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United States

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549



FORM 10-Q



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



For the thirteen-week period ended: December 26, 2003



OR



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



C-COR.net Corp.

(Exact Name of Registrant as Specified in Charter)



|                                               |  |                          |  |                                  
|---------------------------------------------- |  | ------------------------ |  | ---------------------------------
|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)



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 an accelerated filer (as defined in Rule 12b-2 of the Act).



Yes x No ̈



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 -
37,586,143 shares as of January 23, 2004.



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##### Table of Contents

C-COR.net Corp.



|                               |  |                                                                                               |  |                                                                |  |     
|------------------------------ |  | --------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------- |  | ----
|                               |  |                                                                                               |  |                                                                |  | Page
|Part I  FINANCIAL INFORMATION |  |                                                                                              
|                               |  | Item 1. Financial Statements                                                                  |  |                                                               
|                               |  |                                                                                               |  | Independent Accountants Review Report                         |  | 2   
|                               |  |                                                                                               |  | Condensed Consolidated Balance Sheets:                         |  |     
|                               |  |                                                                                               |  | As of December 26, 2003 and June 27, 2003                      |  | 3   
|                               |  |                                                                                               |  | Condensed Consolidated Statements of Operations:               |  |     
|                               |  |                                                                                               |  | Thirteen Weeks Ended December 26, 2003 and December 27, 2002   |  | 4   
|                               |  |                                                                                               |  | Condensed Consolidated Statements of Operations:               |  |     
|                               |  |                                                                                               |  | Twenty-six Weeks Ended December 26, 2003 and December 27, 2002 |  | 5   
|                               |  |                                                                                               |  | Condensed Consolidated Statements of Cash Flows:               |  |     
|                               |  |                                                                                               |  | Twenty-six Weeks Ended December 26, 2003 and December 27, 2002 |  | 6   
|                               |  |                                                                                               |  | Notes to Condensed Consolidated Financial Statements           |  | 7-15
|                               |  | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 16-22                                                         
|                               |  | Item 3. Quantitative and Qualitative Disclosures About Market Risk                            |  | 23                                                            
|                               |  | Item 4. Controls and Procedures                                                               |  | 24                                                            
|                               | 
|Part II  OTHER INFORMATION    |  |                                                                                              
|                               |  | Item 1. Legal Proceedings                                                                     |  | 25                                                            
|                               |  | Item 4. Submission of Matters to a Vote of Shareholders                                       |  | 25                                                            
|                               |  | Item 6. Exhibits and Reports on Form 8-K                                                      |  | 26                                                            
|                               |  | Signatures                                                                                    |  | 27                                                            





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##### Table of Contents

Independent Accountants Review Report



The Board
of Directors and Shareholders

C-COR.net Corp.:



We have reviewed the condensed consolidated balance sheet of C-COR.net Corp. and subsidiaries as of December 26, 2003, the related condensed consolidated statements of
operations for the thirteen-week and twenty-six week periods ended December 26, 2003 and December 27, 2002, and the related condensed consolidated statements of cash flows for the twenty-six week periods ended December 26, 2003 and December 27,
2002. These condensed consolidated financial statements are the responsibility of the Companys management.



We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. 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 auditing standards generally
accepted in the United States of America, 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 reviews, 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 accounting principles generally accepted in the United States of America.



We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated
balance sheet of C-COR.net Corp. and subsidiaries as of June 27, 2003, 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 August 8,
2003, we expressed an unqualified opinion on those consolidated financial statements. Our report discloses the Companys adoption of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, effective June 29,
2002. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of June 27, 2003, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.



|                                         
|-----------------------------------------
|                                         
|/s/ KPMG LLP                             
|                                         
|Harrisburg, Pennsylvania February 6, 2004



2



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##### Table of Contents

PART I FINANCIAL INFORMATION



|Item 1. | Financial Statements
|------- | --------------------



C-COR.net Corp.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(Unaudited)



|                                                                                                                                           |  |                  |          |   |               |   |          |  
|------------------------------------------------------------------------------------------------------------------------------------------ |  | ---------------- | -------- | - | ------------- | - | -------- | -
|                                                                                                                                           |  | December 26,2003 |          |   | June 27, 2003 |  
|ASSETS                                                                                                                                     |  |                  |          |   |               |   |          |  
|Current assets                                                                                                                             |  |                  |          |   |               |   |          |  
|Cash and cash equivalents                                                                                                                  |  | $                | 64,029   |   |               | $ | 22,609   |  
|Restricted cash                                                                                                                            |  |                  | 2,045    |   |               |   | 2,300    |  
|Accounts receivable, net                                                                                                                   |  |                  | 42,013   |   |               |   | 35,750   |  
|Inventories                                                                                                                                |  |                  | 26,186   |   |               |   | 30,438   |  
|Other current assets                                                                                                                       |  |                  | 3,871    |   |               |   | 4,762    |  
|                                                                                                                                           |  |                  |          |   |               |   |          |  
|Total current assets                                                                                                                       |  |                  | 138,144  |   |               |   | 95,859   |  
|Property, plant and equipment, net                                                                                                         |  |                  | 20,487   |   |               |   | 24,418   |  
|Goodwill                                                                                                                                   |  |                  | 17,272   |   |               |   | 15,034   |  
|Other intangible assets, net                                                                                                               |  |                  | 2,836    |   |               |   | 3,936    |  
|Deferred taxes                                                                                                                             |  |                  | 647      |   |               |   | 507      |  
|Other long-term assets                                                                                                                     |  |                  | 2,934    |   |               |   | 3,091    |  
|                                                                                                                                           |  |                  |          |   |               |   |          |  
|Total assets                                                                                                                               |  | $                | 182,320  |   |               | $ | 142,845  |  
|                                                                                                                                           |  |                  |          |   |               |   |          |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                       |  |                  |          |   |               |   |          |  
|Current liabilities                                                                                                                        |  |                  |          |   |               |   |          |  
|Accounts payable                                                                                                                           |  | $                | 19,343   |   |               | $ | 20,299   |  
|Accrued liabilities                                                                                                                        |  |                  | 37,485   |   |               |   | 37,260   |  
|Deferred taxes                                                                                                                             |  |                  | 385      |   |               |   | 528      |  
|Current portion of long-term debt                                                                                                          |  |                  | 170      |   |               |   | 175      |  
|                                                                                                                                           |  |                  |          |   |               |   |          |  
|Total current liabilities                                                                                                                  |  |                  | 57,383   |   |               |   | 58,262   |  
|Long-term debt, less current portion                                                                                                       |  |                  | 853      |   |               |   | 938      |  
|Other long-term liabilities                                                                                                                |  |                  | 2,314    |   |               |   | 2,116    |  
|                                                                                                                                           |  |                  |          |   |               |   |          |  
|Total liabilities                                                                                                                          |  |                  | 60,550   |   |               |   | 61,316   |  
|                                                                                                                                           |  |                  |          |   |               |   |          |  
|Commitments and contingent liabilities                                                                                                     |  |                  |          |   |               |   |          |  
|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 40,597,017 on December 26, 2003 and 40,210,226 on June 27,
2003 |  |                  | 2,030    |   |               |   | 2,011    |  
|Additional paid-in capital                                                                                                                 |  |                  | 267,163  |   |               |   | 264,662  |  
|Accumulated other comprehensive income                                                                                                     |  |                  | 5,585    |   |               |   | 2,432    |  
|Accumulated deficit                                                                                                                        |  |                  | (118,662 | ) |               |   | (153,211 | )
|Treasury stock at cost, 3,645,599 shares as of December 26, 2003 and 3,647,509 shares as of June 27, 2003                                  |  |                  | (34,346  | ) |               |   | (34,365  | )
|                                                                                                                                           |  |                  |          |   |               |   |          |  
|Shareholders equity                                                                                                                       |  |                  | 121,770  |   |               |   | 81,529   |  
|                                                                                                                                           |  |                  |          |   |               |   |          |  
|Total liabilities and shareholders equity                                                                                                 |  | $                | 182,320  |   |               | $ | 142,845  |  
|                                                                                                                                           |  |                  |          |   |               |   |          |  



See
independent accountants review report and notes to condensed consolidated financial statements.



3



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##### Table of Contents

C-COR.net Corp.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)



|                                                             |  |                      |        |   |                  |   |        |  
|------------------------------------------------------------ |  | -------------------- | ------ | - | ---------------- | - | ------ | -
|                                                             |  | Thirteen Weeks Ended |       
|                                                             |  | December 26,2003     |        |   | December 27,2002 |  
|Net sales:                                                   |  |                      |        |   |                  |   |        |  
|Products                                                     |  | $                    | 44,709 |   |                  | $ | 46,059 |  
|Services                                                     |  |                      | 16,821 |   |                  |   | 7,915  |  
|                                                             |  |                      |        |   |                  |   |        |  
|Total net sales                                              |  |                      | 61,530 |   |                  |   | 53,974 |  
|                                                             |  |                      |        |   |                  |   |        |  
|Cost of sales:                                               |  |                      |        |   |                  |   |        |  
|Products                                                     |  |                      | 28,040 |   |                  |   | 34,947 |  
|Services                                                     |  |                      | 10,251 |   |                  |   | 6,443  |  
|                                                             |  |                      |        |   |                  |   |        |  
|Total cost of sales                                          |  |                      | 38,291 |   |                  |   | 41,390 |  
|                                                             |  |                      |        |   |                  |   |        |  
|Gross margin                                                 |  |                      | 23,239 |   |                  |   | 12,584 |  
|                                                             |  |                      |        |   |                  |   |        |  
|Operating expenses:                                          |  |                      |        |   |                  |   |        |  
|Selling and administrative                                   |  |                      | 9,415  |   |                  |   | 12,489 |  
|Research and product development                             |  |                      | 5,227  |   |                  |   | 7,404  |  
|Amortization of intangibles                                  |  |                      | 550    |   |                  |   | 496    |  
|Restructuring recovery                                       |  |                      | (106   | ) |                  |   | (13    | )
|                                                             |  |                      |        |   |                  |   |        |  
|Total operating expenses                                     |  |                      | 15,086 |   |                  |   | 20,376 |  
|                                                             |  |                      |        |   |                  |   |        |  
|Income (loss) from operations                                |  |                      | 8,153  |   |                  |   | (7,792 | )
|Interest expense                                             |  |                      | (20    | ) |                  |   | (14    | )
|Investment income                                            |  |                      | 216    |   |                  |   | 138    |  
|Foreign exchange gain                                        |  |                      | 624    |   |                  |   | 468    |  
|Gain on sale of bankruptcy trade claims                      |  |                      | 21,075 |   |                  |   |       |  
|Other income, net                                            |  |                      | 40     |   |                  |   | 23     |  
|                                                             |  |                      |        |   |                  |   |        |  
|Income (loss) before income taxes                            |  |                      | 30,088 |   |                  |   | (7,177 | )
|Income tax expense (benefit)                                 |  |                      | 367    |   |                  |   | (2,469 | )
|                                                             |  |                      |        |   |                  |   |        |  
|Net income (loss)                                            |  | $                    | 29,721 |   |                  | $ | (4,708 | )
|                                                             |  |                      |        |   |                  |   |        |  
|Net income (loss) per share:                                 |  |                      |        |   |                  |   |        |  
|Basic                                                        |  | $                    | 0.81   |   |                  | $ | (0.13  | )
|Diluted                                                      |  | $                    | 0.78   |   |                  | $ | (0.13  | )
|Weighted average common shares and common share equivalents: |  |                      |        |   |                  |   |        |  
|Basic                                                        |  |                      | 36,737 |   |                  |   | 36,355 |  
|Diluted                                                      |  |                      | 38,297 |   |                  |   | 36,355 |  



See
independent accountants review report and notes to condensed consolidated financial statements.



