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United States

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549



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FORM 10-Q



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

For the thirteen-week period ended: March 24, 2006

OR



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



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C-COR Incorporated

(Exact Name of Registrant as Specified in Charter)



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|                                               |  |                          |  |                                  
|---------------------------------------------- |  | ------------------------ |  | ---------------------------------
|Pennsylvania                                   |  | 0-10726                  |  | 24-0811591                       
|(State or Other Jurisdiction of Incorporation) |  | (Commission File Number) |  | (IRS Employer Identification No.)



|                                         |  |           
|---------------------------------------- |  | ----------
|60 Decibel Road State College, PA        |  | 16801     
|(Address of Principal Executive Offices) |  | (Zip Code)

(814) 238-2461

(Registrants Telephone Number, Including Area Code)



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Indicate by check mark whether the registrant (1) has filed all 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 a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2
of the Exchange Act.

Large accelerated filer: ̈Accelerated filer:  x        Non-accelerated filer: ̈

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

APPLICABLE ONLY TO CORPORATE ISSUERS

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

Common Stock, $.05 Par Value  47,993,781 shares as of April 21, 2006.



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##### Table of Contents

C-COR Incorporated



|                               |  |                                                                                       |  |      
|------------------------------ |  | ------------------------------------------------------------------------------------- |  | -----
|                               |  |                                                                                       |  | Page 
|Part I 
FINANCIAL INFORMATION |  |                                                                                      
|Item 1.                        |  | Financial Statements                                                                  |  |      
|                               |  | Report of Independent Registered Public Accounting Firm                               |  | 2    
|                               |  | Condensed Consolidated Balance Sheets:                                                |  |      
|                               |  | As of March 24, 2006 and June 24, 2005                                                |  | 3    
|                               |  | Condensed Consolidated Statements of Operations:                                      |  |      
|                               |  | Thirteen Weeks Ended March 24, 2006 and March 25, 2005                                |  | 4    
|                               |  | Condensed Consolidated Statements of Operations:                                      |  |      
|                               |  | Thirty-nine Weeks Ended March 24, 2006 and March 25, 2005                             |  | 5    
|                               |  | Condensed Consolidated Statements of Cash Flows:                                      |  |      
|                               |  | Thirty-nine Weeks Ended March 24, 2006 and March 25, 2005                             |  | 6    
|                               |  | Notes to Condensed Consolidated Financial Statements                                  |  | 7-20 
|Item 2.                        |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 21-30
|Item 3.                        |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 31   
|Item 4.                        |  | Controls and Procedures                                                               |  | 31   
|Part II 
OTHER INFORMATION    |  |                                                                                      
|Item 1.                        |  | Legal Proceedings                                                                     |  | 32   
|Item 6.                        |  | Exhibits                                                                              |  | 32   
|Signatures                     |  | 33                                                                                   



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##### Table of Contents

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

C-COR Incorporated:

We have
reviewed the condensed consolidated balance sheet of C-COR Incorporated and subsidiaries as of March 24, 2006, and the related condensed consolidated statements of operations for the thirteen week and thirty-nine week periods ended
March 24, 2006 and March 25, 2005, and the related condensed consolidated statements of cash flows for the thirty-nine week periods ended March 24, 2006 and March 25, 2005. These condensed consolidated financial statements are
the responsibility of the Companys management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight
Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit
conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express
such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial
statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.

As discussed in Note 3 to the condensed
consolidated financial statements, the Company changed its method of accounting for stock- based compensation effective June 25, 2005.

We have
previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of C-COR Incorporated and subsidiaries as of June 24, 2005, and the related consolidated
statements of operations, cash flows, and shareholders equity for the year then ended (not presented herein); and in our report dated September 7, 2005, we expressed an unqualified opinion on those consolidated financial statements. In
our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of June 24, 2005, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Harrisburg, Pennsylvania

May 3, 2006



2



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##### Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

C-COR Incorporated

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)



|                                                                                                                                              |  |               |          |   |              |   |          |  
|--------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | -------- | - | ------------ | - | -------- | -
|                                                                                                                                              |  | March 24,2006 |          |   | June 24,2005 |  
|ASSETS                                                                                                                                        |  |               |          |   |              |   |          |  
|Current assets                                                                                                                                |  |               |          |   |              |   |          |  
|Cash and cash equivalents                                                                                                                     |  | $             | 31,414   |   |              | $ | 43,320   |  
|Restricted cash                                                                                                                               |  |               | 3,547    |   |              |   | 3,690    |  
|Marketable securities                                                                                                                         |  |               | 6,682    |   |              |   | 9,327    |  
|Accounts receivable, net                                                                                                                      |  |               | 49,325   |   |              |   | 52,148   |  
|Unbilled receivables                                                                                                                          |  |               | 3,883    |   |              |   | 1,592    |  
|Inventories                                                                                                                                   |  |               | 23,272   |   |              |   | 41,628   |  
|Deferred costs                                                                                                                                |  |               | 4,558    |   |              |   | 6,826    |  
|Other current assets                                                                                                                          |  |               | 6,081    |   |              |   | 5,563    |  
|                                                                                                                                              |  |               |          |   |              |   |          |  
|Total current assets                                                                                                                          |  |               | 128,762  |   |              |   | 164,094  |  
|Property, plant, and equipment, net                                                                                                           |  |               | 20,672   |   |              |   | 21,533   |  
|Goodwill                                                                                                                                      |  |               | 131,099  |   |              |   | 131,963  |  
|Other intangible assets, net                                                                                                                  |  |               | 6,019    |   |              |   | 14,714   |  
|Deferred taxes                                                                                                                                |  |               | 928      |   |              |   | 1,449    |  
|Other long-term assets                                                                                                                        |  |               | 4,692    |   |              |   | 4,002    |  
|                                                                                                                                              |  |               |          |   |              |   |          |  
|Total assets                                                                                                                                  |  | $             | 292,172  |   |              | $ | 337,755  |  
|                                                                                                                                              |  |               |          |   |              |   |          |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                          |  |               |          |   |              |   |          |  
|Current liabilities                                                                                                                           |  |               |          |   |              |   |          |  
|Accounts payable                                                                                                                              |  | $             | 22,427   |   |              | $ | 36,332   |  
|Accrued liabilities                                                                                                                           |  |               | 24,040   |   |              |   | 25,299   |  
|Deferred revenue                                                                                                                              |  |               | 20,357   |   |              |   | 14,887   |  
|Deferred taxes                                                                                                                                |  |               | 2,060    |   |              |   | 1,339    |  
|Current portion of long-term debt                                                                                                             |  |               | 203      |   |              |   | 162      |  
|                                                                                                                                              |  |               |          |   |              |   |          |  
|Total current liabilities                                                                                                                     |  |               | 69,087   |   |              |   | 78,019   |  
|Long-term debt, less current portion                                                                                                          |  |               | 35,688   |   |              |   | 35,617   |  
|Deferred revenue                                                                                                                              |  |               | 813      |   |              |   | 3,111    |  
|Deferred taxes                                                                                                                                |  |               | 1,004    |   |              |   | 478      |  
|Other long-term liabilities                                                                                                                   |  |               | 4,104    |   |              |   | 3,491    |  
|                                                                                                                                              |  |               |          |   |              |   |          |  
|Total liabilities                                                                                                                             |  |               | 110,696  |   |              |   | 120,716  |  
|                                                                                                                                              |  |               |          |   |              |   |          |  
|Commitments and contingencies                                                                                                                 |  |               |          |   |              |   |          |  
|Shareholders equity                                                                                                                          |  |               |          |   |              |   |          |  
|Preferred stock, no par value; authorized shares of 2,000,000; none issued                                                                    |  |               |         |   |              |   |         |  
|Common stock, $.05 par; authorized shares of 100,000,000; issued shares of 51,586,468 as of March 24, 2006 and 51,394,422 as of
June 24, 2005 |  |               | 2,579    |   |              |   | 2,570    |  
|Additional paid-in capital                                                                                                                    |  |               | 381,915  |   |              |   | 378,334  |  
|Accumulated other comprehensive income                                                                                                        |  |               | 4,603    |   |              |   | 5,387    |  
|Unearned compensation                                                                                                                         |  |               |         |   |              |   | (161     | )
|Accumulated deficit                                                                                                                           |  |               | (173,228 | ) |              |   | (134,741 | )
|Treasury stock at cost, 3,645,150 shares as of March 24, 2006 and 3,645,716 shares as of June 24, 2005                                        |  |               | (34,393  | ) |              |   | (34,350  | )
|                                                                                                                                              |  |               |          |   |              |   |          |  
|Shareholders equity                                                                                                                          |  |               | 181,476  |   |              |   | 217,039  |  
|                                                                                                                                              |  |               |          |   |              |   |          |  
|Total liabilities and shareholders equity                                                                                                    |  | $             | 292,172  |   |              | $ | 337,755  |  
|                                                                                                                                              |  |               |          |   |              |   |          |  

See notes to condensed consolidated financial statements.



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C-COR Incorporated

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)



|                                                             |  |                      |        |   |               |   |         |  
|------------------------------------------------------------ |  | -------------------- | ------ | - | ------------- | - | ------- | -
|                                                             |  | Thirteen Weeks Ended |       
|                                                             |  | March 24,2006        |        |   | March 25,2005 |  
|Net sales:                                                   |  |                      |        |   |               |   |         |  
|Products                                                     |  | $                    | 35,765 |   |               | $ | 36,714  |  
|Services                                                     |  |                      | 14,057 |   |               |   | 5,637   |  
|Content and operations management systems                    |  |                      | 10,560 |   |               |   | 5,806   |  
|                                                             |  |                      |        |   |               |   |         |  
|Total net sales                                              |  |                      | 60,382 |   |               |   | 48,157  |  
|                                                             |  |                      |        |   |               |   |         |  
|Cost of sales:                                               |  |                      |        |   |               |   |         |  
|Products                                                     |  |                      | 21,772 |   |               |   | 21,350  |  
|Services                                                     |  |                      | 12,141 |   |               |   | 7,605   |  
|Content and operations management systems                    |  |                      | 6,105  |   |               |   | 3,291   |  
|Excess and obsolete inventory charge                         |  |                      | 618    |   |               |   |        |  
|                                                             |  |                      |        |   |               |   |         |  
|Total cost of sales                                          |  |                      | 40,636 |   |               |   | 32,246  |  
|                                                             |  |                      |        |   |               |   |         |  
|Gross margin                                                 |  |                      | 19,746 |   |               |   | 15,911  |  
|                                                             |  |                      |        |   |               |   |         |  
|Operating expenses:                                          |  |                      |        |   |               |   |         |  
|Selling and administrative                                   |  |                      | 14,869 |   |               |   | 17,137  |  
|Research and product development                             |  |                      | 8,887  |   |               |   | 10,666  |  
|Amortization of intangibles                                  |  |                      | 912    |   |               |   | 1,684   |  
|Acquired in-process technology charge                        |  |                      |       |   |               |   | 4,000   |  
|Impairment charges                                           |  |                      | 1,792  |   |               |   |        |  
|Gain on sale of product line                                 |  |                      | (1,970 | ) |               |   |        |  
|Restructuring charge                                         |  |                      | 3,287  |   |               |   | 57      |  
|                                                             |  |                      |        |   |               |   |         |  
|Total operating expenses                                     |  |                      | 27,777 |   |               |   | 33,544  |  
|                                                             |  |                      |        |   |               |   |         |  
|Loss from operations                                         |  |                      | (8,031 | ) |               |   | (17,633 | )
|Other income (expense), net:                                 |  |                      |        |   |               |   |         |  
|Interest expense                                             |  |                      | (341   | ) |               |   | (309    | )
|Investment income                                            |  |                      | 458    |   |               |   | 242     |  
|Foreign exchange gain                                        |  |                      | 465    |   |               |   | 132     |  
|Other income (expense), net                                  |  |                      | 177    |   |               |   | (183    | )
|                                                             |  |                      |        |   |               |   |         |  
|Loss before income taxes                                     |  |                      | (7,272 | ) |               |   | (17,751 | )
|Income tax expense (benefit)                                 |  |                      | 676    |   |               |   | (402    | )
|                                                             |  |                      |        |   |               |   |         |  
|Net loss                                                     |  | $                    | (7,948 | ) |               | $ | (17,349 | )
|                                                             |  |                      |        |   |               |   |         |  
|Net loss per share:                                          |  |                      |        |   |               |   |         |  
|Basic                                                        |  | $                    | (0.17  | ) |               | $ | (0.37   | )
|Diluted                                                      |  | $                    | (0.17  | ) |               | $ | (0.37   | )
|                                                             |  |                     
|Weighted average common shares and common share equivalents: |  |                      |        |   |               |   |         |  
|Basic                                                        |  |                      | 47,896 |   |               |   | 47,402  |  
|Diluted                                                      |  |                      | 47,896 |   |               |   | 47,402  |  

See notes to the condensed consolidated financial statements.



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C-COR Incorporated

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)



|                                                             |  |                         |         |   |               |   |         |  
|------------------------------------------------------------ |  | ----------------------- | ------- | - | ------------- | - | ------- | -
|                                                             |  | Thirty-nine Weeks Ended |        
|                                                             |  | March 24,2006           |         |   | March 25,2005 |  
|Net sales:                                                   |  |                         |         |   |               |   |         |  
|Products                                                     |  | $                       | 112,952 |   |               | $ | 123,106 |  
|Services                                                     |  |                         | 38,760  |   |               |   | 33,718  |  
|Content and operations management systems                    |  |                         | 38,832  |   |               |   | 11,919  |  
|                                                             |  |                         |         |   |               |   |         |  
|Total net sales                                              |  |                         | 190,544 |   |               |   | 168,743 |  
|                                                             |  |                         |         |   |               |   |         |  
|Cost of sales:                                               |  |                         |         |   |               |   |         |  
|Products                                                     |  |                         | 72,140  |   |               |   | 72,455  |  
|Services                                                     |  |                         | 33,731  |   |               |   | 30,295  |  
|Content and operation management systems                     |  |                         | 20,034  |   |               |   | 5,507   |  
|Excess and obsolete inventory charge                         |  |                         | 8,354   |   |               |   |        |  
|                                                             |  |                         |         |   |               |   |         |  
|Total cost of sales                                          |  |                         | 134,259 |   |               |   | 108,257 |  
|                                                             |  |                         |         |   |               |   |         |  
|Gross margin                                                 |  |                         | 56,285  |   |               |   | 60,486  |  
|                                                             |  |                         |         |   |               |   |         |  
|Operating expenses:                                          |  |                         |         |   |               |   |         |  
|Selling and administrative                                   |  |                         | 50,212  |   |               |   | 43,287  |  
|Research and product development                             |  |                         | 29,459  |   |               |   | 26,596  |  
|Amortization of intangibles                                  |  |                         | 3,706   |   |               |   | 4,030   |  
|Acquired in-process technology charge                        |  |                         |        |   |               |   | 5,850   |  
|Impairment charges                                           |  |                         | 7,122   |   |               |   |        |  
|Gain on sale of product line                                 |  |                         | (1,970  | ) |               |   |        |  
|Restructuring charge                                         |  |                         | 5,037   |   |               |   | 676     |  
|                                                             |  |                         |         |   |               |   |         |  
|Total operating expenses                                     |  |                         | 93,566  |   |               |   | 80,439  |  
|                                                             |  |                         |         |   |               |   |         |  
|Loss from operations                                         |  |                         | (37,281 | ) |               |   | (19,953 | )
|Other income (expense), net:                                 |  |                         |         |   |               |   |         |  
|Interest expense                                             |  |                         | (990    | ) |               |   | (353    | )
|Investment income                                            |  |                         | 1,081   |   |               |   | 1,029   |  
|Foreign exchange gain                                        |  |                         | 218     |   |               |   | 140     |  
|Other income, net                                            |  |                         | 479     |   |               |   | 95      |  
|                                                             |  |                         |         |   |               |   |         |  
|Loss before income taxes                                     |  |                         | (36,493 | ) |               |   | (19,042 | )
|Income tax expense                                           |  |                         | 1,994   |   |               |   | 908     |  
|                                                             |  |                         |         |   |               |   |         |  
|Net loss                                                     |  | $                       | (38,487 | ) |               | $ | (19,950 | )
|                                                             |  |                         |         |   |               |   |         |  
|Net loss per share:                                          |  |                         |         |   |               |   |         |  
|Basic                                                        |  | $                       | (0.80   | ) |               | $ | (0.45   | )
|Diluted                                                      |  | $                       | (0.80   | ) |               | $ | (0.45   | )
|Weighted average common shares and common share equivalents: |  |                         |         |   |               |   |         |  
|Basic                                                        |  |                         | 47,856  |   |               |   | 44,521  |  
|Diluted                                                      |  |                         | 47,856  |   |               |   | 44,521  |  

See notes to condensed consolidated financial statements.



