##### Table of Contents

---

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: March 28, 2003
|                                                   |                                                                                         
|OR                                                
|                                                  
|o                                                  | 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 o
|----- | ----

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 - 36,409,460 shares as of April 28, 2003.

---



---

##### 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 March 28, 2003 and June 28, 2002                                                        |  | 3    
|Condensed Consolidated Statements of Operations:                                              |  |      
|Thirteen Weeks Ended March 28, 2003 and March 29, 2002                                        |  | 4    
|Condensed Consolidated Statements of Operations:                                              |  |      
|Thirty-nine Weeks Ended March 28, 2003 and March 29, 2002                                     |  | 5    
|Condensed Consolidated Statements of Cash Flows:                                              |  |      
|Thirty-nine Weeks Ended March 28, 2003 and March 29, 2002                                     |  | 6    
|Notes to Condensed Consolidated Financial Statements                                          |  | 7-18 
|Item 2.
Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 19-27
|Item 3.
Quantitative and Qualitative Disclosures About Market Risk                            |  | 28   
|Item 4.
Controls and Procedures                                                               |  | 29   
|                                                                                              |  |      
|Part II --
OTHER INFORMATION                                                                  |  |      
|Item 4.
Submission of Matters to a Vote of Shareholders                                       |  | 30   
|Item 6.
Exhibits and Reports on Form 8-K                                                      |  | 30   
|Signatures                                                                                    |  | 31   
|Certifications                                                                                |  | 32-33



---

##### 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 March 28, 2003, the related condensed consolidated statements of operations for the thirteen-week and thirty-nine week periods
ended March 28, 2003 and March 29, 2002, and the related condensed consolidated statements of cash flows for the thirty-nine week periods ended March 28, 2003 and March 29, 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 to financial data 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 28, 2002, 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 9, 2002, except as to Note U, which is as of September 16, 2002, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated
balance sheet as of June 28, 2002, 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 | 
|April 18, 2003           | 

2



---

##### 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)

|                                                                                                                                        |  | March 28,  2003 |          | June 28, 2002 |  
|--------------------------------------------------------------------------------------------------------------------------------------- |  | --------------- | -------- | ------------- | -
|                                                                                                                                        |  |                 |          |               |  
|                                                                                                                                        |  | (Unaudited)     |          |               |  
|ASSETS                                                                                                                                  |  |                 |          |               |  
|Current assets                                                                                                                          |  |                 |          |               |  
|Cash and cash equivalents                                                                                                               |  | $               | 25,660   |               | $
|Restricted cash                                                                                                                         |  |                 | 2,602    |               |  
|Accounts and notes receivables, net                                                                                                     |  |                 | 36,410   |               |  
|Inventories                                                                                                                             |  |                 | 28,212   |               |  
|Refundable income taxes                                                                                                                 |  |                 |         |               |  
|Deferred taxes                                                                                                                          |  |                 |         |               |  
|Other current assets                                                                                                                    |  |                 | 4,682    |               |  
|                                                                                                                                        |  |                 |          |               |  
|Total current assets                                                                                                                    |  |                 | 97,566   |               |  
|Property, plant and equipment, net                                                                                                      |  |                 | 24,805   |               |  
|Goodwill and other intangible assets, net                                                                                               |  |                 | 38,165   |               |  
|Deferred taxes                                                                                                                          |  |                 |         |               |  
|Other long-term assets                                                                                                                  |  |                 | 3,301    |               |  
|                                                                                                                                        |  |                 |          |               |  
|Total assets                                                                                                                            |  | $               | 163,837  |               | $
|                                                                                                                                        |  |                 |          |               |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                    |  |                 |          |               |  
|Current liabilities                                                                                                                     |  |                 |          |               |  
|Accounts payable                                                                                                                        |  | $               | 21,674   |               | $
|Accrued liabilities                                                                                                                     |  |                 | 45,980   |               |  
|Current portion of long-term debt                                                                                                       |  |                 | 643      |               |  
|                                                                                                                                        |  |                 |          |               |  
|Total current liabilities                                                                                                               |  |                 | 68,297   |               |  
|Long-term debt, less current portion                                                                                                    |  |                 | 1,061    |               |  
|Other long-term liabilities                                                                                                             |  |                 | 1,970    |               |  
|                                                                                                                                        |  |                 |          |               |  
|Total liabilities                                                                                                                       |  |                 | 71,328   |               |  
|                                                                                                                                        |  |                 |          |               |  
|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 40,017,986 on March 28, 2003 and 39,945,219 on June 28,
2002 |  |                 | 2,001    |               |  
|Additional paid-in capital                                                                                                              |  |                 | 264,115  |               |  
|Accumulated other comprehensive income                                                                                                  |  |                 | 971      |               |  
|Accumulated deficit                                                                                                                     |  |                 | (140,229 | )             |  
|Treasury stock at cost, 3,645,339 shares as of March 28, 2003 and 3,629,506 shares as of June 28, 2002                                  |  |                 | (34,349  | )             |  
|                                                                                                                                        |  |                 |          |               |  
|Shareholders equity                                                                                                                    |  |                 | 92,509   |               |  
|                                                                                                                                        |  |                 |          |               |  
|Total liabilities and shareholders equity                                                                                              |  | $               | 163,837  |               | $
|                                                                                                                                        |  |                 |          |               |  

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

3



---

##### Table of Contents

C-COR.net Corp.CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) (Unaudited)

|                                                             |  | Thirteen Weeks Ended |         
|------------------------------------------------------------ |  | -------------------- | --------
|                                                             |  |                      |         
|                                                             |  | March 28, 2003       |         
|                                                             |  |                      |         
|Net sales                                                    |  | $                    | 50,100  
|Cost of sales                                                |  |                      | 56,303  
|                                                             |  |                      |         
|Gross margin                                                 |  |                      | (6,203  
|                                                             |  |                      |         
|Operating expenses:                                          |  |                      |         
|Selling and administrative                                   |  |                      | 13,741  
|Research and product development                             |  |                      | 7,640   
|Amortization of goodwill and other intangibles               |  |                      | 622     
|Acquired in-process technology charge                        |  |                      | (760    
|Goodwill impairment charge                                   |  |                      | 40,022  
|Restructuring costs (credits)                                |  |                      | 200     
|                                                             |  |                      |         
|Total operating expenses                                     |  |                      | 61,465  
|                                                             |  |                      |         
|Loss from operations                                         |  |                      | (67,668 
|Interest expense                                             |  |                      | (14     
|Investment income                                            |  |                      | 98      
|Foreign exchange gain                                        |  |                      | 49      
|Other income (expense), net                                  |  |                      | (216    
|                                                             |  |                      |         
|Income (loss) before income taxes                            |  |                      | (67,751 
|Income tax expense                                           |  |                      | 46,890  
|                                                             |  |                      |         
|Net income (loss)                                            |  | $                    | (114,641
|                                                             |  |                      |         
|Net income (loss) per share:                                 |  |                      |         
|Basic                                                        |  | $                    | (3.15   
|Diluted                                                      |  | $                    | (3.15   
|Weighted average common shares and common share equivalents: |  |                      |         
|Basic                                                        |  |                      | 36,365  
|Diluted                                                      |  |                      | 36,365  

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

4



---

##### Table of Contents

C-COR.net Corp.CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) (Unaudited)

|                                                             |  | Thirty-nine Weeks Ended |         
|------------------------------------------------------------ |  | ----------------------- | --------
|                                                             |  |                         |         
|                                                             |  | March 28,  2003         |         
|                                                             |  |                         |         
|Net sales                                                    |  | $                       | 148,709 
|Cost of sales                                                |  |                         | 132,119 
|                                                             |  |                         |         
|Gross margin                                                 |  |                         | 16,590  
|                                                             |  |                         |         
|Operating expenses:                                          |  |                         |         
|Selling and administrative                                   |  |                         | 37,997  
|Research and product development                             |  |                         | 21,446  
|Amortization of goodwill and other intangibles               |  |                         | 1,411   
|Acquired in-process technology charge                        |  |                         | 800     
|Goodwill impairment charge                                   |  |                         | 40,022  
|Restructuring costs                                          |  |                         | 398     
|                                                             |  |                         |         
|Total operating expenses                                     |  |                         | 102,074 
|                                                             |  |                         |         
|Loss from operations                                         |  |                         | (85,484 
|Interest expense                                             |  |                         | (250    
|Investment income                                            |  |                         | 827     
|Foreign exchange gain (loss)                                 |  |                         | (1,192  
|Other income (expense), net                                  |  |                         | 540     
|                                                             |  |                         |         
|Loss before income taxes                                     |  |                         | (85,559 
|Income tax expense (benefit)                                 |  |                         | 41,048  
|                                                             |  |                         |         
|Net loss                                                     |  | $                       | (126,607
|                                                             |  |                         |         
|Net loss per share:                                          |  |                         |         
|Basic                                                        |  | $                       | (3.48   
|Diluted                                                      |  | $                       | (3.48   
|Weighted average common shares and common share equivalents: |  |                         |         
|Basic                                                        |  |                         | 36,356  
|Diluted                                                      |  |                         | 36,356  