4



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##### Table of Contents

C-COR.net Corp.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)



|                                                             |  |                        |         |   |                  |   |         |  
|------------------------------------------------------------ |  | ---------------------- | ------- | - | ---------------- | - | ------- | -
|                                                             |  | Twenty-six Weeks Ended |        
|                                                             |  | December 26,2003       |         |   | December 27,2002 |  
|Net sales:                                                   |  |                        |         |   |                  |   |         |  
|Products                                                     |  | $                      | 91,266  |   |                  | $ | 84,430  |  
|Services                                                     |  |                        | 27,031  |   |                  |   | 14,179  |  
|                                                             |  |                        |         |   |                  |   |         |  
|Total net sales                                              |  |                        | 118,297 |   |                  |   | 98,609  |  
|                                                             |  |                        |         |   |                  |   |         |  
|Cost of sales:                                               |  |                        |         |   |                  |   |         |  
|Products                                                     |  |                        | 56,272  |   |                  |   | 63,614  |  
|Services                                                     |  |                        | 18,765  |   |                  |   | 12,202  |  
|                                                             |  |                        |         |   |                  |   |         |  
|Total cost of sales                                          |  |                        | 75,037  |   |                  |   | 75,816  |  
|                                                             |  |                        |         |   |                  |   |         |  
|Gross margin                                                 |  |                        | 43,260  |   |                  |   | 22,793  |  
|                                                             |  |                        |         |   |                  |   |         |  
|Operating expenses:                                          |  |                        |         |   |                  |   |         |  
|Selling and administrative                                   |  |                        | 18,619  |   |                  |   | 24,256  |  
|Research and product development                             |  |                        | 10,469  |   |                  |   | 13,806  |  
|Amortization of intangibles                                  |  |                        | 1,100   |   |                  |   | 789     |  
|Acquired in-process technology charge                        |  |                        |        |   |                  |   | 1,560   |  
|Restructuring costs (recovery)                               |  |                        | (106    | ) |                  |   | 198     |  
|                                                             |  |                        |         |   |                  |   |         |  
|Total operating expenses                                     |  |                        | 30,082  |   |                  |   | 40,609  |  
|                                                             |  |                        |         |   |                  |   |         |  
|Income (loss) from operations                                |  |                        | 13,178  |   |                  |   | (17,816 | )
|Interest expense                                             |  |                        | (41     | ) |                  |   | (236    | )
|Investment income                                            |  |                        | 310     |   |                  |   | 729     |  
|Foreign exchange gain (loss)                                 |  |                        | 733     |   |                  |   | (1,241  | )
|Gain on sale of bankruptcy trade claims                      |  |                        | 21,075  |   |                  |   |        |  
|Other income, net                                            |  |                        | 72      |   |                  |   | 756     |  
|                                                             |  |                        |         |   |                  |   |         |  
|Income (loss) before income taxes                            |  |                        | 35,327  |   |                  |   | (17,808 | )
|Income tax expense (benefit)                                 |  |                        | 778     |   |                  |   | (5,842  | )
|                                                             |  |                        |         |   |                  |   |         |  
|Net income (loss)                                            |  | $                      | 34,549  |   |                  | $ | (11,966 | )
|                                                             |  |                        |         |   |                  |   |         |  
|Net income (loss) per share:                                 |  |                        |         |   |                  |   |         |  
|Basic                                                        |  | $                      | 0.94    |   |                  | $ | (0.33   | )
|Diluted                                                      |  | $                      | 0.92    |   |                  | $ | (0.33   | )
|Weighted average common shares and common share equivalents: |  |                        |         |   |                  |   |         |  
|Basic                                                        |  |                        | 36,652  |   |                  |   | 36,351  |  
|Diluted                                                      |  |                        | 37,651  |   |                  |   | 36,351  |  



See
independent accountants review report and notes to condensed consolidated financial statements.



5



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##### Table of Contents

C-COR.net Corp.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



|                                                                                         |  |                        |        |   |                  |   |         |  
|---------------------------------------------------------------------------------------- |  | ---------------------- | ------ | - | ---------------- | - | ------- | -
|                                                                                         |  | Twenty-six Weeks Ended |       
|                                                                                         |  | December 26,2003       |        |   | December 27,2002 |  
|Operating Activities:                                                                    |  |                        |        |   |                  |   |         |  
|Net income (loss)                                                                        |  | $                      | 34,549 |   |                  | $ | (11,966 | )
|Adjustments to reconcile net income (loss) to net cash provided by operating activities: |  |                        |        |   |                  |   |         |  
|Depreciation and amortization                                                            |  |                        | 5,949  |   |                  |   | 7,330   |  
|Acquired in-process technology charge                                                    |  |                        |       |   |                  |   | 1,560   |  
|Other, net                                                                               |  |                        | (2     | ) |                  |   | 119     |  
|Changes in operating assets and liabilities, net of effect of acquisitions:              |  |                        |        |   |                  |   |         |  
|Accounts and notes receivable                                                            |  |                        | (5,191 | ) |                  |   | 9,628   |  
|Inventories                                                                              |  |                        | 4,975  |   |                  |   | 6,212   |  
|Other assets                                                                             |  |                        | 1,919  |   |                  |   | 8,168   |  
|Accounts payable                                                                         |  |                        | (2,479 | ) |                  |   | (7,024  | )
|Accrued liabilities                                                                      |  |                        | (403   | ) |                  |   | (5,426  | )
|Deferred income taxes                                                                    |  |                        | (218   | ) |                  |   | (6,008  | )
|                                                                                         |  |                        |        |   |                  |   |         |  
|Net cash provided by operating activities                                                |  |                        | 39,099 |   |                  |   | 2,593   |  
|                                                                                         |  |                        |        |   |                  |   |         |  
|Investing Activities:                                                                    |  |                        |        |   |                  |   |         |  
|Purchase of property, plant and equipment                                                |  |                        | (851   | ) |                  |   | (2,304  | )
|Proceeds from the sale of property, plant and equipment                                  |  |                        |       |   |                  |   | 12      |  
|Acquisitions, net of cash acquired                                                       |  |                        |       |   |                  |   | (76,983 | )
|                                                                                         |  |                        |        |   |                  |   |         |  
|Net cash used in investing activities                                                    |  |                        | (851   | ) |                  |   | (79,275 | )
|                                                                                         |  |                        |        |   |                  |   |         |  
|Financing Activities:                                                                    |  |                        |        |   |                  |   |         |  
|Payment of debt and capital lease obligations                                            |  |                        | (90    | ) |                  |   | (128    | )
|Proceeds from issuance of common stock to employee stock purchase plan                   |  |                        | 38     |   |                  |   | 84      |  
|Proceeds from exercise of stock options and stock warrants                               |  |                        | 2,482  |   |                  |   | 55      |  
|Issue (purchase) of treasury stock for deferred compensation plan                        |  |                        | 19     |   |                  |   | (73     | )
|                                                                                         |  |                        |        |   |                  |   |         |  
|Net cash provided by (used in) financing activities                                      |  |                        | 2,449  |   |                  |   | (62     | )
|                                                                                         |  |                        |        |   |                  |   |         |  
|Effect of exchange rate changes on cash                                                  |  |                        | 723    |   |                  |   | 84      |  
|                                                                                         |  |                        |        |   |                  |   |         |  
|Increase (decrease) in cash and cash equivalents                                         |  |                        | 41,420 |   |                  |   | (76,660 | )
|Cash and cash equivalents at beginning of period                                         |  |                        | 22,609 |   |                  |   | 111,858 |  
|                                                                                         |  |                        |        |   |                  |   |         |  
|Cash and cash equivalents at end of period                                               |  | $                      | 64,029 |   |                  | $ | 35,198  |  
|                                                                                         |  |                        |        |   |                  |   |         |  
|Supplemental cash flow information:                                                      |  |                        |        |   |                  |   |         |  
|Non-cash investing and financing activities                                              |  |                        |        |   |                  |   |         |  
|Fair value adjustment of available-for-sale securities                                   |  | $                      | 23     |   |                  | $ | (11     | )



See
independent accountants review report and notes to condensed consolidated financial statements



6



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##### Table of Contents

C-COR.net Corp.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands except 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 for interim financial information
and, in the opinion of management, contain all adjustments (consisting only of normal, recurring adjustments except as noted) necessary to fairly present C-COR.net Corp.s (the Company) consolidated financial position as of December 26, 2003
and the consolidated results of operations for the thirteen-week and twenty-six week periods ended December 26, 2003 and December 27, 2002. Operating results for the thirteen-week and twenty-six week periods ended December 26, 2003 are not
necessarily indicative of the results that may be expected for the year ending June 26, 2004, due to the cyclical nature of the industry in which the Company operates, timing of recognizing revenues in our Broadband Management Solutions division,
fluctuations in currencies related to its intercompany foreign currency transactions where settlement is anticipated, and changes in overall conditions that could affect the carrying value of its 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 27, 2003.



|2. | DESCRIPTION OF BUSINESS
|-- | -----------------------



The Company designs, manufactures, and markets network distribution and transmission products and provides services and operational support systems to operators of advanced hybrid fiber coax broadband networks. The
Company operates in three industry segments: Broadband Communications Products, Broadband Network Services, and Broadband Management Solutions.



The Broadband Communications Products Division is responsible for research, development, management, production, support, and sales of advanced fiber optic and radio
frequency equipment. The Broadband Network Services Division provides outsourced technical services, including network engineering and design, construction, activation, optimization, certification, maintenance, and operations. The Broadband
Management Solutions Division is responsible for the development, integration, management, implementation, support and sales of operational support systems that focus on network services management and mobile workforce management solutions.



|3. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|-- | ------------------------------------------



A detailed description of the Companys significant accounting policies is set forth in the Notes to Consolidated Financial Statements of the Companys Form
10-K for the fiscal year ended June 27, 2003 (fiscal year 2003).