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C-COR Incorporated

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



|                                                                                 |  |                         |         |   |               |   |         |  
|-------------------------------------------------------------------------------- |  | ----------------------- | ------- | - | ------------- | - | ------- | -
|                                                                                 |  | Thirty-nine Weeks Ended |        
|                                                                                 |  | March 24,2006           |         |   | March 25,2005 |  
|Operating Activities:                                                            |  |                         |         |   |               |   |         |  
|Net loss                                                                         |  | $                       | (38,487 | ) |               | $ | (19,950 | )
|Adjustments to reconcile net loss to net cash used in operating activities:      |  |                         |         |   |               |   |         |  
|Depreciation and amortization                                                    |  |                         | 8,638   |   |               |   | 8,590   |  
|Stock-based compensation                                                         |  |                         | 2,845   |   |               |   | 175     |  
|Gain on sale of product line                                                     |  |                         | (1,970  | ) |               |   |        |  
|Impairment charges                                                               |  |                         | 7,122   |   |               |   |        |  
|Acquired in-process technology charge                                            |  |                         |        |   |               |   | 5,850   |  
|Deferred income tax                                                              |  |                         | 1,818   |   |               |   | (391    | )
|Other, net                                                                       |  |                         | 450     |   |               |   | 20      |  
|Changes in operating assets and liabilities, net of effect of acquisitions:      |  |                         |         |   |               |   |         |  
|Receivables                                                                      |  |                         | 362     |   |               |   | (223    | )
|Inventories                                                                      |  |                         | 15,298  |   |               |   | 1,112   |  
|Accounts payable                                                                 |  |                         | (13,872 | ) |               |   | (4,553  | )
|Accrued liabilities                                                              |  |                         | 2,918   |   |               |   | 1,552   |  
|Other                                                                            |  |                         | 982     |   |               |   | (5,746  | )
|                                                                                 |  |                         |         |   |               |   |         |  
|Net cash used in operating activities                                            |  |                         | (13,896 | ) |               |   | (13,564 | )
|                                                                                 |  |                         |         |   |               |   |         |  
|Investing Activities:                                                            |  |                         |         |   |               |   |         |  
|Purchase of property, plant, and equipment                                       |  |                         | (4,552  | ) |               |   | (3,449  | )
|Proceeds from the sale of property, plant and equipment                          |  |                         | 183     |   |               |   |        |  
|Proceeds from the sale of marketable securities and other short-term investments |  |                         | 15,859  |   |               |   | 28,442  |  
|Purchase of marketable securities and other short-term investments               |  |                         | (13,227 | ) |               |   | (6,867  | )
|Proceeds from the sale of product line                                           |  |                         | 3,348   |   |               |   |        |  
|Acquisitions, net of cash acquired                                               |  |                         | (26     | ) |               |   | (46,881 | )
|                                                                                 |  |                         |         |   |               |   |         |  
|Net cash provided by (used in) investing activities                              |  |                         | 1,585   |   |               |   | (28,755 | )
|                                                                                 |  |                         |         |   |               |   |         |  
|Financing Activities:                                                            |  |                         |         |   |               |   |         |  
|Payment of debt and capital lease obligations                                    |  |                         | (146    | ) |               |   | (131    | )
|Proceeds from issuance of common stock to employee stock purchase plan           |  |                         | 103     |   |               |   | 225     |  
|Proceeds from exercise of stock options and stock warrants                       |  |                         | 670     |   |               |   | 847     |  
|Purchase of treasury stock                                                       |  |                         | (43     | ) |               |   |        |  
|                                                                                 |  |                         |         |   |               |   |         |  
|Net cash provided by financing activities                                        |  |                         | 584     |   |               |   | 941     |  
|                                                                                 |  |                         |         |   |               |   |         |  
|Effect of exchange rate changes on cash                                          |  |                         | (179    | ) |               |   | 804     |  
|                                                                                 |  |                         |         |   |               |   |         |  
|Decrease in cash and cash equivalents                                            |  |                         | (11,906 | ) |               |   | (40,574 | )
|Cash and cash equivalents at beginning of period                                 |  |                         | 43,320  |   |               |   | 63,791  |  
|                                                                                 |  |                         |         |   |               |   |         |  
|Cash and cash equivalents at end of period                                       |  | $                       | 31,414  |   |               | $ | 23,217  |  
|                                                                                 |  |                         |         |   |               |   |         |  
|Supplemental cash flow information:                                              |  |                         |         |   |               |   |         |  
|Non-cash investing and financing activities                                      |  |                         |         |   |               |   |         |  
|Fair value adjustment of available-for-sale securities                           |  | $                       | (13     | ) |               | $ | 104     |  
|Capital lease obligation                                                         |  |                         | 258     |   |               |   |        |  
|Common stock issued in connection with the acquisition of nCUBE                  |  |                         |        |   |               |   | 32,589  |  
|Long-term debt issued in connection with the acquisition of nCUBE                |  |                         |        |   |               |   | 35,000  |  

See notes to condensed consolidated financial statements



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C-COR Incorporated

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

(Unaudited)

1. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and, in the opinion of management
of C-COR Incorporated (the Company), contain all adjustments (consisting only of normal, recurring adjustments except as noted) necessary to fairly present the Companys consolidated financial position as of March 24, 2006 and the
consolidated results of operations for the thirteen-week and thirty-nine week periods ended March 24, 2006 and March 25, 2005. Operating results for the thirteen-week and thirty-nine week periods ended March 24, 2006 are not
necessarily indicative of the results that may be expected for the year ending June 30, 2006 due to the cyclical nature of the industry in which the Company operates, timing of recognizing revenues from the sale of certain content management
and operational support software systems, fluctuations in currencies related to intercompany foreign currency transactions where settlement is anticipated, and changes in overall conditions that could affect the carrying value of the Companys
assets and liabilities. For further information, refer to the consolidated financial statements and footnotes thereto included in the Companys Form 10-K for the fiscal year ended June 24, 2005 (fiscal year 2005).

2. DESCRIPTION OF BUSINESS

The Company is
a global provider of integrated network solutions that include access and transport products, technical services and content and operations management systems for broadband networks. The Company operates in three industry segments: C-COR Access and
Transport, C-COR Network Services, and C-COR Solutions.

The C-COR Access and Transport segment is responsible for the development, management, production,
support and sale of network infrastructure products, including the Companys amplitude modulation headend/hub optical platform and line of optical nodes, and a full offering of radio frequency amplifiers.

The C-COR Network Services segment provides technical services for engineering, design, and deployment of advanced applications over broadband networks, including
outsourced operational services, network design and engineering, network integration, outside plant and construction services, and consulting to a variety of customers.

The C-COR Solutions segment is responsible for development, integration, management, implementation, support, and sale of content management systems, including software and hardware, for delivery of video on demand
and digital advertising as well as application-oriented software for subscriber activation and retention, network and service assurance, and workforce management.

For additional information regarding the Companys reporting segments, see Note 14.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accounting and financial reporting policies of the Company are in conformity with U.S. generally accepted accounting principles. The preparation of financial statements in conformity with U.S. generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. Management has discussed the development and selection of the Companys critical accounting estimates with the Audit Committee of the Companys Board of Directors and the Audit Committee has reviewed
the Companys related disclosures. A detailed description of the Companys significant accounting policies is set forth below and in the Notes to Consolidated Financial Statements in the Companys Form 10-K for fiscal year 2005.

As of June 25, 2005, the Company adopted SFAS No. 123R, Share Based Payment (Statement 123R), which requires the Company to measure
compensation cost for all outstanding unvested share-based awards at fair value and to recognize compensation over the service period for awards expected to vest. The estimation of stock awards that will ultimately vest requires judgment and, to the
extent actual results differ from the Companys estimates, such amounts will be recorded as a cumulative adjustment in the period estimates are revised. The Company considers many factors when estimating expected forfeitures, including types of
awards, employee class, and historical experience. Actual results may differ substantially from these estimates.



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Accounting for Employee Stock Award Plans

Prior to June 25, 2005, the Company accounted for employee stock option plans based on the intrinsic value method in accordance with Accounting Principles Board Opinion No. 25 (APB 25), Accounting for
Stock Issued to Employees, and related Interpretations and had adopted the disclosure requirements of SFAS No. 123, Accounting for Stock-Based Compensation (Statement 123), as amended by SFAS No. 148, Accounting for
Stock-Based CompensationTransition and Disclosure (Statement 148). Accordingly, compensation cost for stock options was measured as the excess, if any, of the quoted market price of the Companys stock at the grant date over the
amount an employee must pay to acquire the stock. Stock options granted by the Company to employees and directors were generally at a price not less than 100% of the fair market value of such shares on the date of grant.

In December 2004, Statement 123 was revised. The Financial Accounting Standards Board (FASB) issued Statement 123R to require that compensation cost relating to
share-based payment transactions be recognized in all financial statements. As of June 25, 2005, the Company adopted Statement 123R using the modified prospective method, which requires measurement of compensation cost for all stock-based
awards at fair value on date of grant and recognition of compensation over the service period for awards expected to vest. The fair value of stock options was determined using the Black-Scholes valuation model, which is consistent with the
Companys valuation techniques previously utilized for stock options in footnote disclosures required under Statement 123, as amended by Statement 148. Under Statement 123R, such fair value is recognized as expense over the service period, net
of estimated forfeitures.

Effect of Adoption of Statement 123R

Statement 123R resulted in a change in the Companys method of measuring and recognizing the fair value of stock options and estimating of forfeitures for all unvested awards. Prior to the adoption of Statement 123R, the Company used
the nominal vesting period approach for retirement eligible employees. Using this approach, the Company included in its Statement 123 disclosures compensation cost for share-based awards granted prior to June 25, 2005 over the stated vesting
period for retirement eligible employees and, if an employee retired before the end of the vesting period, the Company included any remaining unrecognized compensation cost at the date of retirement. For stock options granted prior to April 13,
2004, employees were retirement eligible when employed by the Company for at least five years and were at least 55 years old. For stock options granted on or after April 13, 2004, employees are retirement eligible when employed by the Company
for at least five years and have a combination of age and service of sixty years or greater.

As a result of adopting Statement 123R, the Company has
changed its accounting for recognizing compensation expense for new share-based awards granted to retirement eligible employees. For all share-based awards granted on or after June 25, 2005, Statement 123R requires that the Company use the
non-substantive vesting period approach to recognize compensation cost for retirement eligible employees over the period from the date of grant to the date retirement eligibility is achieved, if that is expected to occur during the nominal vesting
period. Therefore, the Company accelerated recording compensation expense of $0 and $434 during the thirteen-week and thirty-nine week periods ended March 24, 2006, respectively, related to retirement eligible employees for awards granted
subsequent to the adoption date of Statement 123R. Had the Company also applied the non-substantive vesting period approach to awards granted prior to the adoption date, compensation expense would have been $57 and $204 lower for the thirteen-week
and thirty-nine week periods ended March 24, 2006, respectively.

The adoption of Statement 123R resulted in no cumulative effect of change in
accounting principle, as of the date of adoption.

Classification of Stock-based Compensation Expense

On March 29, 2005, the Securities and Exchange Commission published Staff Accounting Bulletin No. 107 (SAB 107), which provides the Staffs views on a
variety of matters relating to stock-based payments. SAB 107 requires stock-based compensation to be classified in the same expense line items as cash compensation. Information about stock-based compensation included in the results of operations for
the thirteen-week and thirty-nine week periods ended March 24, 2006 and March 25, 2005 is as follows:



|                                       |  |                      |     |                         |   |                |  |                |       |  |   |    
|-------------------------------------- |  | -------------------- | --- | ----------------------- | - | -------------- |  | -------------- | ----- |  | - | ---
|                                       |  | Thirteen Weeks Ended |     | Thirty-Nine Weeks Ended
|                                       |  | March 24, 2006       |     | March 25, 2005          |   | March 24, 2006 |  | March 25, 2005
|Stock-based compensation, included in: |  |                      |     |                         |   |                |  |                |       |  |   |    
|Cost of Sales                          |  | $                    | 86  |                         | $ |               |  | $              | 290   |  | $ |   
|Operating Expenses:                    |  |                      |     |                         |   |                |  |                |       |  |   |    
|Selling and administrative             |  |                      | 362 |                         |   | 95             |  |                | 2,147 |  |   | 175
|Research and product development       |  |                      | 40  |                         |   |               |  |                | 408   |  |   |   
|                                       |  |                      |     |                         |   |                |  |                |       |  |   |    
|                                       |  |                      | 402 |                         |   | 95             |  |                | 2,555 |  |   | 175
|                                       |  |                      |     |                         |   |                |  |                |       |  |   |    
|Total                                  |  | $                    | 488 |                         | $ | 95             |  | $              | 2,845 |  | $ | 175
|                                       |  |                      |     |                         |   |                |  |                |       |  |   |    



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Tax Effect related to Stock-based Compensation Expense

Statement 123R provides that income tax effects of share-based payments are recognized in the financial statements for those awards which will normally result in tax
deductions under existing tax law. Under current U.S. federal tax law, the Company would receive a compensation expense deduction related to non-qualified stock options only when those options are exercised. Accordingly, the financial statement
recognition of compensation cost for non-qualified stock options creates a deductible temporary difference which results in a deferred tax asset and a corresponding deferred tax benefit in the statement of operations.

As discussed in Note 12, management has evaluated the deferred tax assets and, based on all available evidence, determined that it is more likely than not that some
portion or all of the deferred tax asset will not be realized. Therefore, the Company has recorded a valuation allowance against substantially all deferred tax assets. The valuation allowance has the effect of eliminating the deferred tax
benefit in the condensed consolidated statement of operations. Consequently, the Company did not recognize any net income tax benefit related to share-based compensation expense for the thirteen-week and thirty-nine week periods ended
March 24, 2006.

Valuation Assumptions for Stock Options Granted Subsequent to Statement 123R Adoption

The fair value of each stock option granted during the thirteen-week periods ended September 23, 2005, December 23, 2005 and March 24, 2006 were
estimated at the date of grant using a Black-Scholes closed form option-pricing model, assuming no dividends and using the following valuation assumptions:



|                                     |  |                      |  |                   |  |               
|------------------------------------ |  | -------------------- |  | ----------------- |  | --------------
|                                     |  | Thirteen Weeks Ended
|                                     |  | September 23, 2005   |  | December 23, 2005 |  | March 24, 2006
|Expected Term                        |  | 4.2 years            |  | 4.2 years         |  | 4.2 years     
|Risk-free Interest Rate              |  | 3.75%                |  | 4.08%             |  | 4.45%         
|Range of Expected Volatility         |  | 46.1% - 81%          |  | 46.1% - 81%       |  | 46.1% - 81%   
|Weighted Average Expected Volatility |  | 63.5%                |  | 63.5%             |  | 63.5%         

The option term of each award granted is based on the Companys historical and expected experience of
employees exercise behavior. Expected volatilities are based on implied volatilities from recently traded options on the Companys common stock, historical volatility of the Companys common stock, and other factors, such as expected
changes in volatility arising from planned changes in the Companys business operations. The weighted average expected volatility was weighted evenly for both implied and historical volatility. Risk-free interest rate reflects the yield on the
zero coupon U.S. Treasury in effect at the time of grant based on the expected term of the option.

