shares of Series A-2 preferred stock. Our announcement of an intended rights offering does
not constitute an offer of any securities for sale and is subject to the filing of a registration statement with the Securities and Exchange Commission and the SECs declaring the registration statement to be effective. However, there is no
guarantee that we will be able to raise additional equity or debt funding when or if it is required. The terms of any financing, if available, could be unfavorable to Occam and our stockholders and could result in substantial dilution to the equity
and voting interests of our stockholders. For example, holders of our common stock have experienced substantial dilution as a result of the issuance of the Series A-2 preferred stock, which is entitled to rights and preferences that are senior
to the common stock, including a liquidation preference equal to 150% of the original purchase price and the right to participate up to certain caps with the common stockholders in distributions in excess of 150%. In connection with obtaining the $3
million secured loan facility, we were required to give the lender a lien in substantially all of our assets. Any failure to obtain financing when and as required will have an adverse and material effect on our business, financial condition and
results of operations.



Because our markets are highly
competitive and dominated by large, well financed participants, we may be unable to compete effectively.



Competition in the communications networking equipment market is intense and we expect competition to increase. The market for networking equipment is dominated primarily by manufacturers of legacy digital loop
carrier equipment, such as Nortel Networks Corporation, Lucent Technologies Inc., Alcatel SA, and Tellabs Inc. A number of emerging companies have developed or are developing products that may compete with our products. Many of our competitors and
potential competitors have substantially greater name recognition and technical, financial and marketing resources than we. As a result, they may also have a substantial advantage over us in developing or acquiring new products and technologies and
in creating market awareness for those products, services and technologies. Further, many of our competitors have built long-standing relationships with some of our potential customers, have the ability to provide financing to them and may,
therefore, have an inherent advantage in selling network equipment products to these customers. We expect our competitors to continue to improve the performance of their current products and to introduce new products, services and technologies. To
be competitive, we must continue to invest significant resources in research and development, sales, marketing and customer support. We may not have sufficient resources to make these investments, make the technological advances necessary to be
competitive, or be able to effectively sell our products to carriers who have prior relationships with our competitors. If we cannot compete successfully against our competitors, we could face:



| |  |  | significant reductions in demand for any of our products;
| | - |  | ---------------------------------------------------------



| |  |  | delays or cancellations of future customer orders;
| | - |  | --------------------------------------------------



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| |  |  | reductions of the prices on any of our products; or
| | - |  | ---------------------------------------------------



| |  |  | increases in our expenses,
| | - |  | --------------------------



which would have a material adverse effect on our business and our financial condition.



If our products contain undetected software or hardware errors, we could incur significant unexpected expenses and lost sales.



Our products have only recently been widely deployed. As a result, we cannot be sure that our
products do not contain significant software or hardware errors that could only be detected when deployed in live networks that generate high amounts of voice and/or data traffic. Our customers may discover errors or defects in our products after
broad deployment and as the customers networks expand and are modified. Any defects or errors in our products discovered in the future, or failures of our customers networks, whether caused by our products or those of another vendor,
could result in loss of or delay in revenue, loss of market share and negative publicity regarding our products. Any of these occurrences could have a material adverse effect on our business, results of operations and financial condition. During
fiscal 2004, we experienced unanticipated product performance issues, and our costs associated with resolving those issues had an adverse effect on our results of operations for fiscal 2004.



If we fail to enhance our existing products or develop and introduce new
products that meet changing customer requirements and technological advances, our ability to sell our products would be materially and adversely affected.



Rapid technological advances, evolving industry standards, and recurring changes in end user requirements characterize the markets we face for our products. In
addition, these markets involve frequent new product introductions and changes in voice and data service offerings by service providers. Our future success will depend significantly on our ability to anticipate or adapt to such changes and to offer,
on a timely and cost effective basis, products that meet changing customer demands and industry standards. The timely development of new or enhanced products is a complex and uncertain process, and we may not have sufficient resources to
successfully and accurately anticipate technological and market trends, or to successfully manage long development cycles. We may also experience design, manufacturing, marketing and other difficulties that could delay or prevent product
development, introduction or marketing of new products and enhancements. The introduction of new or enhanced products also requires that we manage the transition from older products to these new or enhanced products in order to minimize disruption
in customer ordering patterns and ensure that adequate supplies of new products are available for delivery to meet anticipated customer demand. We may also be required to collaborate with third parties to develop products and may not be able to do
so in the future on a timely and cost-effective basis, if at all. Further, we may change or delay our product road map, which may adversely impact or delay new or improved product advances. If we are not able to develop new products or enhancements
to our existing products on a timely and cost-effective basis, or if our new products or enhancements fail to achieve market acceptance, our business, financial condition and results of operations would be materially and adversely affected.



We may invest a significant amount of our resources to
develop, market and sell our products and may not realize any return on this investment.