Accounting for Employee Stock Award Plans



The Company
accounts for its stock award plans in accordance with the provision of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. If charges for the Companys stock plans had been determined based on the
fair value method at the grant dates, as prescribed in Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, the Companys net income (loss) and net income (loss) per share would have
been as follows:



|                                                                                                                                            |  |                      |        |                  |   |        |  
|------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------- | ------ | ---------------- | - | ------ | -
|                                                                                                                                            |  | Thirteen Weeks Ended |       
|                                                                                                                                            |  | December 26,2003     |        | December 27,2002 |  
|Net income (loss)                                                                                                                           |  | $                    | 29,721 |                  | $ | (4,708 | )
|Deduct:                                                                                                                                     |  |                      |        |                  |   |        |  
|Total stock-based employee compensation expense determined under fair value method for all awards, net of related tax effects if
applicable |  |                      | 2,295  |                  |   | 1,418  |  
|                                                                                                                                            |  |                      |        |                  |   |        |  
|Pro forma net income (loss)                                                                                                                 |  | $                    | 27,426 |                  | $ | (6,126 | )
|                                                                                                                                            |  |                      |        |                  |   |        |  
|Net income (loss) per share:                                                                                                                |  |                      |        |                  |   |        |  
|Basic  as reported                                                                                                                         |  | $                    | 0.81   |                  | $ | (0.13  | )
|Basic  pro forma                                                                                                                           |  | $                    | 0.75   |                  | $ | (0.17  | )
|Diluted  as reported                                                                                                                       |  | $                    | 0.78   |                  | $ | (0.13  | )
|Diluted  pro forma                                                                                                                         |  | $                    | 0.72   |                  | $ | (0.17  | )



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|                                                                                                                                            |  |                        |        |                  |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------- | ------ | ---------------- | - | ------- | -
|                                                                                                                                            |  | Twenty-Six Weeks Ended |       
|                                                                                                                                            |  | December 26,2003       |        | December 27,2002 |  
|Net income (loss)                                                                                                                           |  | $                      | 34,549 |                  | $ | (11,966 | )
|Add:                                                                                                                                        |  |                        |        |                  |   |         |  
|Stock-based employee compensation expense included in reported net income (loss), net of related tax effects if applicable                  |  |                        | 131    |                  |   |        |  
|Deduct:                                                                                                                                     |  |                        |        |                  |   |         |  
|Total stock-based employee compensation expense determined under fair value method for all awards, net of related tax effects if
applicable |  |                        | 4,074  |                  |   | 2,802   |  
|                                                                                                                                            |  |                        |        |                  |   |         |  
|Pro forma net income (loss)                                                                                                                 |  | $                      | 30,606 |                  | $ | (14,768 | )
|                                                                                                                                            |  |                        |        |                  |   |         |  
|Net income (loss) per share:                                                                                                                |  |                        |        |                  |   |         |  
|Basic  as reported                                                                                                                         |  | $                      | 0.94   |                  | $ | (0.33   | )
|Basic  pro forma                                                                                                                           |  | $                      | 0.84   |                  | $ | (0.41   | )
|Diluted  as reported                                                                                                                       |  | $                      | 0.92   |                  | $ | (0.33   | )
|Diluted  pro forma                                                                                                                         |  | $                      | 0.81   |                  | $ | (0.41   | )



Recently Issued Accounting
Pronouncements





In January 2003, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities which requires companies to consolidate certain
types of variable interest entities. A variable interest entity is an entity that has inadequate invested equity at risk to meet expected future losses, or whose holders of the equity investments lack any of the following three characteristics: (i)
the ability to make decisions about the entitys activities; (ii) the obligation to absorb the entitys losses if they occur; or (iii) the right to receive the entitys future returns if they occur. FIN 46 is applicable immediately
for all variable interests created after January 31, 2003. For all variable interest entities created before February 1, 2003, the provisions of FIN 46 are effective for financial statements issued for the first period ending after December 15,
2003. The adoption of FIN 46 had no effect on the Companys financial position, results of operations, or cash flows.



In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150
requires that certain financial instruments, which under previous guidance were accounted for as equity, must now be accounted for as liabilities. The financial instruments affected include mandatorily redeemable stock, certain financial instruments
that require or may require the issuer to buy back some of its shares in exchange for cash or other assets and certain obligations that can be settled with shares of stock. Subsequently, FASB Staff Position 150-3 indefinitely deferred certain
classification and measurement requirements of SFAS No. 150. SFAS No. 150 is effective for all financial instruments entered into or modified after May 31, 2003 and must be applied to existing instruments for the first interim period beginning after
June 15, 2003. The adoption of SFAS No.150 had no effect on the Companys financial position, results of operations, or cash flows.



|4. | INCOME TAXES
|-- | ------------



The Company estimates 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. Deferred taxes arise due to temporary differences in the bases of assets and liabilities and from net operating losses and 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 loss or credit
carryforwards are utilized. Accordingly, realization of deferred tax assets is dependent on future taxable income against which these deductions, losses and 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. 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.



As a result of the cumulative losses over the prior three years, management concluded during
the third quarter of fiscal year 2003 that a valuation allowance against net deferred tax assets was appropriate and recorded an allowance as of that date. As of December 26, 2003, a full valuation allowance on the net deferred tax assets has been
recorded, with the exception of certain net deferred tax assets in specific foreign jurisdictions. In addition, the Company expects to provide a valuation allowance on any future tax benefits until the Company can sustain a level of profitability
that demonstrates its ability to utilize these assets. Income taxes for the quarter and year-to-date periods relate to certain foreign operations where it is expected that income will be subject to tax.



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##### Table of Contents

|5. | INVENTORIES
|-- | -----------



Inventories include material, labor and overhead and are stated at the lower of cost or market. Cost is determined on the first-in, first-out method. Inventories as of December 26, 2003 and June 27, 2003 consisted of
the following:



|                  |  |                  |        |              |   |       
|----------------- |  | ---------------- | ------ | ------------ | - | ------
|                  |  | December 26,2003 |        | June 27,2003
|Finished goods    |  | $                | 4,063  |              | $ | 6,660 
|Work-in-process   |  |                  | 6,065  |              |   | 5,499 
|Raw materials     |  |                  | 16,058 |              |   | 18,279
|                  |  |                  |        |              |   |       
|Total inventories |  | $                | 26,186 |              | $ | 30,438
|                  |  |                  |        |              |   |       



|6. | FINANCING AGREEMENT
|-- | -------------------



The Company has a two-year secured revolving credit financing agreement with a commercial lender. Borrowings under the financing agreement may be used for working capital and general corporate purposes. The financing
agreement provides a commitment of up to an aggregate amount of $20,000. The financing agreement allows for the issuance of letters of credit and cash borrowings. Letters of credit outstanding are limited to no more than $6,000. Cash borrowings are
limited by certain availability reserves and a borrowing base, primarily a percentage of eligible domestic trade accounts receivable, up to the facilitys maximum availability less letters of credit outstanding.



As security for the financing agreement, the Company has pledged the following collateral:
trade accounts receivable, inventory, general intangibles, real estate, equipment, life insurance policies, and a portion of the stock of a wholly owned foreign subsidiary. The financing agreement contains a number of restrictive covenants,
including covenants limiting incurrence of subordinate debt, disposal of collateral, and the payment of dividends (except stock dividends). The financing agreement contains no financial covenants.



The financing agreement is committed through November 6, 2004. Borrowings under the financing
agreement bear interest at an applicable bank rate or LIBOR plus two and three-quarters percent (2.75%) per annum, payable monthly. The financing agreement required the payment of a facility fee of $150 at execution of the agreement, and requires a
fee on the unused commitment of 0.375% per annum payable monthly and an administrative fee of $36 per annum. As of December 26, 2003, the Company had no borrowings outstanding under the financing agreement and letters of credit had been issued for
$950 related to requirements under the Companys workers compensation policies. Based upon the eligible borrowing base at December 26, 2003, available borrowings under the financing agreement were $10,411.



As a condition to closing on the financing agreement, the Company terminated its prior credit
agreement with a bank, except that the Company continues to maintain letters of credit with the bank related to its workers compensation program, customer obligations, and equipment lease obligations. As of December 26, 2003, the aggregate amount of
the letters of credit was $2,005. A cash compensating balance of $2,045 is maintained to secure the letters of credit, which has been classified as a current asset, as the terms for the letters of credit expire in less than one year.



|7. | ACCRUED LIABILITIES
|-- | -------------------



Accrued liabilities as of December 26, 2003 and June 27, 2003 consisted of the following:



|                                        |  |                  |        |              |   |       
|--------------------------------------- |  | ---------------- | ------ | ------------ | - | ------
|                                        |  | December 26,2003 |        | June 27,2003
|Accrued salary and benefit plan expense |  | $                | 6,859  |              | $ | 5,151 
|Accrued payroll and sales tax expense   |  |                  | 1,220  |              |   | 1,788 
|Accrued warranty expense                |  |                  | 14,243 |              |   | 14,117
|Accrued workers compensation expense    |  |                  | 800    |              |   | 734   
|Accrued restructuring costs             |  |                  | 306    |              |   | 2,274 
|Accrued income tax payable              |  |                  | 4,346  |              |   | 3,405 
|Deferred income                         |  |                  | 2,614  |              |   | 2,320 
|Other                                   |  |                  | 7,097  |              |   | 7,471 
|                                        |  |                  |        |              |   |       
|                                        |  | $                | 37,485 |              | $ | 37,260
|                                        |  |                  |        |              |   |       



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|8. | RESTRUCTURING COSTS AND PLANT CLOSING
|-- | -------------------------------------



Restructuring costs relate principally to employee severance and termination benefits and lease commitment costs resulting from the closure of facilities and other
workforce reductions attributable to the Companys efforts to reduce costs during prior fiscal years. An adjustment of $106 was made to reduce the restructuring accrual balance for changes in assumptions during the thirteen-week period ended
December 26, 2003.



The following table provides detail on the activity and
remaining restructuring accrual balance by category as of December 26, 2003.



|                                            |  |                        |       |                              |   |      |          |  |   |                            |   |  |   |    
|------------------------------------------- |  | ---------------------- | ----- | ---------------------------- | - | ---- | -------- |  | - | -------------------------- | - |  | - | ---
|                                            |  | Accrual atJune 27,2003 |       | Adjustmentin FiscalYear 2004 |   |      | CashPaid |  |   | Accrual atDecember 26,2003
|Employee severance and termination benefits |  | $                      | 1,812 |                              | $ | (106 | )        |  | $ | (1,551                     | ) |  | $ | 155
|Contractual obligations and other           |  |                        | 462   |                              |   |     |          |  |   | (311                       | ) |  |   | 151
|                                            |  |                        |       |                              |   |      |          |  |   |                            |   |  |   |    
|Total                                       |  | $                      | 2,274 |                              | $ | (106 | )        |  | $ | (1,862                     | ) |  | $ | 306
|                                            |  |                        |       |                              |   |      |          |  |   |                            |   |  |   |    



Employee severance and termination
benefit payments are being made on a weekly or bi-weekly basis, and as such, the Company anticipates payments for the remaining amounts accrued as of December 26, 2003 to substantially be paid out by June 26, 2004. The remaining amounts accrued as
of December 26, 2003 related to contractual obligations will be paid out over their remaining term of 12 months, unless terminated early.



|9. | LIQUIDITY
|-- | ---------



The Companys primary sources of liquidity are cash on hand, cash flow from operations, and its revolving credit financing agreement.