The above assumptions were used to determine the
weighted average per share fair value of $3.59, $3.37 and $4.89 for stock options granted during the thirteen-week periods ended September 23, 2005, December 23, 2005, and March 24, 2006, respectively.

Fair Value Disclosures  Prior to Statement 123R Adoption

Prior
to June 25, 2005, the Company accounted for stock-based awards under the intrinsic value method, which followed the recognition and measurement principles of APB 25, and related Interpretations. The intrinsic value method of accounting resulted
in compensation expense for stock options to the extent option exercise prices were set below market prices on the date of grant. To the extent stock awards were forfeited prior to vesting, the corresponding previously recognized expense was
reversed as an offset to operating expenses.



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##### Table of Contents

Had the Company adopted Statement 123R for the thirteen-week and thirty-nine week periods ended March 25, 2005, the
impact of that standard would have approximated the impact of Statement 123 in the disclosure of proforma net loss and net loss per share described as follows:



|                                                                                                                                                     |  |                                     |         |   |                                       |   |         |  
|---------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------- | ------- | - | ------------------------------------- | - | ------- | -
|                                                                                                                                                     |  | Thirteen Weeks Ended March 25,
2005 |         |   | Thirty-Nine WeeksEnded March 25, 2005 |  
|Net loss                                                                                                                                             |  | $                                   | (17,349 | ) |                                       | $ | (19,950 | )
|Add: Stock-based employee compensation expense included in reported net loss, net of related tax effects if applicable                               |  |                                     | 95      |   |                                       |   | 175     |  
|Deduct: Total stock-based employee compensation expense determined under fair value method for all awards, net of related tax effects, if
applicable |  |                                     | (1,235  | ) |                                       |   | (3,603  | )
|                                                                                                                                                     |  |                                     |         |   |                                       |   |         |  
|Pro forma net loss                                                                                                                                   |  | $                                   | (18,489 | ) |                                       | $ | (23,378 | )
|                                                                                                                                                     |  |                                     |         |   |                                       |   |         |  
|Net loss per share:                                                                                                                                  |  |                                     |         |   |                                       |   |         |  
|Basic  as reported                                                                                                                                  |  | $                                   | (0.37   | ) |                                       | $ | (0.45   | )
|Basic  pro forma                                                                                                                                    |  | $                                   | (0.39   | ) |                                       | $ | (0.53   | )
|Diluted  as reported                                                                                                                                |  | $                                   | (0.37   | ) |                                       | $ | (0.45   | )
|Diluted  pro forma                                                                                                                                  |  | $                                   | (0.39   | ) |                                       | $ | (0.53   | )

The fair values for stock options granted during the thirteen-week periods ended September 24, 2004 ,
December 24, 2004 and March 25, 2005 were estimated at the dates of grant using the Black-Scholes closed form option-pricing model with the following valuation assumptions:



|                                                |  |                      |   |  |                  |   |  |                |  
|----------------------------------------------- |  | -------------------- | - |  | ---------------- | - |  | -------------- | -
|                                                |  | Thirteen Weeks Ended |  
|                                                |  | September 24,2004    |   |  | December 24,2004 |   |  | March 25, 2005 |  
|Risk-free interest rate                         |  | 3.23                 | % |  | 3.10             | % |  | 3.43           | %
|Expected dividend yield                         |  | 0.00                 | % |  | 0.00             | % |  | 0.00           | %
|Expected stock price volatility factor          |  | 91.5                 | % |  | 86.0             | % |  | 86.0           | %
|Weighted average expected life of stock options |  | 4 years              |   |  | 4 years          |   |  | 4 years        |  

The per share weighted-average fair values of stock options granted during the thirteen-week periods ended
September 24, 2004, December 24, 2004 and March 25, 2005 were $5.45, $5.07, and $5.75, respectively.

Statement of Cash Flows Impact
of SFAS 123R

Prior to the adoption of SFAS 123R, cash retained as a result of tax deductions relating to stock-based compensation was presented in
operating cash flows, along with other tax cash flows, in accordance with the provisions of the Emerging Issues Task Force (EITF) Issue No. 00-15, Classification in the Statement of Cash Flows of the Income Tax Benefit Received by
a Company upon Exercise of a Nonqualified Employee Stock Option. SFAS 123R supersedes EITF 00-15, amends SFAS 95, Statement of Cash Flows, and requires tax benefits relating to excess stock-based compensation deductions to be
prospectively presented in the statement of cash flows as financing cash inflows. Management is in the process of evaluating the amount of excess stock-based compensation deductions included in additional paid-in capital. Therefore, no amounts have
been presented as excess tax benefits in the statement of cash flows for the period ended March 24, 2006.

Cash received from stock option exercises
for the thirteen-week and thirty-nine week periods ended March 24, 2006 was $193 and $670, respectively. Due to the Companys available net operating loss carryforwards, no tax benefit was realized in the current period from these stock
option exercises.

For additional information regarding the Companys stock award plans and the related share-based compensation, see Note 15.



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4. RESTRUCTURING COSTS

During the thirteen-week and thirty-nine week periods ended March 24, 2006, the Company recorded $3,287 and $5,037, respectively, of restructuring charges for workforce reductions of 141 employees associated with
the closure and downsizing of certain facilities under plans to further restructure the Companys operations. The Company will be relocating certain processes from Wallingford, Connecticut, to its Tijuana, Mexico facility as well as closing its
Sunnyvale, California facility. The restructuring is intended to reduce costs and maximize operational efficiency and is anticipated to be completed by the end of fiscal year 2006.

In connection with the restructuring, the Company currently expects to incur additional restructuring charges of approximately $3,500 in the fourth quarter of fiscal year 2006 which are comprised of cash expenditures
for employee severance and termination costs of approximately $2,500 and certain contract termination and other associated costs of up to $1,000. It is anticipated that employee severance and termination benefit payments will be made on a bi-weekly
basis, and as such the Company anticipates payments to extend through the first half of fiscal year 2007. Amounts related to contract termination and other associated costs will be paid out over their remaining term, unless terminated earlier.

In fiscal year 2005, the Company implemented restructuring initiatives to improve the Companys operating performance and eliminate redundancies
resulting from acquisitions, which included settlement of certain contractual obligations, as well as employee severance and termination benefits for 74 employees related to closing the Companys Pleasanton, California location, and the
transition of the Companys manufacturing operation in Klagenfurt, Austria to a contract manufacturer in the region.

The following table provides
detail on the activity and remaining restructuring accrual balance by category as of March 24, 2006.



|                                            |  |                                        |     |                                           |   |               |  |                                         |       |  |   |      
|------------------------------------------- |  | -------------------------------------- | --- | ----------------------------------------- | - | ------------- |  | --------------------------------------- | ----- |  | - | -----
|                                            |  | Restructuring Accrual at June 24, 2005 |     | Restructuring Charges in Fiscal
Year 2006 |   | Net Cash Paid |  | Restructuring Accrual at March 24, 2006
|Employee severance and termination benefits |  | $                                      | 228 |                                           | $ | 4,497         |  | $                                       | 2,124 |  | $ | 2,601
|Contractual obligations and other           |  |                                        |    |                                           |   | 540           |  |                                         | 195   |  |   | 345  
|                                            |  |                                        |     |                                           |   |               |  |                                         |       |  |   |      
|Total                                       |  | $                                      | 228 |                                           | $ | 5,037         |  | $                                       | 2,319 |  | $ | 2,946
|                                            |  |                                        |     |                                           |   |               |  |                                         |       |  |   |      

5. INVENTORIES

In November 2004, the FASB issued SFAS No. 151, Inventory Costs, an Amendment of ARB No. 43 Chapter 4 (Statement 151). Statement 151 requires that items such as idle facility expense,
excessive spoilage, double freight, and rehandling be recognized as current-period charges rather than being included in inventory regardless of whether the costs meet the criterion of abnormal as defined in ARB 43. In addition, Statement 151
requires that allocation of fixed production overheads to the costs of manufacturing be based on the normal capacity of the production facilities. The Company adopted Statement 151 on June 25, 2005; the adoption did not have a material impact
on the Companys financial condition or results of operations.

Inventories as of March 24, 2006 and
June 24, 2005 consisted of the following:



|                  |  |               |        |              |   |       
|----------------- |  | ------------- | ------ | ------------ | - | ------
|                  |  | March 24,2006 |        | June 24,2005
|Finished goods    |  | $             | 7,983  |              | $ | 10,616
|Work-in-process   |  |               | 1,839  |              |   | 5,041 
|Raw materials     |  |               | 13,450 |              |   | 25,971
|                  |  |               |        |              |   |       
|Total inventories |  | $             | 23,272 |              | $ | 41,628
|                  |  |               |        |              |   |       

For the thirteen-week and thirty-nine week periods ended March 24, 2006, the Company recorded a write-down in
inventory of $618 and $8,354, respectively, associated with certain transport product lines, based upon managements assessment of market conditions for these product lines.



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6. GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill was $131,099 and $131,963 as of March 24, 2006 and June 24, 2005, respectively. As of March 24, 2006 and June 24, 2005, goodwill was
allocated by segment as follows:



|                            |  |                |         |               |   |        
|--------------------------- |  | -------------- | ------- | ------------- | - | -------
|                            |  | March 24, 2006 |         | June 24, 2005
|C-COR Access and Transport: |  |                |         |               |   |        
|United States               |  | $              | 16,802  |               | $ | 16,696 
|Europe                      |  |                | 6,770   |               |   | 6,767  
|Asia                        |  |                |        |               |   | 982    
|                            |  |                |         |               |   |        
|                            |  |                | 23,572  |               |   | 24,445 
|C-COR Solutions:            |  |                |         |               |   |        
|United States               |  |                | 99,881  |               |   | 99,850 
|Europe                      |  |                | 315     |               |   | 329    
|Asia                        |  |                | 354     |               |   | 362    
|                            |  |                |         |               |   |        
|                            |  |                | 100,550 |               |   | 100,541
|C-COR Network Services:     |  |                |         |               |   |        
|United States               |  |                | 6,977   |               |   | 6,977  
|                            |  |                |         |               |   |        
|Total                       |  | $              | 131,099 |               | $ | 131,963
|                            |  |                |         |               |   |        

During the thirty-nine week period ended March 24, 2006, goodwill decreased $864, which consisted of
reductions of $926 related to the divestiture of the Companys operation in Mulgrave, Australia and $90 related to fluctuations in foreign currency exchange rates used to translate the goodwill related to foreign subsidiaries at the balance
sheet date and increases of $121 related to an earn-out payment associated with the acquisition of Optinel Systems, Inc. and $31 related to direct acquisition costs.

Under SFAS 142, Goodwill and Other Intangible Assets, goodwill is no longer amortized. Rather, goodwill is subject to a periodic impairment test based on its fair value. The Company has selected the end of
its third fiscal quarter of each year to reassess the value of its reporting units and related goodwill balance, or at other times if events have occurred or circumstances exist that indicate the carrying amount of goodwill may not be recoverable.
The Company obtained an independent appraisal as of March 24, 2006 to assess the fair value of its reporting units, to determine whether goodwill carried on its books was impaired and the extent of such impairment, if any. The independent
appraisal used the income approach to measure the fair value of the Companys business units. Managements assumptions regarding estimates of operating results and expected cash flows for each business unit were provided to the independent
appraiser, along with historical operating performance. Under the income approach, fair value is dependent on the present value of future economic benefits to be derived from ownership. Future net cash flows available for distribution are discounted
at market-based rates of return to provide indications of the value. Based upon this independent appraisal, the Company determined that its current goodwill balances were not impaired as of March 24, 2006.

Other intangible assets as of March 24, 2006 and June 24, 2005 consisted of the following:



|                                   |  |                |         |   |               |   |         |  
|---------------------------------- |  | -------------- | ------- | - | ------------- | - | ------- | -
|                                   |  | March 24, 2006 |         |   | June 24, 2005 |  
|Cost of intangibles:               |  |                |         |   |               |   |         |  
|Purchased technology               |  | $              | 13,412  |   |               | $ | 18,400  |  
|Customer relationships             |  |                | 5,010   |   |               |   | 5,010   |  
|Covenants not-to-compete           |  |                | 860     |   |               |   | 860     |  
|Patents and trademarks             |  |                | 1,200   |   |               |   | 1,200   |  
|                                   |  |                |         |   |               |   |         |  
|Total cost of intangibles          |  |                | 20,482  |   |               |   | 25,470  |  
|                                   |  |                |         |   |               |   |         |  
|Less accumulated amortization:     |  |                |         |   |               |   |         |  
|Purchased technology               |  |                | (8,631  | ) |               |   | (5,843  | )
|Customer relationships             |  |                | (3,828  | ) |               |   | (3,160  | )
|Covenants not-to-compete           |  |                | (804    | ) |               |   | (553    | )
|Patents and trademarks             |  |                | (1,200  | ) |               |   | (1,200  | )
|                                   |  |                |         |   |               |   |         |  
|Total accumulated amortization     |  |                | (14,463 | ) |               |   | (10,756 | )
|                                   |  |                |         |   |               |   |         |  
|Total other intangible assets, net |  | $              | 6,019   |   |               | $ | 14,714  |  
|                                   |  |                |         |   |               |   |         |  



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##### Table of Contents

7. IMPAIRMENT CHARGES

During the thirteen-week and thirty-nine week periods ended March 24, 2006, the Company recorded impairment charges of $1,792 and $7,122, respectively. On April 7, 2006, the Company divested its operation
located in Mulgrave, Australia in a sale of the business. The operation was included as part of the Companys Access and Transport product segment. The terms of sale included a 1,500 Australian dollar cash payment ($1,081 United States dollars)
for the business. A loss on the sale of business of $1,792 was recorded as an impairment charge during the thirteen-week period ended March 24, 2006 (see Note 17).

Under SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (Statement 144), the Company periodically evaluates long-lived assets other than goodwill for indications of
impairment and tests long-lived assets for recoverability whenever events or changes in circumstances indicate that the carrying value of a long-lived asset may not be recoverable. An impairment loss is recognized when the carrying amount of a
long-lived asset is not recoverable and exceeds its fair value. During the thirteen-week period ended December 23, 2005, the Company recognized an impairment loss of $5,330 related to its decision to cease sales and marketing activities
associated with certain transport product lines. The impairment charge was comprised of $4,988 of other intangible assets associated with purchased technology and $342 associated with the write-down of property and equipment. The fair value of these
assets was measured based on an estimate of discounted cash flows expected to result from the use and disposition of these assets.

8. LETTER OF CREDIT AGREEMENT

Effective November 1, 2005, the Company amended its credit agreement of November 5, 2004 (the
Agreement) with a bank for a $10,000 revolving letter of credit facility. Under the amended Agreement, the $10,000 may be used solely for the issuance of letters of credit which must be fully cash collateralized at the time of
issuance. The Company is required to maintain with the bank cash collateral of 102% of the amount that can be drawn on the issued letters of credit. This collateral can be drawn on upon the occurrence of any event of default under the Agreement. The
Agreement contains standard event of default provisions, but no financial covenants. The Agreement is committed through November 4, 2006. The applicable margin under the Agreement is 0.65%, payable quarterly in arrears. In the event that a
letter of credit is drawn upon, the interest rate for any unreimbursed drawing is the banks floating prime rate.

As of March 24, 2006, the
aggregate amount of letters of credit issued under the Agreement was $3,339. A cash compensating balance of $3,547 (includes interest earned on account) is maintained to secure the letters of credit. The cash compensating balance is classified as
part of restricted cash on the condensed consolidated balance sheet.