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

5



---

##### Table of Contents

C-COR.net Corp.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)

|                                                                             |  | Thirty-nine Weeks Ended |         
|---------------------------------------------------------------------------- |  | ----------------------- | --------
|                                                                             |  |                         |         
|                                                                             |  | March 28, 2003          |         
|                                                                             |  |                         |         
|Operating Activities:                                                        |  |                         |         
|Net loss                                                                     |  | $                       | (126,607
|Adjustments to reconcile net loss to net cash used in operating activities:  |  |                         |         
|Depreciation and amortization                                                |  |                         | 10,317  
|Acquired in-process technology charge                                        |  |                         | 800     
|Goodwill impairment charge                                                   |  |                         | 40,022  
|Loss on sale of property, plant and equipment                                |  |                         | 6       
|Tax benefit deriving from exercise and sale of stock option shares           |  |                         |        
|Changes in operating assets and liabilities, net of effect of acquisitions:  |  |                         |         
|Accounts and notes receivable                                                |  |                         | 12,635  
|Inventories                                                                  |  |                         | 23,559  
|Other assets                                                                 |  |                         | 8,840   
|Accounts payable                                                             |  |                         | (7,922  
|Accrued liabilities                                                          |  |                         | (8,651  
|Deferred retirement salary plan                                              |  |                         | 23      
|Deferred income taxes                                                        |  |                         | 40,864  
|                                                                             |  |                         |         
|Net cash used in operating activities                                        |  |                         | (6,114  
|                                                                             |  |                         |         
|Investing Activities:                                                        |  |                         |         
|Purchase of property, plant and equipment                                    |  |                         | (3,387  
|Proceeds from the sale of property, plant and equipment                      |  |                         | 12      
|Purchases of marketable securities and other short-term investments          |  |                         |        
|Proceeds from sale of marketable securities and other short-term investments |  |                         |        
|Acquisitions, net of cash acquired                                           |  |                         | (77,044 
|                                                                             |  |                         |         
|Net cash used in investing activities                                        |  |                         | (80,419 
|                                                                             |  |                         |         
|Financing Activities:                                                        |  |                         |         
|Payment of debt and capital lease obligations                                |  |                         | (192    
|Proceeds from issuance of common stock to employee stock purchase plan       |  |                         | 127     
|Proceeds from exercise of stock options and stock warrants                   |  |                         | 56      
|Proceeds from issuance of common stock, net                                  |  |                         |        
|Purchase of treasury stock                                                   |  |                         | (90     
|                                                                             |  |                         |         
|Net cash provided by (used in) financing activities                          |  |                         | (99     
|                                                                             |  |                         |         
|Effect of exchange rate changes on cash                                      |  |                         | 434     
|                                                                             |  |                         |         
|Increase (decrease) in cash and cash equivalents                             |  |                         | (86,198 
|Cash and cash equivalents at beginning of period                             |  |                         | 111,858 
|                                                                             |  |                         |         
|Cash and cash equivalents at end of period                                   |  | $                       | 25,660  
|                                                                             |  |                         |         
|Supplemental cash flow information:                                          |  |                         |         
|Non-cash investing and financing activities                                  |  |                         |         
|Fair value adjustment of available-for-sale securities                       |  | $                       | (9      

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

6



---

##### Table of Contents

C-COR.net Corp.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (in thousands except per share data)

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 March 28, 2003 and the
consolidated results of operations for the thirteen-week and thirty-nine week periods ended March 28, 2003 and March 29, 2002. Operating results for the thirteen-week and thirty-nine week periods ended March 28, 2003 are not necessarily indicative
of the results that may be expected for the year ending June 27, 2003, due to the cyclical nature of the industry in which the Company operates, fluctuations in currencies related to its foreign operations, 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 28, 2002.

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.  ACCOUNTING CHANGE AND ACCOUNTING PRONOUNCEMENTS

In August 2001, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (Statement 144), which supersedes both SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed of (Statement 121) and the accounting and reporting provisions of APB Opinion No. 30, Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions (Opinion 30), for the disposal of a segment of a business (as previously defined in that Opinion). Statement 144 retains the fundamental provisions in Statement 121 for recognizing and measuring
impairment losses on long-lived assets held for use and long-lived assets to be disposed of by sale, while also resolving significant implementation issues associated with Statement 121. For example, Statement 144 provides guidance on how a
long-lived asset that is used as part of a group should be evaluated for impairment, establishes criteria for when a long-lived asset is held for sale, and prescribes the accounting for a long-lived asset that will be disposed of other than by sale.
Statement 144 retains the basic provisions of Opinion 30 on how to present discontinued operations in the income statement but broadens that presentation to include a component of an entity (rather than a segment of a business). Unlike Statement
121, an impairment assessment under Statement 144 will never result in a write-down of goodwill. Rather, goodwill is evaluated for impairment under SFAS No. 142, Goodwill and Other Intangible Assets (Statement 142).

7



---

##### Table of Contents

The Company adopted Statement 144 effective June 29, 2002. The adoption of Statement 144 for long-lived assets held for use did not have a material impact on the consolidated
financial statements. The provisions of Statement 144 for assets held for sale or other disposal generally are required to be applied prospectively after the adoption date to newly initiated disposal activities.

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities (Statement 146), which replaces Emerging Issues Task Force No. 94-3, Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). Statement 146 requires companies to recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or disposal plan. The provisions of Statement 146 are effective for exit or disposal activities that are initiated after December 31, 2002.

In November 2002, the FASB issued Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others(the Interpretation),
which addresses the disclosure to be made by a guarantor in its interim and annual financial statements about its obligations under guarantees. The Interpretation also requires the recognition of a liability by a guarantor at the inception of
certain guarantees.

The Interpretation requires the guarantor to recognize a liability for the non-contingent component of the guarantee, which is the obligation to stand ready to perform in the
event that specified triggering events or conditions occur. The initial measurement of this liability is the fair value of the guarantee at inception. The recognition of the liability is required even if is not probable that payments will be
required under the guarantee or if the guarantee was issued with a premium payment or as part of a transaction with multiple elements.

The Company has adopted the disclosure requirements of the
Interpretation (see Note 15) and will apply the recognition and measurement provisions for all guarantees entered into or modified after December 31, 2002.

In December 2002, the FASB issued SFAS
No. 148, Accounting for Stock-Based Compensation  Transition and Disclosure (Statement 148).  The provisions of Statement 148 amend SFAS No. 123, Accounting for Stock Based Compensation (Statement 123), to provide
alternative methods of transitioning to a fair value-based method of accounting for stock-based employee compensation. In addition, Statement 148 also expands the disclosure requirements of Statement 123 by requiring more detailed disclosure in both
annual and interim financial statements. The Company adopted Statement 148 effective December 28, 2002. The transition provisions of Statement 148 did not have a material impact on the Companys financial results, as the Company did not adopt
the fair value-based accounting provisions of Statement 123 (see Note 16).

4.  BUSINESS COMBINATIONS

Fiscal Year 2003

On September 16, 2002, the Company acquired certain assets and liabilities of Philips Broadband Networks (PBN) from Royal Philips Electronics (Philips). PBN is a provider of broadband products, including
transmission products, network optimizing technologies, and element management systems. PBN is supported by sales and services organizations worldwide, with a strong customer base in Europe and the Asia Pacific region. The purchase included assets
in various countries, cable infrastructure products, and a design and production facility in Manlius, New York. These assets and the facility became part of the Companys Broadband Communications Products Division. The purchase of these net
assets and operations provided the Company with an opportunity to increase its customer and installed equipment base, primarily in the international markets of Europe and Asia, and to capitalize on the combined synergies of the Companys
skilled workforce, market focus, and product offerings. The purchase price for the acquisition was 79,950 Euros, which is subject to certain adjustments. During the quarter ended December 27, 2002, the Company announced

8



---

##### Table of Contents

the closing of its Manlius, New York and Louviers, France facilities, which were acquired as part of the PBN transaction (see Note 10).

The effective date of the acquisition was August 26, 2002 (PBNs fiscal month end). Accordingly, the results of operations of PBN are included in the consolidated financial statements from August 26, 2002. At closing on
September 16, 2002, the Company made an initial cash payment of 75,000 Euros ($72,507 U.S. dollars, which was net of $200 of imputed interest) to Royal Philips Electronics, with subsequent payments subject to certain adjustments. The Company
anticipates additional consideration to be paid of approximately $2,576 during the quarter ending June 27, 2003. In addition, the Company incurred direct transaction costs of approximately $1,263 to consummate the acquisition. The Company used its
available cash to fund the acquisition. The acquisition was accounted for as a purchase.

The excess of the purchase price and related costs over the fair value of the acquired net assets of the
business was recorded as goodwill. The following table summarizes the estimated fair value of the net assets acquired from Royal Philips Electronics, including goodwill, as of the effective date of the acquisition.

|Current assets                |  | $ | 33,653  |  
|----------------------------- |  | - | ------- | -
|Property, plant and equipment |  |   | 5,914   |  
|Other long-term assets        |  |   | 1,600   |  
|Intangible assets             |  |   | 5,100   |  
|Current liabilities           |  |   | (33,629 | )
|Goodwill                      |  |   | 63,708  |  
|                              |  |   |         |  
|Total purchase price          |  | $ | 76,346  |  
|                              |  |   |         |  

One of the acquired intangible assets was in-process research and development, representing
research and development projects that were commenced but not yet completed at the date of the acquisition, and which if unsuccessful, have no alternative future use in research and development activities or otherwise. The value allocated to
in-process research and development as of the acquisition date was $1,560 (subsequently adjusted to $800 based on a third-party valuation of certain intangible assets). The amount allocated to in-process research and development was charged to
expense as an acquired in-process technology charge in the condensed consolidated statement of operations during the thirty-nine week period ended March 28, 2003. A significant portion of the amount of the goodwill from the acquisition is expected
to be deductible for tax purposes. However, due to expected basis differences in the book versus tax purchase price allocation, which has not been completed to date, the amount of the goodwill which will be deductible has not yet been determined. As
part of the annual assessment that is required under Statement 142, the Company determined that the carrying value of the Broadband Communications Products Division exceeded its fair value, and an impairment charge of $40,022 was recorded during the
thirteen-week period ended March 28, 2003 (see Note 5).