Based on the restructuring initiatives implemented during fiscal year 2003, including the closing of the Companys Manlius, New York
manufacturing facility and Louviers, France operation, and taking into account projected sales and operating expenses, the Company expects to generate cash from operations during fiscal year 2004. The Company intends to continue initiatives to
achieve a more cost-effective operation throughout fiscal year 2004. The Company believes that current cash and cash equivalent balances, as well as its financing agreement, will be adequate to cover operating cash requirements over the next twelve
months. In addition, the Company sold most of its pre-petition trade claims in the bankruptcy cases of Adelphia Communications Corporation and affiliates on November 4, 2003 for an initial payment of $21,075 (see Note 14).



10



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##### Table of Contents

|10. | COMPREHENSIVE INCOME (LOSS)
|--- | ---------------------------



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



|                                                |  |                  |       |               |   |       |  
|----------------------------------------------- |  | ---------------- | ----- | ------------- | - | ----- | -
|                                                |  | December 26,2003 |       | June 27, 2003 |  
|Unrealized gain (loss) on marketable securities |  | $                | 22    |               | $ | (1    | )
|Foreign currency translation gain               |  |                  | 5,563 |               |   | 2,433 |  
|                                                |  |                  |       |               |   |       |  
|Accumulated other comprehensive income          |  | $                | 5,585 |               | $ | 2,432 |  
|                                                |  |                  |       |               |   |       |  



The components of comprehensive income
(loss) for the thirteen-week and twenty-six periods ended December 26, 2003 and December 27, 2002 are as follows:



|                                                |  |                        |        |                  |   |         |  
|----------------------------------------------- |  | ---------------------- | ------ | ---------------- | - | ------- | -
|                                                |  | Thirteen Weeks Ended   |       
|                                                |  | December 26,2003       |        | December 27,2002 |  
|Net income (loss)                               |  | $                      | 29,721 |                  | $ | (4,708  | )
|Other comprehensive income:                     |  |                        |        |                  |   |         |  
|Unrealized gain on marketable securities        |  |                        | 20     |                  |   | 2       |  
|Foreign currency translation gain               |  |                        | 2,887  |                  |   | 113     |  
|                                                |  |                        |        |                  |   |         |  
|Other comprehensive income                      |  |                        | 2,907  |                  |   | 115     |  
|                                                |  |                        |        |                  |   |         |  
|Comprehensive income (loss)                     |  | $                      | 32,628 |                  | $ | (4,593  | )
|                                                |  |                        |        |                  |   |         |  
|                                                | 
|                                                |  | Twenty-six Weeks Ended |       
|                                                |  | December 26,2003       |        | December 27,2002 |  
|Net income (loss)                               |  | $                      | 34,549 |                  | $ | (11,966 | )
|Other comprehensive income:                     |  |                        |        |                  |   |         |  
|Unrealized gain (loss) on marketable securities |  |                        | 23     |                  |   | (11     | )
|Foreign currency translation gain               |  |                        | 3,130  |                  |   | 84      |  
|                                                |  |                        |        |                  |   |         |  
|Other comprehensive income                      |  |                        | 3,153  |                  |   | 73      |  
|                                                |  |                        |        |                  |   |         |  
|Comprehensive income (loss)                     |  | $                      | 37,702 |                  | $ | (11,893 | )
|                                                |  |                        |        |                  |   |         |  



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 income (loss) and reported as a component of other comprehensive income (loss).



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|11. | NET INCOME (LOSS) PER SHARE
|--- | ---------------------------



Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding. Diluted net income (loss) per share is computed by dividing net income (loss) by
the weighted average number of common shares outstanding plus the dilutive effect of options and warrants. The dilutive effect of options and warrants is calculated under the treasury stock method using the average market price for the period. Net
income (loss) per share is calculated as follows:



|                                                            |  |                        |        |                  |   |         |  
|----------------------------------------------------------- |  | ---------------------- | ------ | ---------------- | - | ------- | -
|                                                            |  | Thirteen Weeks Ended   |       
|                                                            |  | December 26,2003       |        | December 27,2002 |  
|Net income (loss)                                           |  | $                      | 29,721 |                  | $ | (4,708  | )
|                                                            |  |                        |        |                  |   |         |  
|Weighted average common shares outstanding                  |  |                        | 36,737 |                  |   | 36,355  |  
|Common share equivalents                                    |  |                        | 1,560  |                  |   |        |  
|                                                            |  |                        |        |                  |   |         |  
|Weighted average common shares and common share equivalents |  |                        | 38,297 |                  |   | 36,355  |  
|                                                            |  |                        |        |                  |   |         |  
|Net income (loss) per share:                                |  |                        |        |                  |   |         |  
|Basic                                                       |  | $                      | 0.81   |                  | $ | (0.13   | )
|Diluted                                                     |  | $                      | 0.78   |                  | $ | (0.13   | )
|                                                            | 
|                                                            |  | Twenty-six Weeks Ended |       
|                                                            |  | December 26,2003       |        | December 27,2002 |  
|Net income (loss)                                           |  | $                      | 34,549 |                  | $ | (11,966 | )
|                                                            |  |                        |        |                  |   |         |  
|Weighted average common shares outstanding                  |  |                        | 36,652 |                  |   | 36,351  |  
|Common share equivalents                                    |  |                        | 999    |                  |   |        |  
|                                                            |  |                        |        |                  |   |         |  
|Weighted average common shares and common share equivalents |  |                        | 37,651 |                  |   | 36,351  |  
|                                                            |  |                        |        |                  |   |         |  
|Net income (loss) per share:                                |  |                        |        |                  |   |         |  
|Basic                                                       |  | $                      | 0.94   |                  | $ | (0.33   | )
|Diluted                                                     |  | $                      | 0.92   |                  | $ | (0.33   | )



For the thirteen-week periods ended
December 26, 2003 and December 27, 2002, stock options and warrants representing 2,363 and 6,731 common shares, respectively, were excluded from the diluted net income (loss) per share calculation because they were antidilutive. For the twenty-six
week periods ended December 26, 2003 and December 27, 2002, stock options and warrants representing 3,759 and 6,623 common shares, respectively, were excluded from the diluted net income (loss) per share calculation because they were antidilutive.



12



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##### Table of Contents

|12. | SEGMENT INFORMATION
|--- | -------------------



The Company operates in three industry segments: Broadband Communication Products, Broadband Network Services, and Broadband Management Solutions. Due to changes in the structure of the Companys internal
organizations affecting the composition of its reportable segments, the Company has restated the segment information for the thirteen-week and twenty-six week periods ended December 27, 2002, to conform to the current year presentation.



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;
| | - | -------------------------------------------------------------------------------------------



| |  | 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.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------



Information about industry segments for the thirteen-week periods ended December 26, 2003 and
December 27, 2002 is as follows:



|                                         |  |                                 |         |                          |   |                              |  |   |             |   |  |       |        |   |  |   |         |  
|---------------------------------------- |  | ------------------------------- | ------- | ------------------------ | - | ---------------------------- |  | - | ----------- | - |  | ----- | ------ | - |  | - | ------- | -
|                                         |  | BroadbandCommunicationsProducts |         | BroadbandNetworkServices |   | BroadbandManagementSolutions |  |   | Unallocated |   |  | Total |       
|13 week period ended December 26, 2003   |  |                                 |         |                          |   |                              |  |   |             |   |  |       |        |   |  |   |         |  
|Net sales                                |  | $                               | 44,709  |                          | $ | 10,574                       |  | $ | 6,247       |   |  | $     |       |   |  | $ | 61,530  |  
|Depreciation and amortization            |  |                                 | 1,750   |                          |   | 167                          |  |   | 77          |   |  |       | 983    |   |  |   | 2,977   |  
|Income (loss) from operations            |  |                                 | 11,578  |                          |   | 511                          |  |   | 2,916       |   |  |       | (6,852 | ) |  |   | 8,153   |  
|Income tax expense                       |  |                                 |        |                          |   |                             |  |   |            |   |  |       | 367    |   |  |   | 367     |  
|Identifiable assets at December 26, 2003 |  |                                 | 85,083  |                          |   | 29,044                       |  |   | 6,434       |   |  |       | 61,759 |   |  |   | 182,320 |  
|Capital expenditures                     |  |                                 | 209     |                          |   | 72                           |  |   | 26          |   |  |       | 73     |   |  |   | 380     |  
|                                         |  |                                 |         |                          |  
|13 week period ended December 27, 2002   |  |                                 |         |                          |   |                              |  |   |             |   |  |       |        |   |  |   |         |  
|Net sales                                |  | $                               | 46,059  |                          | $ | 6,581                        |  | $ | 1,334       |   |  | $     |       |   |  | $ | 53,974  |  
|Depreciation and amortization            |  |                                 | 3,553   |                          |   | 176                          |  |   | 174         |   |  |       | 408    |   |  |   | 4,311   |  
|Income (loss) from operations            |  |                                 | 2,097   |                          |   | 239                          |  |   | (2,119      | ) |  |       | (8,009 | ) |  |   | (7,792  | )
|Income tax benefit                       |  |                                 |        |                          |   |                             |  |   |            |   |  |       | (2,469 | ) |  |   | (2,469  | )
|Identifiable assets at December 27, 2002 |  |                                 | 195,638 |                          |   | 24,947                       |  |   | 13,884      |   |  |       | 47,315 |   |  |   | 281,784 |  
|Capital expenditures                     |  |                                 | 1,281   |                          |   | 11                           |  |   | 20          |   |  |       | 303    |   |  |   | 1,615   |  