We may invest a significant amount of our resources to develop market and sell our products. If our products do not quickly achieve market acceptance, they may become obsolete before enough revenue has been generated
from the sales of these products to realize a sufficient return on investment. Furthermore, the rapidly changing technological environment in which we operate can require the frequent introduction of new products, resulting in short product
lifecycles. In addition, we may need to write-down inventories to reduced values or write-off excess and obsolete inventory. If we incur substantial development, sales, marketing and inventory expenses that we are unable to recover, and are unable
to compensate for such expenses, our business, financial condition and results of operations could be materially and adversely affected.



We operate in a market that has experienced a prolonged economic slowdown, which will make it difficult or impossible to predict the future results of
our operations.



The current market for telecommunications equipment is
characterized by continued uncertainty in the spending patterns of our current and prospective customers. In addition, we cannot predict whether there will be a market for



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our products in the future. As a result, our revenues and the market for our products may not be sufficient to support our ongoing operations in the
foreseeable future.



The long sales and implementation
cycles for our products may cause our revenue and operating results to vary significantly.



A customers decision to purchase our products often requires a significant commitment of resources from the customer and usually involves a lengthy product evaluation and qualification process prior to any firm
purchase commitment. As a result, we may incur substantial sales and marketing expenses and expend significant management effort without any guarantee of a sale. In addition, our sales cycles may be lengthy, the length of which will vary depending
on the type of customer to whom we are selling. As a result of the above factors, our quarterly revenue and operating results may vary significantly.



Our customers may sporadically place large orders with short lead times, which may cause our quarterly revenue and operating results to vary
significantly.



Our current and prospective customers often deploy their
networks in large increments and on a sporadic basis. Accordingly, we may receive purchase orders for significant dollar amounts on an irregular basis. These orders may have short lead times. As a result, we may not have sufficient inventory to
fulfill these orders and may incur significant costs in attempting to expedite and fulfill these orders. The foregoing may also cause our quarterly revenue and operating results to vary significantly and unexpectedly.



We may fail to meet our revenue targets or experience significant
quarterly revenue fluctuations if we fail to maintain and manage a consistent order backlog or if we experience product shipment delays.



We do not expect our order backlog to be significant at the beginning of each quarter for the foreseeable future. Accordingly, in order to achieve our revenue objectives,
we will need to obtain additional orders in each quarter for shipment in that quarter. In addition, due in part to factors such as the timing of product release dates, purchase orders and product availability, we may experience delays in our ability
to ship our products. We may incur additional costs and expenses if we allow customers to cancel orders within negotiated time frames or delay scheduled delivery dates without significant penalty. If we fail to ship products by the end of a quarter,
our operating results would be materially and adversely affected for that quarter.



Our prospective customers may have financial constraints, which may limit their ability to purchase new products.



Telecommunications service providers make considerable capital expenditures to expand their networks and to purchase, install and maintain their equipment. If some of
these service providers are unable to secure financing for these expenditures, they may not have the funds necessary to purchase our products. Budgetary constraints or economic cycles may also impact when or if a prospective customer will purchase
our products. Our customers may also include smaller companies that could experience cash flow problems, resulting in our being unable to collect amounts due.



If we fail to accurately predict our manufacturing requirements, we could incur additional costs or experience manufacturing delays.



Lead times for the materials and components that we order from our contract manufacturers
will vary significantly and depend on numerous factors, including the specific supplier, contract terms and demand for a component at a given time. If we overestimate our component requirements, our contract manufacturers may purchase excess
inventory. If the contract manufacturers purchase excess inventory that is unique to our products, we could be required to pay for these excess parts and recognize related inventory write-down costs. If we underestimate our component requirements,
our contract manufacturers may have an inadequate inventory, which could interrupt manufacturing of our products and result in delays in shipments and revenue.



Furthermore, we do not have a long-term supply contract with our primary contract manufacturers. Consequently, these manufacturers will not be obligated to supply
products to us for any specific period, in any specific quantity or at any certain price, except as may be provided in a particular purchase order. As a result, we will not be able to guarantee that our contract manufacturers will be able to provide
enough products to meet our requirements at a commercially reasonable price. If the components we require are not unique to our products, and such components are in high demand, we cannot guarantee that our contract manufacturers will be



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able to fulfill our demand. As a result, we may experience shortages of certain components from time to time, which could delay the manufacturing of our
products and recognition of revenue and could impair our relationships with customers. A number of components for our products are available from sole or limited sources, as described below.



Because we depend upon a small number of outside contractors to
manufacture our products, our operations could be delayed or interrupted if we encounter problems with any of these contractors.



We do not have internal manufacturing capabilities, and rely upon a small number of outside contractors to build our products. This reliance involves a number of risks,
including the possible absence of adequate capacity and reduced control over component availability, delivery schedules, manufacturing yields and costs. If any of our current or previous manufacturers are unable or unwilling to continue
manufacturing our products in required volumes and at high quality levels, we will have to identify, qualify and select acceptable alternative manufacturers. It is possible that an alternate source may not be available to us when needed or may not
be in a position to satisfy our production requirements at commercially reasonable prices and quality. Any significant interruption in manufacturing would require us to reduce our supply of products to our customers, which in turn could have a
material adverse effect on our customer relations, business, financial condition and results of operations.



