Occam Networks 10Q 2010 Q1 Quarterly report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2010

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

For the transition period from to

Commission file number: 001-33069

OCCAM NETWORKS, INC.

(Exact name of registrant as specified in its charter)

Delaware		77-0442752
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification Number)

6868 Cortona Drive
Santa Barbara, California		93117
(Address of principal executive offices)		(Zip Code))

Registrant’s telephone number, including area code: (805) 692-2900

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (check one).

Large accelerated filer o		Accelerated filer x

Non-accelerated filer o		Smaller reporting company o
(Do not check if a smaller reporting company)

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

As of April 15, 2010, the number of shares outstanding of the registrant’s common stock was 20,968,509 shares.

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INDEX

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PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

OCCAM NETWORKS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

	March 31,			December 31,
	2010			*2009 ()**
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	43,511		$	39,268
Restricted cash	2,895			5,721
Accounts receivable, net	9,935			14,874
Inventories	10,929			12,927
Prepaid and other current assets	1,018			1,426
Total current assets	68,288			74,216
Property and equipment, net	8,761			8,699
Intangibles, net	133			156
Other assets	67			91
Total assets	$	77,249		$	83,162

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	8,480		$	8,274
Accrued liabilities	5,956			6,999
Deferred revenue	7,127			13,035
Deferred rent	361			361
Capital lease obligations	27			26
Total current liabilities	21,951			28,695
Deferred rent, net of current portion	1,512			1,597
Capital lease obligations, net of current portion	13			20
Total liabilities	23,476			30,312
Commitments and contingencies (See Note 5)
Stockholders’ equity:
Common stock, $0.001 par value, 250,000,000 shares authorized; and 20,968,509 shares issued and outstanding at March 31, 2010 and 20,669,089 shares issued and outstanding at December 31, 2009.	289			289
Additional paid-in capital	189,546			188,013
Accumulated deficit	(136,062		)	(135,452		)
Total stockholders’ equity	53,773			52,850
Total liabilities and stockholders’ equity	$	77,249		$	83,162

*Derived from audited consolidated financial statements included in the registrant’s Annual Report on Form 10-K for the year ended December 31, 2009.

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OCCAM NETWORKS, INC. AND SUBSIDIARY

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

	Three Months Ended
	March 31, 2010			March 31, 2009 (*)
	(Unaudited)

Revenue	$	22,344		$	19,419
Cost of revenue	12,511			11,245
Gross margin	9,833			8,174
Operating expenses:
Research and product-development	3,765			4,389
Sales and marketing	4,604			4,581
General and administrative	2,066			2,366
Total operating expenses	10,435			11,336
Loss from operations	(602		)	(3,162		)
Other income (expense), net	—			—
Interest income, net	4			145
Loss before provision for income taxes	(598		)	(3,017		)
Provision for income taxes	12			13
Net loss	$	(610	)	$	(3,030	)
Net loss per share attributable to common stockholders:
Basic and diluted net loss per share	$	(0.03	)	$	(0.15	)

Shares used to compute basic and diluted net loss per share	20,650			20,149
Stock-based compensation included in:

Cost of revenue	$	87		$	89
Research and product-development	249			223
Sales and marketing	218			197
General and administrative	229			234
Total stock-based compensation	$	783		$	743

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

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OCCAM NETWORKS, INC. AND SUBSIDIARY

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Three Months Ended
	March 31, 2010			March 31, 2009
	(Unaudited)
Operating activities
Net loss	$	(610	)	$	(3,030	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	784			826
Stock-based compensation expense	783			743
Accounts receivable reserves	(66		)	(79		)
Inventory reserves	(52		)	(145		)
Changes in operating assets and liabilities:
Accounts receivable	5,005			6,817
Inventories	2,050			2,588
Prepaid expenses and other assets	432			1,012
Accounts payable	206			(2,627		)
Accrued expenses	(1,043		)	(1,976		)
Deferred revenue	(5,908		)	(4,932		)
Deferred rent	(85		)	(78		)
Net cash provided by (used in) operating activities	1,496			(881		)
Investing activities
Purchases of property and equipment	(823		)	(179		)
Decrease in restricted cash	2,826			1,145
Net cash provided by investing activities	2,003			966
Financing activities
Proceeds from the exercise of stock options	675			—
Proceeds from employee stock purchase plan	233			355
Payments of capital lease obligations	(6		)	(4		)
Payment of payroll taxes for vested restricted stock units	(158		)	—
Net cash provided by financing activities	744			351
Net increase in cash and cash equivalents	4,243			436
Cash and cash equivalents, beginning of period	39,268			30,368
Cash and cash equivalents, end of period	$	43,511		$	30,804
Supplemental disclosure of cash flow information:
Income taxes paid	$	60		$	144
Interest paid	$	1		$	1

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

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OCCAM NETWORKS, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Business and Basis of Presentation

Occam Networks, Inc. (“Occam,” the “Company,” “we” or “us”) develops markets and supports innovative broadband access products designed to enable telecom service providers to offer bundled voice, video and high speed internet, or Triple Play, services over both copper and fiber optic networks. The Company’s core product line is the Broadband Loop Carrier (BLC), an integrated hardware and software platform that uses Internet Protocol (IP) and Ethernet technologies to increase the capacity of local access networks, enabling the delivery of advanced Triple Play services. The Company also offers a family of Optical Network Terminals (ONTs) for fiber optic networks, remote terminal cabinets, and professional services.

Basis of Presentation

The accompanying condensed consolidated financial statements are unaudited. The condensed consolidated balance sheet at December 31, 2009 is derived from Occam’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2009. These unaudited condensed consolidated financial statements reflect all material entries, consisting only of normal recurring entries, which, in the opinion of management, are necessary to fairly state our financial position, results of operations and cash flows for the interim periods. The results of operations for the current interim periods are not necessarily indicative of results to be expected for the entire year.

The unaudited condensed consolidated financial statements include management’s estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates, and material effects on consolidated operating results and consolidated financial position may result.

The unaudited interim condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for annual financial statements. Because all of the disclosures required by GAAP are not included, as permitted by the rules of the Securities and Exchange Commission, or the SEC, these interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009. In the opinion of management, all adjustments consisting of normal and recurring entries considered necessary for a fair statement of the results for the interim periods have been included in the Company’s financial position as of March 31, 2010, the results of its operations for the three months ended March 31, 2010 and 2009, and its cash flow for the three months ended March 31, 2010 and 2009.

Certain amounts in the prior periods presented have been reclassified to conform to the current period financial statement presentation. These reclassifications had no effect on previously reported net income (loss).

The Company warrants its products for periods up to five years and records an estimated warranty accrual when shipped.

Use of Estimates

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

Revenue Recognition

Occam generally recognizes revenue under SAB 104 in the period when all of the requirements of SAB 104 have been met:

· persuasive evidence of sales arrangements,

· delivery has occurred or services have been rendered,

· the buyer’s price is fixed or determinable and

· collection is reasonably assured.

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The Company enters into transactions with value-added resellers where the resellers may not have the ability to pay for these sales independent of payment to them by the end-user. In these cases, the Company does not recognize revenue until payment has been received, provided the remaining revenue recognition criteria are met.

The Company sells hardware products that contain embedded operating system software. These tangible products contain software components and non-software components that function together to deliver the product’s essential functionality. Revenue is recognized for these products under SAB 104. The Company has one minor software network management product which is a stand alone product not essential to the functionality of other products that the Company sells. Revenue is recognized for this product in accordance with FASB Accounting Standard Codification Topic 985, Software. The amount of sales of this product and the related revenue recognized to date by the Company have been immaterial.

In addition to the aforementioned general policy, the Company enters into transactions that represent multiple-element arrangements, which may include training and post-sales technical support and maintenance to our customers as needed to assist them in installation or use of our products, and makes provisions for these costs in the periods of sale. Multiple-element arrangements are assessed to determine whether they can be separated into more than one unit of accounting. A multiple-element arrangement is separated into more than one unit of accounting if all of the following criteria are met:

· the delivered item(s) has value to the customer on a stand-alone basis;

· there is objective and reliable evidence of the fair value of the undelivered item(s); and

· the arrangement includes a general right of return relative to the delivered item(s) and delivery or performance of the undelivered item(s) is considered probable and substantially in our control.

If these criteria are not met, then revenue is deferred until such criteria are met or until the period(s) over which the last undelivered element is delivered. If there is objective and reliable evidence of fair value for all units of accounting in an arrangement, the arrangement consideration is allocated to the separate units of accounting based on each unit’s relative fair value. When the Company is unable to establish selling price using vendor specific objective evidence or third party evidence, the Company uses “estimated selling price” (“ESP”) in its allocation of arrangement consideration. The objective of ESP is to determine the price at which the Company would transact a sale if the product or service were sold on a stand-alone basis. ESP is generally used for new products, and it applies to a small proportion of the Company’s arrangements with multiple deliverables. The Company determines ESP for a product or service by considering multiple factors including, but not limited to, geographies, market conditions, competitive landscape, internal costs, gross margin objectives, and pricing practices.

In certain circumstances, the Company enters into arrangements with customers who receive financing support in the form of long-term low interest rate loans from the United States Department of Agriculture’s Rural Utilities Service, or RUS. The terms of the RUS contracts provide that in certain instances transfer of title of the Company’s products does not occur until customer acceptance, The Company recognizes revenue on these RUS contracts upon customer acceptance, given the remaining revenue recognition criteria, such as collectability, under SAB 104 have been met.