13



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##### Table of Contents

Information about industry segments for the twenty-six week periods ended December 26, 2003 and December 27, 2002 is as
follows:



|                                         |  |                                 |         |                          |   |                              |  |   |             |   |  |       |         |   |  |   |         |  
|---------------------------------------- |  | ------------------------------- | ------- | ------------------------ | - | ---------------------------- |  | - | ----------- | - |  | ----- | ------- | - |  | - | ------- | -
|                                         |  | BroadbandCommunicationsProducts |         | BroadbandNetworkServices |   | BroadbandManagementSolutions |  |   | Unallocated |   |  | Total |        
|26 week period ended December 26, 2003   |  |                                 |         |                          |   |                              |  |   |             |   |  |       |         |   |  |   |         |  
|Net sales                                |  | $                               | 91,266  |                          | $ | 20,501                       |  | $ | 6,530       |   |  | $     |        |   |  | $ | 118,297 |  
|Depreciation and amortization            |  |                                 | 3,479   |                          |   | 335                          |  |   | 160         |   |  |       | 1,975   |   |  |   | 5,949   |  
|Income (loss) from operations            |  |                                 | 24,224  |                          |   | 1,744                        |  |   | 924         |   |  |       | (13,714 | ) |  |   | 13,178  |  
|Income tax expense                       |  |                                 |        |                          |   |                             |  |   |            |   |  |       | 778     |   |  |   | 778     |  
|Identifiable assets at December 26, 2003 |  |                                 | 85,083  |                          |   | 29,044                       |  |   | 6,434       |   |  |       | 61,759  |   |  |   | 182,320 |  
|Capital expenditures                     |  |                                 | 447     |                          |   | 112                          |  |   | 32          |   |  |       | 260     |   |  |   | 851     |  
|                                         |  |                                 |         |                          |  
|26 week period ended December 27, 2002   |  |                                 |         |                          |   |                              |  |   |             |   |  |       |         |   |  |   |         |  
|Net sales                                |  | $                               | 84,430  |                          | $ | 12,600                       |  | $ | 1,579       |   |  | $     |        |   |  | $ | 98,609  |  
|Depreciation and amortization            |  |                                 | 5,732   |                          |   | 386                          |  |   | 425         |   |  |       | 787     |   |  |   | 7,330   |  
|Income (loss) from operations            |  |                                 | 3,778   |                          |   | 565                          |  |   | (5,174      | ) |  |       | (16,985 | ) |  |   | (17,816 | )
|Income tax benefit                       |  |                                 |        |                          |   |                             |  |   |            |   |  |       | (5,842  | ) |  |   | (5,842  | )
|Identifiable assets at December 27, 2002 |  |                                 | 195,638 |                          |   | 24,947                       |  |   | 13,884      |   |  |       | 47,315  |   |  |   | 281,784 |  
|Capital expenditures                     |  |                                 | 1,549   |                          |   | 54                           |  |   | 287         |   |  |       | 414     |   |  |   | 2,304   |  



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  
|              |  | December 26,2003       |         | December 27,2002
|Sales:        |  |                        |         |                  |   |       
|United States |  | $                      | 45,258  |                  | $ | 37,591
|Europe        |  |                        | 7,392   |                  |   | 8,913 
|Asia          |  |                        | 5,206   |                  |   | 4,879 
|Canada        |  |                        | 1,200   |                  |   | 2,101 
|Latin America |  |                        | 2,474   |                  |   | 490   
|              |  |                        |         |                  |   |       
|Total         |  | $                      | 61,530  |                  | $ | 53,974
|              |  |                        |         |                  |   |       
|              | 
|              |  | Twenty-six Weeks Ended
|              |  | December 26,2003       |         | December 27,2002
|Sales:        |  |                        |         |                  |   |       
|United States |  | $                      | 87,897  |                  | $ | 71,754
|Europe        |  |                        | 13,722  |                  |   | 13,953
|Asia          |  |                        | 10,650  |                  |   | 8,385 
|Canada        |  |                        | 2,438   |                  |   | 3,595 
|Latin America |  |                        | 3,590   |                  |   | 922   
|              |  |                        |         |                  |   |       
|Total         |  | $                      | 118,297 |                  | $ | 98,609
|              |  |                        |         |                  |   |       



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Property, plant and equipment, net by geographic region is as follows:



|              |  |                  |        |                  |   |       
|------------- |  | ---------------- | ------ | ---------------- | - | ------
|              |  | December 26,2003 |        | December 27,2002
|United States |  | $                | 19,193 |                  | $ | 25,469
|Europe        |  |                  | 722    |                  |   | 815   
|Other         |  |                  | 572    |                  |   | 567   
|              |  |                  |        |                  |   |       
|Total         |  | $                | 20,487 |                  | $ | 26,851
|              |  |                  |        |                  |   |       



|13. | GUARANTEES
|--- | ----------



As of December 26, 2003, 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 two-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 known 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 if unforeseen technical problems arise.



Changes in the Companys warranty liability during the twenty-six week period ended
December 26, 2003 are as follows:



|                                                                       |  |   |        |  
|---------------------------------------------------------------------- |  | - | ------ | -
|Balance as of June 27, 2003                                            |  | $ | 14,117 |  
|Warranties issued during the period                                    |  |   | 1,214  |  
|Settlements made during the period                                     |  |   | (1,298 | )
|Changes in the liability for pre-existing warranties during the period |  |   | 210    |  
|                                                                       |  |   |        |  
|Balance as of December 26, 2003                                        |  | $ | 14,243 |  
|                                                                       |  |   |        |  



|14. | SALE OF BANKRUPTCY TRADE CLAIMS
|--- | -------------------------------



The Company has filed unsecured claims in the bankruptcy cases of Adelphia and affiliates related to accounts receivable which were previously written-off in fiscal year
2002. On October 30, 2003, the Company entered into an agreement to sell substantially all of its pre-petition trade claims against Adelphia. Under the terms of the agreement, on November 4, 2003, the Company received $21,075 in an initial cash
payment with additional amounts being held in escrow pending the resolution of certain contingencies. The $21,075 received from this transaction was recorded as a component of other income in the condensed consolidated statements of operations for
the thirteen-week and twenty-six week periods ended December 26, 2003.



|15. | GOODWILL
|--- | --------



Goodwill was $17,272 and $15,034 as of December 26, 2003 and June 27, 2003, respectively. As of December 26, 2003 and June 27, 2003, goodwill was allocated by segment as follows:



|                                   |  |                  |        |              |   |       
|---------------------------------- |  | ---------------- | ------ | ------------ | - | ------
|                                   |  | December 26,2003 |        | June 27,2003
|Broadband Communications Products: |  |                  |        |              |   |       
|United States                      |  | $                | 2,048  |              | $ | 2,048 
|Europe                             |  |                  | 7,018  |              |   | 4,905 
|Asia                               |  |                  | 1,229  |              |   | 1,104 
|                                   |  |                  |        |              |   |       
|Total                              |  |                  | 10,295 |              |   | 8,057 
|                                   |  |                  |        |              |   |       
|Broadband Network Services:        |  |                  |        |              |   |       
|United States                      |  |                  | 6,977  |              |   | 6,977 
|                                   |  |                  |        |              |   |       
|Total                              |  | $                | 17,272 |              | $ | 15,034
|                                   |  |                  |        |              |   |       



The change in goodwill for the
twenty-six week period ended December 26, 2003 relates to fluctuations in foreign currency exchange rates used to translate the goodwill related to foreign subsidiaries at the balance sheet date.



16.    LEGAL PROCEEDINGS



Certain former security holders and employees of Convergence.com Corporation, a company that
was acquired in fiscal year 2000, filed claims against the Company in March 2001 alleging violations of state securities laws and certain other state law claims under a stock option plan. The complaint alleges that the damages suffered by the
individuals approximate $2,130, which is based on the number of stock options multiplied by the highest price of the Companys common stock since the acquisition, and does 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 assets claims for treble damages, and 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. The plaintiffs have a period of time for which they can appeal the decision.



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|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.net Corp. as of December 26, 2003, and the results of our operations for the thirteen-week and
twenty-six week periods ended December 26, 2003, compared with 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 27,
2003, 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 expand our product offerings, fluctuations in demand for telecommunications equipment and broadband management services, fluctuations in network upgrade activity and the level of future network upgrade activity, the trend
toward more fiber in the network, global demand for our products and services, our ability to expand our operations internationally, including the impact of the Philips Broadband Networks (PBN) acquisition, our assessment of credit risk related to
major customers, and statements relating to our business strategy. 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 uncertainties, many of which we are not aware. 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, continued industry consolidation, the development of competing technologies, 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, 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 design, manufacture, and market network distribution and transmission products and
provide services and operational support systems to operators of advanced hybrid fiber coax broadband networks. We operate in three industry segments: Broadband Communications Products, Broadband Network Services, and Broadband Management Solutions.



Our Broadband Communications Products division is responsible for research,
development, management, production, support, and sales of advanced fiber optic and radio frequency equipment. Our Broadband Network Services division provides outsourced technical services, including network engineering and design, construction,
activation, optimization, certification, maintenance, and operations. Our Broadband Management Solutions division is responsible for the development, integration, management, implementation, support, and sales of operational support systems that
focus on network services management and mobile workforce management solutions.



Overview of Financial Condition and Results of Operations



Net sales in the thirteen weeks ended December 26, 2003 were $61.5 million, an increase of 14% over the $54.0 million recorded in the same
period a year earlier. Bookings were $60.6 million for a book-to-bill ratio of .99, currently reflecting steady overall demand for our products and services. We generally recognize revenue on sales of equipment when they are shipped, on sales of
services as they are rendered in accordance with the terms of contracts, and on sales of software upon customer acceptance using the completed contract method. Sales of equipment are typically based on purchase orders and a substantial proportion of
equipment sales are quick-turn orders that are received and fulfilled in the same quarter. Sales of services and software are typically based on longer-term contracts.



Software sales in the Broadband Management Solutions segment were particularly strong in the second quarter of fiscal year 2004 at $6.2
million, compared to $1.3 million in the same period a year earlier, a gain of 368%. This business is in the early stages of development and its sales are characterized by large one-time system deployments where revenue is recognized using the
completed contract method upon customer acceptance. As a result, sales in this segment are likely to fluctuate significantly quarter to quarter for the foreseeable future and introduce greater volatility to our operating results than has been
typical in the past, when the main source of volatility was the high proportion of quick-turn equipment sales.



The level of software sales in the first two quarters of fiscal year 2004 illustrates the volatility of the Broadband Management Solutions segment. Software sales in the first quarter were $283,000 and in the second
quarter they were $6.2 million. For the third quarter of fiscal year 2004, we anticipate that software sales will be approximately $3 million and for the fourth quarter of fiscal year 2004, software sales could range between $1 million and $3
million. The level of software sales in the fourth quarter is dependent on the timing of new orders and the subsequent completion of delivery and customer acceptance on which revenue recognition would be



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based. Since the gross margins associated with software sales are substantially higher than our average gross margins, fluctuations in quarterly software
sales have a disproportionate effect on operating results and earnings per share.



In October 2003, we also entered into an agreement to sell substantially all of our pre-petition bankruptcy trade claims against Adelphia Communications and affiliates. We received $21.1 million in an initial cash payment that was recorded
as other income in the quarter. Additional amounts are being held in escrow pending the resolution of certain contingencies and we could receive up to an additional $10 million. For the twenty-six week period ended December 26, 2003 we generated
$39.1 million in cash from operating activities, including the $21.1 million in proceeds from the sale of the Adelphia trade claims. Excluding the $21.1 million in proceeds from the trade claim, we generated $18.0 million in cash from operations
compared to $2.6 million in the twenty-six weeks ended December 27, 2002. This improvement in cash flow from operations, together with the proceeds from the sale of the Adelphia trade claims, have strengthened our financial condition and liquidity.