As of March 28, 2003, the net book value of intangible assets with definite useful lives resulting from all of the Companys business
combinations was $4,486. These intangible assets are being amortized over their estimated useful life of 36 months. The weighted-average life remaining on these intangible assets is 24 months.

Pro
Forma

The following selected unaudited pro forma information is provided to present a summary of the combined results of the Companys operations, as if the acquisition of certain operations
of Philips and ADC Telecommunications, Inc.(ADC) had occurred as of June 30, 2001, after giving effect to purchase accounting adjustments. The pro forma data are for informational purposes only and may not necessarily reflect the results of
operations of the Company had the operations acquired from Philips and ADC operated as part of the Company for the thirty-nine weeks ended March 28, 2003 and March 29, 2002, respectively.

9



---

##### Table of Contents

|                                      |  | Thirty-nine Weeks Ended |         
|------------------------------------- |  | ----------------------- | --------
|                                      |  |                         |         
|                                      |  | March 28, 2003          |         
|                                      |  |                         |         
|Net sales                             |  | $                       | 163,241 
|Net loss                              |  | $                       | (125,575
|Net loss per share--basic and diluted |  | $                       | (3.45   

5.  GOODWILL AND IDENTIFIABLE INTANGIBLES

In June 2001, the FASB issued Statement 142. The Company adopted the provisions of Statement 142 effective June 29, 2002. As of the date of adoption, the Company had unamortized goodwill in the amount of $7,246 and unamortized
identifiable intangible assets in the amount of $1,597 that were subject to the transition provisions of Statement 142.  For purposes of applying Statement 142, management believes the Companys operating segments (Broadband Communications
Products, Broadband Network Services, and Broadband Management Solutions) represent the Companys reporting units, although there was no goodwill or intangible assets associated with Broadband Management Solutions as of the date of adoption or
as of March 28, 2003. The Company determined the carrying value of each reporting unit by assigning the assets and liabilities, including the existing goodwill and intangible assets, to those reporting units as of the date of adoption. The Company
then determined the fair value of each reporting unit. The fair value was determined based on an independent third party appraisal, using a discounted cash flow model.  As a result of this evaluation, the Company did not have an impairment of
goodwill as of June 29, 2002. The Company is required to reevaluate whether goodwill is impaired on an annual basis. The Company has selected the end of its third fiscal quarter of each year to reassess the value of its reporting units and related
goodwill balances, or at other times if events have occurred or circumstances exist that indicate the carrying amount of goodwill may not be recoverable. Accordingly, the Company reassessed whether goodwill was impaired as of March 28, 2003. 
The Company determined that the carrying value of the Broadband Communications Products reporting unit exceeded its fair value, which was determined from an independent third-party appraisal, and as such, an impairment charge of $40,022 has been
recorded during the thirteen-week period ended March 28, 2003. The decline in the fair value of the Broadband Communications Products reporting unit is largely attributable to the weakness in capital spending by cable operators in recent periods.
The Company has made an estimate of the value of other intangible assets not recorded on its balance sheet as of March 28, 2003, in order to allocate the fair value of the Broadband Communications Products reporting unit to both tangible and
intangible assets as of March 28, 2003.  The Company anticipates completing a third-party valuation of these unrecorded intangible assets during the fourth quarter ending June 27, 2003, and will adjust the goodwill impairment charge accordingly
in its fourth quarter operating results.  As of March 28, 2003, the Company has remaining goodwill associated with Broadband Communications Products and Broadband Network Services of $26,702 and $6,977, respectively.

The following information is provided to report what net income (loss) for the thirteen-week and thirty-nine week periods ended March 28, 2003 and March 29, 2002 would have been, exclusive of amortization expense
(including any related tax effects)recognized related to goodwill and intangible assets that are no longer being amortized as a result of the adoption of Statement 142:

|                                                          |  | Thirteen Weeks Ended |         
|--------------------------------------------------------- |  | -------------------- | --------
|                                                          |  |                      |         
|                                                          |  | March 28, 2003       |         
|                                                          |  |                      |         
|Reported net income (loss)                                |  | $                    | (114,641
|Add back: Goodwill and workforce amortization, net of tax |  |                      |        
|                                                          |  |                      |         
|Adjusted net income (loss)                                |  | $                    | (114,641
|                                                          |  |                      |         
|Basic and diluted net income (loss) per share:            |  |                      |         
|Reported net income (loss) per share                      |  | $                    | (3.15   
|Add back: Goodwill and workforce amortization, net of tax |  |                      |        
|                                                          |  |                      |         
|Adjusted net income (loss)                                |  | $                    | (3.15   
|                                                          |  |                      |         

10



---

##### Table of Contents

|                                                          |  | Thirty-nine Weeks Ended |         
|--------------------------------------------------------- |  | ----------------------- | --------
|                                                          |  |                         |         
|                                                          |  | March 28, 2003          |         
|                                                          |  |                         |         
|Reported net loss                                         |  | $                       | (126,607
|Add back: Goodwill and workforce amortization, net of tax |  |                         |        
|                                                          |  |                         |         
|Adjusted net loss                                         |  | $                       | (126,607
|                                                          |  |                         |         
|Basic and diluted net loss per share:                     |  |                         |         
|Reported net loss                                         |  | $                       | (3.48   
|Add back: Goodwill and workforce amortization, net of tax |  |                         |        
|                                                          |  |                         |         
|Adjusted net loss                                         |  | $                       | (3.48   
|                                                          |  |                         |         

6.  DEFERRED TAXES

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 income statement 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, management considers historical operating losses, scheduled reversals of deferred tax liabilities, projected future
taxable income and tax planning strategies.  As a result of the continued operating losses, a full valuation allowance in the amount of $46,890 was recorded in the thirteen-week period ending March 28, 2003 since realization of the benefit of
those tax assets was uncertain at that date.

7.  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 March 28, 2003 and June 28, 2002 consisted of the following:

|                  |  | March 28, 2003 |        | June 28, 2002 |  
|----------------- |  | -------------- | ------ | ------------- | -
|                  |  |                |        |               |  
|Finished goods    |  | $              | 8,625  |               | $
|Work-in-process   |  |                | 3,127  |               |  
|Raw materials     |  |                | 16,460 |               |  
|                  |  |                |        |               |  
|Total inventories |  | $              | 28,212 |               | $
|                  |  |                |        |               |  

In the quarter ended March 28, 2003, the Company recorded a charge of $18,109 related to
increasing its reserves for slow moving and obsolete inventory.  This increase reflected the reduced level of customer demand currently being experienced as well as the effect of product rationalization decisions made to eliminate product
overlaps resulting from the PBN acquisition and to move certain uneconomic products to end of life status.  Additionally, the Company refined its reserve estimation process to quantify inventory reserve requirements across all inventory
locations.

11



---

##### Table of Contents

8.  CREDIT AGREEMENT

On November 7, 2002, the Company entered into a new financing agreement with a commercial
lender. The new financing agreement is a two-year secured revolving credit facility, to be used for working capital and general corporate purposes, and provides an initial commitment up to an aggregate amount of $20,000. The financing agreement
allows for 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 certain 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, a fee on the unused commitment of 0.375% per annum payable monthly, and an administrative fee of $36 per annum.  As of March 28, 2003, the
Company had no borrowings outstanding under the financing agreement.  Based upon the eligible borrowing base at March 28, 2003, available borrowings under the financing agreement were $15,262.

As a condition to closing on the new financing agreement, the Company terminated its prior credit agreement with a bank, whereby $7,500 was available as a revolving line-of-credit, subject to an aggregate sub-limit of $5,000
for issuance of letters of credit. The Company continues to maintain letters of credit with the bank in the aggregate of $2,255 as of March 28, 2003 related to our workers compensation program, customer obligations, and equipment lease
obligations.  A cash compensating balance of $2,972 is maintained to secure the letters of credit.  Of the total cash compensating balance, $2,602 has been classified as a current asset as of March 28, 2003, as the terms for the letters of
credit expire in less than one year.  An additional $370 has been classified as part of other long-term assets, as it is security for a letter of credit with a term of greater than one year. Under the new financing agreement, a letter of credit
has been issued for $600 related to increased requirements under our workers compensation policy.

9.  ACCRUED LIABILITIES

Accrued
liabilities as of March 28, 2003 and June 28, 2002 consisted of the following:

|                                                    |  | March 28, 2003 |        | June 28, 2002 |  
|--------------------------------------------------- |  | -------------- | ------ | ------------- | -
|                                                    |  |                |        |               |  
|Accrued employee benefit expense                    |  | $              | 1,208  |               | $
|Accrued vacation expense                            |  |                | 2,922  |               |  
|Accrued salary expense                              |  |                | 2,418  |               |  
|Accrued warranty expense                            |  |                | 15,141 |               |  
|Accrued workers compensation self-insurance expense |  |                | 879    |               |  
|Accrued restructuring                               |  |                | 7,766  |               |  
|Accrued income tax payable                          |  |                | 1,961  |               |  
|Accrued other                                       |  |                | 13,685 |               |  
|                                                    |  |                |        |               |  
|                                                    |  | $              | 45,980 |               | $
|                                                    |  |                |        |               |  

12



---

##### Table of Contents

10.  RESTRUCTURING COSTS AND PLANT CLOSING

During the thirteen-week period ended December 27, 2002, the Company
announced the closing of its Manlius, New York manufacturing facility and its Louviers, France engineering and support operations facility. The decision to close the Manlius manufacturing facility was a result of a process the Company began, as of
the PBN acquisition date, to address redundancy in the product lines and manufacturing capacity resulting from its acquisition of certain assets and liabilities of PBN. The Company anticipates ceasing manufacturing and operations at each of these
facilities by June 27, 2003. For the thirty-nine week period ended March 28, 2003, fair value adjustments for property, plant and equipment of $3,469 and exit costs of $8,115, which includes employee severance and termination benefits, relocation
for employees offered employment transfers, and other lease commitment costs, were accounted for as an adjustment to the allocation of the original purchase price, and recorded as additional goodwill.