2. Fair Value Measurements

Effective January 1, 2008, the Company adopted the authoritative guidance on fair value measurements. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. As a basis for considering such assumptions, the guidance establishes a three-tier value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:

Level 1 - Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 - Include other inputs that are directly or indirectly observable in the marketplace.

Level 3 - Unobservable inputs which are supported by little or no market activity.

The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

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In accordance with this guidance, we measure our cash equivalents at fair value. Our cash equivalents are classified within Level 1. Cash equivalents are valued primarily using quoted market prices utilizing market observable inputs. At March 31, 2010, cash equivalents consisted of money market funds measured at fair value on a recurring basis. Fair value of our money market funds was $33.8 million at March 31, 2010.

Effective January 1, 2009, the Company adopted, the FASB staff position that delayed the guidance on fair value measurements for non financial assets and non financial liabilities. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

3. Inventories

	March 31, 2010		December 31, 2009
Raw materials	$	203	$	274
Work-in-process	30		56
Finished goods(1)	10,696		12,597
Total inventories	$	10,929	$	12,927

(1) $3.7 million and $6.2 million of finished goods inventory were shipped to customers as of March 31, 2010 and December 31, 2009, respectively. The majority were sent to RUS contract customers and value-added resellers. Revenue and related cost of revenue were not recognized at the time of shipments as defined by the Company’s revenue recognition policy and therefore were included in inventories. For more information regarding our revenue recognition policy, see Revenue Recognition under Note 1 to these unaudited condensed consolidated financial statements.

4. Net Loss Per Share Attributable to Common Stockholders

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

	Three Months Ended
	March 31, 2010			March 31, 2009
Numerator
Net loss available to common stockholders	$	(610	)	$	(3,030	)
Denominator
Shares used to compute basic and diluted net loss per share	20,650			20,149
Basic and diluted net loss per share	$	(0.03	)	$	(0.15	)

Basic and diluted net loss per share are identical because we had losses from continuing operations and the impact of common equivalent shares was anti-dilutive and therefore excluded. The anti-dilutive weighted average shares that were excluded from the shares used in computing diluted net loss per share for three months ended March 31, 2010 and March 31, 2009, amounted to approximately 0.6 million and 3.0 million shares, respectively.

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5. Commitments and Contingencies

The Company leases its office facilities and certain equipment under non-cancelable operating lease agreements, which expire at various dates through 2015. Operating leases contain escalation clauses with annual base rent adjustments or a cost of living adjustment. Total rent expense was $0.3 million for both the three months ended March 31, 2010 and March 31, 2009.

Minimum annual lease commitments under non-cancelable operating leases are as follows (in thousands):

Remainder of fiscal year,
2010	$	1,088
Fiscal year ending December 31,
2011	1,469
2012	1,505
2013	1,543
2014	639
2015	328
Total Minimum Lease Payments	$	6,572

Royalties

From time to time, the Company may license certain technology for incorporation into its products. Under the terms of these multi-year agreements, royalty payments will be made based on per-unit sales of certain of the Company’s products. The Company incurred royalty expense of $54,189 and $41,727 for the three months ended March 31, 2010 and March 31, 2009 respectively.

Legal Proceedings

IPO Allocation Litigation

In June 2001, three putative stockholder class action lawsuits were filed against Accelerated Networks, certain of its then officers and directors and several investment banks that were underwriters of Accelerated Networks’ initial public offering. The cases, which were later consolidated, were filed in the United States District Court for the Southern District of New York, and the operative Complaint was filed on April 19, 2002. The Complaint was filed on behalf of investors who purchased Accelerated Networks’ stock between June 22, 2000 and December 6, 2000 and alleged violations of Sections 11 and 15 of the 1933 Act and Sections 10(b) and 20(a) and Rule 10b-5 of the 1934 Act against one or both of Accelerated Networks and the individual defendants. The claims were based on allegations that the underwriter defendants agreed to allocate stock in Accelerated Networks’ initial public offering to certain investors in exchange for excessive and undisclosed commissions and agreements by those investors to make additional purchases in the aftermarket at pre-determined prices. Plaintiffs alleged that the prospectus for Accelerated Networks’ initial public offering was false and misleading in violation of the securities laws because it did not disclose these arrangements.

The Company believes that over three hundred other companies have been named in over three hundred similar lawsuits that have been coordinated with the Company’s case. In October 2002, the plaintiffs voluntarily dismissed the individual defendants without prejudice. On February 1, 2003 a motion to dismiss filed by the issuer defendants was heard and the court dismissed the 10(b), 20(a) and rule 10b-5 claims against Occam. On October 13, 2004, the Court certified a class in six of the approximately 300 other nearly identical actions (the “focus” cases) and noted that the decision was intended to provide guidance to all parties regarding class certification in the remaining cases. The Second Circuit Court of Appeals vacated the district court’s decision granting class certification in those six cases on December 5, 2006. Plaintiffs filed a motion for rehearing. On April 6, 2007, the Second Circuit denied the petition, but noted that Plaintiffs could ask the District Court to certify a more narrow class than the one that was rejected.

The parties in the approximately 300 coordinated cases, including the Company’s, reached a settlement. On October 5, 2009, the Court approved the settlement and certified a settlement class. Six notices of appeal of the Second Circuit of the Court’s approval of the settlement have been filed. Three objectors to the settlement who filed a notice of appeal also filed a permission to file an appeal on the basis that the Court purportedly abused its discretion concerning the class certification on the grounds that it was broader than the class rejected by the Second Circuit Appeals Court. Plaintiffs filed an opposition to the petition. The Court has not yet ruled on the petition and the briefing on the appeals has not yet commenced. The case remains open pending the outcome of the court ruling on the appeals.

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Due to the inherent uncertainties of litigation, the Company cannot accurately predict the ultimate outcome of the matter. The Company has not recorded any accrual related to the settlement because the Company expects any settlement amounts to be covered by its insurance policies.

IPO Short Swing Profits Litigation

In late 2007, the Company received a letter from Vanessa Simmonds, a putative shareholder, demanding that the Company investigate and prosecute a claim for alleged short-swing trading in violation of Section 16(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78p(b), by the underwriter of the Company’s initial public offering (“IPO”) and certain unidentified directors, officers and shareholders of the Company (then known as Accelerated Networks). The Company evaluated the demand and declined to prosecute the claim. On October 12, 2007, the putative shareholder commenced a civil lawsuit in the U.S. District Court for the Western District of Washington against Credit Suisse Group, the lead underwriter of the Company IPO, alleging violations of Section 16(b). The complaint alleges that the combined number of shares of the Company common stock beneficially owned by the lead underwriter and certain unnamed officers, directors, and principal shareholders exceeded ten percent of its outstanding common stock from the date of Occam’s IPO on June 23, 2000, through at least June 22, 2001. It further alleges that those entities and individuals were thus subject to the reporting requirements of Section 16(a) and the short-swing trading prohibition of Section 16(b), and failed to comply with those provisions. The complaint seeks to recover from the lead underwriter any “short-swing profits” obtained by it in violation of Section 16(b). The Company was named as a nominal defendant in the action, but has no liability for the asserted claims. None of the directors or officers of the Company are named as defendants in this action.

On October 29, 2007, the case was reassigned to Judge James L. Robart along with fifty-four other Section 16(b) cases seeking recovery of short-swing profits from underwriters in connection with various IPOs. The Underwriters and Issuers have filed a motion to dismiss the case and reply briefs have been filed. The Court heard oral argument on January 19, 2009 from all parties. On March 12, 2009, the Court dismissed the 16 (b) complaint against the issuer defendants including Occam on both jurisdictional and statute of limitation grounds. On March 31, 2009, the Plaintiffs filed a Notice of Appeal and their opening brief on August 26, 2009. The Issuers including Occam and the underwriters filed their responses on October 2, 2009. Each party’s reply briefs have been filed as of November 17, 2009. To date the Appellate Court for the Ninth Circuit has not set a date of oral argument.

Due to the inherent uncertainties of threatened litigation, the Company cannot accurately predict the ultimate outcome of the matter. The Company has not recorded any accruals related to the demand letters or Section 16(b) litigation because the Company expects any resulting resolution to be covered by its insurance policies.

Other Matters

From time to time, the Company is subject to threats of litigation or actual litigation in the ordinary course of business, some of which may be material. The Company believes that, except as described above, there are no currently pending matters that, if determined adversely to us, would have a material effect on the Company’s business or that would not be covered by our existing liability insurance maintained by the Company.

Indemnifications and Guarantees

The Company enters into indemnification provisions under its agreements with other companies in the ordinary course of business, typically with its contractors, customers, value-added resellers, and landlords. As of March 31, 2010, the Company did not have any material accrued liability related to these indemnification agreements.

Purchase Orders

Under the terms of Occam’s contract manufacturer agreements and original design manufacturer agreements, Occam is required to place orders with its contract manufacturers and original design manufacturers to provide inventory to meet its estimated sales demand. Certain contract manufacturer agreements include production forecast change, lead-time and cancellation provisions. At March 31, 2010, open purchase orders with contract manufacturers were $20.5 million.