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Results of Operations



The following table contains information regarding the percentage to net sales of our condensed consolidated statements of operations for
the thirteen-week and twenty-six week periods ended December 26, 2003 and December 27, 2002.



|                                                       |  |                          |   |  |                        |    |  |                  |   |  |                  |   
|------------------------------------------------------ |  | ------------------------ | - |  | ---------------------- | -- |  | ---------------- | - |  | ---------------- | --
|                                                       |  | Percentages of Net Sales |  
|                                                       |  | Thirteen Weeks Ended     |   |  | Twenty-six Weeks Ended |   
|                                                       |  | December 26,2003         |   |  | December 27,2002       |    |  | December 26,2003 |   |  | December 27,2002 |   
|Net sales:                                             |  |                          |   |  |                        |    |  |                  |   |  |                  |   
|Products                                               |  | 72.7                     | % |  | 85.3                   | %  |  | 77.1             | % |  | 85.6             | % 
|Services                                               |  | 27.3                     |   |  | 14.7                   |    |  | 22.9             |   |  | 14.4             |   
|                                                       |  |                          |   |  |                        |    |  |                  |   |  |                  |   
|Total net sales                                        |  | 100.0                    |   |  | 100.0                  |    |  | 100.0            |   |  | 100.0            |   
|                                                       |  |                          |   |  |                        |    |  |                  |   |  |                  |   
|Cost of sales:                                         |  |                          |   |  |                        |    |  |                  |   |  |                  |   
|Products                                               |  | 45.5                     |   |  | 64.8                   |    |  | 47.5             |   |  | 64.5             |   
|Services                                               |  | 16.7                     |   |  | 11.9                   |    |  | 15.9             |   |  | 12.4             |   
|                                                       |  |                          |   |  |                        |    |  |                  |   |  |                  |   
|Total cost of sales                                    |  | 62.2                     |   |  | 76.7                   |    |  | 63.4             |   |  | 76.9             |   
|                                                       |  |                          |   |  |                        |    |  |                  |   |  |                  |   
|Gross margin                                           |  | 37.8                     |   |  | 23.3                   |    |  | 36.6             |   |  | 23.1             |   
|                                                       |  |                          |   |  |                        |    |  |                  |   |  |                  |   
|Operating expenses:                                    |  |                          |   |  |                        |    |  |                  |   |  |                  |   
|Selling and administrative                             |  | 15.3                     |   |  | 23.1                   |    |  | 15.7             |   |  | 24.6             |   
|Research and product development                       |  | 8.5                      |   |  | 13.7                   |    |  | 8.9              |   |  | 14.0             |   
|Amortization of goodwill and other intangibles         |  | 0.9                      |   |  | 0.9                    |    |  | 0.9              |   |  | 0.8              |   
|Goodwill and other intangible assets impairment charge |  | 0.0                      |   |  | 0.0                    |    |  | 0.0              |   |  | 0.0              |   
|Acquired in-process technology charge                  |  | 0.0                      |   |  | 0.0                    |    |  | 0.0              |   |  | 1.6              |   
|Restructuring costs (recovery)                         |  | (0.2                     | ) |  | 0.0                    |    |  | 0.0              |   |  | 0.2              |   
|Total operating expenses                               |  | 24.5                     |   |  | 37.7                   |    |  | 25.5             |   |  | 41.2             |   
|                                                       |  |                          |   |  |                        |    |  |                  |   |  |                  |   
|Income (loss) from operations                          |  | 13.3                     |   |  | (14.4                  | )  |  | 11.1             |   |  | (18.1            | ) 
|                                                       |  |                          |   |  |                        |    |  |                  |   |  |                  |   
|Interest expense                                       |  | 0.0                      |   |  | 0.0                    |    |  | 0.0              |   |  | (0.2             | ) 
|Investment income                                      |  | 0.3                      |   |  | 0.2                    |    |  | 0.3              |   |  | 0.7              |   
|Foreign exchange gain (loss)                           |  | 1.0                      |   |  | 0.9                    |    |  | 0.6              |   |  | (1.2             | ) 
|Gain on sale of bankruptcy claim                       |  | 34.3                     |   |  | 0.0                    |    |  | 17.8             |   |  | 0.0              |   
|Other income, net                                      |  | 0.0                      |   |  | 0.0                    |    |  | 0.1              |   |  | 0.8              |   
|                                                       |  |                          |   |  |                        |    |  |                  |   |  |                  |   
|Income (loss) before income taxes                      |  | 48.9                     |   |  | (13.3                  | )  |  | 29.9             |   |  | (18.0            | ) 
|Income tax expense (benefit)                           |  | 0.6                      |   |  | (4.6                   | )  |  | 0.7              |   |  | (5.9             | ) 
|                                                       |  |                          |   |  |                        |    |  |                  |   |  |                  |   
|Net income (loss)                                      |  | 48.3                     | % |  | (8.7                   | )% |  | 29.2             | % |  | (12.1            | )%
|                                                       |  |                          |   |  |                        |    |  |                  |   |  |                  |   



Sales by Operating Segment:



The following table sets forth our net sales for the thirteen-week and
twenty-six week periods ended December 26, 2003 and December 27, 2002, for each of our operating segments (dollar amounts in millions):



|                                  |  |                      |      |   |                        |   |           |                  |      |  |                  |           |  |   |       |  |           |   |   |   |      |  |       |  
|--------------------------------- |  | -------------------- | ---- | - | ---------------------- | - | --------- | ---------------- | ---- |  | ---------------- | --------- |  | - | ----- |  | --------- | - | - | - | ---- |  | ----- | -
|                                  |  | Thirteen Weeks Ended |      |   | Twenty-six Weeks Ended |  
|                                  |  | December 26,2003     |      |   | December 27,2002       |   |           | December 26,2003 |      |  | December 27,2002 |          
|                                  |  | Net Sales            |      | % |                        |   | Net Sales |                  | %    |  |                  | Net Sales |  | % |       |  | Net Sales |   | % |  
|Operating Segment                 |  |                      |      |   |                        |   |           |                  |      |  |                  |           |  |   |       |  |           |   |   |   |      |  |       |  
|Broadband Communications Products |  | $                    | 44.7 |   | 72.7                   | % |           | $                | 46.1 |  | 85.3             | %         |  | $ | 91.3  |  | 77.1      | % |   | $ | 84.4 |  | 85.6  | %
|Broadband Network Services        |  |                      | 10.6 |   | 17.2                   |   |           |                  | 6.6  |  | 12.2             |           |  |   | 20.5  |  | 17.3      |   |   |   | 12.6 |  | 12.8  |  
|Broadband Management Solutions    |  |                      | 6.2  |   | 10.1                   |   |           |                  | 1.3  |  | 2.5              |           |  |   | 6.5   |  | 5.6       |   |   |   | 1.6  |  | 1.6   |  
|                                  |  |                      |      |   |                        |   |           |                  |      |  |                  |           |  |   |       |  |           |   |   |   |      |  |       |  
|                                  |  | $                    | 61.5 |   | 100.0                  | % |           | $                | 54.0 |  | 100.0            | %         |  | $ | 118.3 |  | 100.0     | % |   | $ | 98.6 |  | 100.0 | %
|                                  |  |                      |      |   |                        |   |           |                  |      |  |                  |           |  |   |       |  |           |   |   |   |      |  |       |  



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Net sales for the thirteen-week period ended December 26, 2003 were $61.5 million, an increase of 14% from the prior
years sales of $54.0 million for the same period. The increase was primarily attributable to services revenues, which include both software sales and technical services. Net sales for the twenty-six-week period ended December 26, 2003 were
$118.3 million, an increase of 20% from the prior years sales of $98.6 million for the same period. Revenues year-to-date have increased in each of the Companys three operating segments. The increase was a result of capital spending and
system upgrades of certain customers, primarily Adelphia, which positively affected both product and technical services revenues during the period, and increased spending on operational support software solutions.



Broadband Communications Products segment sales decreased by 3% to $44.7 million during the
thirteen-week period, compared to $46.1 million for the same period of the prior year. Broadband Communications Products segment sales increased by 8% to $91.3 million during the twenty-six week period ended December 26, 2003, compared to $84.4
million for the same period of the prior year. The sales decrease for the quarter resulted from a decline in spending by certain domestic and European cable operators, which were partially offset by increased sales to Adelphia to support system
upgrades during the period. The sales increase for the year-to-date period was largely attributable to upgrade spending by cable operators, primarily Adelphia, to rebuild portions of their networks. Optical product sales were $18.3 million and $40.2
million for the thirteen-week and twenty-six week periods ended December 26, 2003, compared to $20.5 million and $38.5 million for the same periods of the prior year. Sales of radio frequency amplifiers were $26.4 million and $51.1 million for the
thirteen-week and twenty-six week periods ended December 26, 2003, compared to $25.6 million and $45.9 million for the same periods of the prior year. Broadband Communications Products sales are dependent on the capital spending levels of its
customers which are driven by investment required to support information services such as Internet, telephony, video-on-demand and high definition television, and by maintenance of existing networks.



Broadband Network Services segment sales increased by 61% to $10.6 million during the
thirteen-week period ended December 26, 2003, compared to $6.6 million for the same period of the prior year. Broadband Network Services segment sales increased by 63% to $20.5 million during the twenty-six week period ended December 26, 2003,
compared to $12.6 million for the same period of the prior year. The increase for both the quarter and year-to-date periods resulted primarily from increased spending by Adelphia for technical services related to network upgrades.



Broadband Management Solutions segment sales increased to $6.2 million during the
thirteen-week period ended December 26, 2003, compared to $1.3 million for the same period of the prior year. Broadband Management Solutions segment sales increased to $6.5 million during the twenty-six week period ended December 26, 2003, compared
to $1.6 million for the same period of the prior year. The sales increase during the quarter and year-to-date periods was a result of customer acceptance for various network and workforce management software projects during the period. The
Companys software revenues are recognized on a completed contract basis. As a result of the revenue recognition policy for our Broadband Management Solutions segment, sales are likely to fluctuate quarter to quarter, based upon the timing of
customer acceptance related to deployments and service delivery. Based on scheduled customer acceptances, the Company anticipates lower software sales in the third and fourth quarters of fiscal year 2004.



Domestic sales as a percentage of consolidated sales were 74% for both the thirteen-week and
twenty-six week periods ended December 26, 2003, compared to 70% and 73% for the same periods of the prior year. Sales to domestic customers increased by 20% to $45.3 million during the thirteen-week period ended December 26, 2003, compared to $37.6
million for the same period of the prior year. Sales to domestic customers increased by 22% to $87.9 million during the twenty-six week period ended December 26, 2003, compared to $71.8 million for the same period of the prior year. The increase for
the quarter resulted primarily from growth in Broadband Management Solutions segment sales of network and workforce management software, and in Broadband Network Services segment sales due to increased spending for technical services for network
upgrades. The increase year-to-date is also a result of the aforementioned increase in sales of software and services, in addition to an increase in Broadband Communications Products sales resulting from increased capital expenditures by certain
cable operators during the period.