During the thirteen-week period ended March 28, 2003, the Company recorded an adjustment of previously recorded restructuring charges of $200.  For the thirty-nine week period ended March 28, 2003, the Company recorded
$398 related to initiatives to improve its operating performance by aligning the cost structure across the Company with current business levels. The restructuring charge represents employee termination benefits for approximately 185 employees, of
which $200 was unpaid as of March 28, 2003.

Details of restructuring charges as of March 28, 2003 are as follows:

|                                            |  | Accrual at June 28, 2002 |       | Restructuring Charges (Recovery) in Fiscal Year 2003 |   | Restructuring Charges from Acquisition in Fiscal Year 2003 |   | Cash Paid (Received) |       | Accrual at March 28, 2003 |  
|------------------------------------------- |  | ------------------------ | ----- | ---------------------------------------------------- | - | ---------------------------------------------------------- | - | -------------------- | ----- | ------------------------- | -
|                                            |  |                          |       |                                                      |   |                                                            |   |                      |       |                           |  
|Employee severance and termination benefits |  | $                        | 2,416 |                                                      | $ | 411                                                        |   | $                    | 6,913 |                           | $
|Write-off of property, plant and equipment  |  |                          |      |                                                      |   | (13                                                        | ) |                      |      |                           |  
|Contractual obligations and other           |  |                          | 549   |                                                      |   |                                                           |   |                      | 1,202 |                           |  
|                                            |  |                          |       |                                                      |   |                                                            |   |                      |       |                           |  
|Total                                       |  | $                        | 2,965 |                                                      | $ | 398                                                        |   | $                    | 8,115 |                           | $
|                                            |  |                          |       |                                                      |   |                                                            |   |                      |       |                           |  

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 March 28, 2003 to extend through December 2003. The Company intends to continue its initiatives to achieve more cost-effective operations throughout the
remainder of fiscal year 2003, which may result in additional restructuring expenses in amounts that have not yet been determined.

11.  LIQUIDITY

The Companys primary sources of liquidity are cash on-hand, cash flow from operations, as well as our financing agreement. Based on projected sales and operating expenses, the Company expects to use cash to fund
operating losses anticipated in the next quarter, however we do expect to realize cash savings from ongoing restructuring initiatives in the fourth quarter of fiscal year 2003, including the closing of our Manlius, New York manufacturing facility
and our Louviers, France operation.  The Company intends to continue initiatives to achieve a more cost-effective operation in order to conserve available cash.  The Company believes that current cash and cash equivalent balances, as well
as our financing agreement, will be adequate to cover operating cash requirements, restructuring costs, and additional consideration for the acquisition of PBN over the next twelve months.

12.  COMPREHENSIVE LOSS

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

13



---

##### Table of Contents

|                                         |  | March 28, 2003 |     | June 28, 2002 |  
|---------------------------------------- |  | -------------- | --- | ------------- | -
|                                         |  |                |     |               |  
|Unrealized loss on marketable securities |  | $              | (21 | )             | $
|Foreign currency translation gain        |  |                | 992 |               |  
|                                         |  |                |     |               |  
|Accumulated other comprehensive income   |  | $              | 971 |               | $
|                                         |  |                |     |               |  

The components of comprehensive loss for the thirteen-week and thirty-nine week periods ended
March 28, 2003 and March 29, 2002 are as follows:

|                                         |  | Thirteen Weeks Ended |         
|---------------------------------------- |  | -------------------- | --------
|                                         |  |                      |         
|                                         |  | March 28, 2003       |         
|                                         |  |                      |         
|Net income (loss)                        |  | $                    | (114,641
|Other comprehensive income (loss):       |  |                      |         
|Unrealized gain on marketable securities |  |                      | 2       
|Foreign currency translation gain        |  |                      | 350     
|                                         |  |                      |         
|Other comprehensive income               |  |                      | 352     
|                                         |  |                      |         
|Comprehensive income (loss)              |  | $                    | (114,289
|                                         |  |                      |         

|                                                |  | Thirty-nine Weeks Ended |         
|----------------------------------------------- |  | ----------------------- | --------
|                                                |  |                         |         
|                                                |  | March 28, 2003          |         
|                                                |  |                         |         
|Net loss                                        |  | $                       | (126,607
|Other comprehensive income (loss):              |  |                         |         
|Unrealized gain (loss) on marketable securities |  |                         | (9      
|Foreign currency translation gain (loss)        |  |                         | 434     
|                                                |  |                         |         
|Other comprehensive income (loss)               |  |                         | 425     
|                                                |  |                         |         
|Comprehensive loss                              |  | $                       | (126,182
|                                                |  |                         |         

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 exchange translation gains and losses related to these loans are excluded from net income (loss) and reported as a
component of other comprehensive income (loss).

13.  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:

14



---

##### Table of Contents

|                                                            |  | Thirteen Weeks Ended |         
|----------------------------------------------------------- |  | -------------------- | --------
|                                                            |  |                      |         
|                                                            |  | March 28, 2003       |         
|                                                            |  |                      |         
|Net income (loss)                                           |  | $                    | (114,641
|                                                            |  |                      |         
|Weighted average common shares outstanding                  |  |                      | 36,365  
|Common share equivalents                                    |  |                      |        
|                                                            |  |                      |         
|Weighted average common shares and common share equivalents |  |                      | 36,365  
|                                                            |  |                      |         
|Net income (loss) per share:                                |  |                      |         
|Basic                                                       |  | $                    | (3.15   
|Diluted                                                     |  | $                    | (3.15   

|                                                            |  | Thirty-nine Weeks Ended |         
|----------------------------------------------------------- |  | ----------------------- | --------
|                                                            |  |                         |         
|                                                            |  | March 28, 2003          |         
|                                                            |  |                         |         
|Net loss                                                    |  | $                       | (126,607
|                                                            |  |                         |         
|Weighted average common shares outstanding                  |  |                         | 36,356  
|Common share equivalents                                    |  |                         |        
|                                                            |  |                         |         
|Weighted average common shares and common share equivalents |  |                         | 36,356  
|                                                            |  |                         |         
|Net loss per share:                                         |  |                         |         
|Basic                                                       |  | $                       | (3.48   
|Diluted                                                     |  | $                       | (3.48   

For the thirteen-week period ended March 28, 2003, stock options and warrants
representing 6,869 common shares were excluded from the diluted net loss per share calculation because they were antidilutive. For the thirty-nine week periods ended March 28, 2003 and March 29, 2002, stock options and warrants representing 6,705
and 6,861 common shares, respectively, were excluded from the diluted net loss per share calculations because they were antidilutive.

14.  SEGMENT INFORMATION

The Company operates in three industry segments: Broadband Communication Products, Broadband Network Services, and Broadband Management Solutions.

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

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

| |  | Corporate selling, general and administrative expenses, certain quality assurance costs, and technology oversight functions;                           
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                        
| |  | Restructuring costs;                                                                                                                                   
| |   |                                                                                                                                                        
| |  | Goodwill and other intangible asset impairment charges;                                                                                                
| |   |                                                                                                                                                        
| |  | Goodwill amortization resulting from acquisitions;                                                                                                     
| |   |                                                                                                                                                        
| |  | 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 and thirty-nine week periods ended March 28, 2003 and March 29, 2002 is as follows:

15



---

##### Table of Contents

|                                      |  | Broadband Communications Products |         | Broadband Network Services |   | Broadband Management Solutions |   | Unallocated |         | Total |  
|------------------------------------- |  | --------------------------------- | ------- | -------------------------- | - | ------------------------------ | - | ----------- | ------- | ----- | -
|                                      |  |                                   |         |                            |   |                                |   |             |         |       |  
|13 week period ended March 28, 2003   |  |                                   |         |                            |   |                                |   |             |         |       |  
|Net sales                             |  | $                                 | 44,309  |                            | $ | 4,482                          |   | $           | 1,309   |       | $
|Depreciation and amortization         |  |                                   | 2,364   |                            |   | 175                            |   |             | 75      |       |  
|Operating loss                        |  |                                   | (21,626 | )                          |   | (613                           | ) |             | (1,701  | )     |  
|Income tax expense                    |  |                                   |        |                            |   |                               |   |             |        |       |  
|Identifiable assets at March 28, 2003 |  |                                   | 116,908 |                            |   | 13,074                         |   |             | 1,570   |       |  
|Capital expenditures                  |  |                                   | 422     |                            |   | 64                             |   |             | 40      |       |  
|13 week period ended March 29, 2002   |  |                                   |         |                            |   |                                |   |             |         |       |  
|Net sales                             |  | $                                 | 63,995  |                            | $ | 10,481                         |   | $           | 2,754   |       | $
|Depreciation and amortization         |  |                                   | 1,657   |                            |   | 240                            |   |             | 1,666   |       |  
|Operating income (loss)               |  |                                   | 7,355   |                            |   | 1,141                          |   |             | (4,178  | )     |  
|Income tax expense                    |  |                                   |        |                            |   |                               |   |             |        |       |  
|Identifiable assets at March 29, 2002 |  |                                   | 133,884 |                            |   | 12,654                         |   |             | 16,404  |       |  
|Capital expenditures                  |  |                                   | 216     |                            |   | 311                            |   |             | 136     |       |  
|39 week period ended March 28, 2003   |  |                                   |         |                            |   |                                |   |             |         |       |  
|Net sales                             |  | $                                 | 128,739 |                            | $ | 17,082                         |   | $           | 2,888   |       | $
|Depreciation and amortization         |  |                                   | 8,096   |                            |   | 561                            |   |             | 500     |       |  
|Operating loss                        |  |                                   | (24,368 | )                          |   | (604                           | ) |             | (6,875  | )     |  
|Income tax expense                    |  |                                   |        |                            |   |                               |   |             |        |       |  
|Identifiable assets at March 28, 2003 |  |                                   | 116,908 |                            |   | 13,074                         |   |             | 1,570   |       |  
|Capital expenditures                  |  |                                   | 1,971   |                            |   | 118                            |   |             | 327     |       |  
|39 week period ended March 29, 2002   |  |                                   |         |                            |   |                                |   |             |         |       |  
|Net sales                             |  | $                                 | 164,839 |                            | $ | 28,446                         |   | $           | 3,141   |       | $
|Depreciation and amortization         |  |                                   | 5,436   |                            |   | 697                            |   |             | 4,998   |       |  
|Operating income (loss)               |  |                                   | 19,428  |                            |   | 3,107                          |   |             | (14,595 | )     |  
|Income tax benefit                    |  |                                   |        |                            |   |                               |   |             |        |       |  
|Identifiable assets at March 29, 2002 |  |                                   | 133,884 |                            |   | 12,654                         |   |             | 16,404  |       |  
|Capital expenditures                  |  |                                   | 613     |                            |   | 412                            |   |             | 150     |       |  

Sales to unaffiliated customers by geographic region are as follows:

|              |  | Thirteen Weeks Ended |       
|------------- |  | -------------------- | ------
|              |  |                      |       
|              |  | March 28, 2003       |       
|              |  |                      |       
|United States |  | $                    | 36,972
|Europe        |  |                      | 8,001 
|Other         |  |                      | 5,127 
|              |  |                      |       
|Total         |  | $                    | 50,100
|              |  |                      |       

|              |  | Thirty-nine Weeks Ended |        
|------------- |  | ----------------------- | -------
|              |  |                         |        
|              |  | March 28, 2003          |        
|              |  |                         |        
|United States |  | $                       | 108,726
|Europe        |  |                         | 21,954 
|Other         |  |                         | 18,029 
|              |  |                         |        
|Total         |  | $                       | 148,709
|              |  |                         |        

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

16



---

##### Table of Contents

|              |  | March 28, 2003 |        | March 29, 2002 |  
|------------- |  | -------------- | ------ | -------------- | -
|              |  |                |        |                |  
|United States |  | $              | 23,378 |                | $
|Europe        |  |                | 830    |                |  
|Other         |  |                | 597    |                |  
|              |  |                |        |                |  
|Total         |  | $              | 24,805 |                | $
|              |  |                |        |                |  

15.  WARRANTY

The Company
warrants its products against defects in materials and workmanship, generally for three to five years, depending upon product lines. A provision for estimated future costs relating to warranty activities is recorded when the product is shipped,
based upon the Companys historical experience. In addition, the recorded amount is adjusted for specifically identified warranty exposures.

Changes in the Companys warranty liability
during the thirty-nine week period ended March 28, 2003 are as follows:

|Balance as of June 28, 2002                                                      |  | $ | 10,762 |  
|-------------------------------------------------------------------------------- |  | - | ------ | -
|Warranties issued during the period                                              |  |   | 2,907  |  
|Fair value of warranty liabilities acquired in PBN acquisition during the period |  |   | 5,916  |  
|Settlements made during the period                                               |  |   | (3,988 | )
|Changes in the liability for pre-existing warranties during the period           |  |   | (456   | )
|                                                                                 |  |   |        |  
|Balance as of March 28, 2003                                                     |  | $ | 15,141 |  
|                                                                                 |  |   |        |  

16.  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 123, the Companys net income (loss) and net income (loss) per share would have been as follows:

|                                                                                                                              |  | Thirteen Weeks Ended |         
|----------------------------------------------------------------------------------------------------------------------------- |  | -------------------- | --------
|                                                                                                                              |  |                      |         
|                                                                                                                              |  | March 28, 2003       |         
|                                                                                                                              |  |                      |         
|Net income (loss)                                                                                                             |  | $                    | (114,641
|Add:                                                                                                                          |  |                      |         
|Stock-based employee compensation expense included in reported net income (loss), net of related tax
effects                  |  |                      |        
|Deduct:                                                                                                                       |  |                      |         
|Total stock-based employee compensation expense determined under fair value method for all awards, net of related
tax effects |  |                      | 3,057   
|                                                                                                                              |  |                      |         
|Pro forma net loss                                                                                                            |  | $                    | (117,698
|                                                                                                                              |  |                      |         
|Net income (loss) per share:                                                                                                  |  |                      |         
|Basic  as reported                                                                                                           |  | $                    | (3.15   
|Basic  pro forma                                                                                                             |  | $                    | (3.24   
|Diluted  as reported                                                                                                         |  | $                    | (3.15   
|Diluted  pro forma                                                                                                           |  | $                    | (3.24   

17



---

##### Table of Contents

|                                                                                                                              |  | Thirty-Nine Weeks Ended |         
|----------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | --------
|                                                                                                                              |  |                         |         
|                                                                                                                              |  | March 28, 2003          |         
|                                                                                                                              |  |                         |         
|Net loss                                                                                                                      |  | $                       | (126,607
|Add:                                                                                                                          |  |                         |         
|Stock-based employee compensation expense included in reported net income (loss), net of related tax
effects                  |  |                         |        
|Deduct:                                                                                                                       |  |                         |         
|Total stock-based employee compensation expense determined under fair value method for all awards, net of related
tax effects |  |                         | 8,057   
|                                                                                                                              |  |                         |         
|Pro forma net loss                                                                                                            |  | $                       | (134,664
|                                                                                                                              |  |                         |         
|Net loss per share:                                                                                                           |  |                         |         
|Basic  as reported                                                                                                           |  | $                       | (3.48   
|Basic  pro forma                                                                                                             |  | $                       | (3.70   
|Diluted  as reported                                                                                                         |  | $                       | (3.48   
|Diluted  pro forma                                                                                                           |  | $                       | (3.70   

18



---

##### Table of Contents

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

General

The following discussion addresses the financial condition of C-COR.net Corp. as of March 28, 2003, and the results of our operations for the thirteen-week and thirty-nine week periods ended March 28, 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 28, 2002, 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 offering, fluctuations in demand for
telecommunications equipment and broadband management services, the slowdown 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 profile of major customers that would lead us to restrict new product shipments or record an increase in the allowance for doubtful
accounts, 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.

Business Combination

On September 16, 2002, we acquired certain assets and liabilities of PBN from Royal Philips Electronics. PBN is
a provider of broadband products, including transmission products, network optimizing technologies, and element management systems. PBN is supported by sales and services organizations worldwide, with a strong customer base in Europe and the Asia
Pacific region. The purchase included assets in various countries, cable infrastructure products, and a design and production facility in Manlius, New York. These assets and the facility became part of our Broadband Communications Products Division.
The purchase price for the acquisition was approximately 80.0 million Euros, which is subject to certain adjustments.

The effective date of the acquisition was August 26, 2002 (PBNs fiscal
month end). Accordingly, the results of operations of PBN are included in the consolidated

19



---

##### Table of Contents

financial statements for the period from August 26, 2002 through March 28, 2003. At closing on September 16, 2002, the Company made an initial cash payment of 75.0 million
Euros ($72.5 million U.S. dollars, which was net of $200,000 of imputed interest) to Royal Philips Electronics, with subsequent payments subject to certain adjustments. The Company anticipates additional consideration to be paid of approximately
$2.6 million during the thirteen-week period ending June 27, 2003. In addition, the Company incurred direct transaction costs of approximately $1.3 million to consummate the transaction. The Company used its available cash to fund the acquisition.
The acquisition was accounted for as a purchase, and resulted in goodwill of $63.7 million.

Goodwill Impairment

In June 2001, the Financial
Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets (Statement 142). The Company adopted the provisions of Statement 142 effective June 29, 2002. As of
the date of adoption on June 29, 2002, the Company determined it did not have an impairment of goodwill as of that date.  We are required to reevaluate whether goodwill is impaired on an annual basis. We have selected the end of our third
fiscal quarter of each year to reassess the value of our reporting units and related goodwill balances, or at other times if events have occurred or circumstances exist that indicate the carrying amount of goodwill may not be recoverable.
Accordingly, we reassessed whether goodwill was impaired as of March 28, 2003.  For purposes of applying Statement 142, we believe our operating segments (Broadband Communications Products, Broadband Network Services, and Broadband Management
Solutions) represent the Companys reporting units, although there was no goodwill or intangible assets associated with Broadband Management Solutions as of the date of adoption or as of March 28, 2003. We determined the carrying value of each
reporting unit by assigning the related assets and liabilities, including the existing goodwill and intangible assets, to those reporting units. The Company then determined the fair value of each reporting unit. The fair value was determined based
on an independent third party appraisal, using a discounted cash flow model. The Company determined that the carrying value of the Broadband Communications Products reporting unit exceeded its fair value.  Consequently, an impairment charge of
$40.0 million has been recorded during the thirteen-week period ended March 28, 2003. The decline in the fair value of the Broadband Communications Products reporting unit is largely attributable to the weakness in capital spending by cable
operators in recent periods. An estimate has been made of the value of other intangible assets not recorded on our balance sheet as of March 28, 2003, in order to allocate the fair value of the reporting unit to both tangible and intangible assets
as of March 28, 2003.  We anticipate completing a third-party valuation of these unrecorded intangible assets during the fourth quarter ending June 27, 2003, and will adjust the goodwill impairment charge accordingly in our fourth quarter
operating results.  As of March 28, 2003, the remaining goodwill associated with Broadband Communications Products and Broadband Network Services was $26.7 million and $7.0 million, respectively (see Note 5 of the condensed consolidated
financial statements).