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Warranties

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

	March 31,			December 31,
	2010			2009

Warranty liability at beginning of the year	$	4,818		$	4,326
Accruals for warranty during the period	531			2,830
Warranty utilization	(1,972		)	(2,338		)
Warranty liability at end of the period	$	3,377		$	4,818

6. Accrued Liabilities

The major components of accrued liabilities are (in thousands):

	March 31, 2010		December 31, 2009
Warranty accruals	$	3,377	$	4,818
Payroll, paid time off and related accruals	1,636		1,620
Commissions	356		234
Other accruals	587		327
Total	$	5,956	$	6,999

7. Stock Options, Stock Awards, Employee Stock Purchase Plan, and Stock-Based Compensation

Stock option activity, under the Company’s stock option plan for the three months ended March 31, 2010 is summarized as below (shares and intrinsic value in thousands):

	Options		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at January 1, 2010	3,923		$	5.65	7.18	$	6,379
Granted	45		6.86
Exercised	(180	)	3.75
Forfeited or expired	(7	)	5.63
Outstanding at March 31, 2010	3,781		$	5.75	6.98	$	9,715
Exercisable at March 31, 2010	2,317		$	7.28	5.88	$	4,714

The weighted-average fair value of options granted to employees on the date of the grant for the three months ended March 31, 2010 was $3.30.

The 2006 Equity Incentive Plan, or 2006 Plan, provides for automatic annual increases in the number of shares available for issuance under the 2006 Plan effective as of the first day of each fiscal year equal to the lesser of (a) 3% of the outstanding shares of the common stock on the first day of the applicable fiscal year; (b) 750,000 shares; or (c) such other amount as the Board of Directors or a committee of the board may determine. On February 23, 2010, the Board of Directors approved an increase of 620,073 shares reserved for issuance under the 2006 Plan for fiscal 2010. This represented 3% of the outstanding common shares as of January 1, 2010.

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Stock Awards

A summary of the Company’s restricted stock unit activities is as follows (in thousands):

	Restricted Stock Units		Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at January 1, 2010	315		1.09	$	1,703
Awarded	3
Released	(41	)
Forfeited or expired or cancelled	(28	)
Outstanding at March 31, 2010	249		1.12	$	1,635

The market value of the restricted stock units on the date of the grant during the three months ended March 31, 2010 was $6.63.

Employee Stock Purchase Plan

In March 2008, the Board of Directors approved an amendment to our 2006 Employee Stock Purchase Plan or the ESPP. The amendment increased the maximum number of shares of the Company’s common stock that an eligible employee may purchase during each offering period from 1,000 shares to 5,000 shares. Under the ESPP, 78,320 shares were issued on February 16, 2010 at a purchase price per share of $2.97.

The ESPP provides for an automatic annual increases in the number of shares available for issuance under the ESPP effective as of the first day of each fiscal year equal to the lesser of (a) 300,000 shares of common stock; (b) 1.5% of the outstanding shares of common stock on the first day of the applicable fiscal year; or (c) an amount determined by the Board of Directors. On February 23, 2010, the Board of Directors approved an increase of 300,000 shares in the number of shares reserved for issuance under the ESPP.

Stock-Based Compensation

The following table summarizes the stock-based compensation expense, for all share-based awards to employees and directors, including employee stock options, restricted stock and restricted stock units and employee stock purchase plan based on the estimated fair value on our Consolidated Statements of Operations (in thousands):

	Three Months Ended
	March 31, 2010		March 31, 2009

Employee stock-based compensation in:
Cost of revenue	$	87	$	89
Research and product-development	249		223
Sales and marketing	218		197
General and administrative	229		234
Total SFAS 123(R) stock-based compensation in operating expenses	696		654
Total SFAS 123(R) stock-based compensation	$	783	$	743

As of March 31, 2010, total unamortized stock-based compensation cost related to non-vested stock options after accounting for estimated forfeitures was $2.2 million, which the Company expects to recognize over the remaining vesting period of each grant, up to the next 48 months.

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Upon adoption of the FASB Accounting Standard Codification Topic 718, stock-based compensation, we selected the Black-Scholes option pricing model as the most appropriate model for determining the estimated fair value for stock-based awards. The use of the Black-Scholes model requires the use of extensive actual employee exercise behavior data and the use of a number of complex assumptions including expected volatility, risk-free interest rate, forfeitures, and expected dividends. The assumptions used to value options granted are as follows:

	Three Months Ended
	March 31, 2010		March 31, 2009
Risk-free interest rate	2.4	%	1.9	%
Expected term (years)	4.8		5.0
Dividend yield	0	%	0	%
Expected volatility	54.4	%	58.2	%

The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. We do not anticipate declaring dividends in the foreseeable future. Expected volatility is based on the annualized weekly historical volatility of our stock price and we believe it is indicative of future volatility. We estimate the expected life of options granted based on historical exercise and post-vesting cancellation patterns with consideration of our industry peers of similar size with similar option vesting periods. Our analysis of stock price volatility and option lives involves management’s best estimates at the time of determination. FASB Accounting Standard Codification Topic 718, stock-based compensation, also requires that we recognize compensation expense for only the portion of options or stock units that are expected to vest. Therefore, we apply an estimated forfeiture rate that is derived from historical employee termination behavior. If the actual number of forfeitures differs from that estimated by management, additional adjustments to compensation expense may be required in future periods.

8. Income Taxes —Final Outcome of Section 382 Analysis

As of December 31, 2009, the Company had net operating loss carry forwards of approximately $109.1 million and $72.1 million to offset federal and state future taxable income, respectively. These amounts have been reduced due to an ownership change which occurred, as defined by Sections 382 of the Internal Revenue Code,resulting in the forfeiture of a portion of the Company’s net operating loss carryforwards. Gross deferred tax assets and related valuation allowance have been reduced by $2.8 million to $54.0 million to reflect the conclusions of this analysis.

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

You should read the following discussion and analysis in conjunction with our condensed consolidated financial statements and the related notes thereto included in this Quarterly Report on Form 10-Q and with Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009. The following discussion contains both historical information and forward-looking statements within the meaning of Section 21E of the Exchange Act. A number of factors affect our operating results and could cause our actual future results to differ materially from any forward-looking results discussed below. In some cases, you can identify forward-looking statements by terminology such as “anticipates,” “appears,” “believes,” “continue,” “could,” “estimates,” “expects,” “feels,” “goal,” “hope,” “intends,” “may,” “our future success depends,” “plans,” “potential,” “predicts,” “projects,” “reasonably,” “seek to continue,” “should,” “thinks,” “will” or the negative of these terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially. In addition, historical information should not be considered an indicator of future performance. Factors that could cause or contribute to these differences include, but are not limited to, the risks discussed in this Report in Part II, Item 1A under the caption “Risk Factors.” These factors may cause our actual results to differ materially from any forward-looking statements.

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Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Moreover, we are under no duty to update any of the forward-looking statements after the date of this Quarterly Report on Form 10-Q to conform these statements to actual results. These forward-looking statements are made in reliance upon the safe harbor provision of The Private Securities Litigation Reform Act of 1995.

Overview

We develop, market and support innovative broadband access products designed to enable telecom service providers to offer bundled voice, video and high speed internet, or Triple Play, services over both copper and fiber optic networks. Our Broadband Loop Carrier, or BLC, is an integrated hardware and software platform that uses Internet Protocol, or IP, and Ethernet technologies to increase the capacity of local access networks, enabling our customers to deliver advanced services, including voice-over-IP, or VoIP, IP-based television, or IPTV, video-on-demand, or VoD, and high-definition television, or HDTV. Our platform simultaneously supports traditional voice and data services, enabling our customers to leverage their existing networks and migrate to IP without disruption. In addition to providing our customers with increased bandwidth, our products provide incremental value by offering software-based features to improve the quality, resiliency and security of network service offerings. We market our products through a combination of direct and indirect channels. Our direct sales efforts are focused on the North American independent operating company, or IOC, segment of the telecom service provider market. As of March 31, 2010, we had shipped our BLC platform to over 350 telecommunications customers.

From our inception through March 31, 2010, we have incurred cumulative net losses of approximately $136.1 million. We realized income from operations and were profitable on a net income basis during the quarters ended December 31, 2008, December 31, 2006 and September 24, 2006, and for the year ended December 31, 2006. Previously, we had not been profitable on a quarterly or annual basis, excluding the quarter ended December 25, 2005, in which we realized modest operating income of $3,000. We experienced operating and net losses in the first, second, third and fourth quarters of fiscal 2009 and for fiscal 2009 as a whole. In the first quarter of 2010, we experienced an increase in our booking activity level which resulted in increased shipments. In the short term, we expect that booking activity may vary depending on our customers’ ability to make capital investments using their own funds, and their access to credit facilities or other loan program funds. We expect however that any continuation of current macroeconomic conditions may have an adverse impact on our business in 2010, in particular as carriers continue to evaluate capital spending budgets in a difficult economic environment and in light of the industry transition from copper wire to fiber. We believe IOCs will continue to carefully evaluate their spending decisions in 2010 although government broadband funding initiatives could have a favorable impact on capital spending trends among telecommunications carriers.