International sales as a percentage of
total consolidated sales were 26% for both the thirteen-week and twenty-six week periods ended December 26, 2003, compared to 30% and 27% for the same periods of the prior year. Sales to international customers remained relatively flat at $16.3
million for the thirteen-week period ended December 26, 2003, compared to $16.4 million for the same period in the prior year. Sales to international customers increased by 13% to $30.4 million for the twenty-six week period ended December 26, 2003,
compared to $26.9 million for the same period in the prior year. Increased Broadband Communications Products segment sales to Latin America and Asia were offset by lower sales in Canada and Europe during the quarter and year-to-date periods. The
international markets represent distinct markets in which capital spending decisions for hybrid fiber coax network equipment are affected by a variety of factors, including access to financing and general economic conditions.



At December 26, 2003, our backlog of orders was $57.2 million, including $24.5 million for
Broadband Communications Products, $27.7 million for Broadband Network Services, and $5.0 million for Broadband Management Solutions. By comparison, backlog at the beginning of the quarter (September 26, 2003) was $58.2 million, including $25.2
million for Broadband Communications Products, $23.1 million for Broadband Network Services, and $9.9 million for Broadband Management Solutions. Our backlog increased in Broadband Network Services due to increased booking of system upgrade work,
primarily to Adelphia, during the quarter. The decline in backlog for Broadband Management Solutions resulted from the revenue recognized during the quarter and



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lower new software bookings during the period. 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 the Broadband Communications Products division will result in revenue over the next six months while orders in backlog of the other two divisions typically include a substantial
proportion that will result in revenue over the latter part of the twelve month period.



Gross margins were 37.8% and 36.6% for the thirteen-week and twenty-six week periods ended December 26, 2003, compared to 23.3% and 23.1% for the same periods of the prior year. For the Broadband Communications Products segment, gross
margins were 37.3% and 38.3% for the thirteen-week and twenty-six week periods ended December 26, 2003, compared to 24.1% and 24.7% for the same periods of the prior year. The increases in Broadband Communications Products segment gross margins were
due to reduced operating costs resulting from the closing of our Manlius, New York manufacturing facility in the fourth quarter of fiscal year 2003, and shifts in product mix. In addition, the results year-to-date included the sale of approximately
$2.2 million of inventory that was previously fully reserved, resulting from unanticipated demand for certain products that consumed inventory previously identified as either obsolete or excess. For the Broadband Network Services segment, gross
margins were 16.2% and 17.7% for the thirteen-week and twenty-six week periods ended December 26, 2003, compared to 17.8% and 18.5% for the same periods of the prior year. Although sales volume increased during the current quarter and year-to-date
periods, gross margins declined due to start-up costs for projects that began during the periods. For the Broadband Management Solutions segment, gross margins were 77.7% and 71.0% for the thirteen-week and twenty-six week periods ended December 26,
2003, compared to 22.4% and (22.6%) for the same periods of the prior year. The increased gross margins for both the quarter and year-to-date periods were a result of the higher revenue recognized on network and workforce management software, due to
the timing of customer acceptances. We anticipate that our future gross margin will continue to be affected by many factors, including revenue levels in general, sales mix, competitive pricing, the timing of new product introductions and the timing
of deployments of our operational support services solutions, because the majority of these contracts are being accounted for on a completed contract basis, which is based on the timing of acceptance by the customer.



Selling and administrative expenses were $9.4 million (15.3% of net sales) for the
thirteen-week period ended December 26, 2003, compared to $12.5 million (23.1% of net sales) for the same period of the prior year. Selling and administrative expenses were $18.6 million (15.7% of net sales) for the twenty-six week period ended
December 26, 2003, compared to $24.3 million (24.6% of net sales) for the same period of the prior year. Selling and administrative expenses decreased during the thirteen-week period ended December 26, 2003, compared to the same period of the prior
year, as a result of the collection of $1.6 million in delinquent accounts receivable that were previously reserved for, and decreases in personnel and administrative expense due to reductions in our workforce implemented in fiscal year 2003 to
achieve a more favorable cost structure. Selling and administrative expenses decreased during the twenty-six week period ended December 26, 2003, compared to the same period of the prior year, as a result of the settlement of a liability related to
certain marketing costs for $700,000 less than its recorded value, the collection of delinquent accounts receivable that were previously reserved for, and decreases in personnel and administrative expense due to reductions in our workforce
implemented in fiscal year 2003 to achieve a more favorable cost structure.



Research and product development expenses were $5.2 million (8.5% of net sales) for the thirteen-week period ended December 26, 2003, compared to $7.4 million (13.7% of net sales) for the same period of the prior year. Research and product
development expenses were $10.5 million (8.9% of net sales) for the twenty-six week period ended December 26, 2003, compared to $13.8 million (14.0% of net sales) for the same period of the prior year. Research and product development expenses in
the Broadband Communications Products segment were $4.0 million and $8.1 million for the thirteen-week and twenty-six week periods ended December 26, 2003, compared to $5.8 million and $10.7 million for the same periods of the prior year. The
decreases were primarily due to lower personnel costs resulting from workforce reductions to achieve a more favorable cost structure. Research and product development expenses in the Broadband Management Solutions segment were $1.1 million and $2.1
million for the thirteen-week and twenty-six week periods ended December 26, 2003, compared to $1.4 million and $2.8 million for the same periods of the prior year. The decreases were primarily due to lower personnel costs resulting from workforce
reductions and lower expenses for the development of operational support solutions. Other research and product development expenses, not charged to segments, were $144,000 and $282,000 for the thirteen-week and twenty-six week periods ended December
26, 2003, compared to $168,000 and $301,000 for the same periods of the prior year. We believe continued commitment to product development efforts will be required for us to remain competitive, and anticipate continuing investments in research and
product development expenses in future periods related to ongoing initiatives in the development of network distribution and transmission products and operational support software solutions.



Operating income (excluding unallocated items) for the Broadband Communications Products
segment was $11.6 million and $24.2 million for the thirteen-week and twenty-six week periods ended December 26, 2003, compared to operating income of $2.1 million and $3.8 million for the same periods of the prior year. The increase in operating
income for the quarter and year-to-date periods ended December 26, 2003 was primarily attributable to the increase in gross margins, reductions in our allowance for doubtful accounts due to collections of past due receivables, and lower operating
expenses resulting from improvements in our cost structure. In addition, the consumption of obsolete and excess inventories previously fully reserved for, and the settlement of a liability for an amount below its recorded value impacted the current
year-to-date period favorably. Operating income (excluding unallocated items) for the Broadband Network Services segment was $511,000 and $1.7 million for the thirteen-week and twenty-six week periods ended December 26, 2003, compared to operating
income of $239,000 and $565,000 for the same periods of the prior year. The increase in operating income for the quarter and year-to-date periods resulted primarily from the higher sales volume. Operating income (excluding unallocated items) for the
Broadband Management Solutions segment was $2.9 million and $924,000 for the thirteen-week



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and twenty-six week periods ended December 26, 2003, compared to operating losses of $2.1 million and $5.2 million for the same periods of the prior year.
The increase in the operating income for this segment resulted primarily from the increase in revenue recognized on network and workforce management software, and lower research and development costs for operational support solutions.



Interest expense was immaterial for the thirteen-week periods ended December 26, 2003 and
December 27, 2002. Interest expense was $41,000 for the twenty-six week period ended December 26, 2003, compared to $236,000 for the same period of the prior year. The decrease in interest expense on a year-to-date basis resulted from a $200,000
imputed interest charge incurred in the prior year period related to the PBN acquisition.



Investment income was $216,000 for the thirteen-week period ended December 26, 2003, compared to $138,000 for the same period of the prior year. Investment income was $310,000 for the twenty-six week period ended
December 26, 2003, compared to $729,000 for the same period of the prior year. The changes in investment income result primarily from fluctuations in our average investment balances during the quarter and year-to-date periods, compared to the same
periods a year ago.



Foreign exchange gain was $624,000 for the thirteen-week
period ended December 26, 2003, compared to a gain of $468,000 for the same period of the prior year. Foreign exchange gain was $733,000 for the twenty-six week period ended December 26, 2003, compared to a loss of $1.2 million for the same period
of the prior year. The gain for the thirteen-week period was due primarily to a continued weakening in the US dollar against the Euro, and resulted primarily from remeasurement of U.S. dollar denominated liabilities held by our foreign operations.
For the year-to-date period, the foreign exchange loss in the prior year included a $1.6 million loss related to the settlement of a foreign exchange forward contract.



Other income, net was immaterial for the thirteen-week periods ended December 26, 2003 and December 27, 2002. Other income, net was $72,000
for the twenty-six week period ended December 26, 2003, compared to other income, net of $756,000 for the same period of the prior year. Other income, net for the prior year period included an $800,000 partial recovery on a note receivable from a
third party that had been fully reserved for by the Company.



Income tax
expense was $367,000 for the thirteen-week period ended December 26, 2003, compared to an income tax benefit of $2.5 million for the same period of the prior year. Income tax expense was $778,000 for the twenty-six week period ended December 26,
2003, compared to an income tax benefit of $5.8 million for the same period of the prior year. Income taxes for the quarter and year-to-date periods relate to certain foreign operations where it is expected that income will be subject to tax. The
Company has assessed the realizability of its deferred tax assets, giving consideration to historical operating losses, scheduled reversals of deferred tax liabilities, projected future taxable income and tax planning strategies. As a result of the
cumulative losses over the past three years, management concluded during the third quarter of fiscal year 2003 that a valuation allowance against net deferred tax assets was appropriate and recorded an allowance as of that date. As of December 26,
2003, realization of any future benefit from deductible temporary differences, net operating loss and tax credit carryforwards is uncertain. Therefore, the Company has continued to record a valuation allowance for the full amount of its net deferred
tax assets, with the exception of certain net deferred tax assets in specific foreign jurisdictions. We expect to record valuation allowances related to net tax benefits arising from temporary differences and operating loss carryforwards until a
level of profitability is sustained that demonstrates it is more likely than not that the Company will be able to realize all or part of the tax benefits represented by the deferred tax assets.



Liquidity and Capital Resources



As of December 26, 2003, cash and cash equivalents totaled $64.0 million, up from $22.6
million at June 27, 2003.



As of December 26, 2003, we had restricted cash of
$2.0 million. Our restricted cash represents an arrangement with a bank whereby a cash compensating balance is maintained to secure certain letters of credit issued on behalf of the Company. The total cash compensating balance has been classified as
a current asset as of December 26, 2003, as the terms for the letters of credit expire in less than one year. We are entitled to the interest earnings on our restricted cash balance.



Working capital was $80.8 million at December 26, 2003, compared to $37.6 million at June 27, 2003. The increase in working capital was
primarily attributable to cash proceeds received on the sale of our bankruptcy trade claims against Adelphia and its affiliates, as well as increased cash generated from operations and financing activities during the period.