Plant Closing

During the quarter ended December 27, 2002, we announced the closing of our Manlius, New York manufacturing
facility and our Louviers, France engineering and support services facility. The decision to close the Manlius manufacturing facility is a result of the process we began, as of the PBN acquisition date, to address redundancy in the product lines and
manufacturing capacity resulting from the acquisition of PBN. We anticipate ceasing manufacturing and operations at these facilities by June 27, 2003. As of March 28, 2003, fair value adjustments for property, plant and equipment of $3.5 million and
exit costs of $8.1 million, which include employee severance and termination benefits, relocation for employees offered employment transfers, and other lease commitment costs, were accounted for as an adjustment to the allocation of the original
purchase price, and recorded as additional goodwill (see Notes 4 and 5 of the consolidated condensed financial statements).

Results of Operations

Net sales for the thirteen-week period ended March 28, 2003 were $50.1 million, a decrease of 35% from the prior years sales of $77.2 million for the same period. Net sales for the thirty-nine week period ended March 28,
2003 were $148.7 million, a decrease of 24% from the prior years sales of $196.4 million for the same period.

Broadband Communications Products segment sales decreased by 31% to $44.3
million during the thirteen-week period, compared to $64.0 million for the same period of the

20



---

##### Table of Contents

prior year. Broadband Communications Products segment sales decreased by 22% to $128.7 million during the thirty-nine week period, compared to $164.8 million for the same
period of the prior year.The decrease for both the quarter and year-to-date period is largely attributable to reduced or deferred capital spending by customers in the cable industry. The Company believes the reduced capital spending
levels are the result of financial difficulties of certain cable customers, challenges in gaining access to capital markets, and a focus by cable operators on reducing debt and increasing cash flow.  The decline in sales affected our optical
product lines and, to a lesser extent, our radio frequency product lines. Optical product sales were $16.4 million and $54.9 million for the thirteen-week and thirty-nine week periods ended March 28, 2003, compared to $35.6 million and $87.7
million, respectively, for the same periods of the prior year. Sales of radio frequency amplifiers were $27.9 million and $73.8 million during the thirteen-week and thirty-nine week periods ended March 28, 2003, compared to $28.4 million and $77.1
million, respectively, for the same periods of the prior year.  Although the Company has broadened its customer base and increased its base of installed equipment, Broadband Communications Products sales are dependent on the capital spending
levels of its customers.

Broadband Network Services segment sales decreased by 57% to $4.5 million during the thirteen-week period, compared to $10.5 million for the same period of the prior year.
Broadband Network Services segment sales decreased by 40% to $17.1 million during the thirty-nine week period, compared to $28.4 million for the same period of the prior year. The decrease during the quarter and year-to-date periods also resulted
from reduced spending by domestic cable operators on technical services, primarily related to our Outside Plant operations, which include system sweep, reverse path activation, ingress mitigation, node certification, and system
maintenance.

Broadband Management Solutions segment sales decreased by 52% to $1.3 million during the thirteen-week period ended March 28, 2003, compared to $2.8 million for the same period of the
prior year. Broadband Management Solutions segment sales decreased by 8% to $2.9 million during the thirty-nine week period ended March 28, 2003, compared to $3.1 million for the same period of the prior year. Broadband Management Solutions segment
sales for both the thirteen-week and thirty-nine week periods ended March 29, 2002 included $2.4 million of sales attributable to completion of a long-term contract, assumed in our acquisition of MobileForce Technologies Inc. in April 2001, that was
accounted for using the completed contract method. Broadband Management Solutions segment sales are attributable to software license revenue and professional services, and as a result of revenue recognition requirements, sales are likely to
fluctuate quarter to quarter, based upon the timing of customer acceptance related to deployments and service delivery.

Domestic sales as a percentage of consolidated sales were 74% and 73% for
the thirteen-week and thirty-nine week periods ended March 28, 2003, compared to 89% and 87%, respectively, for the same periods of the prior year. Sales to domestic customers decreased by 46% to $37.0 million during the thirteen-week period ended
March 28, 2003, compared to $68.8 million for the same period of the prior year. Sales to domestic customers decreased by 36% to $108.7 million during the thirty-nine week period ended March 28, 2003, compared to $171.2 million for the same period
of the prior year. For the quarter and year-to-date periods, the decreases resulted from reductions in both Broadband Communications Products segment and Broadband Network Services segment sales due to reduced spending by certain domestic multiple
system operators (MSOs).

International sales as a percentage of total consolidated sales were 26% and 27% for the thirteen-week and thirty-nine week periods ended March 28, 2003, compared to 11%
and 13%, respectively, for the same periods of the prior year. Sales to international customers increased by 56% to $13.1 million for the thirteen-week period ended March 28, 2003, compared to $8.4 million for the same period of the prior year.
Sales to international customers increased by 58% to $40.0 million for the thirty-nine week period ended March 28, 2003, compared to $25.3 million for the same period of the prior year. The increases for the quarter and year-to-date periods resulted
from higher Broadband Communications Products segment sales, primarily in Europe and Asia. As a result of our acquisition of the PBN assets and operations, we have increased our customer base and installed equipment base in the markets of Europe and
Asia. We have added operations in the Netherlands, Spain, Portugal, United Kingdom, France, Germany, Singapore and Australia. These operations include engineering, sales and administrative support activities to support the delivery of localized
versions of

21



---

##### Table of Contents

products and services to customers in Europe and Asia. We expect the demand for our products in international markets will continue to be highly variable. The international
markets represent distinct markets in which capital spending decisions for hybrid fiber coax network distribution equipment can be affected by a variety of factors, including access to financing and general economic conditions.  In addition,
sales to customers in Asian markets may be adversely affected in the near term by disruption caused by the SARS outbreak.

At March 28, 2003, our backlog of orders was $58.2 million, including
$30.5 million for Broadband Communications Products, $21.2 million for Broadband Network Services, and $6.5 million for Broadband Management Solutions. By comparison, backlog at the beginning of the quarter (December 27, 2002) was $51.9 million,
including $25.9 million for Broadband Communications Products, $19.7 million for Broadband Network Services, and $6.3 million for Broadband Management Solutions.  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 (12.4)% and 11.2% for the thirteen-week and thirty-nine
week periods ended March 28, 2003, compared to 29.4% and 28.9%, respectively, for the same periods of the prior year. For the Broadband Communications Products segment, gross margins were (16.5)% and 10.5% for the thirteen-week and thirty-nine week
periods ended March 28, 2003, compared to 31.9% and 31.2%, respectively, for the same periods of the prior year. The decrease in Broadband Communications Products segment gross margin for the quarter and year-to-date periods was due primarily to an
increase in our provision for excess and obsolete inventory of $18.1 million during the thirteen-week period ended March 28, 2003.  The increase in the excess and obsolete provision during the period is a result of significant reductions in
demand levels, product line rationalization decisions made during the quarter for overlapping product lines resulting from acquisitions, transition to an outsourced manufacturer of product lines determined to be at the end of their product
lifecycle, and a refinement of the Companys reserve estimation process to quantify reserve requirements for inventory levels in excess of our forecasted demand.  In addition, shifts in product mix and higher manufacturing costs per unit
due to allocating higher fixed factory overhead costs contributed to lower gross margins during the periods. For the Broadband Network Services segment, gross margins were 11.6% and 16.7% for the thirteen-week and thirty-nine week periods ended
March 28, 2003, compared to 22.0% and 23.5%, respectively, for the same periods of the prior year. The decrease in Broadband Network Services segment gross margin was due to lower service revenues and the requirement to maintain certain fixed
operating costs, as well as variability in the gross margins associated with the service mix. For the Broadband Management Solutions segment, gross margins were $597,000 and $240,000 for the thirteen-week and thirty-nine week periods ended March 28,
2003, compared to ($44,000) and ($1.4 million), respectively, for the same periods of the prior year. In both the thirteen-week and thirty-nine week periods ended March 29, 2002, Broadband Management Solutions segment gross margins were effected by
the recognition of revenue on completion of a long-term contract.  This contract incurred a loss that had been recorded in a prior period so that last years results reflected recognition of revenues and costs of sales in equal amounts of $2.4
million.  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, since the majority of these contracts are being accounted for on a completed contract basis and are subject to acceptance by the customer.

Selling and
administrative expenses were $13.7 million (27.4% of net sales) for the thirteen-week period ended March 28, 2003, compared to $15.3 million (19.8% of net sales) for the same period of the prior year. Selling and administrative expenses were $38.0
million (25.6% of net sales) for the thirty-nine week period ended March 28, 2003, compared to $37.2 million (18.9% of net sales) for the same period of the prior year.  Selling and administrative expenses decreased during the thirteen-week
period ended March 28, 2003, compared to the same period of the prior year, as a result of a $2.4 million increase in the allowance for doubtful accounts recorded in the prior year quarter ended March 29, 2002 for trade receivables associated with
our Argentina operation.   The increased selling and administrative expenses for the thirty-nine week period ended March 28, 2003 were due to personnel costs and administrative expenses related to our acquisition of PBN assets and
operations, which were partially

22



---

##### Table of Contents

offset by recovery of $939,000 in bad debts, collected on certain accounts previously deemed uncollectible.