Critical Accounting Policies and Estimates

Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition, inventories, accounts receivable reserves, sales return reserves, litigation, warranty reserve, stock-based compensation, and valuation of deferred income tax assets. We base our estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

We included in our Annual Report on Form 10-K for the year ended December 31, 2009 a discussion of our most critical accounting policies, which are those that are most important to the portrayal of our financial condition and results of operations and require management’s most difficult, subjective and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

We warrant our products for periods up to five years and record an estimated warranty accrual when shipped. We provide a standard warranty with the sale of our products for up to five years from the date of shipment. The estimated cost of providing the product warranty is recorded at the time of shipment. We maintain product quality programs and processes, including actively monitoring and evaluating the quality of our suppliers. We quantify and record an estimate for warranty-related costs based on a variety of factors including but not limited to our actual history, projected return and failure rates and current repair costs. Our estimates are primarily based on an estimate of products that may be returned for warranty repair, estimated costs of repair, including

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parts and labor, depending on the type of service required. These estimates require us to examine past and current warranty issues and consider their continuing impact in the future. Our accrual is based on consideration of all these factors which are known as of the preparation of our consolidated financial statements. Our estimates of future warranty liability are based on prediction of future events, conditions and other complicated factors that are difficult to predict. The actual costs we incur may differ materially from our estimates.

Results of Operations

Three-months ended March 31, 2010 and 2009

Revenue (in thousands)

	Three Months Ended
	March 31, 2010		March 31, 2009

Revenue	$	22,344	$	19,419

Our revenue is principally comprised of our BLC 6000 series system product line, Optical Network Terminals, cabinets and related accessories. Revenue increased by $2.9 million or 15% to $22.3 million for the three months ended March 31, 2010 as compared to revenue of $19.4 million for the three months ended March 31, 2009. The increase in revenue is primarily due to increased booking activity level which resulted in increased shipments. We believe this increase is primarily due to a slight improvement in economic conditions.

We expect however that any continuation of current macroeconomic conditions may have an adverse impact on our business in 2010, in particular as carriers continue to evaluate capital spending budgets in a difficult economic environment and in light of the industry transition from copper wire to fiber. We believe IOCs will continue to carefully evaluate their spending decisions in 2010 although government broadband funding initiatives could have a favorable impact on capital spending trends among telecommunications carriers.

In the short term, we expect that booking activity may vary depending on our customers’ ability to make capital investments using their own funds, and their access to credit facilities or other loan program funds which could impact the timing and the amounts of shipments. We believe that this timing was a primary reason for the decrease in deferred revenue during the quarter ended March 31, 2010.

Cost of revenue and gross margin (in thousands, except percentages)

	Three Months Ended
	March 31, 2010			March 31, 2009

Cost of revenue	$	12,511		$	11,245
Gross margin	$	9,833		$	8,174
Gross margin percentage	44		%	42		%

Cost of revenue includes the cost of products shipped for which revenue was recognized, warranty costs, costs of any manufacturing yield problems, re-work costs, manufacturing overhead, provisions for obsolete inventory and the cost of post-sales support. The increase in cost of revenue during the three months ended March 31, 2010 from the similar period during the prior year was primarily attributable to increased revenue shipments.

Gross margin was 44% of revenue for the three months ended March 31, 2010 and 42% of revenue for the three months ended March 31, 2009. The increase in gross margin was attributable to product mix and higher than average margin on BLC shipments.

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We expect that our gross margin will vary from quarter-to-quarter due in part to product mix, average selling price changes and manufacturing cost changes. To the extent that ONTs and other lower margin products represent an increased percentage of our total revenue in any period, it will tend to reduce our gross margin. Additionally, as we introduce new products into the market, we anticipate our gross margin may fluctuate as a function of our product mix.

Research and product-development expenses (in thousands, except percentages)

	Three Months Ended
	March 31, 2010			March 31, 2009

Research and product-development	$	3,765		$	4,389
Research and product-development as a percentage of revenue	17		%	23		%

Research and product-development expenses consist primarily of salaries and other personnel-related costs, prototype component and assembly costs, third-party design services and consulting costs, and other costs related to the design, development, and testing of our products. Research and product-development costs are expensed as incurred, except for capital expenditures, which are capitalized and depreciated over their estimated useful lives, generally two to three years. Research and development expenses decreased by $0.6 million or 14% to $3.8 million for the three months ended March 31, 2010 as compared to $4.4 million for the three months ended March 31, 2009. The decrease in research and product-development expenses was primarily attributable to lower personnel related costs related to reduction in force and decreased development expenses.

We currently expect research and product-development expenses in future periods to be largely consistent with current expense levels.

Sales and marketing expenses (in thousands, except percentages)

	Three Months Ended
	March 31, 2010			March 31, 2009

Sales and marketing	$	4,604		$	4,581
Percentage of revenue	21		%	24		%

Sales and marketing expenses consist primarily of salaries, sales commissions, and other personnel-related costs, development and distribution of promotional materials, and other costs related to generating sales and conducting corporate marketing activities. Sales and marketing expenses increased by $23,000 to $4.6 million for the three months ended March 31, 2010 from $4.6 million for the same period in 2009. This net increase was primarily due to higher sales commissions, offset by lower personnel related costs.

We currently expect sales and marketing expenses in future periods to be consistent with current expense levels but may vary with the level of customer bookings.

General and administrative expenses (in thousands, except percentages)

	Three Months Ended
	March 31, 2010			March 31, 2009

General and administrative	$	2,066		$	2,366
Percentage of sales	9		%	12		%

General and administrative expenses consist primarily of salaries and other personnel-related costs for executive, finance, human resources, and administrative personnel. Additionally, general and administrative expenses include professional fees, liability insurance and other general corporate costs such as rent, legal, utilities and accounting expenses. General and administrative expenses decreased by $0.3 million or 13% to $2.1 million for the three months ended March 31, 2010 as compared to $2.4 million for the three months ended March 31, 2009. General and administrative expenses decreased primarily due to lower professional fees, lower legal fees and lower personnel related costs.

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We currently expect general and administrative expenses to be consistent with current expense levels but may vary depending on the timing and amount of legal fees incurred and insurance reimbursements.

Stock-based compensation (in thousands)

	Three Months Ended
	March 31, 2010		March 31, 2009

Cost of sales	$	87	$	89
Research and development	249		223
Sales and marketing	218		197
General and administrative	229		234
Total stock-based compensation	$	783	$	743

Stock-based compensation expense increased by approximately $40,000 or 5% to $0.8 million for the three months ended March 31, 2010 as compared to approximately $0.7 million for the three months ended March 31, 2009. This increase is primarily attributable to additional grants of options and awards.

We anticipate that the stock-based compensation expense calculated under FASB Accounting Standards Codification Topic 718 will continue to have a material effect on our consolidated statement of operations.

Interest income (expense), net (in thousands)

	Three Months Ended
	March 31, 2010			March 31, 2009

Interest income	$	5		$	146
Interest expense	(1		)	(1		)
Total other income (expense), net	$	4		$	145

Interest income, net decreased by $141,000 or 97% to $4,000 for the three months ended March 31, 2010, as compared to $145,000 for the three months ended March 31, 2009. The decrease is attributable to lower average restricted cash balances earning interest and lower interest rates.

Provision for income taxes (in thousands)

For income tax purposes, we consider our projected annual income and the utilization of our net operating loss carry forwards among other factors. For the three months ended March 31, 2010 and March 31, 2009, we provided for $12,000 and $13,000, respectively, for federal and state income taxes.

As of December 31, 2009, we had net operating loss carryforwards of approximately $109.1 million and $72.1 million to offset federal and state future taxable income, respectively. These amounts have been reduced due to an ownership change which occurred, as defined by Sections 382 of the Internal Revenue Code, resulting in the forfeiture of a portion of our net operating loss carryforwards. Gross deferred tax assets and related valuation allowance have been reduced by $2.8 million to $54.0 million to reflect the conclusions of this analysis.

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Liquidity and Capital Resources

As of March 31, 2010, we had cash and cash equivalents of $43.5 million, restricted cash of $2.9 million, stockholders’ equity of $53.8 million, and working capital of $46.3 million, compared with cash and cash equivalents of $39.3 million, restricted cash of $5.7 million, stockholders’ equity of $52.9 million, and working capital of $45.5 million as of December 31, 2009. The increase in our cash and cash equivalents is primarily related to a decrease in restricted cash.

Net cash provided by operating activities for the three months ended March 31, 2010, was $1.5 million compared to net cash used in operating activities of $0.9 million during the same period ended 2009. The sum of our net loss and certain non-cash expenses, such as stock-based compensation, depreciation and amortization, accounts receivable reserves and inventory reserves resulted in an inflow of $0.8 million during the three months ended March 31, 2010, compared to an outflow of $1.7 million during the three months ended March 31, 2009. The overall impact of change in certain operating assets and liabilities on total operating cash flows resulted in a cash inflow of $0.7 million in the three months ended March 31, 2010 as compared to the cash inflow of $0.8 million in the three months ended March 31, 2009.

Net cash provided by investing activities for the three months ended March 31, 2010, was $2.0 million compared to $1.0 million provided by investing activities, during the same period ended March 31, 2009. Cash provided by investing activities for the three months ended March 31, 2010, was primarily due to a decrease of $2.8 million in restricted cash required for performance bonds in connection with our RUS contracts offset by $0.8 million for purchases of property and equipment, as compared to a decrease in $1.1 million in restricted cash, offset by $0.2 million for purchases of property and equipment in the three months ended March 31, 2009.

Net cash provided by financing activities for the three months ended March 31, 2010 was $0.7 million compared to $0.4 million for the same period in 2009. Cash provided by financing activities for the three months ended March 31, 2010, was mainly due to proceeds from the exercise of stock options of $0.7 million and sale of common stock under the ESPP of $0.2 million partially offset by payment of payroll taxes for vested restricted stock units of $0.2 million, as compared to proceeds of approximately $0.4 million related to the exercise of stock options, which was offset by the payment of approximately $4,000 for capital lease obligations for the three months ended March 31, 2009.