If we experience problems with our new contract manufacturer, we may not be able to meet our customers demands and our results of operations
could be negatively impacted.



During the fourth quarter of fiscal 2005, we
will be transitioning our manufacturing requirements to a new contract manufacturer. Because we have not used this contract manufacturer in the past, we cannot be certain that it will be able to adequately meet all of our manufacturing needs,
including our requirements related to product quality, timeliness of delivery and order volume. If the new contract manufacturer is unable to provide the manufacturing services that we require, we may not be able to fulfill our customers
orders, which would have a material adverse effect on our revenues and results of operations. In addition, we would be forced to find a new manufacturer, which could be a costly process that could divert the attention of management from other
matters.



Occams agreement with its new contract manufacturer is a
non-exclusive and short-term agreement that can be terminated at any time by either Occam or the contract manufacturer on 120 days written notice. The agreement does not create any fixed manufacturing commitments or obligations, and
commitments are typically governed by purchase orders issued by Occam. If Occam terminates the agreement, it could be liable for the contract manufacturers component purchase commitments based on a 3 month rolling forecast provided by Occam.
Occam would also have liabilities to the contract manufacturer for completed or partially completed inventory. In the event of a termination of the contract manufacturing arrangement by either party, Occam believes substitute contract manufacturers
could be identified based on currently available manufacturing capacity, but Occam has not qualified any additional contract manufacturers. Occam cannot predict whether sufficient manufacturing capacity will be available in the future or whether
Occam could negotiate a new contract manufacturing relationship on favorable terms within the required time frame. Any unexpected interruption in or termination of Occams current contract manufacturing relationship could have an adverse effect
on Occams business, revenues, and results of operations if Occam were unable for any reason to identify a qualified contract manufacturer on a timely basis with pricing terms comparable to Occams current arrangement.



We depend on sole source and limited source suppliers for key components,
and if we are unable to buy these components on a timely basis, we will not be able to deliver our products to our customers.



We depend on sole source and limited source suppliers for key components of our products. Any of the sole source suppliers upon which we rely could stop producing the
components, cease operations entirely, or be acquired by, or enter into exclusive arrangements with, our competitors. As a result, these sole source suppliers may stop selling their products or components to us at commercially reasonable prices, if
at all. Any such interruption or delay and the inability to obtain these components from alternate sources at acceptable prices and within a reasonable amount of time would adversely affect our ability to meet scheduled product deliveries to our
customers and would materially adversely affect our business, results of operations and financial condition. Primarily these parts are semiconductor components. While parts from another vendor could replace any of these components, we would be
required to redesign the board and it would cost both time and money, including increased development expense and lost revenues.



If the development and adoption of relevant industry standards do not occur on a timely basis, our products may not achieve market acceptance.



Our ability to achieve market acceptance for our products will depend in
part on the timing and adoption of industry standards for new technologies in our relevant markets. Many technological developments occur prior to the adoption of relevant industry standards. The absence of an industry standard related to a specific
technology may prevent widespread market acceptance of products using that technology. The existence of multiple competing standards may also retard or delay the development of a broad market for our products. We may develop products that use new
technologies prior to the adoption of industry standards related to these technologies. Consequently, our products may not comply with eventual industry standards, which could hurt our ability to sell our products and also require us to quickly
design and manufacture new products that meet such standards. Even after industry standards are adopted, the future success of our products depends upon widespread market acceptance of our underlying technologies.



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Our customers are subject to government regulation, and changes in current or future laws or
regulations that negatively impact our customers could harm our business.



The jurisdiction of the Federal Communications Commission (the FCC) extends to the entire communications industry, including our customers. Future FCC regulations affecting the broadband access industry, our customers, or the
service offerings of these customers, may harm our business. For example, FCC regulatory policies affecting the availability of data and Internet services may impede the penetration of our customers into certain markets or affect the prices that may
be charged in such markets. In addition, international regulatory bodies are beginning to adopt standards and regulations for the broadband access industry. These domestic and foreign standards, laws and regulations address various aspects of
Internet, telephony and broadband use, including issues relating to liability for information retrieved from or transmitted over the Internet, online context regulation, user privacy, taxation, consumer protection, security of data, access by law
enforcement, tariffs, as well as intellectual property ownership, obscenity and libel. Changes in laws, standards and/or regulations, or judgments in favor of plaintiffs in lawsuits against service providers, e-commerce and other Internet companies,
could adversely affect the development of e-commerce and other uses of the Internet. This, in turn, could directly or indirectly materially adversely impact the broadband telecommunications and data industry in which our customers operate. To the
extent our customers are adversely affected by laws or regulations regarding their business, products or service offerings, this could result in a material and adverse effect on our business, financial condition and results of operations.



If we fail to comply with regulations and evolving industry
standards, sales of our existing and future products could be adversely affected.