9. ACCRUED LIABILITIES

Accrued liabilities as of March 24, 2006 and June 24, 2005 consisted of the following:



|                                      |  |                |        |               |   |       
|------------------------------------- |  | -------------- | ------ | ------------- | - | ------
|                                      |  | March 24, 2006 |        | June 24, 2005
|Accrued vacation expense              |  | $              | 3,828  |               | $ | 4,170 
|Accrued salary expense                |  |                | 2,360  |               |   | 4,597 
|Accrued salary benefits               |  |                | 883    |               |   | 891   
|Accrued sales tax expense             |  |                | 654    |               |   | 840   
|Accrued warranty expense              |  |                | 5,024  |               |   | 6,575 
|Accrued workers compensation expense |  |                | 646    |               |   | 616   
|Accrued restructuring costs           |  |                | 2,946  |               |   | 228   
|Accrued income taxes payable          |  |                | 795    |               |   | 1,007 
|Accrued other                         |  |                | 6,904  |               |   | 6,375 
|                                      |  |                |        |               |   |       
|                                      |  | $              | 24,040 |               | $ | 25,299
|                                      |  |                |        |               |   |       



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10. NET LOSS PER SHARE

Basic net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding. Diluted net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding
and potential common shares outstanding. Potential common shares result from the assumed exercise of outstanding stock options and warrants having a dilutive effect, calculated under the treasury stock method using the average market price for the
period, and from the potential conversion of the Companys 3.5% senior convertible notes, calculated under the if-converted method. In addition, in computing the dilutive effect of the convertible debt, the net loss is adjusted to add back the
after-tax amount of interest and amortized debt issuance costs recognized in the period associated with the convertible debt. Any potential shares that are antidilutive are excluded from the effect of dilutive securities.

For the thirteen-week periods ended March 24, 2006 and March 25, 2005, total potential common shares of 8,831,454 and 8,642,171, respectively, were excluded
from the diluted net loss per share calculation because they were antidilutive. For the thirty-nine week periods ended March 24, 2006 and March 25, 2005, total potential common shares of 8,983,032 and 6,641,243, respectively, were excluded
from the diluted net loss per share calculation because they were antidilutive.

11. COMPREHENSIVE LOSS

The components of accumulated other comprehensive income (loss), net of tax, if applicable, are as follows:



|                                                |  |                |       |   |               |   |       |  
|----------------------------------------------- |  | -------------- | ----- | - | ------------- | - | ----- | -
|                                                |  | March 24, 2006 |       |   | June 24, 2005 |  
|Unrealized gain (loss) on marketable securities |  | $              | (14   | ) |               | $ | (1    | )
|Foreign currency translation gain               |  |                | 4,617 |   |               |   | 5,388 |  
|                                                |  |                |       |   |               |   |       |  
|Accumulated other comprehensive income          |  | $              | 4,603 |   |               | $ | 5,387 |  
|                                                |  |                |       |   |               |   |       |  

The components of comprehensive loss for the thirteen-week and thirty-nine week periods ended March 24, 2006
and March 25, 2005 are as follows:



|                                                |  |                      |        |   |                |   |         |  
|----------------------------------------------- |  | -------------------- | ------ | - | -------------- | - | ------- | -
|                                                |  | Thirteen Weeks Ended |       
|                                                |  | March 24, 2006       |        |   | March 25, 2005 |  
|Net loss                                        |  | $                    | (7,948 | ) |                | $ | (17,349 | )
|Other comprehensive income (loss):              |  |                      |        |   |                |   |         |  
|Unrealized gain (loss) on marketable securities |  |                      | (30    | ) |                |   | 30      |  
|Foreign currency translation loss               |  |                      | (166   | ) |                |   | (1,264  | )
|                                                |  |                      |        |   |                |   |         |  
|Other comprehensive loss                        |  |                      | (196   | ) |                |   | (1,234  | )
|                                                |  |                      |        |   |                |   |         |  
|Comprehensive loss                              |  | $                    | (8,144 | ) |                | $ | (18,583 | )
|                                                |  |                      |        |   |                |   |         |  



14



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##### Table of Contents

|                                                |  |                         |         |   |                |   |         |  
|----------------------------------------------- |  | ----------------------- | ------- | - | -------------- | - | ------- | -
|                                                |  | Thirty-nine Weeks Ended |        
|                                                |  | March 24, 2006          |         |   | March 25, 2005 |  
|Net loss                                        |  | $                       | (38,487 | ) |                | $ | (19,950 | )
|Other comprehensive income (loss):              |  |                         |         |   |                |   |         |  
|Unrealized gain (loss) on marketable securities |  |                         | (13     | ) |                |   | 104     |  
|Foreign currency translation gain (loss)        |  |                         | (771    | ) |                |   | 2,172   |  
|                                                |  |                         |         |   |                |   |         |  
|Other comprehensive income (loss)               |  |                         | (784    | ) |                |   | 2,276   |  
|                                                |  |                         |         |   |                |   |         |  
|Comprehensive loss                              |  | $                       | (39,271 | ) |                | $ | (17,674 | )
|                                                |  |                         |         |   |                |   |         |  

The Company accounts for certain intercompany loans that are denominated in various foreign currencies as being
permanent in nature, as settlement is not planned or anticipated in the foreseeable future. As such, foreign currency translation gains and losses related to these loans are excluded from net loss and reported as a component of other comprehensive
loss.

12. INCOME TAXES

The Company determines income taxes
for each of the jurisdictions in which it operates. This involves estimating the Companys actual current income tax payable and assessing temporary differences resulting from differing treatment of items, such as reserves and accruals, for tax
and accounting purposes. Earnings of foreign operations are reinvested in the business and no provision for domestic income tax or foreign withholding tax is made on such earnings until distributed. Deferred taxes arise due to temporary differences
in the bases of assets and liabilities and from net operating loss and tax credit carryforwards. In general, deferred tax assets represent future tax benefits to be received when certain expenses previously recognized in the Companys statement
of operations become deductible expenses under applicable income tax laws or net operating loss or tax credit carryforwards are utilized. Accordingly, realization of deferred tax assets is dependent on future taxable income against which these
deductions, net operating losses and tax credits can be utilized. In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be
realized. Historical operating losses, scheduled reversals of deferred tax liabilities, projected future taxable income and tax planning strategies are considered in making this assessment.

Management concluded during the third quarter of fiscal year 2003 that a valuation allowance against net deferred tax assets was appropriate, primarily as a result of
the cumulative losses during fiscal years 2001, 2002 and 2003, and recorded a valuation allowance as of that date. The Company expects to maintain the valuation allowance on deferred tax assets until a level of profitability is achieved and
sustained in the applicable tax jurisdictions that demonstrates it is more likely than not that the Company will be able to realize all or part of the deferred tax assets. As of March 24, 2006, a valuation allowance on substantially all of the
deferred tax assets remains, except in certain foreign jurisdictions where the Company is profitable. Income tax expense for the thirteen-week and thirty-nine week periods ended March 24, 2006 arose primarily from the recognition of valuation
allowance during the periods. Income tax expense for the thirteen-week and thirty-nine week periods ended March 24, 2006 also included deferred taxes and current taxes paid or payable in those foreign jurisdictions where the Company is
profitable.

Under recent changes in United States tax law, the American Jobs Creation Act of 2004 provides, under certain circumstances, for an 85%
dividends received deduction for qualified cash dividends received from controlled foreign corporations if the funds are reinvested in the U.S. The deduction can result in a much lower rate of U.S. tax on those earnings than the U.S. statutory rate
of 35%. The Company has not yet completed its evaluation of the effect of the new tax law on its plans for reinvestment or repatriation of foreign earnings; therefore, it is uncertain whether the Company will repatriate these earnings. If foreign
earnings were repatriated, the effect would likely be to reduce the Companys U.S. net operating loss carryforwards and corresponding valuation allowance, provide foreign tax credit carryforwards that would be offset with a valuation allowance
and, to the extent the dividends were subject to withholding tax in the foreign jurisdiction, result in additional foreign tax expense. The range of these income tax effects has not been determined. The Company expects to complete its evaluation
during the current fiscal year.



15



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##### Table of Contents

13. GUARANTEES

As of
March 24, 2006, the Company did not have any outstanding guarantees, except for product warranties. The Company warrants its products against defects in materials and workmanship, generally for one-to-five years depending upon product lines and
geographic regions. A provision for estimated future costs related to warranty activities is recorded when the product is shipped, based upon historical experience of product failure rates and historical costs incurred in correcting product
failures. In addition, from time to time, the recorded amount is adjusted for specifically identified warranty exposures where unforeseen technical problems arise.

Changes in the Companys warranty liability during the thirty-nine week period ended March 24, 2006 are as follows:



|                                                                       |  |   |        |  
|---------------------------------------------------------------------- |  | - | ------ | -
|Balance as of June 24, 2005                                            |  | $ | 6,575  |  
|Warranties issued during the period                                    |  |   | 1,204  |  
|Warranty liability divested in sale of product line                    |  |   | (255   | )
|Settlements made during the period                                     |  |   | (1,292 | )
|Changes in the liability for pre-existing warranties during the period |  |   | (1,208 | )
|                                                                       |  |   |        |  
|Balance as of March 24, 2006                                           |  | $ | 5,024  |  
|                                                                       |  |   |        |  

In the normal course of business, the Company is party to certain off-balance sheet arrangements including
indemnifications, and financial instruments with off-balance sheet risk, such as bank letters of credit (see Note 8) and performance or surety bonds. Liabilities related to these arrangements are not reflected in the consolidated balance sheets, and
the Company does not expect any material impact on its cash flows, results of operations or financial condition to result from these off-balance sheet arrangements.

The Companys C-COR Network Services segment uses surety bonds to secure performance obligations as a contractor in various state and local jurisdictions. As of March 24, 2006, the Company had $1,760 of
outstanding surety bonds. To the extent that surety bonds become unavailable, the Company would need to replace the surety bonds or seek to secure them with letters of credit, cash deposits, or other suitable forms of collateral.

The Companys C-COR Solutions segment licenses software to its customers under written agreements. Each agreement contains the relevant terms of the contractual
arrangement with the customer, and generally includes provisions for indemnifying the customer against losses, expenses, and liabilities from damages that may be awarded against the customer in the event the software is found to infringe upon
certain intellectual property rights of a third party. Each agreement generally limits the scope of and remedies for such indemnification obligations in a variety of industry-standard respects. The Company has not identified any losses that are
probable under these provisions and, accordingly, no liability related to these indemnification provisions has been recorded.

14. SEGMENT INFORMATION

The Company operates in three industry segments: C-COR Access and Transport, C-COR Network Services, and C-COR Solutions.

The management approach required under SFAS No. 131, Disclosures About Segments of an Enterprise and Related Information, has been used to
present the following segment information. This approach is based upon the way the management of the Company organizes segments within an enterprise for making operating decisions and assessing performance.

The following costs and asset categories are not allocated to segments and are reflected in the table as unallocated items:



| |  |  | Corporate selling, general and administrative expenses, and technology oversight functions;
| | - |  | -------------------------------------------------------------------------------------------



| |  |  | Certain restructuring costs;
| | - |  | ----------------------------



| |  |  | Goodwill and other intangible asset impairment charges;
| | - |  | -------------------------------------------------------



| |  |  | Income tax expense (benefit); and
| | - |  | ---------------------------------



| |  |  | Identifiable assets of cash and cash equivalents, marketable securities and other short-term investments, and certain other long-term corporate assets
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



16



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Information about the Companys industry segments for the thirteen-week and thirty-nine week periods ended
March 24, 2006 and March 25, 2005 is as follows:



|                                             |  |                           |         |                       |   |        |                |  |   |             |   |  |       |         |   |  |   |         |  
|-------------------------------------------- |  | ------------------------- | ------- | --------------------- | - | ------ | -------------- |  | - | ----------- | - |  | ----- | ------- | - |  | - | ------- | -
|                                             |  | C-COR Access andTransport |         | C-COR NetworkServices |   |        | C-CORSolutions |  |   | Unallocated |   |  | Total |        
|Thirteen-week period ended March 24, 2006    |  |                           |         |                       |   |        |                |  |   |             |   |  |       |         |   |  |   |         |  
|Net sales                                    |  | $                         | 35,765  |                       | $ | 14,057 |                |  | $ | 10,560      |   |  | $     |        |   |  | $ | 60,382  |  
|Depreciation and amortization                |  |                           | 641     |                       |   | 122    |                |  |   | 1,141       |   |  |       | 564     |   |  |   | 2,468   |  
|Income (loss) from operations                |  |                           | 6,165   |                       |   | 1,235  |                |  |   | (1,186      | ) |  |       | (14,245 | ) |  |   | (8,031  | )
|Income tax expense                           |  |                           |        |                       |   |       |                |  |   |            |   |  |       | 676     |   |  |   | 676     |  
|Identifiable assets at March 24, 2006        |  |                           | 73,875  |                       |   | 23,986 |                |  |   | 139,446     |   |  |       | 54,865  |   |  |   | 292,172 |  
|Capital expenditures                         |  |                           | 41      |                       |   | 197    |                |  |   | 212         |   |  |       | 306     |   |  |   | 756     |  
|                                             |  |                           |         |                       |  
|Thirteen-week period ended March 25, 2005    |  |                           |         |                       |   |        |                |  |   |             |   |  |       |         |   |  |   |         |  
|Net sales                                    |  | $                         | 36,714  |                       | $ | 5,637  |                |  | $ | 5,806       |   |  | $     |        |   |  | $ | 48,157  |  
|Depreciation and amortization                |  |                           | 1,368   |                       |   | 111    |                |  |   | 1,154       |   |  |       | 473     |   |  |   | 3,106   |  
|Income (loss) from operations                |  |                           | 7,206   |                       |   | (2,431 | )              |  |   | (4,571      | ) |  |       | (17,837 | ) |  |   | (17,633 | )
|Income tax expense                           |  |                           |        |                       |   |       |                |  |   |            |   |  |       | (402    | ) |  |   | (402    | )
|Identifiable assets at March 25, 2005        |  |                           | 114,383 |                       |   | 30,325 |                |  |   | 158,908     |   |  |       | 25,951  |   |  |   | 329,567 |  
|Capital expenditures                         |  |                           | 369     |                       |   | 23     |                |  |   | 74          |   |  |       | 521     |   |  |   | 987     |  
|                                             |  |                           |         |                       |  
|Thirty-nine week period ended March 24, 2006 |  |                           |         |                       |   |        |                |  |   |             |   |  |       |         |   |  |   |         |  
|Net sales                                    |  | $                         | 112,952 |                       | $ | 38,760 |                |  | $ | 38,832      |   |  | $     |        |   |  | $ | 190,544 |  
|Depreciation and amortization                |  |                           | 3,234   |                       |   | 346    |                |  |   | 3,456       |   |  |       | 1,602   |   |  |   | 8,638   |  
|Income (loss) from operations                |  |                           | 10,608  |                       |   | 3,036  |                |  |   | (3,487      | ) |  |       | (47,438 | ) |  |   | (37,281 | )
|Income tax expense                           |  |                           |        |                       |   |       |                |  |   |            |   |  |       | 1,994   |   |  |   | 1,994   |  
|Identifiable assets at March 24, 2006        |  |                           | 73,875  |                       |   | 23,986 |                |  |   | 139,446     |   |  |       | 54,865  |   |  |   | 292,172 |  
|Capital expenditures                         |  |                           | 911     |                       |   | 593    |                |  |   | 1,058       |   |  |       | 1,990   |   |  |   | 4,552   |  
|                                             |  |                           |         |                       |  
|Thirty-nine week period ended March 25, 2005 |  |                           |         |                       |   |        |                |  |   |             |   |  |       |         |   |  |   |         |  
|Net sales                                    |  | $                         | 123,106 |                       | $ | 33,718 |                |  | $ | 11,919      |   |  | $     |        |   |  | $ | 168,743 |  
|Depreciation and amortization                |  |                           | 4,901   |                       |   | 372    |                |  |   | 2,024       |   |  |       | 1,293   |   |  |   | 8,590   |  
|Income (loss) from operations                |  |                           | 24,512  |                       |   | 1,775  |                |  |   | (7,043      | ) |  |       | (39,197 | ) |  |   | (19,953 | )
|Income tax expense                           |  |                           |        |                       |   |       |                |  |   |            |   |  |       | 908     |   |  |   | 908     |  
|Identifiable assets at March 25, 2005        |  |                           | 114,383 |                       |   | 30,325 |                |  |   | 158,908     |   |  |       | 25,951  |   |  |   | 329,567 |  
|Capital expenditures                         |  |                           | 1,946   |                       |   | 244    |                |  |   | 295         |   |  |       | 964     |   |  |   | 3,449   |  