Working Capital

Working capital increased to $46.3 million as of March 31, 2010 as compared to $45.5 million as of December 31, 2009. The increase in the working capital is primarily attributable to a decrease in deferred revenue and accrued liabilities partially offset by a decrease in inventories and accounts receivable balances.

Our future liquidity and capital requirements will depend on numerous factors, including the:

· amount and timing of revenue;

· collectability of accounts receivable;

· extent to which our existing and new products gain market acceptance;

· cost and timing of product development efforts and the success of these development efforts;

· cost and timing of marketing and selling activities;

· extent to which funds are restricted due to performance bonds required in connection with our RUS contracts; and

· availability of borrowing arrangements and the availability of other means of financing.

We believe that our cash and cash equivalents will be sufficient to finance our operations over the next 12 months. Although we believe these funds will be sufficient to maintain and expand our operations in accordance with our business strategy, we may need additional funds in the future. If we are unable to raise additional financing when and if needed, we may be required to reduce certain discretionary spending, which could have a material adverse effect on our ability to achieve our intended business objectives.

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Contractual Obligations

We lease our facilities and certain assets under non-cancelable operating leases expiring through 2015, excluding various renewal options. We lease certain office equipment under capital leases.

The following table summarizes our minimum purchase commitments to our contract manufacturers, our minimum commitments under non-cancelable operating leases, our commitment under capital leases, our commitment under fixed assets and licensing agreements as of March 31, 2010 (in thousands):

	Payments Due By Period
	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Contractual Obligations
Purchase commitments (1)	$	20,477	$	20,477	$	—	$	—	$	—
Operating leases	$	6,572	$	1,088	$	4,517	$	697	$	—
Capital leases	$	40	$	21	$	19	$	—	$
Licensing agreements	$	104	$	94	$	10	$	—	$	—

(1) Under the terms of agreements with our contract manufacturers and original design manufacturers, we issue purchase orders for the production of our products. We are required to place orders in advance with our contract manufacturers and original design manufacturers to meet estimated sales demands. The agreements include certain lead-time and cancellation provisions. Future amounts payable to our contract manufacturer will vary based on the level of purchase requirements.

Of the unrecognized tax benefit liability of approximately $9.3 million, unrecognized tax benefits of only $0.1 million would require a cash settlement and is not included in the table above due to our significant tax net loss and research tax credit carry forward position. If some or all of the unrecognized tax benefit liability became a recognized tax liability, it would generally result in reduction of these net operating losses and tax credits and would not result in the use of cash to satisfy the tax liability.

Off-Balance Sheet Arrangements

As of March 31, 2010, we had no material off-balance sheet arrangements, other than operating leases and certain purchase commitments described in the contractual obligations table above.

Indemnification Obligations

We enter into indemnification provisions under our agreements with other companies in our ordinary course of business, typically with our contractors, customers, and landlords. As of March 31, 2010, we did not have any material accrued liability related to these indemnification agreements.

Recent Accounting Pronouncements

In February 2010, the Financial Accounting Standards Board (FASB) amended its guidance on subsequent events. The amendment states that entities that are required to file or furnish their financial statements with the SEC are no longer required to disclose the date through which the entity has evaluated subsequent events. This amendment is effective for the Company’s interim reporting period ended March 31, 2010, and the implementation did not have an impact on the Company’s financial position, results of operations or cash flows as it is disclosure-only in nature.

In January 2010, the Financial Accounting Standards Board (FASB) issued Update No. 2010-06, which amends the Fair Value Measurements and Disclosures topic of the FASB Accounting Standards Codification (Codification). The amendments in this update require new disclosures about transfers in and out of Levels 1 and 2 fair value measurements and the activity in Level 3 fair value measurements and, in addition, clarify existing disclosures required for levels of disaggregation and inputs and valuation techniques. These amendments will be effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about activity in Level 3 fair value measurements, which is effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The adoption of this amendment did not have an impact on our financial position, results of operations, and cash flows.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Because our portfolio of cash equivalents is of a short-term nature, we are not subject to significant market price risk related to investments. However, our interest income is sensitive to changes in the general level of taxable and short-term U.S. interest rates. Our exposure to market risk due to changes in the general level of U.S. interest rates relates primarily to our cash equivalents. We generally invest our surplus cash balances in money-market funds with original or remaining contractual maturities of less than 90 days. The primary objective of our investment activities is the preservation of principal while minimizing risk. We do not hold financial instruments for trading or speculative purposes. We do not use any derivatives or similar instruments to manage our interest rate risk.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of March 31, 2010, which we refer to as the Evaluation Date or the end of the period covered by this Quarterly Report on Form 10-Q.

The purpose of this evaluation was to determine whether as of the Evaluation Date our disclosure controls and procedures were effective to provide reasonable assurance that the information we are required to disclose in reports that we file or submit under the Exchange Act, (i) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of March 31, 2010, our disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting during the three months ended March 31, 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations of Internal Control Procedures

Our management does not expect that our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within our company will have been detected.

PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

IPO Allocation Litigation

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which were later consolidated, were filed in the United States District Court for the Southern District of New York, and the operative Complaint was filed on April 19, 2002. The Complaint was filed on behalf of investors who purchased Accelerated Networks’ stock between June 22, 2000 and December 6, 2000 and alleged violations of Sections 11 and 15 of the 1933 Act and Sections 10(b) and 20(a) and Rule 10b-5 of the 1934 Act against one or both of Accelerated Networks and the individual defendants. The claims were based on allegations that the underwriter defendants agreed to allocate stock in Accelerated Networks’ initial public offering to certain investors in exchange for excessive and undisclosed commissions and agreements by those investors to make additional purchases in the aftermarket at pre-determined prices. Plaintiffs alleged that the prospectus for Accelerated Networks’ initial public offering was false and misleading in violation of the securities laws because it did not disclose these arrangements.

We believe that over three hundred other companies have been named in over three hundred similar lawsuits that have been coordinated with our case. In October 2002, the plaintiffs voluntarily dismissed the individual defendants without prejudice. On February 1, 2003 a motion to dismiss filed by the issuer defendants was heard and the court dismissed the 10(b), 20(a) and rule 10b-5 claims against Occam. On October 13, 2004, the Court certified a class in six of the approximately 300 other nearly identical actions (the “focus” cases) and noted that the decision was intended to provide guidance to all parties regarding class certification in the remaining cases. The Second Circuit Court of Appeals vacated the district court’s decision granting class certification in those six cases on December 5, 2006. Plaintiffs filed a motion for rehearing. On April 6, 2007, the Second Circuit denied the petition, but noted that Plaintiffs could ask the District Court to certify a more narrow class than the one that was rejected.

The parties in the approximately 300 coordinated cases, including ours, reached a settlement. On October 5, 2009, the Court approved the settlement and certified a settlement class. Six notices of appeal of the Second Circuit of the Court’s approval of the settlement have been filed. Three objectors to the settlement who filed a notice of appeal also filed a permission to file an appeal on the basis that the Court purportedly abused its discretion concerning the class certification on the grounds that it was broader than the class rejected by the Second Circuit Appeals Court. Plaintiffs filed an opposition to the petition. The Court has not yet ruled on the petition and the briefing on the appeals has not yet commenced. The case remains open pending the outcome of the court ruling on the appeals.

Due to the inherent uncertainties of litigation, we cannot accurately predict the ultimate outcome of the matter. We have not recorded any accrual related to the settlement because Occam expects any settlement amounts to be covered by its insurance policies.

IPO Short Swing Profits Litigation

In late 2007, we received a letter from Vanessa Simmonds, a putative shareholder, demanding that we investigate and prosecute a claim for alleged short-swing trading in violation of Section 16(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78p(b), by the underwriter of our initial public offering (“IPO”) and certain unidentified directors, officers and shareholders of us (then known as Accelerated Networks). We evaluated the demand and declined to prosecute the claim. On October 12, 2007, the putative shareholder commenced a civil lawsuit in the U.S. District Court for the Western District of Washington against Credit Suisse Group, the lead underwriter of our IPO, alleging violations of Section 16(b). The complaint alleges that the combined number of shares of our common stock beneficially owned by the lead underwriter and certain unnamed officers, directors, and principal shareholders exceeded ten percent of its outstanding common stock from the date of Occam’s IPO on June 23, 2000, through at least June 22, 2001. It further alleges that those entities and individuals were thus subject to the reporting requirements of Section 16(a) and the short-swing trading prohibition of Section 16(b), and failed to comply with those provisions. The complaint seeks to recover from the lead underwriter any “short-swing profits” obtained by it in violation of Section 16(b). We were named as a nominal defendant in the action, but have no liability for the asserted claims. None of our directors or officers of Occam are named as defendants in this action.

Due to the inherent uncertainties of threatened litigation, we cannot accurately predict the ultimate outcome of the matter. We have not recorded any accruals related to the demand letters or Section 16(b) litigation because we expect any resulting resolution to be covered by our insurance policies.

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Other Matters

From time to time, we are subject to threats of litigation or actual litigation in the ordinary course of business, some of which may be material. We believe that, except as described above, there are no currently pending matters that, if determined adversely to us, would have a material effect on our business or that would not be covered by our existing liability insurance maintained by us.