Failure of our products to comply, or delays in compliance, with the various existing, anticipated, and evolving industry regulations and standards could adversely affect sales of our existing and future products. While we believe that our
products comply with all current governmental laws, regulations and standards, we may be unable to continue to design our products to comply with all necessary requirements in the future. In addition, our key competitors may establish proprietary
standards, which may not be made available to us. As a result, our products may not be interoperable with our customers networks if these networks incorporate technology based on proprietary standards. Furthermore, many of our potential
customers will require that our products be designed to interface with such customers existing networks, each of which may have different specifications, utilize multiple protocol standards and contain multiple generations of products from
different vendors. If our products cannot operate in such an environment, they may not achieve market acceptance and our ability to generate revenue would be seriously impaired.



Inability to protect our intellectual property could adversely affect our ability to compete.



We depend on our proprietary technology for our success and ability to compete successfully
in our market. We currently hold thirteen issued patents and have several patent applications pending. We will rely on a combination of patent, copyright, trademark and trade secret laws, as well as confidentiality agreements and licensing
arrangements, to establish and protect our proprietary rights. Existing patent, copyright, trademark and trade secret laws will afford us only limited protection. In addition, the laws of some foreign countries do not protect proprietary rights to
the same extent, as do the laws of the United States. We cannot assure investors that any pending patent applications will actually result in issued patents, and issued patents could prove unenforceable. Any infringement of our proprietary rights
could result in significant litigation costs. Further, any failure by us to adequately protect our proprietary rights could result in our competitors offering similar products, potentially resulting in loss of a competitive advantage and decreased
revenue.



Despite our efforts to protect our proprietary rights, attempts may
be made to copy or reverse engineer aspects of our products or to obtain and use information that we regard as proprietary. Accordingly, we may be unable to protect our proprietary rights against unauthorized third party copying or use. Furthermore,
policing the unauthorized use of our products would be difficult for us. Litigation may be necessary in the future to enforce our intellectual property rights, to protect our trade secrets or to determine the validity and scope of the proprietary
rights of others. Litigation could result in substantial costs and diversion of resources and could have a material adverse effect on our business, financial condition and operating results.



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If necessary licenses of third party technology are not available to us, or are prohibitively
expensive, we may be unable to develop new products or product enhancements, which would seriously impair our ability to compete effectively.



Periodically, we may be required to license technology from third parties to develop new products or product enhancements. These third-party licenses may be unavailable
to us on commercially reasonable terms, if at all. Our inability to obtain necessary third-party licenses may force us to obtain substitute technology of lower quality or performance standards or at greater cost, any of which could seriously harm
the competitiveness of our products and which would result in a material and adverse effect on our business, financial condition and results of operations.



We could become subject to litigation regarding intellectual property rights that could seriously harm our business.



We may be subject to intellectual property infringement claims that are costly to defend and
could limit our ability to use some technologies in the future. Our industry is characterized by frequent intellectual property litigation based on allegations of infringement of intellectual property rights. From time to time, third parties may
assert patent, copyright, trademark and other intellectual property rights to technologies or rights that are important to our business. In addition, in our agreements, we may agree to indemnify our customers for any expenses or liabilities
resulting from claimed infringements of patents, trademarks or copyrights of third parties. Any claims asserting that our products infringe or may infringe on proprietary rights of third parties, with or without merit, could be time-consuming,
resulting in costly litigation and diverting the efforts of technical and management personnel. These claims could also result in product shipment delays or require us to modify our products or enter into royalty or licensing agreements. Such
royalty or licensing agreements, if required, may not be available to us on acceptable terms, if at all.



If we are unable to retain and hire qualified personnel, we may not be able to successfully achieve our objectives.



Our success depends upon the continued service of some executive officers and other key
personnel and our ability to hire additional key personnel in the future. The loss of the services of any key management personnel, or key sales personnel and engineers, could materially adversely affect our business, financial condition and results
of operations.



If we become subject to unfair hiring
claims, we could incur substantial defense costs.



Companies in the
telecommunications equipment industry whose employees and former employees accept positions with competitors frequently claim that such competitors have engaged in unfair hiring practices. For example, we have received claims of this kind in the
past, and may receive claims of this kind in the future. Those claims may result in material litigation costs. We could incur substantial costs in defending ourselves against these claims, regardless of their merits, which would have a material and
adverse effect on our business, financial condition and results of operations.



Our business could be shut down or severely impacted if a natural disaster or other unforeseen catastrophe occurs.



Our business and operations depend on the extent to which our facilities and products are protected against damage from fire, earthquakes, power loss, and similar events.
Despite precautions we have taken, a natural disaster or other unanticipated problem could, among other things, hinder our research and development efforts, delay the shipment of our products and affect our ability to receive and fulfill orders. For
example, because the final assembly and assembled product testing of our product line is performed in one location, any fire or other disaster at this location would have a material adverse effect on our business, results of operations and financial
condition. While we believe that our insurance coverage is comparable to those of similar companies in our industry, it does not cover all natural disasters, in particular, earthquakes or floods.