The Company and its subsidiaries operate in various geographic areas. The table below presents the Companys
operations in the following geographic areas:



|              |  |                      |        |                |   |       
|------------- |  | -------------------- | ------ | -------------- | - | ------
|              |  | Thirteen Weeks Ended
|              |  | March 24, 2006       |        | March 25, 2005
|Sales:        |  |                      |        |                |   |       
|United States |  | $                    | 43,394 |                | $ | 30,530
|Europe        |  |                      | 11,602 |                |   | 11,228
|Asia          |  |                      | 2,931  |                |   | 3,622 
|Canada        |  |                      | 795    |                |   | 724   
|Latin America |  |                      | 1,660  |                |   | 2,053 
|              |  |                      |        |                |   |       
|Total         |  | $                    | 60,382 |                | $ | 48,157
|              |  |                      |        |                |   |       



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|              |  |                         |         |                |   |        
|------------- |  | ----------------------- | ------- | -------------- | - | -------
|              |  | Thirty-nine Weeks Ended
|              |  | March 24, 2006          |         | March 25, 2005
|Sales:        |  |                         |         |                |   |        
|United States |  | $                       | 131,965 |                | $ | 109,026
|Europe        |  |                         | 39,869  |                |   | 40,679 
|Asia          |  |                         | 11,453  |                |   | 9,221  
|Canada        |  |                         | 2,340   |                |   | 2,140  
|Latin America |  |                         | 4,917   |                |   | 7,677  
|              |  |                         |         |                |   |        
|Total         |  | $                       | 190,544 |                | $ | 168,743
|              |  |                         |         |                |   |        

15. STOCK AWARD PLANS

The Company has an Incentive Plan (the Incentive Plan), which provides for several types of equity-based incentive compensation awards. Awards, when made, may be in the form of stock options, restricted shares, performance shares and
performance units. Stock options granted to employees and directors are at a price not less than 100% of the fair market value of such shares on the date of grant. Stock options granted to employees generally begin vesting in cumulative annual
installments of 25% per year beginning one year after the date of grant. Options granted to non-employee directors are exercisable one year after grant.

The Companys previous stock option plans provided for the grant of options to employees with an exercise price per share of at least the fair market value of such shares on the date prior to grant and to directors with an exercise
price equal to the fair market value on the date of grant. Stock options granted to certain employees vest in cumulative annual installments of either 20% or 25% per year beginning one year after the date of grant. Options granted to
non-employee directors are exercisable one year after grant.

The Companys primary type of share-based compensation consists of non-qualified stock
options issued under the Incentive Plan. The total number of shares authorized to be granted under all share-based plans is 2,536,834. The Company funds shares issued upon exercise out of available authorized shares.

A summary of the status of the Companys stock option plans as of March 24, 2006 is presented below:



|                                      |  |                 |   |  |                              |       |                           |     |                                |   |      
|------------------------------------- |  | --------------- | - |  | ---------------------------- | ----- | ------------------------- | --- | ------------------------------ | - | -----
|                                      |  | Number ofShares |   |  | Weighted-Avg. Exercise Price |       | Remaining ContractualTerm |     | Intrinsic Value (in thousands)
|Outstanding at June 24, 2005          |  | 5,812,582       |   |  | $                            | 9.72  |                           |    |                                |   |     
|Granted                               |  | 685,850         |   |  | $                            | 6.84  |                           |    |                                |   |     
|Exercised                             |  | (104,197        | ) |  | $                            | 4.52  |                           |    |                                | $ | 334  
|Expired                               |  | (46,688         | ) |  | $                            | 12.23 |                           |    |                                |   |     
|Forfeited                             |  | (154,299        | ) |  | $                            | 11.21 |                           |    |                                |   |     
|                                      |  |                 |   |  |                              |       |                           |     |                                |   |      
|Outstanding at September 23, 2005     |  | 6,193,248       |   |  | $                            | 9.16  |                           | 4.9 |                                | $ | 2,318
|Granted                               |  | 174,500         |   |  | $                            | 6.39  |                           |    |                                |   |     
|Exercised                             |  | (1,860          | ) |  | $                            | 2.05  |                           |    |                                | $ | 4    
|Expired                               |  | (178,777        | ) |  | $                            | 10.89 |                           |    |                                |   |     
|Forfeited                             |  | (70,432         | ) |  | $                            | 7.35  |                           |    |                                |   |     
|                                      |  |                 |   |  |                              |       |                           |     |                                |   |      
|Outstanding at December 23, 2005      |  | 6,116,679       |   |  | $                            | 9.05  |                           | 4.8 |                                | $ | 1,091
|Granted                               |  | 1,800           |   |  | $                            | 6.28  |                           |    |                                |   |     
|Exercised                             |  | (68,268         | ) |  | $                            | 4.82  |                           |    |                                | $ | 149  
|Expired                               |  | (23,910         | ) |  | $                            | 9.64  |                           |    |                                |   |     
|Forfeited                             |  | (205,082        | ) |  | $                            | 7.50  |                           |    |                                |   |     
|                                      |  |                 |   |  |                              |       |                           |     |                                |   |      
|Outstanding at March 24, 2006         |  | 5,821,219       |   |  | $                            | 9.13  |                           | 4.4 |                                | $ | 5,069
|                                      |  |                 |   |  |                              |       |                           |     |                                |   |      
|Options exercisable at March 24, 2006 |  | 3,725,641       |   |  | $                            | 10.14 |                           | 3.2 |                                | $ | 3,497
|                                      |  |                 |   |  |                              |       |                           |     |                                |   |      



18



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The total intrinsic value of options exercised for the thirteen-week and thirty-nine week periods ended March 25,
2005 was $199 and $547, respectively.

The following table summarizes information about the Companys outstanding
stock options as of March 24, 2006:



|                         |  |                               |  |                                                 |  |                              |       |                               |           |                              |   |      
|------------------------ |  | ----------------------------- |  | ----------------------------------------------- |  | ---------------------------- | ----- | ----------------------------- | --------- | ---------------------------- | - | -----
|                         |  | Options Outstanding           |  | Options Exercisable                            
|Range of Exercise Prices |  | Number Outstanding at 3/24/06 |  | Weighted-Avg. RemainingContractual Life
(Years) |  | Weighted-Avg. Exercise Price |       | Number Exercisable at 3/24/06 |           | Weighted-Avg. Exercise Price
|$ 0.80                   |  | 4,357                         |  | 0.1                                             |  | $                            | 0.80  |                               | 4,357     |                              | $ | 0.80 
|$ 1.50                   |  | 22,793                        |  | 3.7                                             |  | $                            | 1.50  |                               | 22,793    |                              | $ | 1.50 
|$ 3.05 to $4.51          |  | 674,473                       |  | 4.7                                             |  | $                            | 3.68  |                               | 485,773   |                              | $ | 3.69 
|$ 4.75 to $7.12          |  | 1,659,953                     |  | 5.1                                             |  | $                            | 6.46  |                               | 863,303   |                              | $ | 6.22 
|$ 7.17 to $10.69         |  | 2,078,478                     |  | 5.3                                             |  | $                            | 8.23  |                               | 972,125   |                              | $ | 8.06 
|$10.94 to $16.41         |  | 869,609                       |  | 2.3                                             |  | $                            | 12.49 |                               | 865,734   |                              | $ | 12.49
|$17.56 to $22.94         |  | 423,575                       |  | 2.1                                             |  | $                            | 21.89 |                               | 423,575   |                              | $ | 21.89
|$26.44 to $39.13         |  | 87,231                        |  | 1.8                                             |  | $                            | 30.07 |                               | 87,231    |                              | $ | 30.07
|$39.94                   |  | 750                           |  | 2.1                                             |  | $                            | 39.94 |                               | 750       |                              | $ | 39.94
|                         |  |                               |  |                                                 |  |                              |       |                               |           |                              |   |      
|                         |  | 5,821,219                     |  | 4.4                                             |  | $                            | 9.13  |                               | 3,725,641 |                              | $ | 10.14
|                         |  |                               |  |                                                 |  |                              |       |                               |           |                              |   |      

The following table presents information regarding unvested share activity during the thirteen-week periods ended
September 23, 2005, December 23, 2005, and March 24, 2006:



|                               |  |                         |   |  |                                        |     
|------------------------------ |  | ----------------------- | - |  | -------------------------------------- | ----
|                               |  | UnvestedNumber ofShares |   |  | Weighted-Average Grant Date Fair
Value
|Unvested at June 25, 2005      |  | 2,032,390               |   |  | $                                      | 5.04
|Granted                        |  | 685,850                 |   |  | $                                      | 3.59
|Vested                         |  | (24,880                 | ) |  | $                                      | 7.67
|Forfeited                      |  | (154,299                | ) |  | $                                      | 3.85
|                               |  |                         |   |  |                                        |     
|Unvested at September 23, 2005 |  | 2,539,061               |   |  | $                                      | 4.60
|Granted                        |  | 174,500                 |   |  | $                                      | 3.37
|Vested                         |  | (254,663                | ) |  | $                                      | 3.63
|Forfeited                      |  | (70,432                 | ) |  | $                                      | 4.96
|                               |  |                         |   |  |                                        |     
|Unvested at December 23, 2005  |  | 2,388,466               |   |  | $                                      | 4.59
|Granted                        |  | 1,800                   |   |  | $                                      | 4.89
|Vested                         |  | (89,606                 | ) |  | $                                      | 5.74
|Forfeited                      |  | (205,082                | ) |  | $                                      | 5.19
|                               |  |                         |   |  |                                        |     
|Unvested at March 24, 2006     |  | 2,095,578               |   |  | $                                      | 4.48

As of March 24, 2006, there was $4,512 of total unrecognized compensation cost related to non-vested,
share-based compensation arrangements related to stock options granted under the Incentive Plan. That cost is expected to be recognized over a weighted-average period of 1.94 years.



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16. SALE OF PRODUCT LINE

On
March 7, 2006, the Company divested its digital video product line, which was deemed to be a non-strategic product line, in a sale to Newfound Technologies Corporation, a privately held, Massachusetts-based supplier of electronic hardware. The sale
included the Companys DV6000®series of products, which was included in our Access and Transport product
segment.

The terms of sale included a $4,000 cash payment, which was made up of an initial payment of $3,400 and an installment receivable for $600,000 to
be paid in three (3) quarterly installments of $200,000 each, payable 90, 180, and 270 days from the closing date of March 7, 2006. Additional contingent cash consideration will be paid to the Company if certain sales objectives are achieved in the
twenty-five months immediately following March 7, 2006. The sale included the transfer of assets, primarily inventory and fixed assets, and certain liabilities. The Company recorded a gain of $1,970 related to the sale of this product line during
the thirteen-week period ended March 24, 2006.

17. SUBSEQUENT EVENTS

Impairment Charges:

On April 7, 2006, the Company divested its operation located in Mulgrave, Australia in a sale of business
transaction. The operation was included as part of the Companys Access and Transport segment. The terms of sale included a 1,500 Australian dollar cash payment ($1,081 United States dollars) for the business. A loss on the sale of business of
$1,792 was recorded as an impairment charge during the thirteen-week period ended March 24, 2006. No significant gain or loss is expected to be realized on the sale for tax purposes. Accordingly, there was no adjustment to deferred income taxes
in the thirteen-week period ended March 24, 2006 related to the impairment charge. Adjustments to deferred income taxes, loss carry forwards and the corresponding valuation allowance, if any, to recognize the tax effect of the sale, will be
recorded at the end of the Companys fiscal year.

Litigation and Contingencies:

nCUBE Corporation, which was acquired by the Company on December 31, 2004, initiated litigation against SeaChange International, Inc. (SeaChange) for patent infringement on January 8, 2001 in the United
States Federal District Court in Delaware. The complaint alleged that SeaChange was violating nCUBEs U.S. patent 5,805,804 entitled Method and Apparatus for Scalable, High Bandwidth Storage, Retrieval, and Transportation
of Multimedia Data on a Network (the 804 patent). The jury returned a verdict finding that: (1) SeaChange infringed the 804 patent both literally and under the doctrine of equivalents; (2) SeaChanges infringement
was willful; (3) the asserted claims were not invalid; and (4) Company was entitled to damages of $1.7 million plus a running royalty of 7% on all of SeaChanges sales of the infringing product. In April 2004, the district court
entered judgment on the jury verdict and awarded nCUBE 2/3 of its attorney fees and enhanced damages by a factor of two. SeaChange appealed the jurys verdict and the district courts award to the United States Court of Appeals for the
Federal Circuit.

On January 9, 2006, the U.S. Court of Appeals for the Federal Circuit affirmed the jurys finding that SeaChange infringed
the 804 patent and that such infringement was willful. The appellate court also affirmed the district courts award of 2/3 of nCUBEs attorney fees and the award of enhanced damages. On January 24, 2006,
SeaChange filed a Consolidated Petition for Panel Rehearing and Rehearing En Banc, which was subsequently denied. On April 20, 2006, the Company received payment of the award of $8,021. The award requires an allocation to certain
third-parties which has not yet been finally determined, and as such, the amount the Company will retain from the award is uncertain at this time.

Gain
on sale of bankruptcy trade claims:

In November 2003, the Company sold substantially all of its pre-petition claims in the bankruptcy cases of Adelphia
and affiliates related to accounts receivables and received an initial payment at that time, with additional amounts being held in escrow pending the resolution of certain contingencies. On April 28, 2006, the Company received $11,810
(including interest income of $393,000) of the additional funds held in escrow. The funds received will be recorded as a gain on sale of bankruptcy trade claims in the fourth quarter of fiscal year 2006.



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##### Table of Contents

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

General

The following discussion addresses the financial condition of C-COR Incorporated as of March 24, 2006, and the results of our operations for the
thirteen-week and thirty-nine week periods ended March 24, 2006, compared to the same periods of the prior fiscal year. This discussion should be read in conjunction with the Managements Discussion and Analysis section for the fiscal year
ended June 24, 2005, included in the Companys Annual Report on Form 10-K.

Disclosure Regarding Forward-Looking Statements

Some of the information presented in this report contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. These forward-looking statements include, among others, our ability to develop and expand our product offerings, our continued investment in research and product development, fluctuations in network upgrade activity and the level
of future network upgrade activity, both domestically and internationally, fluctuations in the global demand for our products, services and software, future sales revenue of our segments, both domestically and internationally, demand for our product
line offerings in international markets, the effect of revenue levels in general, sales mix, competitive pricing, the timing of new product introductions and the timing of deployments of our content management and operational support software
systems on our future overall gross margin, our expectation to maintain valuation allowances related to net tax benefits arising from temporary differences and operating loss carryforwards, our intention to continue our initiatives to achieve
cost-effective operations, including undertaking additional restructuring initiatives and implementing current restructuring and cost reduction plans, the adequacy of our cash and cash equivalent balances and our marketable securities to cover our
operating cash requirements over the next 12 to 18 months, statements relating to our business strategy and the effect of accounting pronouncements required to be adopted by the Company. Forward-looking statements represent our judgment regarding
future events. Although we believe we have a reasonable basis for these forward-looking statements, we cannot guarantee their accuracy and actual results may differ materially from those anticipated due to a number of known and unknown
uncertainties. Factors that could cause actual results to differ from expectations include, among others, capital spending patterns of the communications industry, our ability to develop new and enhanced products, the timing for scheduled completion
of certain projects and customer acceptance requirements, continued industry consolidation, the development of competing technologies, the effect of increased competition from satellite providers and telephone companies on the capital spending
budgets of our cable customers, changes in the credit profiles of major customers that would lead us to restrict new product shipments or record an increase in the allowance for doubtful accounts, timing of recognizing software revenues, changes in
our sales mix, the effect of competitive pricing, an impairment of goodwill recorded on our balance sheet, the success of our initiatives to achieve cost-effective operations, our ability to integrate our operations and the operations of companies
we have acquired, our ability to convert our backlog into sales, and our ability to achieve our strategic objectives. For additional information concerning these and other important factors that may cause our actual results to differ materially from
expectations and underlying assumptions, please refer to the reports filed by us with the Securities and Exchange Commission.