ITEM 1A. RISK FACTORS

This Quarterly Report on Form 10-Q, including any information incorporated by reference herein, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act. The forward-looking statements contained in this Quarterly Report on Form 10-Q involve known and unknown risks, uncertainties and situations that may cause our or our industry’s actual results, level of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these statements. These factors include those listed below in this Item 1A and those discussed elsewhere in this Quarterly Report on Form 10-Q. We encourage investors to review these factors carefully. We may from time to time make additional written and oral forward-looking statements, including statements contained in our filings with the SEC. However, we do not undertake to update any forward-looking statement that may be made from time to time by or on behalf of us.

Before you invest in our securities, you should be aware that our business faces numerous financial and market risks, including those described below, as well as general economic and business risks. The following discussion provides information concerning the material risks and uncertainties that we have identified and believe may adversely affect our business, our financial condition and our results of operations. Before you decide whether to invest in our securities, you should carefully consider these risks and uncertainties, together with all of the other information included in this Quarterly Report on Form 10-Q, our Annual Report on Form 10-K for the year ended December 31, 2009 and in our other public filings.

Risks Related to Current Economic Environment and Our Future Revenues

Our business is substantially dependent on the capital spending patterns of telecom operators and has recently been adversely affected by reductions and delays in capital spending by our customers, primarily due to the economic recession. Any continued reductions in spending or delays in customer orders in response to macroeconomic conditions, availability of funding under government economic stimulus programs, or otherwise, would adversely affect our business, operating results, and financial condition. We cannot predict the timing or impact, if any, of government economic stimulus programs on capital spending by telecom operators.

Demand for our products depends on the magnitude and timing of capital spending by telecom service providers as they construct, expand and upgrade their networks. In the fourth quarter of 2008, we identified a weakening in new order activity that continued throughout 2009. We believe this weakening relates to reductions in capital expenditures and capital equipment investment budgets resulting from the worldwide financial crisis and economic downturn. In addition, we believe that many of our customers, particularly those that participate in government funding initiatives such as the United States Department of Agriculture’s RUS program, may be delaying investment and purchase activity pending their analysis of the availability of funding under recently announced government economic stimulus programs. We cannot accurately predict the timing or the extent of financial impact, if any, that government economic stimulus programs may have on our business. In addition, these programs may not result in a net increase in capital spending activity if telecom operators substitute spending under government stimulus programs for capital spending they would otherwise have made or if private capital spending decreases by more than the incremental increase attributable to government programs. Continued reductions, delays, or cancellations in order activity by our customers would be expected to adversely affect our future revenues by reducing the revenue we recognize in any quarter from orders booked and shipped in that quarter and by reducing the amount of deferred revenues that may become recognizable in future periods upon satisfaction of revenue recognition criteria.

In addition to the impact of macroeconomic factors, we believe capital expenditures among IOCs have also been adversely affected as our customers consider their investment and capital expenditure decisions in light of the industry transition from copper wire to fiber.

Other factors affecting the capital spending patterns of telecom service providers include the following:

· competitive pressures, including pricing pressures;

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· consumer demand for new services;

· an emphasis on generating sales from services delivered over existing networks instead of new network construction or upgrades;

· the timing of annual budget approvals;

· evolving industry standards and network architectures;

· free cash flow and access to external sources of capital; and

· completion of major network upgrades.

Changes in government funding programs can also affect capital expenditures by IOCs. Because many of our customers are IOCs, their revenues are particularly dependent upon intercarrier payments (primarily interstate and intrastate access charges) and federal and state universal service subsidies. The Federal Communications Commission, or FCC, and some states are considering changes to both intercarrier payments and universal service subsidies, and such changes could reduce IOC revenues, which would be expected to have an adverse impact on capital spending budgets. Furthermore, many IOCs use government supported loan programs or grants to finance capital spending. Changes to those programs, such as the Department of Agriculture’s Rural Utilities Service loan program, could reduce the ability of IOCs to access capital. Any decision by telecom service providers to reduce capital expenditures, whether caused by the economic downturn, changes in government regulations and subsidies, or other reasons, would have a material adverse effect on our business, consolidated financial condition and results of operations.

Our focus on independent telephone operating companies limits our sales volume with individual customers and makes our future operating results difficult to predict.

We currently focus our sales efforts on the independent telephone operating companies, or IOCs, in North America. These customers generally operate relatively small networks with limited capital expenditure budgets. Accordingly, we believe the total potential sales volume for our products at any individual IOC is limited, and we must identify and sell products to new IOC customers each quarter to continue to increase our sales. In addition, the spending patterns of many IOCs are characterized by small and sporadic purchases. Moreover, because our sales to IOCs are predominantly based on purchase orders rather than long-term contracts, our customers may stop purchasing equipment from us with little advance notice. As a result, we have limited backlog, our future operating results are difficult to predict and we will likely continue to have limited visibility into future operating results.

We have had limited experience selling to larger telecommunication companies, and our ability to recognize revenue, if any, from contracts with these companies may be difficult to predict. In addition, FairPoint Communications, our only Tier-2 customer, recently filed for bankruptcy protection.

In early 2008, we announced that we had been selected as the lead access equipment provider for a substantial broadband upgrade by FairPoint Communications, Inc. in its network in Vermont, New Hampshire, and Maine. FairPoint acquired these networks through its acquisition of certain assets of Verizon Communications, Inc. FairPoint represented our first customer who is considered Tier 2 based on the number of telephone lines serviced. We have limited experience selling or servicing Tier 2 customers, and our ability to recognize substantial revenue from the FairPoint relationship or any other relationships we may establish with Tier 2 customers will depend on several factors, including, among others, the timing of orders and the terms and conditions of the orders, which can affect our ability to satisfy revenue recognition criteria. We cannot currently predict with any accuracy the timing of orders from FairPoint, and any delays or termination of FairPoint’s anticipated upgrade of its northern New England network could have a material adverse effect on our future revenues and operating results. FairPoint Communications has publicly reported certain financial difficulties that it has encountered related to the Northern New England network.

On October 26, 2009, FairPoint announced that it had filed a bankruptcy petition under chapter 11 of the United States Bankruptcy Code. According to the documents filed with the bankruptcy court, FairPoint’s plan is to restructure its debt and continue day to day operations under court supervision. As of March 31, 2010, we had an outstanding receivable balance from FairPoint of approximately $2.1 million. Of this amount, $1.7 million related to transactions that occurred before FairPoint filed its bankruptcy petition, including $1.4 million which was invoiced within 45 days of the bankruptcy petition filing and is covered by a “reclamation claim” that we filed in November 2009. We currently cannot predict the extent to which these receivables may be paid. We have deferred approximately $1.7 million of revenue and related cost of revenue as of March 31, 2010, for which cash has not been collected.

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We cannot assure that the impact of FairPoint’s bankruptcy will not have a material adverse effect on our business and our results of operations including the timing and amount of orders we may receive from FairPoint as well as the timing and amount of any revenue we might recognize related to such orders. In addition, debtors-in-possession or bankruptcy trustees could seek to recover payments made to us in the 90 day period prior to the bankruptcy filing on the grounds that these payments constituted “preferences” under applicable bankruptcy law. We believe we would have a complete defense to any such claim in that payments to us have been made in the ordinary course of business in exchange for newly purchased equipment. However, any litigation against us relating to a preference claim would result in our incurring incremental legal expenses and, if successful, would have an adverse impact on our cash and cash equivalents.

Fluctuations in our quarterly and annual operating results may adversely affect our business and prospects.

A number of factors, many of which are outside our control, may cause or contribute to significant fluctuations in our quarterly and annual operating results. These fluctuations may make financial planning and forecasting more difficult. In addition, these fluctuations may result in unanticipated decreases in our available cash, which could limit our growth and delay implementation of our expansion plans. Factors that may cause or contribute to fluctuations in our operating results include:

· fluctuations in demand for our products, including the timing of decisions by our target customers to upgrade their networks and deploy our products;

· delays in customer orders as IOCs evaluate and consider their capital expenditures and investments in light of the industry transition from copper wire to fiber;

· increases in warranty accruals and other costs associated with remedying any performance problems relating to our products;

· seasonal reductions in field work during the winter months and the impact of annual budgeting cycles;

· the size and timing of orders we receive and products we ship during a given period;

· delays in recognizing revenue under applicable revenue recognition rules, particularly from government funded contracts, as a result of additional commitments we may be required to make to secure purchase orders, or with respect to sales to value added resellers where we cannot establish based on our credit analysis that collectability is reasonably assured;

· introductions or enhancements of products, services and technologies by us or our competitors, and market acceptance of these new or enhanced products, services and technologies;

· our ability to achieve targeted cost reductions;

· the amount and timing of our operating costs, including sales, engineering and manufacturing costs and capital expenditures; and

· quarter-to-quarter variations in our operating margins resulting from changes in our product mix.

As a consequence, operating results for a particular future period are difficult to predict and prior results are not necessarily indicative of results to be expected in the future. Any of the foregoing factors may have a material adverse effect on our consolidated results of operations.

We have a history of losses and negative cash flow, and we may not be able to generate positive operating income and cash flows in the future to support the expansion of our operations.