Our common stock is currently traded on the over the counter market, and
the liquidity of our stock may be seriously limited.



Our common stock is
currently traded on the over the counter market (OTC). Trading on the OTC Bulletin Board may adversely impact our stock price and liquidity, and the ability of our stockholders to purchase and sell our shares in an orderly manner. In
particular, limited trading volumes and liquidity may mean that stockholders are unable to purchase or sell our common stock in the amounts and at the times they wish. Trading volume in our common stock



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tends to be modest relative to our total outstanding shares, and the price of our common stock may fluctuate substantially (particularly in percentage terms)
without regard to news about Occam or general trends in the stock market.



We face certain litigation risks that could harm our business.



We are currently named as a defendant in a securities class action lawsuit. We believe this lawsuit will be settled with no expense to Occam. For additional information regarding our current litigation, see Part II,
Other InformationItem 1 Legal Proceedings.



If
the integration of Ethernet and Internet Protocol into the local access networks does not develop or is delayed, our results of operations and financial condition could be materially affected.



Our strategy includes developing products for the local access network, or local loop, that
incorporate Ethernet and Internet Protocol technology. If these technologies are not widely adopted by telecommunications carriers operating in the local loop, demand for our products based on Ethernet and Internet protocol may never develop. As a
result, we may be unable to recoup our expenses related to the development of these products and our results of operations would be harmed.



If our revenue and operating results fall below analysts and investors expectations, our stock price may decline below its current price
and may not recover from such decline.



Our quarterly operating results
have fluctuated in the past, and future operating results are likely to fluctuate significantly due to a variety of factors, many of which are outside of our control. If our quarterly or annual operating results do not meet the expectations of
investors and securities analysts, the trading price of our common stock could significantly decline.



Our executive officers, directors and their affiliates hold a large percentage of our stock and their interests may differ from other stockholders.



As of September 30, 2005, our executive officers, directors and their
affiliates beneficially owned, in the aggregate, in excess of a majority of our common stock and approximately 57.2% of our Series A-2 preferred stock. As of September 30, 2005, investment funds affiliated with U.S. Venture Partners and
Norwest Venture Partners collectively control approximately 51.8% of our outstanding voting stock (including 45.4% of our common stock and 57.2% of our Series A-2 preferred stock). A representative of each of these funds is a director of Occam.
These stockholders will be expected to have significant influence over most matters requiring approval by stockholders, including the election of directors, any amendments to our certificate of incorporation, and significant corporate transactions.
In addition, Alta partners, a venture capital investment firm that, as of September 30, 2005, controlled 23.1% of the outstanding Series A-2 preferred stock and has a contractual right at any time to designate a director to serve on our
board.



The Series A-2 private placement and
anticipated rights offering may jeopardize Occams ability to use some or all of its net operating loss carryforwards.



As of September 30, 2005, Occam had incurred significant losses in the United States and had net operating loss (NOL) carryforwards of approximately $224.6 million
(for federal tax purposes) and $150.3 million (for state tax purposes) to offset future federal and state taxable income, if any. Occams federal and state NOL carryforwards expire through 2025 and 2015, respectively. Occams ability to
utilize its NOL carryforwards may be subject to significant limitations under Section 382 of the Internal Revenue Code if Occam has undergone or will undergo an ownership change. An ownership change would occur if, among other things,
stockholders who own or have owned, directly or indirectly, 5% or more of Occams common stock or are otherwise treated as 5% stockholders under Section 382 and the regulations promulgated there under increase their aggregate percentage
ownership of Occams common stock by more than 50% over the lowest percentage of the stock owned by these stockholders at any time during the testing period, which is generally the three-year period preceding the potential ownership change. In
the event of an ownership change, Section 382 imposes an annual limitation on the amount of taxable income a corporation may offset with NOL carryforwards. Any unused annual limitation may be carried over to later years until the applicable
expiration date for the respective NOL carryforwards.



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It is possible that our private placements and the anticipated rights offering of Series A-2 preferred stock could
trigger an ownership change for purposes of Section 382 of the Internal Revenue Code, which would limit Occams ability to use any U.S. federal and state NOL carryforwards as described above and could result in a write-down of those assets
on Occams consolidated balance sheet and a charge against earnings. Even if the private placement and the rights offering do not trigger an ownership change, they will increase the likelihood that Occam may undergo an ownership change for
purposes of Section 382 in the future.



The sale of a
substantial number of shares of common stock could cause the market price of Occams common stock to decline.



Sales of a substantial number of shares of Occams common stock in the public market could adversely affect the market price of Occams common stock. The market
price of Occams common stock could also decline if one or more of its significant stockholders decided for any reason to sell substantial amounts of its common stock in the public market. Occam is contractually obligated to register shares of
common stock underlying Series A-2 preferred stock issued as part of the recent private placement financing transactions.



As of October 31, 2005, Occam had 272.0 million shares of common stock outstanding. Substantially all of these shares are freely tradable in the public market,
either without restriction or subject, in some cases, only to S-3/S-1 or S-8 prospectus delivery requirements, and, in some cases, only to manner of sale, volume, and notice requirements of Rule 144 under the Securities Act of 1933, as amended.