Business Overview

We are a global provider of communications equipment, technical services and software solutions for two-way hybrid fiber coax broadband networks
delivering video, voice and data. We operate in three industry segments: C-COR Access and Transport, C-COR Network Services, and C-COR Solutions.

The
C-COR Access and Transport segment is responsible for the development, management, production, support and sale of our network infrastructure products, including our amplitude modulation headend/hub optical platform and line of optical nodes, and a
full offering of radio frequency amplifiers.

The C-COR Network Services segment provides technical services for engineering, design, and deployment of
advanced applications over broadband networks, including outsourced operational services, network design and engineering, network integration, outside plant and construction services, and consulting to a variety of customers.

The C-COR Solutions segment is responsible for development, integration, management, implementation, support, and sale of content management systems, including software
and hardware, for delivery of video on demand and digital advertising as well as application-oriented software for subscriber activation and retention, network and service assurance, and workforce management.



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Net sales for the thirteen-week period ended March 24, 2006 were $60.4 million, an increase of 25% over the $48.2
million recorded in the same period of the prior year, reflecting higher revenues from the sale of content and operations management systems and technical services. Content and operations management systems revenues increased 83% to $10.6 million
for the thirteen-week period ended March 24, 2006 compared to $5.8 million for the same period of the prior year, primarily due to customer acceptances during the 2006 period of systems and software applications for advertising insertion and
video on demand (VOD) product lines. Technical services revenues increased 146% to $14.0 million for the thirteen-week period ended March 24, 2006 compared to $5.7 million for the same period of the prior year, primarily due to increased
recurring services projects and upgrade work. These increases were partially offset by lower revenues for access and transport products. Our largest customer during the quarter was Time Warner Cable accounting for 29% of net sales, and international
customers accounting for 28% of net sales. Gross margins declined slightly to 32.7% during the thirteen-week period ended March 24, 2006, compared to gross margins of 33.0% for the same period of the prior year. Contributing to the decline in
gross margin was product mix and a $618,000 write-down in inventory associated with certain transport product lines due to the Companys decision to cease selling certain product lines. Operating expense levels, for both selling and
administrative expense and research and product development expense, declined during the thirteen-week period ended March 24, 2006 compared to the same period of the prior year as a result of lower personnel and administrative expense resulting
from restructuring initiatives implemented to improve our cost structure as well as settlement of certain contingent liabilities below their recorded values. These decreases were offset by increased expense due to recording stock-based compensation
associated with our adoption of Statement of Financial Accounting Standards No. 123R  Share-Based Payment (Statement 123R) as of June 25, 2005 (see Note 3). The Company incurred $3.3 million in restructuring charges
during the quarter associated with a restructuring plan approved on January 3, 2006, and from previously announced restructurings. During the quarter, we completed the sale of our DV6000® product line for $4.0 million, resulting in a gain on the sale of $2.0 million.
Additional contingent cash consideration will be paid to us if certain sales objectives are achieved in the twenty-five months immediately following March 7, 2006. In addition, we recorded an impairment charge of $1.8 million related to the
divestiture of our operation located in Mulgrave, Australia in a sale of the business which was completed on April 7, 2006. The impairment charge was recorded as of March 24, 2006 (see Note 17).

At March 24, 2006, we had recorded $131.1 million of goodwill and $6.0 million of other intangible assets, net. While goodwill is no longer amortized, we are
required to assess whether goodwill is impaired at least annually and more frequently if circumstances warrant. Our annual assessment was performed during the thirteen-week period ended March 24, 2006, and no impairment was indicated. In the
future, if an impairment of goodwill is indicated, it could result in a substantial charge to earnings, which would have a material adverse effect on our results of operation and financial position in the period in which such impairment is recorded.



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Results of Operations

The following table contains information regarding the percentage of net sales of our condensed consolidated statements of operations for the thirteen-week and thirty-nine week periods ended March 24, 2006 and March 25, 2005.



|                                          |  |                          |    |  |                         |    |  |                |    |  |                |   
|----------------------------------------- |  | ------------------------ | -- |  | ----------------------- | -- |  | -------------- | -- |  | -------------- | --
|                                          |  | Percentages of Net Sales |   
|                                          |  | Thirteen Weeks Ended     |    |  | Thirty-nine Weeks Ended |   
|                                          |  | March 24, 2006           |    |  | March 25,2005           |    |  | March 24, 2006 |    |  | March 25, 2005 |   
|Net sales:                                |  |                          |    |  |                         |    |  |                |    |  |                |   
|Products                                  |  | 59.2                     | %  |  | 76.2                    | %  |  | 59.3           | %  |  | 73.0           | % 
|Services                                  |  | 23.3                     |    |  | 11.7                    |    |  | 20.3           |    |  | 20.0           |   
|Content and operations management systems |  | 17.5                     |    |  | 12.1                    |    |  | 20.4           |    |  | 7.0            |   
|                                          |  |                          |    |  |                         |    |  |                |    |  |                |   
|Total net sales                           |  | 100.0                    |    |  | 100.0                   |    |  | 100.0          |    |  | 100.0          |   
|                                          |  |                          |    |  |                         |    |  |                |    |  |                |   
|Cost of sales:                            |  |                          |    |  |                         |    |  |                |    |  |                |   
|Products                                  |  | 36.1                     |    |  | 44.4                    |    |  | 37.9           |    |  | 42.9           |   
|Services                                  |  | 20.1                     |    |  | 15.8                    |    |  | 17.7           |    |  | 17.9           |   
|Content and operations management systems |  | 10.1                     |    |  | 6.8                     |    |  | 10.5           |    |  | 3.3            |   
|Excess and obsolete inventory charge      |  | 1.0                      |    |  | 0.0                     |    |  | 4.4            |    |  | 0.0            |   
|                                          |  |                          |    |  |                         |    |  |                |    |  |                |   
|Total cost of sales                       |  | 67.3                     |    |  | 67.0                    |    |  | 70.5           |    |  | 64.1           |   
|                                          |  |                          |    |  |                         |    |  |                |    |  |                |   
|Gross margin                              |  | 32.7                     |    |  | 33.0                    |    |  | 29.5           |    |  | 35.9           |   
|                                          |  |                          |    |  |                         |    |  |                |    |  |                |   
|Operating expenses:                       |  |                          |    |  |                         |    |  |                |    |  |                |   
|Selling and administrative                |  | 24.6                     |    |  | 35.6                    |    |  | 26.4           |    |  | 25.6           |   
|Research and product development          |  | 14.7                     |    |  | 22.2                    |    |  | 15.5           |    |  | 15.8           |   
|Amortization of intangibles               |  | 1.5                      |    |  | 3.5                     |    |  | 1.9            |    |  | 2.4            |   
|Acquired in-process technology charge     |  | 0.0                      |    |  | 8.3                     |    |  | 0.0            |    |  | 3.5            |   
|Impairment charges                        |  | 3.0                      |    |  | 0.0                     |    |  | 3.7            |    |  | 0.0            |   
|Gain on sale of product line              |  | (3.2                     | )  |  | 0.0                     |    |  | (1.0           | )  |  | 0.0            |   
|Restructuring charge                      |  | 5.4                      |    |  | 0.0                     |    |  | 2.6            |    |  | 0.4            |   
|                                          |  |                          |    |  |                         |    |  |                |    |  |                |   
|Total operating expenses                  |  | 46.0                     |    |  | 69.6                    |    |  | 49.1           |    |  | 47.7           |   
|                                          |  |                          |    |  |                         |    |  |                |    |  |                |   
|Loss from operations                      |  | (13.3                    | )  |  | (36.6                   | )  |  | (19.6          | )  |  | (11.8          | ) 
|                                          |  |                          |    |  |                         |    |  |                |    |  |                |   
|Interest expense                          |  | (0.6                     | )  |  | (0.6                    | )  |  | (0.5           | )  |  | (0.2           | ) 
|Investment income                         |  | 0.7                      |    |  | 0.5                     |    |  | 0.6            |    |  | 0.6            |   
|Foreign exchange gain (loss)              |  | 0.8                      |    |  | 0.3                     |    |  | 0.1            |    |  | 0.1            |   
|Other income, net                         |  | 0.3                      |    |  | (0.4                    | )  |  | 0.2            |    |  | 0.0            |   
|                                          |  |                          |    |  |                         |    |  |                |    |  |                |   
|Loss before income taxes                  |  | (12.1                    | )  |  | (36.8                   | )  |  | (19.2          | )  |  | (11.3          | ) 
|Income tax expense (benefit)              |  | 1.1                      |    |  | (0.8                    | )  |  | 1.0            |    |  | 0.5            |   
|                                          |  |                          |    |  |                         |    |  |                |    |  |                |   
|Net loss                                  |  | (13.2                    | )% |  | (36.0                   | )% |  | (20.2          | )% |  | (11.8          | )%
|                                          |  |                          |    |  |                         |    |  |                |    |  |                |   



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The tables below set forth our net sales for the thirteen-week and thirty-nine week periods ended March 24, 2006 and
March 25, 2005, for each of our reportable segments.



|                           |  |                          |       |                            |     |                |           |  |   |       |  |    
|-------------------------- |  | ------------------------ | ----- | -------------------------- | --- | -------------- | --------- |  | - | ----- |  | ---
|                           |  | Thirteen Weeks Ended    
|                           |  | (in millions of dollars)
|                           |  | March 24, 2006           |       | Change from Prior Period % |     | March 25, 2005
|Operating Segment          |  | Net Sales                |       | %                          |     |                | Net Sales |  | %
|C-COR Access and Transport |  | $                        | 35.8  |                            | 59  |                | (2)       |  | $ | 36.7  |  | 76 
|C-COR Network Services     |  |                          | 14.0  |                            | 23  |                | 146       |  |   | 5.7   |  | 12 
|C-COR Solutions            |  |                          | 10.6  |                            | 18  |                | 83        |  |   | 5.8   |  | 12 
|                           |  |                          |       |                            |     |                |           |  |   |       |  |    
|                           |  | $                        | 60.4  |                            | 100 |                | 25        |  | $ | 48.2  |  | 100
|                           |  |                          |       |                            |     |                |           |  |   |       |  |    
|                           | 
|                           |  | Thirty-Nine Weeks Ended 
|                           |  | (in millions of dollars)
|                           |  | March 24, 2006           |       | Change from Prior Period % |     | March 25, 2005
|Operating Segment          |  | Net Sales                |       | %                          |     |                | Net Sales |  | %
|C-COR Access and Transport |  | $                        | 112.9 |                            | 59  |                | (8)       |  | $ | 123.1 |  | 73 
|C-COR Network Services     |  |                          | 38.8  |                            | 20  |                | 15        |  |   | 33.7  |  | 20 
|C-COR Solutions            |  |                          | 38.8  |                            | 21  |                | 226       |  |   | 11.9  |  | 7  
|                           |  |                          |       |                            |     |                |           |  |   |       |  |    
|                           |  | $                        | 190.5 |                            | 100 |                | 13        |  | $ | 168.7 |  | 100
|                           |  |                          |       |                            |     |                |           |  |   |       |  |    

The table below sets forth our net sales for the thirteen-week and thirty-nine week periods ended March 24,
2006 and March 25, 2005 by geographic region.



|                  |  |                          |       |                            |     |                |           |  |   |       |  |    
|----------------- |  | ------------------------ | ----- | -------------------------- | --- | -------------- | --------- |  | - | ----- |  | ---
|                  |  | Thirteen Weeks Ended    
|                  |  | (in millions of dollars)
|                  |  | March 24, 2006           |       | Change from Prior Period % |     | March 25, 2005
|Geographic Region |  | Net Sales                |       | %                          |     |                | Net Sales |  | %
|United States     |  | $                        | 43.4  |                            | 72  |                | 42        |  | $ | 30.6  |  | 63 
|Europe            |  |                          | 11.6  |                            | 19  |                | 4         |  |   | 11.2  |  | 23 
|Asia              |  |                          | 2.9   |                            | 5   |                | (19)      |  |   | 3.6   |  | 8  
|Canada            |  |                          | .8    |                            | 1   |                | 14        |  |   | .7    |  | 2  
|Latin America     |  |                          | 1.7   |                            | 3   |                | (19)      |  |   | 2.1   |  | 4  
|                  |  |                          |       |                            |     |                |           |  |   |       |  |    
|Consolidated      |  | $                        | 60.4  |                            | 100 |                | 25        |  | $ | 48.2  |  | 100
|                  |  |                          |       |                            |     |                |           |  |   |       |  |    
|                  | 
|                  |  | Thirty-Nine Weeks Ended 
|                  |  | (in millions of dollars)
|                  |  | March 24, 2006           |       | Change from Prior Period % |     | March 25, 2005
|Geographic Region |  | Net Sales                |       | %                          |     |                | Net Sales |  | %
|United States     |  | $                        | 132.0 |                            | 69  |                | 21        |  | $ | 109.0 |  | 65 
|Europe            |  |                          | 39.9  |                            | 21  |                | (2)       |  |   | 40.7  |  | 24 
|Asia              |  |                          | 11.4  |                            | 6   |                | 24        |  |   | 9.2   |  | 5  
|Canada            |  |                          | 2.3   |                            | 1   |                | 10        |  |   | 2.1   |  | 1  
|Latin America     |  |                          | 4.9   |                            | 3   |                | (36)      |  |   | 7.7   |  | 5  
|                  |  |                          |       |                            |     |                |           |  |   |       |  |    
|Consolidated      |  | $                        | 190.5 |                            | 100 |                | 13        |  | $ | 168.7 |  | 100
|                  |  |                          |       |                            |     |                |           |  |   |       |  |    

Net Sales. Net sales increased 25% and 13% for the thirteen-week and thirty-nine week periods ended
March 24, 2006, respectively, compared to the same periods of the prior year. The higher revenues for the thirteen-week and thirty-nine week periods resulted from increased sales of technical services and content and operational support
systems, including product lines acquired from nCUBE Corporation (nCUBE) in the third quarter of fiscal year 2005. The increases were partially offset by a decline in revenue from access and transport products, primarily in international regions.

C-COR Access and Transport segment sales decreased 2% and 8% for the thirteen-week and thirty-nine week periods ended March 24, 2006,



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##### Table of Contents

respectively, compared to the same periods of the prior year. For the thirteen-week period ended March 24, 2006, the
decreases were driven by reduced shipments to international regions, primarily Europe and Latin America, which were partially offset by increased shipments to certain domestic customers. For the thirty-nine week period ended March 24, 2006,
access and transport product sales declined for all regions with the exception of Asia, reflecting decreased volumes and, in general, demands for certain types of products. Sales of radio frequency amplifiers were $20.5 million and $63.7 million for
the thirteen-week and thirty-nine week periods ended March 24, 2006, respectively, compared with $22.9 million and $71.6 million for the same periods of the prior year. Optical product sales were $15.3 million and $49.2 million for the
thirteen-week and thirty-nine week periods ended March 24, 2006, respectively, compared with $13.8 million and $51.5 million for the same periods of the prior year. Shifts in product mix resulted from new build and upgrade requirements, which
depend on the network architecture deployed by our customers. We anticipate C-COR Access and Transport sales will be higher in the fourth quarter of fiscal year 2006.

C-COR Network Services segment sales increased 146% and 15% for the thirteen-week and thirty-nine week periods ended March 24, 2006, respectively, compared to the same periods of the prior year. The higher sales
were the result of increased recurring services projects with Time Warner Cable during the thirteen-week and thirty-nine week periods and upgrade projects with Mediacom Communications. The increases were offset by lower sales to Adelphia
Communications (Adelphia), which had accounted for a substantial portion of revenues in fiscal year 2005 related to upgrade projects. We expect C-COR Network Services sales to be lower in the fourth quarter of fiscal year 2006.