Research and
product development expenses were $7.6 million (15.2% of net sales) for the thirteen-week period ended March 28, 2003, compared to $6.5 million (8.4% of net sales) for the same period of the prior year. Research and product development expenses were
$21.4 million (14.4% of net sales) for the thirty-nine week period ended March 28, 2003, compared to $20.8 million (10.6% of net sales) for the same period of the prior year.  Research and product development expenses in the Broadband
Communications Products segment were $6.2 million and $16.8 million for the thirteen-week and thirty-nine week periods ended March 28, 2003, compared to $4.3 million and $13.6 million, respectively, for the same periods of the prior year. The
increases were primarily due to higher personnel costs resulting from our acquisition of PBN assets and operations. Research and product development expenses in the Broadband Management Solutions segment were $1.4 million and $4.2 million for the
thirteen-week and thirty-nine week periods ended March 28, 2003, compared to $2.0 million and $6.6 million, respectively, for the same periods of the prior year. The decreases were primarily due to lower personnel costs resulting from reductions in
the workforce and lower expenses for the development of mobile workforce management software solutions. Other research and product development expenses, not charged to segments, were $83,000 and $384,000 for the thirteen-week and thirty-nine week
periods ended March 28, 2003, compared to $221,000 and $627,000, respectively, 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 optical products and network services management and mobile workforce software capabilities.

As a result of the announced plant closings in Manlius, New York and Louviers, France, we anticipate reductions in selling and administrative expenses and research and product development expenses, beginning
in the fourth quarter of fiscal year 2003.

Operating loss (excluding unallocated items) for the Broadband Communications Products segment was $21.6 million and $24.4 million for the thirteen-week
and thirty-nine week periods ended March 28, 2003, compared to operating income of $7.4 million and $19.4 million, respectively, for the same periods of the prior year. The decreases in operating income for the quarter and year-to-date periods ended
March 28, 2003 were primarily attributable to reduced gross margins, as a result of increased provisions for excess and obsolete inventory and lower sales volume during the period. Operating loss (excluding unallocated items) for the Broadband
Network Services segment was ($613,000) and ($604,000) for the thirteen-week and thirty-nine week periods ended March 28, 2003, compared to operating income of $1.1 million and $3.1 million, respectively, for the same periods of the prior year. The
decreases in operating income resulted primarily from the lower sales volume and gross margins during the periods. Operating loss (excluding unallocated items) for the Broadband Management Solutions segment was $1.7 million and $6.9 million for the
thirteen-week and thirty-nine week periods ended March 29, 2003, compared to operating loss of $4.2 million and $14.6 million, respectively, for the same periods of the prior year. The decreases in operating loss resulted primarily from lower
research and development costs associated with the development of operational support solutions, higher gross margins, and elimination of amortization expense associated with identifiable intangible assets that were written off due to their
impairment as of June 28, 2002.

Interest expense was $14,000 for the thirteen-week period ended March 28, 2003, compared to $20,000 for the same period of the prior year. Interest expense was
$250,000 for the thirty-nine week period ended March 28, 2003, compared to $109,000 for the same period of the prior year. Interest expense for the thirteen-week periods relates primarily to long-term debt obligations.  The increase in interest
expense for the year-to-date period resulted primarily from an imputed interest charge related to the PBN acquisition recorded in the first quarter.

Investment income was $98,000 for the
thirteen-week period ended March 28, 2003, compared to $321,000 for the same period of the prior year. Investment income was $827,000 for the thirty-nine week period ended March 28, 2003, compared to $1.3 million for the same period of the prior
year. The decreases in investment income for the quarter and year-to-date periods resulted from a lower average investment balance and lower yields, compared to a year ago.

23



---

##### Table of Contents

Foreign currency exchange gain was $49,000 for the thirteen-week period ended March 28, 2003, compared to $1.5 million for the same period of the prior year. The gain for the
thirteen week period of the prior year was due primarily to a translation gain during the period, resulting from devaluation of the Argentine peso and the remeasurement of U.S. dollar denominated accounts held by our foreign operation.Foreign
currency exchange loss was $1.2 million for the thirty-nine week period ended March 28, 2003, compared to a gain of $1.9 million for the same period of the prior year.  The foreign currency exchange loss for the year-to-date period included a
$1.6 million loss related to the settlement of a foreign exchange forward contract recorded in the first quarter.

Other expense, net was $216,000 for the thirteen-week period ended March 28, 2003,
compared to other income, net of $178,000 for the same period of the prior year. Other income, net was $540,000 for the thirty-nine week period ended March 28, 2003, compared to other expense, net of $1.5 million for the same period of the prior
year. Other income, net for the year-to-date period included $800,000 as a partial recovery on a note receivable from a third party that had been fully reserved for by the Company in a prior period. Other expense, net for the same period of the
prior year included a charge to reserve for the aforementioned note receivable in the amount of $1.3 million.

During the thirteen-week period ended March 28, 2003, the Company 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 continued operating
losses, the Company recorded a valuation allowance of $46.9 million for the full amount of its net deferred tax assets, since realization of any future benefit from deductible temporary differences, net operating losses and tax credit carryforwards
is uncertain as of March 28, 2003. This increased the net loss in the quarter by $46.9 million.  Our overall effective income tax rate was 92% and 20%, respectively, for the thirteen-week and thirty-nine week periods of the prior year. The
fluctuations in the effective income tax rate for the thirteen-week and thirty-nine week periods of the prior year reflect changes in permanent differences, non-deductible amounts, the relative profitability of U.S. versus non-U.S. operations and
the differences in statutory tax rates by jurisdiction.  We expect to record valuation allowances related to net tax benefits arising from temporary differences and operating losses in future periods 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.  In future periods with operating profits, we expect to record tax expense in an amount commensurate with cash tax payments
(see Note 6 of the condensed consolidated financial statements).

Liquidity and Capital Resources

As of March 28, 2003, cash and cash equivalents
totaled $25.7 million, down from $111.9 million at June 28, 2002. In addition, the Company has an arrangement with a bank at March 28, 2003 whereby a cash compensating balance of $3.0 million is being maintained to secure certain letters of credit
issued on behalf of the Company. Of the total cash compensating balance, $2.6 million has been classified as a current asset at March 28, 2003, as the terms for the letters of credit expire in less than one year.  The remaining $370,000 has
been classified as part of other long-term assets, as it is security for a letter of credit with a term of greater than one year.

Working capital was $29.3 million at March 28, 2003 as compared
with $164.7 million as of June 28, 2002.  The reduction in working capital was primarily attributable to our acquisition of PBN, establishment of a valuation allowance related to net deferred tax assets, and funding the loss from operations
during the thirty-nine week period.

Net cash used in operating activities was $6.1 million for the thirty-nine week period ended March 28, 2003, compared with cash used in operations of $7.5
million for the same period of the prior year. Although the year-to-date operating loss is much greater than in the previous year, much of the loss relates to non-cash charges such as the $40.0 million goodwill impairment charge, the $40.9 million
deferred tax asset valuation allowance, and a $18.1 million increase in inventory reserves.  In addition, accounts and notes receivable decreased by $12.6 million in the thirty-nine week period ending March 28, 2003 compared to an increase of
$32.7 million in the same period of the prior year.  The reduction in the current year reflects declining sales volumes.  All of the foregoing amounts are net of the effect of acquisitions.

24



---

##### Table of Contents

Net cash used in investing activities was $80.4 million for the thirty-nine week period ended March 28, 2003, compared to cash used in investing activities of $27.5 million
for the same period of the prior year. The increase in cash used in investing activities during the period was due primarily to utilizing $73.4 million of cash for the acquisition of PBN assets and operations, and $3.6 million for the payment of an
earnout provision associated with our Aerotec Communications, Inc. acquisition. In addition to the initial consideration paid for the PBN assets, additional payments may be required under the terms of the acquisition agreement. The Company
anticipates additional consideration of approximately $2.6 million to be paid during the quarter ending June 27, 2003, but continues to negotiate with the seller so this amount may change. Other uses of cash were for the purchase of property, plant
and equipment of $3.4 million during the period.  The major elements of the cash used for investing activities for the same period of the prior year were $26.3 million used for the acquisition of operations of ADC Telecommunications, Inc., $5.2
million for the purchase of property, plant and equipment and $11.2 million for the purchase of marketable securities and other short-term investments.  These uses were offset partially by proceeds of $15.2 million from the sale of marketable
securities, other short-term investments and property, plant and equipment.

Net cash used in financing activities was $99,000 for the thirty-nine week period ended March 28, 2003, compared with
cash provided by financing activities of $54.2 million for the same period of the prior year. The current year activity primarily represented payments on long-term debt, which were partially offset by proceeds from the issuance of common stock to
our employee stock purchase plan and from the exercise of stock options and warrants. The major element of the change in cash provided by financing activities for the same period of the prior year was net proceeds of $52.2 million received from our
follow-on public offering of stock on February 19, 2002 and $5.1 million from the exercise of stock options and warrants, which were partially offset by $3.0 million used for the purchase of treasury stock.