As of October 31, 2005, Occam had 3.6 million shares of
Series A-2 preferred stock outstanding that are convertible into 323.7 million shares of common stock at a conversion price of approximately $0.11 per share. If the share price of the common stock exceeds $0.11 per share, the holders of
Series A-2 preferred stock may decide to convert some or all of their Series A-2 preferred stock into common stock, and such common stock would be tradable in the public market, subject to our satisfying obligations to register these
shares for resale, the SECs declaring the registration statement effective, and S-1 prospectus delivery requirements.



As of October 31, 2005, Occam had 61.0 million shares subject to outstanding options under Occams stock option plans, and 20.0 million shares were
available for future issuance under the plans. Occam has registered the shares of common stock subject to outstanding options and reserved for issuance under Occams stock option plans. Accordingly, shares underlying vested options will be
eligible for resale in the public market as soon as the options are exercised.



As of October 31, 2005, Occam had warrants outstanding to purchase a total of 15,000 shares of Occams Series A-2 preferred stock, convertible into approximately 1.4 million shares of its common stock and outstanding
warrants to purchase 1.7 million shares of its common stock.



Under regulations required by the Sarbanes-Oxley Act of 2002, our auditors could issue a qualified or adverse opinion on our internal controls, and this could have a negative impact on our stock price.



We must comply with the rules promulgated under Section 404 of the Sarbanes-Oxley Act of
2002, beginning with our fiscal year ending December 31, 2006. Section 404 requires annual management assessments of the effectiveness of our internal controls over financial reporting and a report by our independent auditors addressing
these assessments.



In connection with the review of our internal controls, our
management and independent auditors have observed control deficiencies relating to (i) documentation, assessment, and testing of key controls over financial processes, including revenue recognition; (ii) limitations in financial staffing,
with related inadequacies in segregation of duties; (ii) processes for preparation and review of SEC filings, press releases and review of financial schedules; and (iii) documentation and review of the basis of, support for, and
considerations surrounding significant accounting estimates. Because Section 404 does not currently apply to us, we have not determined whether any of the control deficiencies identified above constitute a material weakness or
significant deficiency (as defined by the relevant accounting standards) although it is likely that one or more would.



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To address these control deficiencies, we have implemented certain remedial actions, including engaging an outside
consultant to make recommendations and assist in the remedial process and increasing the staffing of our finance department. We continue to evaluate the status of our internal controls and to take additional actions that are necessary to resolve the
control deficiencies identified above.



While we are expending significant
resources in developing the necessary documentation and testing procedures required by Section 404, we cannot be certain that the actions we are taking to improve our internal controls over financial reporting will be sufficient or that we will
be able to implement our planned processes and procedures in a timely manner. If we do not complete our compliance activities under Section 404 or the processes and procedures that we implement for our internal controls over financial reporting
are inadequate, our independent auditors may either issue a qualified opinion on the effectiveness of our internal controls or disclaim an opinion altogether as it relates to our internal controls or this could result in an adverse reaction in the
financial markets due to a loss of confidence in the reliability of our financial statements, which could cause the market price of our common stock to decline and such a reaction could also make it more difficult for us to finance our operations



Because of the liquidation preference of the
Series A-2 preferred stock, holders of common stock may receive less consideration, if any, in connection with future acquisitions or liquidations of Occam than a holder of shares of Series A-2 preferred stock that are convertible into the
same number of shares of common stock.



The Series A-2 preferred stock
is entitled to a liquidation preference equal to 150% of the original purchase price of the Series A-2 preferred. Each share of outstanding Series A-2 preferred stock has been sold for $10, and each share to be sold, if any, in our
anticipated rights offering will be sold at the same price per share. In connection with a liquidation or dissolution of Occam, which includes acquisitions of Occam or sales of all or substantially all of our assets, holders of Series A-2
preferred stock will be entitled to receive $15 for each share of Series A-2 preferred stock they hold before any payments may be made to holders of common stock. If the proceeds, consideration, or assets, as the case may require, available for
distribution to stockholders are not sufficient to pay the full $15 liquidation preference per Series A-2 share, the available proceeds, consideration, or assets will be distributed on a pro-rata basis among holders of Series A-2
preferred stock, and holders of common stock will receive nothing. In addition, after the liquidation preference has been paid, holders of Series A-2 preferred stock will participate on a share-for-share as-converted basis with
holders of common stock in any additional distributions or payments, until such time as the holders of Series A-2 preferred stock have received 300% of their original purchase price or $30 per share. As a result of the Series A-2
liquidation preference and participation right, a holder of shares of Series A-2 preferred stock may receive a substantially larger distribution or payment than a holder of the same number of shares of common stock into which such holders
Series A-2 preferred stock is convertible. In addition, the Series A-2 stockholder may receive a distribution in circumstances where the common stockholder receives nothing.