C-COR Solutions segment sales increased 83% and 226% for the thirteen-week and thirty-nine week periods ended March 24, 2006, respectively, compared to the same
periods of the prior year. Our C-COR Solutions segment results reflect the sales of our content management and operations support systems. The increases for the periods resulted primarily from increased sales of systems and software applications for
advertising insertion and VOD products deriving from the acquisition of nCUBE in the third quarter of fiscal year 2005. The majority of revenues in this segment are derived from sales under multiple element arrangements, whereby revenues are
recognized using the completed contract method of accounting or, in some cases, are recognized ratably over the delivery period. As a result, revenues in the C-COR Solutions segment are affected by the timing of new orders and customer acceptance
requirements. Software license and associated professional services revenue for our mobile workforce software product line is recognized using the percentage of completion method of accounting due to our ability to reliably estimate contract costs
at the inception of the contracts. We expect C-COR Solutions sales to increase in the fourth quarter of fiscal year 2006 based upon the anticipated timing for scheduled completion of certain projects and customer acceptances.

Domestic sales increased for the thirteen-week and thirty-nine week period ended March 24, 2006, due primarily to increased recurring services sales for C-COR
Network Services with Time Warner Cable and upgrade work with Mediacom. In addition, domestic revenues increased for C-COR Solutions advertising insertion and VOD product lines which were acquired from nCUBE in the third quarter of fiscal year 2005.
Domestic sales for the thirty-nine week period ended March 24, 2006 also increased for C-COR Solutions and C-COR Network Services segments with the majority of the increase deriving primarily from C-COR Solutions systems and software
applications for advertising insertion and VOD product lines, which was offset by a decline in C-COR Access and Transport sales.

International sales
decreased for the thirteen-week and thirty-nine week periods ended March 24, 2006, due primarily to lower C-COR Access and Transport sales in Europe and Latin America, which were partially offset by increased revenues for VOD. We believe that
future capital spending in European markets will be primarily driven by increased competition for enhanced broadband services requiring telecommunication providers to upgrade their networks to support these enhanced services. Our international sales
have been primarily C-COR Access and Transport segment sales, but we anticipate growth in our international C-COR Solutions segment sales. We expect demand for our product line offerings in international markets will continue to be highly variable.
The international markets represent distinct markets in which capital spending decisions for network equipment and solutions are affected by a variety of factors, including access to financing and general economic conditions.

The table below sets forth our backlog by industry segment as of March 24, 2006 compared to December 23, 2005:



|                           |  |                          |       |   |     |          |     |   |                           |   |      |  |    
|-------------------------- |  | ------------------------ | ----- | - | --- | -------- | --- | - | ------------------------- | - | ---- |  | ---
|                           |  | Thirteen Weeks Ended    
|                           |  | (In millions of dollars)
|Operating Segment          |  | March 24, 2006 Backlog   |       | % |     | Change % |     |   | December 23, 2005 Backlog |   | %   
|C-COR Access and Transport |  | $                        | 29.5  |   | 29  |          | 36  |   |                           | $ | 21.7 |  | 23 
|C-COR Network Services     |  |                          | 26.3  |   | 26  |          | (12 | ) |                           |   | 29.8 |  | 32 
|C-COR Solutions            |  |                          | 45.4  |   | 45  |          | 9   |   |                           |   | 41.8 |  | 45 
|                           |  |                          |       |   |     |          |     |   |                           |   |      |  |    
|Consolidated               |  | $                        | 101.2 |   | 100 |          | 8   |   |                           | $ | 93.3 |  | 100
|                           |  |                          |       |   |     |          |     |   |                           |   |      |  |    



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##### Table of Contents

As of March 24, 2006, the backlog for our C-COR Access and Transport segment increased for both domestic and
international customers due to the timing of new bookings during the quarter. Our backlog of C-COR Network Services decreased during the quarter due to the anticipated wind down of certain upgrade projects. The increase in backlog for C-COR
Solutions resulted from both increased domestic and international software license and maintenance bookings during the quarter. The Company includes in backlog customer orders that are anticipated to result in revenue being recognized over the next
twelve months. The majority of orders in backlog for C-COR Access and Transport will result in revenue over the next six months while orders in backlog of the other two segments typically include a portion that will result in revenue over the latter
part of the twelve month period.

We make management decisions based on our backlog, including hiring of personnel, purchasing of materials, and other
matters that may increase our production capabilities and costs. Cancellations, delays or reductions of orders could adversely affect our results of operations and financial condition.

Gross Margin. The following table sets forth our gross margins by operating segment during the thirteen-week and thirty-nine week periods ended March 24, 2006 compared to the same periods of the prior
year.



|                           |  |                               |  |               |   |  |                               |  
|-------------------------- |  | ----------------------------- |  | ------------- | - |  | ----------------------------- | -
|                           |  | Thirteen Weeks Ended          | 
|Operating Segment          |  | March 24, 2006 Gross Margin % |  | Change Points |   |  | March 25, 2005 Gross Margin % |  
|C-COR Access and Transport |  | 37.4                          |  | (4.4          | ) |  | 41.8                          |  
|C-COR Network Services     |  | 13.6                          |  | 48.5          |   |  | (34.9                         | )
|C-COR Solutions            |  | 42.2                          |  | (1.1          | ) |  | 43.3                          |  
|                           |  |                               |  |               |   |  |                               |  
|Consolidated               |  | 32.7                          |  | (0.3          | ) |  | 33.0                          |  
|                           |  |                               |  |               |   |  |                               |  
|                           | 
|                           |  | Thirty-nine weeks Ended       | 
|Operating Segment          |  | March 24, 2006 Gross Margin % |  | Change Points |   |  | March 25, 2005 Gross Margin % |  
|C-COR Access and Transport |  | 28.7                          |  | (12.4         | ) |  | 41.1                          |  
|C-COR Network Services     |  | 13.0                          |  | 2.8           |   |  | 10.2                          |  
|C-COR Solutions            |  | 48.4                          |  | (5.4          | ) |  | 53.8                          |  
|                           |  |                               |  |               |   |  |                               |  
|Consolidated               |  | 29.5                          |  | (6.3          | ) |  | 35.8                          |  
|                           |  |                               |  |               |   |  |                               |  

Consolidated gross margins were 32.7% and 29.5% for the thirteen-week and thirty-nine week periods ended
March 24, 2006, respectively, compared to 33.0% and 35.8% for the same periods of the prior year. The decrease in C-COR Access and Transport segment gross margins for the thirteen-week and thirty-nine week periods ended March 24, 2006,
compared the same periods of the prior year were primarily due to a $618,000 and $8.4 million dollar write-down in inventory for the thirteen-week and thirty-nine week periods ended March 24, 2006, respectively, associated with certain
transport product lines, based on managements assessment of market conditions for these product lines. In addition, lower volumes and product mix also contributed to the decline in gross margin for the periods. For the C-COR Network Services
segment, gross margins increased for the thirteen-week and thirty-nine week periods ended March 24, 2006, compared to the same periods of the prior year. Higher project costs and adjustments associated with the Adelphia upgrade projects in
fiscal year 2005 contributed to lower margins during the prior year periods. For the C-COR Solutions segment, gross margins decreased for the thirteen-week and thirty-nine week periods ended March 24, 2006, compared to the same periods of the
prior year. The decreases in gross margins were due primarily to higher excess and obsolete inventory charges associated with general product demand levels and product mix. We anticipate that our future gross margins in all of our business segments
will continue to be affected by many factors, including revenue levels in general, sales mix, competitive pricing pressures, the timing of new product introductions and the timing of deployments for certain of our content management and operational
support software solutions.

Selling and Administrative. Selling and administrative expenses were $14.9 million and $50.2 million for the
thirteen-week and thirty-nine week periods ended March 24, 2006, respectively, compared to $17.1 million and $43.3 million for the same periods of the prior year. Selling and administrative expenses decreased 13% during the thirteen-week period
ended March 24, 2006, compared to the same period of the prior year, as a result of lower personnel and administrative expenses resulting from restructuring initiatives implemented in order to reduce costs and the reduction of accruals for
certain loss contingencies. Selling and administrative expenses increased 16% during the thirty-nine week period ended March 24, 2006, compared to the same period of the prior year, as a result of higher personnel and administrative expense
associated with the acquisition of nCUBE in the third quarter of fiscal year 2005, and stock-based compensation associated with the adoption of Statement of Financial Accounting Standards No. 123R  Share-Based Payment
(Statement 123R), effective as of June 25, 2005.

Research and Product Development. Research and product development expenses were $8.9 million
and $29.5 million for the thirteen-week and thirty-nine week periods ended March 24, 2006, respectively, compared to $10.7 million and $26.6 million for the same periods of the prior year. This represents a decrease of 17% and an increase of
11% during the thirteen-week and thirty-nine week periods ended March 24, 2006, respectively, over the comparable periods of the prior year.



26



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##### Table of Contents

The tables below set forth our research and product development expenses for the thirteen-week and thirty-nine week
periods ended March 24, 2006 and March 25, 2005, for each of our reportable segments.



|                           |  |                          |      |                            |     |  |                |   |   |   |      |  |    
|-------------------------- |  | ------------------------ | ---- | -------------------------- | --- |  | -------------- | - | - | - | ---- |  | ---
|                           |  | Thirteen Weeks Ended    
|                           |  | (in millions of dollars)
|                           |  | March 24, 2006           |      | Change from Prior Period % |     |  | March 25, 2005
|Operating Segment          |  | Expense                  |      | %                          |     |  | Expense        |   | %
|C-COR Access and Transport |  | $                        | 3.5  |                            | 39  |  | (34            | ) |   | $ | 5.3  |  | 50 
|C-COR Solutions            |  |                          | 5.1  |                            | 57  |  | 0              |   |   |   | 5.1  |  | 48 
|Unallocated                |  |                          | .3   |                            | 4   |  | 0              |   |   |   | .3   |  | 2  
|                           |  |                          |      |                            |     |  |                |   |   |   |      |  |    
|                           |  | $                        | 8.9  |                            | 100 |  | (17            | ) |   | $ | 10.7 |  | 100
|                           |  |                          |      |                            |     |  |                |   |   |   |      |  |    
|                           | 
|                           |  | Thirty-Nine Weeks Ended 
|                           |  | (in millions of dollars)
|                           |  | March 24, 2006           |      | Change from Prior Period % |     |  | March 25, 2005
|Operating Segment          |  | Expense                  |      | %                          |     |  | Expense        |   | %
|C-COR Access and Transport |  | $                        | 13.2 |                            | 45  |  | (19            | ) |   | $ | 16.2 |  | 61 
|C-COR Solutions            |  |                          | 15.5 |                            | 53  |  | 60             |   |   |   | 9.7  |  | 36 
|Unallocated                |  |                          | .8   |                            | 2   |  | 14             |   |   |   | .7   |  | 3  
|                           |  |                          |      |                            |     |  |                |   |   |   |      |  |    
|                           |  | $                        | 29.5 |                            | 100 |  | 11             |   |   | $ | 26.6 |  | 100
|                           |  |                          |      |                            |     |  |                |   |   |   |      |  |    

Research and product development expenses in the C-COR Access and Transport segment decreased for the
thirteen-week and thirty-nine week periods ended March 24, 2006, due primarily to lower personnel costs resulting from reductions in personnel. Research and product development expenses in the C-COR Solutions segment increased for the
thirty-nine week period ended March 24, 2006, primarily due to higher personnel costs resulting from the acquisitions of Stargus, Inc. and nCUBE during fiscal year 2005. We believe sustained commitment to product development efforts will be
required for us to remain competitive, and anticipate continuing investments in research and product development in future periods related to network infrastructure products and content and operations management systems.

Gain on Sale of Product Line.

On March 7, 2006, we divested our
digital video product line, which was deemed to be a non-strategic product line, in a sale to Newfound Technologies Corporation, a privately held, Massachusetts-based supplier of electronic hardware. The sale included our DV6000® series of products, which was included in our Access
and Transport product segment.

The terms of sale included a $4.0 million cash payment, which was made up of an initial payment of $3.4 million and an
installment receivable for $600,000 to be paid in three (3) quarterly installments of $200,000 each, payable 90, 180, and 270 days from the closing date of March 7, 2006. Additional contingent cash consideration will be paid to us if
certain sales objectives are achieved in the twenty-five months immediately following March 7, 2006. The sale included the transfer of assets, primarily inventory and fixed assets, and certain liabilities. We recorded a gain of $2.0 million
related to the sale of this product line during the thirteen-week period ended March 24, 2006.

Restructuring Charges. Restructuring charges
were $3.3 million and $5.0 million for the thirteen-week and thirty-nine week periods ended March 24, 2006, respectively, compared to restructuring charges of $57,000 and $676,000 for the same periods of the prior year. During the thirteen-week
period ended March 24, 2006, we approved and initiated a plan to further restructure our operations, which is expected to result in workforce reductions of approximately 225 employees with the closure and downsizing of certain facilities. We
will be relocating certain processes from Wallingford, Connecticut to our Tijuana, Mexico facility as well as close our Sunnyvale, California facility. The restructuring is intended to reduce costs and maximize operational efficiency and is
anticipated to be substantially completed by the end of fiscal year 2006.

In connection with the restructuring, we expect to incur additional
restructuring charges of approximately $3.5 million in the fourth quarter of fiscal year 2006, which is comprised of cash expenditures for employee severance and termination costs of approximately $2.5 million and certain contract termination and
other associated costs of up to $1.0 million. It is anticipated that employee severance and termination benefit payments will be made on a bi-weekly basis, and as such we anticipate payments to extend through the first

half of fiscal year 2007. Amounts related to contract termination and other associated costs will be paid out over their remaining term, unless terminated earlier.



27



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##### Table of Contents

Operating Income (Loss) By Segment. The tables below set forth our operating income (loss), excluding unallocated
items, for the thirteen-week and thirty-nine week periods ended March 24, 2006 and March 25, 2005, for each of our reportable segments.



|                           |  |                                      |      |   |                            |       |   |                                      |   |      |  
|-------------------------- |  | ------------------------------------ | ---- | - | -------------------------- | ----- | - | ------------------------------------ | - | ---- | -
|                           |  | Thirteen Weeks Ended                 |     
|                           |  | (in millions of dollars)             |     
|                           |  | March 24,2006 Operating Income(Loss) |      |   | Change from Prior Period $ |       |   | March 25,2005 Operating Income(Loss) |  
|Operating Segment          |  |                                      |     
|C-COR Access and Transport |  | $                                    | 6.2  |   |                            | (1.0  | ) |                                      | $ | 7.2  |  
|C-COR Network Services     |  |                                      | 1.2  |   |                            | 3.6   |   |                                      |   | (2.4 | )
|C-COR Solutions            |  |                                      | (1.2 | ) |                            | 3.4   |   |                                      |   | (4.6 | )
|                           | 
|                           |  | Thirty-Nine Weeks Ended              |     
|                           |  | (in millions of dollars)             |     
|                           |  | March 24,2006 Operating Income(Loss) |      |   | Change from Prior Period $ |       |   | March 25,2005 Operating Income(Loss) |  
|Operating Segment          |  |                                      |     
|C-COR Access and Transport |  | $                                    | 10.6 |   |                            | (13.9 | ) |                                      | $ | 24.5 |  
|C-COR Network Services     |  |                                      | 3.0  |   |                            | 1.2   |   |                                      |   | 1.8  |  
|C C-COR Solutions          |  |                                      | (3.5 | ) |                            | 3.5   |   |                                      |   | (7.0 | )

Operating income (excluding unallocated items) for the C-COR Access and Transport segment decreased for the
thirteen-week and thirty-nine week periods ended March 24, 2006, compared to the same periods of the prior year due to lower revenues and gross margins, which included the write-down of inventory associated with certain transport product lines,
as well as restructuring costs incurred during the periods. Operating income (excluding unallocated items) for the C-COR Network Services segment increased for the thirteen-week and thirty-nine week periods ended March 24, 2006 due to higher
revenues and gross margins, compared to the same periods of the prior year in which operating results were adversely affected by higher project costs incurred on certain upgrade projects. Operating losses (excluding unallocated items) for the C-COR
Solutions segment decreased for the thirteen-week and thirty-nine week periods ended March 24, 2006, compared to the same periods of the prior year. Although revenues increased in this segment during the periods, operating losses for the
thirteen-week and thirty-nine week periods ended March 24, 2006, were incurred as result of higher operating expenses, including higher amortization of intangibles associated with the nCUBE acquisition in fiscal year 2005, and restructuring
costs incurred during the periods.