We have incurred significant losses since our inception. As of March 31, 2010, we had an accumulated deficit of $136.1 million. We incurred substantial losses in 2009. We may continue to incur losses in 2010. We cannot assure you that we will not continue to incur losses or experience negative cash flow in the future. We have only generated operating income in the quarters ended December 25, 2005, September 24, 2006, December 31, 2006 and December 31, 2008. Our inability to generate positive operating income and cash flow would materially and adversely affect our liquidity, consolidated results of operations and consolidated financial condition.

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A significant portion of our expenses is fixed, and we expect to continue to incur significant expenses for research and development, sales and marketing, customer support, and general and administrative functions. Given the rate of growth in our customer base, our limited operating history and the intense competitive pressures we face, we may be unable to adequately control our operating costs. In order to achieve and maintain profitability, we must increase our sales while maintaining control over our expense levels.

Risks Related to Internal Controls

If we fail to maintain proper and effective internal controls, our ability to produce accurate financial statements on a timely basis could be impaired, which would adversely affect our consolidated operating results, our ability to operate our business and our stock price.

In connection with the 2007 audit committee review of our revenue recognition practices and our resulting financial restatement, we determined that we did not have adequate internal financial and accounting controls to produce accurate and timely financial statements. Among weaknesses and deficiencies identified in our review, we determined that we had a material weakness with respect to revenue recognition. The material weakness continued to exist at December 31, 2008. Since the restatement was completed in October 2007, we have implemented new processes and procedures to improve our internal controls and have expanded our finance and accounting staff. We believe that these actions have remediated the identified weaknesses and deficiencies, including the material weakness. As of December 31, 2009, our chief executive officer and chief financial officer determined that our internal controls over financial reporting were effective to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external reporting in accordance with generally accepted accounting principles in the United States.

Ensuring that we have adequate internal financial and accounting controls and procedures in place to produce accurate financial statements on a timely basis is a costly and time-consuming effort that needs to be re-evaluated frequently. Our management is responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States. Our management does not expect that our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within our company will have been detected. As discussed in our Annual Report on Form 10-K for our 2009 fiscal year and our Quarterly Reports on Form 10-Q for our 2009 fiscal quarters, our audit committee and management, together with our current and former independent registered public accounting firms, have identified numerous control deficiencies in the past and may identify additional deficiencies in the future. Failure on our part to have effective internal financial and accounting controls could cause our financial reporting to be unreliable, could have a material adverse effect on our business, operating results, and financial condition, and could adversely affect the trading price of our common stock.

We were initially required to comply with Section 404 of the Sarbanes Oxley Act of 2002 in connection with our Annual Report on Form 10-K for our year ended December 31, 2007. We have expended significant resources in developing the necessary documentation and testing procedures required by Section 404 of the Sarbanes Oxley Act. We cannot be certain that the actions we have taken and are taking to improve our internal controls over financial reporting will be sufficient to maintain effective internal controls over financial reporting in subsequent reporting periods or that we will be able to implement our planned processes and procedures in a timely manner. In addition, we may be unable to produce accurate financial statements on a timely basis. Any of the foregoing could cause investors to lose confidence in the reliability of our consolidated financial statements, which could cause the market price of our common stock to decline and make it more difficult for us to finance our operations and growth.

Risks Related to Our Business and Industry

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

Competition in our market is intense, and we expect competition to increase. The market for broadband access equipment is dominated primarily by large, established suppliers such as Alcatel Lucent SA, Motorola, Tellabs and ADTRAN Inc. While these suppliers focus primarily on large service providers, they have competed, and may increasingly compete, in the IOC market segment. In addition, a number of companies, including Calix, Inc., have developed, or are developing, products that compete with ours, including within our core IOC segment.

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Our ability to compete successfully depends on a number of factors, including:

· the successful identification and development of new products for our core market;

· our ability to timely anticipate customer and market requirements and changes in technology and industry standards;

· our ability to gain access to and use technologies in a cost-effective manner;

· our ability to timely introduce cost-effective new products;

· our ability to differentiate our products from our competitors’ offerings;

· our ability to gain customer acceptance of our products;

· the performance of our products relative to our competitors’ products;

· our ability to market and sell our products through effective sales channels;

· our ability to establish and maintain effective internal financial and accounting controls and procedures and restore confidence in our financial reporting;

· the protection of our intellectual property, including our processes, trade secrets and know-how; and

· our ability to attract and retain qualified technical, executive and sales personnel.

Many of our existing and potential competitors are larger than we are with longer operating histories, and have substantially greater financial, technical, marketing or other resources; significantly greater name recognition; and a larger installed base of customers than we do. Unlike many of our competitors, we do not provide equipment financing to potential customers. In addition, many of our competitors have broader product lines than we do, so they can offer bundled products, which may appeal to certain customers.

Because the products that we and our competitors sell require a substantial investment of time and funds to install, customers are typically reluctant to switch equipment suppliers once a particular supplier’s product has been installed. As a result, competition among equipment suppliers to secure contracts with potential customers is particularly intense and will continue to place pressure on product pricing. Some of our competitors have in the past and may in the future resort to offering substantial discounts to win new customers and generate cash flows. If we are forced to reduce prices in order to secure customers, we may be unable to sustain gross margins at desired levels or achieve profitability.

We have relied, and expect to continue to rely, on our BLC 6000 product line for the substantial majority of our sales, and a decline in sales of our BLC 6000 line would cause our overall sales to decline proportionally.

We have derived a substantial majority of our sales in recent years from our BLC 6000 product line. We expect that sales of this product line will continue to account for a substantial majority of our sales for the foreseeable future. Any factors adversely affecting the pricing of, or demand for, our BLC 6000 line, including competition or technological change, could cause our sales to decline materially and our business to suffer.

If we fail to enhance our existing products and develop new products and features that meet changing customer requirements and support new technological advances, our sales would be materially and adversely affected.

Our market is characterized by rapid technological advances, frequent new product introductions, evolving industry standards and recurring changes in end-user requirements. Our future success will depend significantly on our ability to anticipate and adapt to such changes and to offer, on a timely and cost-effective basis, products and features that meet changing customer demands and industry standards. The timely development of new or enhanced products is a complex and uncertain process, and we may not be able to accurately anticipate market trends or have sufficient resources to successfully manage long development cycles. We may also experience design, manufacturing, marketing and other difficulties that could delay or prevent the development, introduction or marketing of new products and enhancements. The introduction of new or enhanced products also requires that we manage the transition from older products to these new or enhanced products in order to minimize disruption in customer ordering patterns and ensure that adequate supplies of new products are available for delivery to meet anticipated customer demand. If we are unable to develop new products or enhancements to our existing products on a timely and cost-effective basis, or if our new products or enhancements fail to achieve market acceptance, our business, consolidated financial condition and consolidated results of operations would be materially and adversely affected.

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We have enhanced our BLC 6000 platform to support active Gigabit Ethernet fiber-to-the-premises, or FTTP, services. Although we have invested significant time and resources to develop this enhancement, these FTTP-enabled products are relatively new, with limited sales to date, and market acceptance of these products may fall below our expectations. The introduction of new products is also expected to place pressure on our gross margins as most new products require time and increased sales volumes to achieve cost-saving efficiencies in production. To the extent our new products and enhancements do not achieve broad market acceptance, we may not realize expected returns on our investments, and we may lose current and potential customers.

If our products contain undetected defects, including errors and interoperability issues, we could incur significant unexpected expenses to remedy the defects, which could have a material adverse effect on our sales, results of operations or financial condition.

Although our products are tested prior to shipment, they may contain software or hardware errors, defects or interoperability issues (collectively described as “defects”) that may only be detected when deployed in live networks that generate high amounts of communications traffic. In addition, defects or other malfunctions or quality control issues may not appear until the equipment has been deployed for an extended period of time. We also continue to introduce new products that may have undetected software or hardware defects. Our customers may discover defects in our products at any time after deployment or as their networks are expanded and modified. Any defects in our products discovered in the future, or failures of our customers’ networks, whether caused by our products or those of another vendor, could result in lost sales and market share and negative publicity regarding our products. In 2007, we experienced higher than average failures of certain assemblies that were fabricated between October 2005 and January 2006 and identified design issues associated with a transistor that resulted in equipment disruption and that required a rework effort. Recently, we have identified malfunctions or defects that we were required to repair under applicable warranties (or elected to repair for customer relations purposes) related to equipment that had been in service for extended periods of times.

Defects, malfunctions, or other performance issues relating to our products could increase our warranty accruals and operating expenses, could have an adverse effect on market perceptions of our products, and could have a material adverse effect on our business, consolidated results of operations, and consolidated financial condition. We quantify and record an estimate for warranty-related costs based on a variety of factors including but not limited to our actual history, projected return and failure rates and current repair costs. Our estimates are primarily based on an estimate of products that may be returned for warranty repair, estimated costs of repair, including parts and labor, depending on the type of service required. These estimates require us to examine past and current warranty issues and consider their continuing impact in the future. Our estimates of future warranty liability are based on prediction of future events, conditions and other complicated factors that are difficult to predict. The actual costs we incur may differ materially from our estimates.

Our efforts to increase our sales and marketing efforts to larger telecom operators, which may require us to broaden our reseller relationships, may be unsuccessful.