Based on outstanding shares as of October 31, 2005, the Series A-2 preferred stock is entitled to receive approximately $53.4
million in liquidation proceeds before any payments may be made to holders of our common stock. In the event the rights offering were fully subscribed, Series A-2 preferred stockholders would be entitled to receive liquidation proceeds of
approximately $66.9 million before any payments could be made to common stockholders. In both circumstances, after payment of the base liquidation preference, the Series A-2 preferred stock would participate in distributions to common
stockholders based on the number of shares of common stock then issuable upon conversion of Series A-2 preferred stock. Preferred stockholders would participate in distributions with common stockholders up to an aggregate distribution of
approximately $106.8 million based on outstanding shares as of October 31, 2005, increasing to $133.8 million if the rights offering were fully subscribed. In the event the amount to be distributed to stockholders is sufficiently
large that Series A-2 preferred stockholders would receive a larger distribution by converting into common stock, the Series A-2 preferred stock will be deemed for purposes of such distribution to have so converted such that holders of
Series A-2 preferred stock will always receive the maximum amount to which they would be entitled without having to make any affirmative election to convert.



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|ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|------- | ----------------------------------------------------------



Because our portfolio of cash equivalents is of a short-term nature, we are not subject to significant market price risk related to investments. However, our interest income is sensitive to changes in the general
level of taxable and short-term U.S. interest rates. We generally invest our surplus cash balances in high credit quality money market funds with original or remaining contractual maturities of less than 90 days. We do not hold financial instruments
for trading or speculative purposes. Our long-term debt and liabilities have fixed interest rates and therefore are not subject to significant interest rate risks. We do not use any derivatives or similar instruments to manage our interest rate
risk.



|ITEM 4. | CONTROLS AND PROCEDURES
|------- | -----------------------



Changes in internal control over financial reporting.



| | (a) | Evaluation of Disclosure Controls and Procedures
| | --- | ------------------------------------------------



As of the end of the period covered by this report, under the supervision and with the participation of Occams management, including Occams
Chief Executive Officer and Chief Financial Officer, management evaluated the effectiveness of Occams disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as
amended. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that Occams disclosure controls and procedures were effective as of September 30, 2005.



In making their assessment concerning the effectiveness of Occams
disclosure controls and procedures as of September 30, 2005, management considered the internal control deficiencies described below. In light of the deficiencies described below, Occams management performed additional analysis and other
post-closing procedures to ensure that its financial statements are prepared in accordance with generally accepted accounting principles. Management believes that the financial statements included in this report fairly present in all material
respects Occams financial condition, results of operations, and cash flows for the periods presented. In addition, management believes that remediation efforts put in place to date, including the implementation of a disclosure committee and
more active managerial involvement in the preparation of SEC filings, are effective to ensure that information required to be disclosed by Occam in its periodic reports is recorded, processed, summarized and reported within the time periods
specified in the SECs rules and forms.



| | (b) | Changes in Internal Control Over Financial Reporting.
| | --- | -----------------------------------------------------



During the course of the most recent audit of Occams year-end financial statements and Occams preparation and review of subsequent quarterly
financial statements, Occams management and independent auditors identified internal control deficiencies that could be deemed to be material weaknesses or significant deficiencies if Section 404 of the
Sarbanes-Oxley Act were currently applicable to Occam. Neither Occams management nor its independent auditors has concluded that any of these control deficiencies in fact constitute material weaknesses or significant
deficiencies but believes it likely that one or more would be deemed at least a significant deficiency and one or more could be deemed a material weakness.



An internal control deficiency exists when the design or operation of a control does not allow management or employees, in
the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote
likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the
companys ability to initiate, authorize, record, process, or report external financial data reliably in accordance with generally accepted accounting principles. In the case of a significant deficiency, a more-than-remote likelihood exists of
a misstatement of the companys annual or interim financial statements that is more than inconsequential.



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Occams identified control deficiencies relate to (i) the documentation, assessment, and
testing of key controls over financial processes, including revenue recognition; (ii) limitations in financial staffing, with related inadequacies in segregation of duties; (ii) processes for preparation and review of SEC filings, press
releases and review of financial schedules; and (iii) the documentation and review of the basis of, support for, and considerations surrounding significant accounting estimates.



To address the observed internal control deficiencies, Occams management has initiated a remediation process.
Occams management believes that remediation is not complete and will continue in future periods. Remedial actions to date include the following: (i) increasing staffing in Occams finance department; (ii) weekly revenue reviews
by the Companys Chief Financial Officer, Chief Executive Officer, and appropriate finance staff; (iii) engaging an outside consultant to review Occams internal controls and procedures and to recommend and assist in remediation,
where applicable; and (iv) implementation of a disclosure committee.