Net cash provided by operating activities was $39.1 million for the twenty-six week period
ended December 26, 2003, compared with $2.6 million for the same period of the prior year. The major elements of the change for the twenty-six week period ended December 26, 2003 included net income for the period of $34.5 million, which includes
$21.1 million from the sale of our bankruptcy trade claim with Adelphia and its affiliates, and reductions in inventory, which were offset by increases in accounts receivables and reductions in accounts payable.



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Net cash used in investing activities was $851,000 for the twenty-six week period ended December 26, 2003, compared to
cash used in investing activities of $79.3 million for the same period of the prior year. Cash used in the current year period was for the purchase of property, plant and equipment. The cash used in investing activities during the same period of the
prior year was comprised primarily of $73.4 million of cash for the acquisition of PBN assets and operations, $3.6 million for the payment of an earnout provision associated with our Aerotec Communications, Inc. acquisition, and $2.3 million for the
purchase of property, plant and equipment.



Net cash provided by financing
activities was $2.4 million for the twenty-six week period ended December 26, 2003, compared with cash used in financing activities of $62,000 for the same period of the prior year. The current year activity primarily represented proceeds from the
exercise of stock options and warrants.



The Company has a two-year secured
revolving credit financing agreement with a commercial lender. Borrowings under the financing agreement may be used for working capital and general corporate purposes. The financing agreement provides a commitment of up to an aggregate amount of
$20.0 million. The financing agreement allows for the issuance of letters of credit and cash borrowings. Letters of credit outstanding are limited to no more than $6.0 million. Cash borrowings are limited by certain availability reserves and a
borrowing base, primarily a percentage of eligible domestic trade accounts receivables, up to the facilitys maximum availability less letters of credit outstanding.



As security for the financing agreement, the Company has pledged the following collateral: trade accounts receivable, inventory, general
intangibles, real estate, equipment, life insurance policies, and a portion of the stock of a wholly owned foreign subsidiary. The financing agreement contains a number of restrictive covenants, including covenants limiting incurrence of
subordinated debt, disposal of collateral, and the payment of dividends (except stock dividends). The financing agreement contains no financial covenants.



The financing agreement is committed through November 6, 2004. Borrowings under the financing agreement bear interest at an applicable bank rate or LIBOR plus two and
three-quarters percent (2.75%) per annum, payable monthly. The financing agreement required the payment of a facility fee of $150,000 at execution and requires a fee on the unused commitment of 0.375% per annum payable monthly, and an administrative
fee of $36,000 per annum. As of December 26, 2003, the Company had no borrowings outstanding on the financing agreement and letters of credit for $950,000 have been issued related to requirements under our workers compensation policies. Based upon
the eligible borrowing base at December 26, 2003, available borrowings under the financing agreement were $10.4 million.



As a condition for closing on the financing agreement, the Company terminated its prior credit agreement with a bank, except that the Company continues to maintain
letters of credit with the bank related to our workers compensation program, customer obligations, and equipment lease obligations. As of December 26, 2003, the aggregate amount of the letters of credit was $2.0 million. We are required to maintain
cash deposits of $2.0 million as collateral for these letters of credit.



Working Capital Outlook



Our main source of
liquidity is our unrestricted cash on hand. We believe that restructuring initiatives completed in fiscal year 2003, including the closing of our Manlius, New York manufacturing facility and our Louviers, France operation, have produced cash savings
during the twenty-six week period ended December 26, 2003. We intend to continue our initiatives to achieve more cost-effective operations throughout fiscal year 2004. Although no specific restructuring actions are planned at the present time, if a
decline in spending occurs in the cable industry, we may undertake additional restructuring initiatives and incur expenses in amounts that have not yet been determined.



We believe that current cash and cash equivalents balances, as well as our financing agreement, will be adequate to cover our operating cash
requirements over the next 12 months. However, we may find it necessary or desirable to seek other sources of financing to support our capital needs and provide available funds for working capital, or financing strategic initiatives, including
acquiring or investing in complementary businesses, products, services, or technologies. Given the current status of the communications industry and its impact on our near term financial results and the restrictions in the financing agreement, we
believe there are limited alternatives available as sources of additional financing. Accordingly, any plan to raise additional capital would likely involve equity-based financing, such as the issuance of common stock, preferred stock, or
subordinated convertible debt securities and warrants under the Companys previously filed shelf registration statement, which would be dilutive to existing shareholders.



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|Item 3. | Quantitative and Qualitative Disclosures About Market Risk
|------- | ----------------------------------------------------------



Market risk represents the risk of loss that may impact the financial position, results of operations, or cash flow of the Company due to adverse changes in market
prices, foreign currency exchange rates, and interest rates. The Company is exposed to market risk because of changes in foreign currency exchange rates and interest rates, and changes in the fair market value of its marketable securities portfolio.



The Company is exposed to foreign currency exchange rate risks inherent in its
sales commitments, anticipated sales, and assets and liabilities denominated in currencies other than the United States dollar. We attempt to minimize exposure to currencies by managing our operating activities and net asset positions. As of
December 26, 2003, our exposure to foreign currencies related primarily to intercompany foreign currency transactions where settlement is anticipated, as well as the additional consideration that is owed related to the acquisition of PBN. The final
purchase price consideration of 604,000 Euros for the PBN acquisition was paid as of January 7, 2004.



The Company does not use derivative instruments in its marketable securities portfolio. The Company classifies its investments in its marketable securities portfolio as either available-for-sale or trading, and
records them at fair value. For the Companys available-for-sale securities, unrealized holding gains and losses are excluded from income and are recorded directly to shareholders equity in accumulated other comprehensive income, net of
related deferred income taxes. For the Companys trading securities, unrealized holding gains and losses are included in the statement of operations in the period they arise. Changes in interest rates are not expected to have a material effect
on our financial condition or results of operations.



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|Item 4. | Controls and Procedures
|------- | -----------------------



|(a) | Evaluation of disclosure controls and procedures
|--- | ------------------------------------------------



Our chief executive officer and our chief financial officer, after evaluating our disclosure controls and procedures (as defined in the Securities Exchange
Act of 1934 (the Exchange Act) Rules 13a-15(e) and 15d-15(e)) as of December 26, 2003, have concluded that as of December 26, 2003, our disclosure controls and procedures are effective to ensure that information we are required to
disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms.



|(b) | Changes in Internal Controls
|--- | ----------------------------



Subsequent to December 26, 2003, there were no significant changes in our internal controls or in other factors that could significantly affect our disclosure controls
and procedures, nor were there any significant deficiencies or material weaknesses in our internal controls. As a result, no corrective actions were required or undertaken.



The Company has undertaken a broad review of its internal controls over financial reporting as part of its compliance initiatives with
Section 404 of the Sarbanes-Oxley Act. As a result of this review, the Company has made enhancements to its control environment, and will continue to do so, on an ongoing basis.



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PART II. OTHER INFORMATION



|Item 1. | Legal Proceedings
|------- | -----------------



Certain former security holders and employees of Convergence.com Corporation, a company that was acquired in fiscal year 2000, filed claims against the Company in March 2001 alleging violations of state securities
laws and certain other state law claims under a stock option plan. The complaint alleges that the damages suffered by the individuals approximate $2.1 million, which is based on the number of stock options multiplied by the highest price of the
Companys common stock since the acquisition, and does 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 asserts 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. The plaintiffs have a period of time for which they can
appeal the decision.



|Item 4. | Submission of Matters to a Vote of Shareholders
|------- | -----------------------------------------------



The Companys annual meeting of shareholders was held on October 14, 2003. The record date was September 5, 2003, at which time there were 36,571,189 shares
outstanding and entitled to vote at the annual meeting. The following items were submitted to a vote by shareholders.



1. The election of four directors, three to serve for full terms expiring in 2006 and one to serve for the final year of a three-year term expiring in 2004.



2. Ratification of KPMG LLP as independent auditors for the 2004 fiscal year.



Michael J. Farrell and Rodney M. Royse were re-elected and Lance T. Shaner was elected as
directors to serve until the 2006 annual meeting of shareholders, and Anthony A. Ibarguen was elected as a director to serve until the 2004 annual meeting of shareholders.



The voting results for the matters noted above are set forth as follows:



| | 1. | The election of four directors, three to serve for full terms expiring in 2006 and one to serve for the final year of a three-year term expiring in 2004.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------



|                    |  |            |  |              
|------------------- |  | ---------- |  | -------------
|Name of Nominee     |  | Votes For  |  | Votes Against
|Michael J. Farrell  |  | 33,991,455 |  | 566,390      
|Rodney M. Royse     |  | 33,541,242 |  | 1,016,603    
|Lance T. Shaner     |  | 34,099,767 |  | 458,078      
|Anthony A. Ibarguen |  | 34,107,677 |  | 450,168      



| | 2. | Ratification of KPMG LLP as independent auditors for the 2004 fiscal year.
| | -- | --------------------------------------------------------------------------



|           |  |               |  |          
|---------- |  | ------------- |  | ---------
|Votes For  |  | Votes Against |  | Abstained
|29,904,091 |  | 4,577,278     |  | 76,476   



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



The following exhibits are included herein:



|        |  |                                                                                                                                                                                                                                                       
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        | 
|(10)(1) |  | Assignment of Claim Agreement, dated as of October 28, 2003, by and among C-COR.net Corp., in its own capacity and as successor by merger with Philips Broadband Networks, Inc., Broadband
Network Services, Inc. and Satellite Asset Management, L.P.
|        | 
|(10)(2) |  | Escrow Agreement, dated as of October 28, 2003, by and among C-COR.net Corp., in its own capacity and as successor by merger with Philips Broadband Networks, Inc., Broadband Network Services,
Inc. and Satellite Asset Management, L.P.             
|        | 
|(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 135                                                                                                                                                        
|        | 
|(32)(2) |  | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 135                                                                                                                                                        



Reports on Form 8-K



On November 3, 2003, the Company filed a Form 8-K dated October 31, 2003, announcing that it
had entered into an agreement to sell substantially all of its pre-petition trade claims against Adelphia Communication Corporation and its affiliates.



On November 14, 2003, the Company filed a Form 8-K dated November 14, 2003, announcing it was holding an Analyst Day at its Headquarters, and to file the related
informational materials.



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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. NET CORP. (Registrant)                                  
|                       |  | 
|Date: February 6, 2004 |  |  |  | /s/ DAVID A. WOODLE                                            
|                       |  |  |  |                                                                
|                       |  |  |  | Chief Executive Officer                                        
|                       |  | 
|Date: February 6, 2004 |  |  |  | /s/ WILLIAM T. HANELLY                                         
|                       |  |  |  |                                                                
|                       |  |  |  | Chief Financial Officer (Principal
Financial Officer)          
|                       |  | 
|Date: February 6, 2004 |  |  |  | /s/ JOSEPH E. ZAVACKY                                          
|                       |  |  |  |                                                                
|                       |  |  |  | Controller & Assistant Secretary (Principal Accounting Officer)



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