Interest Expense. Interest expense was $341,000 and $990,000 for the thirteen-week and thirty-nine week periods
ended March 24, 2006, respectively, compared to $309,000 and $353,000 for the same periods of the prior year. The increases in interest expense resulted primarily from interest expense and debt issuance costs associated with our 3.5% senior
unsecured convertible notes issued on December 31, 2004, in the acquisition of nCUBE.

Foreign Exchange Gain.Foreign exchange gains were
$465,000 and $218,000 for the thirteen-week and thirty-nine week periods ended March 24, 2006, respectively, compared to gains of $132,000 and $140,000 for the same periods of the prior year. The gains for the thirteen-week and thirty-nine week
periods ended March 24, 2006 were primarily due to remeasurement of foreign currency denominated receivables and payables to the functional currency associated with each of our operations.

Income Tax Expense. Income tax expense was $676,000 and $2.0 million for the thirteen-week and thirty-nine week periods ended March 24, 2006, respectively,
compared to an income tax benefit of ($402,000) and income tax expense of $908,000 for the same periods of the prior year. Income taxes for the thirteen-week and thirty-nine week periods ended March 24, 2006 included the effect of changes in
valuation allowances, deferred tax adjustments and current taxes paid or payable in certain foreign jurisdictions where the Company had taxable income.



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Liquidity and Capital Resources



|                                                    |  |                          |       |   |               |   |       |  
|--------------------------------------------------- |  | ------------------------ | ----- | - | ------------- | - | ----- | -
|                                                    |  | March 24, 2006           |       |   | June 24,2005  |  
|                                                    |  | (In millions of dollars) |      
|Balance sheet data (at period end)                  |  |                          |       |  
|Cash and cash equivalents                           |  | $                        | 31.4  |   |               | $ | 43.3  |  
|Marketable securities                               |  |                          | 6.7   |   |               |   | 9.3   |  
|                                                    | 
|                                                    |  | Thirty-nine Weeks Ended  |      
|                                                    |  | March 24, 2006           |       |   | March 25,2005 |  
|                                                    |  | (In millions of dollars) |      
|Statements of cash flows data:                      |  |                          |       |  
|Net cash used in operating activities               |  | $                        | (13.9 | ) |               | $ | (13.6 | )
|Net cash provided by (used in) investing activities |  |                          | 1.6   |   |               |   | (28.8 | )
|Net cash provided by financing activities           |  |                          | 0.6   |   |               |   | 0.9   |  

As of March 24, 2006, cash and cash equivalents totaled $31.4 million, down from $43.3 million at
June 24, 2005, primarily due to the funding of operating activities and the purchase of capital equipment during the thirty-nine week period. Marketable securities decreased to $6.7 million as of March 24, 2006, from $9.3 million at
June 24, 2005. Working capital was $59.7 million at March 24, 2006 compared to $86.1 million at June 24, 2005.

As of March 24, 2006,
we had restricted cash of $3.5 million. Under the terms of our letter of credit agreement with a bank, we are required to maintain cash collateral of 102% of the amount that can be drawn on issued letters of credit. The total restricted cash balance
has been classified as a current asset as of March 24, 2006 as the terms of the letters of credit expire in less than one year. We are entitled to the interest earnings on the restricted cash balance.

Net cash used in operating activities was $13.9 million for the thirty-nine week period ended March 24, 2006, compared with net cash used of $13.6 million for the
same period of the prior year. The major elements of the use of cash for the thirty-nine week period ended March 24, 2006 include a net loss for the period of $38.5 million, which is adjusted for non-cash items such as depreciation and
amortization, impairment charges and stock-based compensation. In addition, cash was used for reduction of accounts payable during the period, which was partially offset by reductions in accounts receivable and inventory.

Net cash provided by investing activities was $1.6 million for the thirty-nine week period ended March 24, 2006 compared to cash used in investing activities of
$28.8 million for the same period of the prior year. The cash provided by investing activities during the thirty-nine week period was comprised primarily of $3.3 million of proceeds from the sale of our digital video product line, $15.9 million of
proceeds from the sale of marketable securities, which was partially offset by $13.2 million for the purchase of marketable securities and $4.5 million for the purchase of property, plant and equipment. The major elements of cash used in investing
activities during the same period of the prior year was $46.9 million of cash used for acquisitions, which was offset by $28.4 million in proceeds from the sale of marketable securities.

Net cash provided by financing activities was $584,000 for the thirty-nine week period ended March 24, 2006, compared with $941,000 for the same period of the prior year. Cash provided by financing activities
during the thirty-nine week period resulted primarily from proceeds from the exercise of stock options and stock warrants.

Working Capital Outlook

Our main source of liquidity is our unrestricted cash on hand and short-term marketable securities.

In fiscal year 2005, we issued $35.0 million aggregate principal amount of notes requiring semi-annual interest payments at an annual rate of 3.5% on June 30 and
December 30, which mature on December 30, 2009 as part of the consideration in the nCUBE acquisition. The Company anticipates additional restructuring charges to be incurred in the fourth quarter of fiscal year 2006 of approximately $3.5
million which is comprised of cash expenditures for employee severance and termination costs of approximately $2.5 million and certain contract termination and other associated costs of up to $1.0 million. It is anticipated that employee severance
and termination benefit payments will be made on a bi-weekly basis, and as such the Company anticipates payments to extend through the first half of fiscal year 2007. Amounts related to contract termination and other associated costs will be paid
out over their remaining term, unless terminated earlier.

Taking into account the fixed charges associated with our long-term debt obligations and
anticipated restructuring charges, we believe remaining cash and cash equivalents balances, and our marketable securities will be adequate to cover our operating cash requirements



29



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##### Table of Contents

over the next 12 to 18 months. However, we may find it necessary or desirable to seek financing to support our capital
needs and provide funds for additional strategic initiatives including acquiring or investing in complementary business, products, services, or technologies. Accordingly, this may require third-party financing or equity-based financing, such as
issuance of common stock, preferred stock, or subordinated convertible debt securities and warrants, which would be dilutive to existing shareholders. We do not currently have any committed lines of credit or other available credit facilities that
could be utilized for capital requirements, and it is uncertain whether such facilities could be obtained in sufficient amounts or on acceptable terms.

Subsequent Events:

Impairment Charges:

On April 7, 2006, we divested our operation located in Mulgrave, Australia in a sale of business transaction. The operation was included as part of the Companys Access and Transport segment. The terms of sale included a
1.5 million Australian dollar cash payment (approximately $1.1 million United States dollars) for the business. A loss on the sale of business of $1.8 million was recorded as an impairment charge during the thirteen-week period ended
March 24, 2006.

Litigation and Contingencies:

nCUBE Corporation, which was acquired by C-COR Incorporated on December 31, 2004, initiated litigation against SeaChange International, Inc. (SeaChange) for patent infringement on January 8, 2001 in the United
States Federal District Court in Delaware. The complaint alleged that SeaChange was violating nCUBEs U.S. patent 5,805,804 entitled Method and Apparatus for Scalable, High Bandwidth Storage, Retrieval, and Transportation
of Multimedia Data on a Network (the 804 patent). The jury returned a verdict finding that: (1) SeaChange infringed the 804 patent both literally and under the doctrine of equivalents; (2) SeaChanges infringement
was willful; (3) the asserted claims were not invalid; and (4) Company was entitled to damages of $1.7 million plus a running royalty of 7% on all of SeaChanges sales of the infringing product. In April 2004, the district court
entered judgment on the jury verdict and awarded nCUBE 2/3 of its attorney fees and enhanced damages by a factor of two. SeaChange appealed the jurys verdict and the district courts award to the United States Court of Appeals for the
Federal Circuit.

On January 9, 2006, the U.S. Court of Appeals for the Federal Circuit affirmed the jurys finding that SeaChange infringed
the 804 patent and that such infringement was willful. The appellate court also affirmed the district courts award of 2/3 of nCUBEs attorney fees and the award of enhanced damages. On January 24, 2006,
SeaChange filed a Consolidated Petition for Panel Rehearing and Rehearing En Banc, which was subsequently denied. On April 20, 2006, we received payment of the award of $8.0 million. The award requires an allocation to certain
third-parties which has not yet been finally determined, and as such, the amount we will retain from the award is uncertain at this time.

Gain on sale
of bankruptcy trade claims:

In November 2003, we sold substantially all of our pre-petition claims in the bankruptcy cases of Adelphia and affiliates
related to accounts receivables and received an initial payment at that time, with additional amounts being held in escrow pending the resolution of certain contingencies. On April 28, 2006, we received $11.8 million (includes interest income
of $393,000) of the additional funds held in escrow. The funds received will be recorded as a gain on sale of bankruptcy trade claims in the fourth quarter of fiscal year 2006.

Recent Accounting Pronouncements

In March 2005, the Financial Accounting Standards Board (FASB) published FASB
Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations (FIN 47), which will result in (a) more consistent recognition of liabilities relating to asset retirement obligations, (b) more information
about expected future cash outflows associated with those obligations, and (c) more information about investments in long-lived assets because additional asset retirement costs will be recognized as part of the carrying amounts of the assets.
FIN 47 clarifies that the term conditional asset retirement obligation as used in Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations, refers to a legal obligation to perform an asset
retirement activity in which the time and (or) method of settlement are conditional on a future event that may or may not be within the control of the entity. The obligation to perform the asset retirement activity is unconditional even though
uncertainty exists about the timing and (or) method of settlement. Uncertainty about the time and (or) method of settlement of a conditional asset retirement obligation should be factored into the measurement of the liability when sufficient
information exists. FIN 47 also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. FIN 47 is effective no later than the end of fiscal years ending after
December 15, 2005. Retrospective application of interim financial information is permitted but is not required. Early adoption of this Interpretation is encouraged. We do not anticipate adopting FIN 47 early. We do not expect the adoption of
FIN 47 to have a significant adverse effect on our financial position or results of operations.



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##### Table of Contents

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no
material changes to the Companys exposure to market risk since June 24, 2005.

Item 4. Controls and Procedures

(a) Evaluation of disclosure controls and procedures

Our chief executive officer and our chief financial officer have evaluated the effectiveness of our disclosure controls and procedures related to our reporting and
disclosure obligations as of March 24, 2006, which is the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure
controls and procedures are effective.

(b) Changes in Internal Control over Financial Reporting

There were no changes that occurred during the fiscal quarter ended March 24, 2006 that materially affected, or are reasonably likely to materially affect, our
internal controls over financial reporting.



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##### Table of Contents

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Certain former security holders and employees of Convergence.com Corporation, a company that
was acquired by the Company in fiscal year 2000, filed claims against the Company in March 2001 alleging violations of state securities laws and certain other state law claims related to a stock option plan. The complaint alleged that the damages
suffered by the individuals approximated $2.1 million, which was based on the number of stock options multiplied by the highest price of the Companys common stock since the acquisition, and did not take into account the exercise price, which
the plaintiffs would have had to pay to the Company if the options were exercised. The complaint also asserted claims for treble damages, an undetermined amount of punitive damages and reimbursement of attorneys fees.

On January 23, 2004, the Superior Court of Forsyth County, Georgia, granted the Companys motion for summary judgment in full, thereby dismissing all claims against
the Company. In July 2005, the plaintiffs filed a brief in the Georgia Appeals Court to appeal the decision. On March 23, 2006, the Georgia Appeals Court determined there was no reason or need to issue a further opinion in the matter and affirmed
the lower courts ruling. The plaintiffs have appealed this matter to the Georgia Supreme Court, and as such, the Company will continue to assert its defenses to these claims and will continue to contest them vigorously; however, it cannot be sure
that it will be successful in defending these claims in an appeal of the decision.

nCUBE Corporation, which was acquired by the Company on
December 31, 2004, initiated litigation against SeaChange International, Inc. (SeaChange) for patent infringement on January 8, 2001 in the United States Federal District Court in Delaware. The complaint alleged that
SeaChange was violating nCUBEs U.S. patent 5,805,804 entitled Method and Apparatus for Scalable, High Bandwidth Storage, Retrieval, and Transportation of Multimedia Data on a Network (the 804 patent). The jury returned a
verdict finding that: (1) SeaChange infringed the 804 patent both literally and under the doctrine of equivalents; (2) SeaChanges infringement was willful; (3) the asserted claims were not invalid; and (4) Company was
entitled to damages of $1.7 million plus a running royalty of 7% on all of SeaChanges sales of the infringing product. In April 2004, the district court entered judgment on the jury verdict and awarded nCUBE 2/3 of its attorney fees and
enhanced damages by a factor of two. SeaChange appealed the jurys verdict and the district courts award to the United States Court of Appeals for the Federal Circuit.

On January 9, 2006, the U.S. Court of Appeals for the Federal Circuit affirmed the jurys finding that SeaChange infringed the 804 patent and that such infringement was willful. The appellate
court also affirmed the district courts award of 2/3 of nCUBEs attorney fees and the award of enhanced damages. On January 24, 2006, SeaChange filed a Consolidated Petition for Panel Rehearing and
Rehearing En Banc, which was subsequently denied. On April 20, 2006, the Company received payment of the award of $8.0 million. The award requires an allocation to certain third-parties which has not yet been finally determined, and as such,
the amount the Company will retain from the award is uncertain at this time.

Item 6. Exhibits

The following exhibits are included herein:



|        |  |                                                                                                                                                                                                                                                                            
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10)(1) |  | Amendment to Revolving Line of Credit Facility with Citizens Bank, effective as of November 1, 2005 (incorporated by reference to the Registrants Form 10-Q dated December 23,
2005 and filed February 1, 2006).                                                          
|        | 
|(10)(2) |  | Agreement of Separation between the Registrant and its wholly owned subsidiary, C-COR Broadband Europe B.V. with Gerhard Nederlof, dated as December 31, 2005 (incorporated by reference to the
Registrants Form 10-Q dated December 23, 2005 and filed February 1, 2006).
|        | 
|(10)(3) |  | Supplement to Agreement of Separation between the Registrant and its wholly owned subsidiary, C-COR Broadband Europe B.V., with Gerhard Nederlof, dated April 30, 2006.                                                                                                    
|        | 
|(15)    |  | Letter re: Unaudited Interim Financial Information.                                                                                                                                                                                                                        
|        | 
|(31)(1) |  | Rule 13a-14(a) and 15d-14(a) Certification of Chief Executive Officer                                                                                                                                                                                                      
|        | 
|(31)(2) |  | Rule 13a-14(a) and 15d-14(a) Certification of Chief Financial Officer                                                                                                                                                                                                      
|        | 
|(32)(1) |  | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350                                                                                                                                                                            
|        | 
|(32)(2) |  | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350                                                                                                                                                                            



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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.



|                  |  |                                                                
|----------------- |  | ---------------------------------------------------------------
|                  |  | C-COR Incorporated (Registrant)                                
|                  | 
|Date: May 3, 2006 |  | /s/ DAVID A. WOODLE                                            
|                  |  | Chief Executive Officer                                        
|                  | 
|Date: May 3, 2006 |  | /s/ WILLIAM T. HANELLY                                         
|                  |  | Chief Financial Officer (Principal
Financial Officer)          
|                  | 
|Date: May 3, 2006 |  | /s/ JOSEPH E. ZAVACKY                                          
|                  |  | Controller & Assistant Secretary (Principal Accounting Officer)



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