PART II  OTHER INFORMATION



|ITEM 1 | LEGAL PROCEEDINGS
|------ | -----------------



In June 2001, three putative stockholder class action lawsuits were filed against Accelerated Networks (Occams name prior to the acquisition of
Occam CA), certain of its then officers and directors and several investment banks that were underwriters of Accelerated Networks initial public offering. The cases, which have now been consolidated, were filed in the United States District
Court for the Southern District of New York. The Court appointed a lead plaintiff on April 16, 2002, and plaintiffs filed a Consolidated Amended Class Action Complaint (the Complaint) on April 19, 2002. The Complaint was filed
on behalf of investors who purchased Accelerated Networks stock between June 22, 2000 and December 6, 2000 and alleges violations of Sections 11 and 15 of the Securities Act of 1933 as amended and Sections 10(b) and 20(a)
and Rule 10b-5 of the Securities Exchange Act of 1934 as amended, against one or both of Accelerated Networks and the individual defendants. The claims are based on allegations that the underwriter defendants agreed to allocate stock in
Accelerated Networks initial public offering to certain investors in exchange for excessive and undisclosed commissions and agreements by those investors to make additional purchases in the aftermarket at pre-determined prices. Plaintiffs
allege that the prospectus for Accelerated Networks initial public offering was false and misleading in violation of the securities laws because it did not disclose these arrangements. These lawsuits are part of the massive IPO
allocation litigation involving the conduct of underwriters in allocating shares of successful initial public offerings. Occam believes that over three hundred other companies have been named in more than one thousand similar lawsuits that
have been filed by some of the same plaintiffs law firms. In October 2002, the plaintiffs voluntarily dismissed the individual defendants without prejudice. On February 19, 2003 a motion to dismiss filed by the issuer defendants was heard
and the court dismissed the 10(b), 20(a) and Rule 10b-5 claims against the Company. On July 31, 2003, Occam agreed, together with over three hundred other companies similarly situated, to settle with the plaintiffs. A Memorandum of
Understanding (MOU), along with a separate agreement and a performance bond of $1 billion was issued by the insurers for these companies as a guarantee, allocated pro rata amongst all issuer companies, to the plaintiffs as part of
an overall recovery against all defendants including the underwriter defendants who are not a signatory to the MOU. Any recovery by the plaintiffs against the underwriter defendants reduces the amount to be paid by the issuer companies. The
settlement documents are in process and a fairness hearing on the proposed settlement is scheduled for April 24, 2006. It is anticipated that Occam will execute the settlement documents before the end of 2005. This settlement will require the
approval of the members of the class of plaintiffs and the court. The Company has not recorded any accrual related to this proposed settlement because it expects any settlement amounts to be covered by its insurance policies.



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|ITEM 2 | UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS
|------ | ----------------------------------------------------------



With respect to unregistered sales of equity securities, see the Companys Current Reports on Form 8-K filed with the Securities & Exchange
Commission on September 14, 2005 (with respect to a sale and issuance of shares of Common Stock to Occams Chief Executive Officer).



|ITEM 6. | EXHIBITS
|------- | --------



| | A. | Exhibits
| | -- | --------



|            |  |                                                                                                                                                                                                                                                  
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Exhibit Title                                                                                                                                                                                                                                    
|3.1.4       |  | Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Occam Networks, Inc. filed with the Secretary of State of the State of Delaware on September 2,
2005.                                                       
|            | 
|10.70       |  | Executive Officer Stock Grant Program  Restricted Stock Grant Agreement dated September 12, 2005 (Incorporated by reference to Exhibit 10.75 of the Current Report on Form 8-K of Occam
Networks, Inc. filed with the SEC on September 14, 2005)
|            | 
|10.71       |  | Form of Director Offer Letter dated September 16, 2004 for Robert Bylin, Thomas Pardun and Kenneth Cole (Incorporated by reference to Exhibit 10.71 of the Registration Statement on Form S-1
(Reg. No. 333-125061) of Occam Networks, Inc.)     
|            | 
|31.01       |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                              
|            | 
|31.02       |  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                               
|            | 
|32.01       |  | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                   



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SIGNATURES



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



OCCAM NETWORKS, INC.(Registrant)By:

/s/ Howard M. BaileyHoward M. BaileyChief Financial Officer(Principal Financial and Accounting Officer)




Dated: November 14, 2005



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EXHIBIT INDEX



|            |  |                                                                                                                                                                                                                                                  
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Exhibit Title                                                                                                                                                                                                                                    
|3.1.4       |  | Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Occam Networks, Inc. filed with the Secretary of State of the State of Delaware on September 2,
2005.                                                       
|            | 
|10.70       |  | Executive Officer Stock Grant Program  Restricted Stock Grant Agreement dated September 12, 2005 (Incorporated by reference to Exhibit 10.75 of the Current Report on Form 8-K of Occam
Networks, Inc. filed with the SEC on September 14, 2005)
|            | 
|10.71       |  | Form of Director Offer Letter dated September 16, 2004 for Robert Bylin, Thomas Pardun and Kenneth Cole (Incorporated by reference to Exhibit 10.71 of the Registration Statement on Form S-1
(Reg. No. 333-125061) of Occam Networks, Inc.)     
|            | 
|31.01       |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                              
|            | 
|31.02       |  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                               
|            | 
|32.01       |  | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                   



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