On November 7, 2002, we entered into a new financing agreement with a commercial lender. The new financing agreement is a two-year secured revolving credit facility, to be used for working capital and general corporate
purposes, and provides an initial commitment up to an aggregate amount of $20.0 million. The financing agreement allows for 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
certain 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, a fee on the unused commitment of 0.375% per annum payable
monthly, and an administrative fee of $36,000 per annum.  As of March 28, 2003, the Company had no borrowings outstanding on the financing agreement.  Based upon the eligible borrowing base at March 28, 2003, available borrowings under the
financing agreement were $15.3 million.

As a condition for closing on the financing agreement, the Company terminated its prior credit agreement with a bank, whereby $7.5 million was available as a
revolving line-of-credit, subject to an aggregate sub-limit of $5.0 million for issuance of letters of credit. We continue to maintain letters of credit with the bank in the aggregate of $2.3 million as of March 28, 2003 related to our workers
compensation program, customer obligations, and equipment lease obligations.  We are required to maintain cash deposits of $3.0 million as collateral for these letters of credit, as of March 28, 2003. Under the new financing agreement, a letter
of credit has been issued for $600,000 related to increased requirements under our workers compensation policy.

25



---

##### Table of Contents

Our main source of liquidity is our cash on hand. We will continue to use cash to fund operating losses anticipated in the next quarter; however we expect to realize cash
savings from ongoing restructuring initiatives in the fourth quarter of fiscal year 2003, including the closing of our Manlius, New York manufacturing facility and our Louviers, France operation. We intend to continue our initiatives to achieve more
cost-effective operations throughout the remainder of fiscal year 2003, which may require additional restructuring expenses in amounts that have not yet been determined.

We believe that current
cash and cash equivalents balances, as well as our new financing agreement, will be adequate to cover our operating cash requirements, restructuring costs and the additional consideration for the acquisition of certain operations of PBN 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 Registration Statement, which would be dilutive to existing shareholders.

Accounting Changes and Accounting
Pronouncement

In August 2001, the FASB issued SFAS No. 144,Accounting for the Impairment or Disposal of Long-Lived Assets  (Statement 144), which supersedes both SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of (Statement 121) and the accounting and reporting provisions of APB Opinion No. 30, Reporting the Results of Operations-Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions (Opinion 30), for the disposal of a segment of a business (as previously defined in that Opinion). Statement 144
retains the fundamental provisions in Statement 121 for recognizing and measuring impairment losses on long-lived assets held for use and long-lived assets to be disposed of by sale, while also resolving significant implementation issues associated
with Statement 121. For example, Statement 144 provides guidance on how a long-lived asset that is used as part of a group should be evaluated for impairment, establishes criteria for when a long-lived asset is held for sale, and prescribes the
accounting for a long-lived asset that will be disposed of other than by sale. Statement 144 retains the basic provisions of Opinion 30 on how to present discontinued operations in the income statement but broadens that presentation to include a
component of an entity (rather than a segment of a business). Unlike Statement 121, an impairment assessment under Statement 144 will never result in a write-down of goodwill. Rather, goodwill is evaluated for impairment under Statement
142.

The Company adopted Statement 144 effective June 29, 2002. The adoption of Statement 144 for long-lived assets held for use did not have a material impact on the consolidated financial
statements. The provisions of Statement 144 for assets held for sale or other disposal generally are required to be applied prospectively after the adoption date to newly initiated disposal activities.

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities (Statement 146), which replaces Emerging Issues Task Force No. 94-3, Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). Statement 146 requires companies to recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or disposal plan. The provisions of Statement 146 are effective for exit or disposal activities that are initiated after December 31, 2002.

In November 2002, the FASB issued Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others(the Interpretation),
which addresses the disclosure to be made by a guarantor in its interim and annual financial statements about its obligations under guarantees. The Interpretation also requires the recognition of a liability by a guarantor at the inception of
certain guarantees.

26



---

##### Table of Contents

The Interpretation requires the guarantor to recognize a liability for the non-contingent component of the guarantee, which is the obligation to stand ready to perform in the
event that specified triggering events or conditions occur. The initial measurement of this liability is the fair value of the guarantee at inception. The recognition of the liability is required even if it is not probable that payments will be
required under the guarantee or if the guarantee was issued with a premium payment or as part of a transaction with multiple elements.

The Company has adopted the disclosure requirements of the
Interpretation (see Note 15 to the condensed consolidated financial statements) and will apply the recognition and measurement provisions for all guarantees entered into or modified after December 31, 2002.

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation  Transition and Disclosure (Statement 148).  The provisions of Statement 148 amend SFAS No. 123, Accounting
for Stock Based Compensation (Statement 123), to provide alternative methods of transitioning to a fair value-based method of accounting for stock-based employee compensation. In addition, Statement 148 also expands the disclosure requirements
of Statement 123 by requiring more detailed disclosure in both annual and interim financial statements. The Company adopted Statement 148 effective December 28, 2002. The transition provisions of Statement 148 did not have a material impact on our
financial results, as we did not adopt the fair value-based accounting provisions of Statement 123 (see Note 16 to the condensed consolidated financial statements).

27



---

##### Table of Contents

|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 and interest rates, and changes in the fair market value of its marketable securities portfolios.

The Company is exposed to foreign currency exchange rate risks inherent in our sales
commitments, anticipated sales, and assets and liabilities denominated in currencies other than the United States dollar. As of March 28, 2003, our exposure to foreign currencies relates primarily to additional consideration to be paid for the
acquisition of PBN.  The Company anticipates additional consideration to be paid of 2.7 million Euros during the quarter ending June 27, 2003. As of June 28, 2002, the Company had one outstanding foreign exchange forward contract in the
notional amount of 80 million Euros. The Company was using this contract as an economic hedge of the forecasted purchase price of PBN. SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, prohibits the use of hedge
accounting for forecasted business combination transactions. Therefore, the Company recorded the increase in the fair value of the foreign exchange forward contract as a gain in the amount of $1.6 million as a component of other income (expense),
net in the consolidated statements of operations as of June 28, 2002, based on quoted market prices. This contract matured on August 21, 2002. As a result, a reduction in the fair value of the contract at the time of settlement was recorded during
the quarter ending September 27, 2002 resulting in a loss of $1.6 million.

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 (loss), 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 adverse effect on our financial condition or results of operations.

28



---

##### Table of Contents

|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-14(c) and 15-d-14(c) as of a date (the Evaluation Date) within 90 days before the filing date of this Quarterly Report on Form 10-Q), have concluded that as of the Evaluation Date, 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 the Evaluation Date, 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 made enhancements to its control environment, as a result of its recently implemented Enterprise Resource Planning (ERP)
system and acquisitions, and will continue to do so on an ongoing basis.

29



---

##### Table of Contents

PART II.  
OTHER INFORMATION

|Item 4. | Submission of Matters to a Vote of Shareholders
|------- | -----------------------------------------------
|        |                                                
|        | (Not applicable)                               
|        |                                                
|Item 6. | Exhibits and Reports on Form 8-K               

The following exhibits are included herein:

|(15) | Letter re: Unaudited Interim Financial Information.
|---- | ---------------------------------------------------
|     |                                                    
|(99) | (a)                                                
|     |                                                    
|(99) | (b)                                                

Reports
on Form 8-K

On January 21, 2003, the Registrant filed a Form 8-K dated January 16, 2003, to attach a press release announcing the Registrants financial results for the second quarter of
fiscal year 2003.

30



---

##### Table of Contents

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:  May 9, 2003 | /s/ DAVID A. WOODLE                                            
|                   |                                                                
|                   | Chief Executive Officer                                        
|                   |                                                                
|Date:  May 9, 2003 | /s/ WILLIAM T. HANELLY                                         
|                   |                                                                
|                   | Chief Financial Officer (Principal Financial Officer)          
|                   |                                                                
|Date:  May 9, 2003 | /s/ JOSEPH E. ZAVACKY                                          
|                   |                                                                
|                   | Controller & Assistant Secretary (Principal Accounting Officer)

31



---

##### Table of Contents

CERTIFICATIONS

I,  David A. Woodle, certify that:

1.  I have
reviewed this quarterly report on Form 10-Q of C-COR.net Corp.;

2.  Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.  Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this quarterly report;

4.  The registrants other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

| | a.  designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                    
| | b.  evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly
report (the Evaluation Date); and                                                                                                  
| |                                                                                                                                                                                                                                                                                                    
| | c.  presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation
Date;                                                                                                                        

5.  The registrants other certifying officer and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of:

| | a.  all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process,
summarize and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                   
| | b.  any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls;
and                                                                                                                                        

6.  The registrants other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

|Date:  May 9, 2003 | /s/ DAVID A. WOODLE                     
|------------------ | ----------------------------------------
|                   |                                         
|                   | David A. Woodle  Chief Executive Officer

32



---

##### Table of Contents

CERTIFICATIONS

I,  William T. Hanelly, certify that:

1.  I have reviewed this quarterly report on Form 10-Q of C-COR.net Corp.;

2.  Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly
report;

3.  Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.  The registrants other certifying officer and I
are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

| | a.  designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                    
| | b.  evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly
report (the Evaluation Date); and                                                                                                  
| |                                                                                                                                                                                                                                                                                                    
| | c.  presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation
Date;                                                                                                                        

5.  The registrants other certifying officer and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors:

| | a.  all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process,
summarize and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                   
| | b.  any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls;
and                                                                                                                                        

6.  The registrants other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

|Date:  May 9, 2003 | /s/ WILLIAM T. HANELLY                     
|------------------ | -------------------------------------------
|                   |                                            
|                   | William T. Hanelly  Chief Financial Officer

33