To date, our sales and marketing efforts have been focused on small and mid-sized IOCs. A key element of our long-term strategy is to increase sales to large IOCs, competitive local exchange carriers, regional Bell operating companies and international telecom service providers. We may be required to devote substantial technical, marketing and sales resources to the pursuit of these customers, who have lengthy equipment qualification and sales cycles. In particular, sales to these customers may require us to upgrade our products to meet more stringent performance criteria, develop new customer specific features or adapt our product to meet international standards. We may incur substantial technical, sales and marketing expenses and expend significant management effort without any assurance of generating sales. Because we have limited resources and large telecom operators may be reluctant to purchase products from a relatively small supplier like us, we plan to target these customers in cooperation with strategic resellers. These reseller relationships may not be available to us, and if formed, may include terms, such as exclusivity and non-competition provisions, that restrict our activities or impose onerous requirements on us. Moreover, in connection with these relationships, we may forego direct sales opportunities in favor of forming relationships with strategic resellers. If we are unable to successfully increase our sales to larger telecom operators or expand our reseller relationships, we may be unable to implement our long-term growth strategy.

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If we were to experience payment problems with either resellers or customers for whom we are unable to assess creditworthiness, it could have an adverse impact on our business, operating results, or financial condition.

Value added resellers, or VARs, account for a substantial portion of our revenue in a quarter. Some of these VARs are not well capitalized, making collection of receivables from them uncertain. In addition, in certain instances, we are limited in our ability to evaluate the creditworthiness of direct customers who decline to provide us with financial information. In 2007, in connection with the restatement of our consolidated financial statements, we adopted a revenue recognition policy that we would not recognize revenue from those resellers who lacked an independent ability to pay us until we received cash payment. Sales to VARs for whom we are not able to recognize revenue until we receive cash payment are reflected as deferred revenue. Any material collection issues we may experience with these resellers or direct customers could have an adverse impact on our business, operating results, or financial condition and could result in increases in bad debt expense or collection costs, inventory impairments, or adjustments to our reported revenues or deferred revenues. Any of these could result in a decline in our stock price.

We rely on resellers to promote, sell, install and support our products to small customers in North America, and internationally. Their failure to do so or our inability to recruit or retain resellers may substantially reduce our sales and thus seriously harm our business.

We rely on value added resellers who can provide high quality sales and support services. We compete with other telecommunications systems providers for our resellers’ business as our resellers generally market competing products. If a reseller promotes a competitor’s products to the detriment of our products or otherwise fails to market our products and services effectively, we could lose market share. In addition, the loss of a key reseller or the failure of resellers to provide adequate customer service could have a negative effect on customer satisfaction and could cause harm to our business. If we do not properly train our resellers to sell, install and service our products, our business, financial condition and results of operations will suffer.

We may be unable to successfully expand our international operations. In addition, our international expansion plans, if implemented, will subject us to a variety of risks that may adversely affect our business.

We currently generate almost all of our sales from customers in North America and have very limited experience marketing, selling and supporting our products and services outside North America or managing the administrative aspects of a worldwide operation. While we intend to expand our international operations, we may not be able to create or maintain international market demand for our products. In addition, regulations or standards adopted by other countries may require us to redesign our existing products or develop new products suitable for sale in those countries. If we invest substantial time and resources to expand our international operations and are unable to do so successfully and in a timely manner, our business, financial condition and results of operations will suffer. In the course of expanding our international operations and operating overseas, we will be subject to a variety of risks, including:

· differing regulatory requirements, including tax laws, trade laws, labor regulations, tariffs, export quotas, custom duties or other trade restrictions and changes thereto;

· greater difficulty supporting and localizing our products;

· different or unique competitive pressures as a result of, among other things, the presence of local equipment suppliers;

· challenges inherent in efficiently managing an increased number of employees over large geographic distances, including the need to implement appropriate systems, policies, benefits and compliance programs;

· limited or unfavorable intellectual property protection;

· changes in a specific country’s or region’s political or economic conditions; and

· restrictions on the repatriation of earnings.

We may pursue acquisitions to broaden our product line or address new or larger markets. Acquisitions involve a number of risks. If we are unable to address and resolve these risks successfully, such acquisitions could have a material adverse impact to our business, consolidated results of operations and consolidated financial condition.

We may make acquisitions of businesses, products or technologies to expand our product offerings and capabilities, customer base and business. In October 2007, we acquired certain assets and assumed certain liabilities of Terawave Communications and we

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have evaluated, and expect to continue to evaluate, a wide array of potential strategic transactions. We have limited experience making such acquisitions. Any of these transactions could be material to our consolidated financial condition and results of operations. The anticipated benefit of acquisitions may never materialize. In addition, the process of integrating an acquired business, products or technologies may create unforeseen operating difficulties and expenditures. Some of the areas where we may face acquisition related risks include:

· diversion of management time and potential business disruptions;

· expenses, distractions and potential claims resulting from acquisitions, whether or not they are completed;

· retaining and integrating employees from any businesses we may acquire;

· issuance of dilutive equity securities or incurrence of debt;

· integrating various accounting, management, information, human resource and other systems to permit effective management;

· incurring possible write-offs, impairment charges, contingent liabilities, amortization expense or write-offs of goodwill;

· difficulties integrating and supporting acquired products or technologies;

· unexpected capital equipment outlays and related costs;

· insufficient revenues to offset increased expenses associated with the acquisition;

· under performance problems associated with acquisitions;

· opportunity costs associated with committing capital to such acquisitions;, and

· becoming involved in acquisition related litigation.

Foreign acquisitions involve unique risks in addition to those mentioned above, including those related to integration of operations across different cultures and languages, currency risks and the particular economic, political and regulatory risks associated with specific countries. We cannot assure that we will be able to address these risks successfully, or at all, without incurring significant costs, delay or other operating problems. Our inability to resolve any of such risks could have a material adverse impact on our business, consolidated financial condition and consolidated results of operations.

If we lose any of our key personnel, or are unable to attract, train and retain qualified personnel, our ability to manage our business and continue our growth would be negatively impacted.

Our success depends, in large part, on the continued contributions of our key management, engineering, sales and marketing personnel, many of whom are highly skilled and would be difficult to replace. None of our senior management or key technical or sales personnel is bound by a written employment contract to remain with us for a specified period. In addition, we do not currently maintain key-man life insurance covering our key personnel. If we lose the services of any key personnel, our business, financial condition and results of operations may suffer.

Competition for skilled personnel, particularly those specializing in engineering and sales is intense. We cannot be certain that we will be successful in attracting and retaining qualified personnel, or that newly hired personnel will function effectively, either individually or as a group. In particular, we must continue to expand our direct sales force, including hiring additional sales managers, to grow our customer base and increase sales. Even if we are successful in hiring additional sales personnel, new sales representatives require up to a year to become effective, and the recent loss of a senior sales executive could have an adverse impact on our ability to recruit and train additional sales personnel. In addition, our industry is characterized by frequent claims relating to unfair hiring practices. We may become subject to such claims and may incur substantial costs in defending ourselves against these claims, regardless of their merits. If we are unable to effectively hire, integrate and utilize new personnel, the execution of our business strategy and our ability to react to changing market conditions may be impeded, and our business, financial condition and results of operations could suffer.

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We may have difficulty managing growth in our business, if any, which could limit our ability to increase sales and cash flow.

We expect to expand our research and development, sales, marketing and support activities, including our activities outside the U.S. depending on future business and economic conditions. Our historical growth has placed, and is expected to continue to place, significant demands on our management, as well as our financial and operational resources, as required to:

· implement and maintain effective financial disclosure controls and procedures, including the remediation of internal control deficiencies identified in our audit committee investigation;

· implement appropriate operational and financial systems;

· manage a larger organization;

· expand our manufacturing and distribution capacity;

· increase our sales and marketing efforts; and

· broaden our customer support capabilities.

In addition, if we cannot grow or manage our business growth effectively, we may not be able to execute our business strategies and our business, consolidated financial condition and consolidated results of operations would suffer.

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

We do not have internal manufacturing capabilities and rely upon a small number of contract manufacturers to build our products. In particular, we rely on AsteelFlash Group (formerly Flash Electronics), Inc. for the manufacture of our BLC 6000 blade products. Our reliance on a small number of contract manufacturers makes us vulnerable to possible capacity constraints and reduced control over component availability, delivery schedules, manufacturing yields and costs. We do not have long-term supply contracts with our primary contract manufacturers. Consequently, these manufacturers are not obligated to supply products to us for any specific period, in any specific quantity or at any certain price, except as may be provided by a particular purchase order. If any of our manufacturers were unable or unwilling to continue manufacturing our products in required volumes and at high quality levels, we would have to identify, qualify and select acceptable alternative manufacturers. It is possible that an alternate source may not be available to us when needed or may not be in a position to satisfy our production requirements at commercially reasonable prices and quality. Any significant interruption in manufacturing would require us to reduce our supply of products to our customers, which in turn could have a material adverse effect on our customer relations, business, consolidated financial condition and consolidated results of operations.

A portion of our manufacturing was moved to the overseas facilities of our primary contract manufacturer. This transition presents a number of risks, including the potential for a supply interruption or a reduction in manufacturing quality or controls, any of which would negatively impact our business, customer relationships and results of operations.

We depend on sole source and limited source suppliers for key components and license technology from third parties. If we are unable to source these components and technologies on a timely basis, we will not be able to deliver our products to our customers.

We depend on sole source and limited source suppliers for key components of our products. We may from time to time enter into original equipment manufacturer (OEM) and/or original design manufacturer (ODM) agreements to manufacture and/or design certain products. Any of the sole source and limited source suppliers, OEM and ODM suppliers upon which we rely could stop producing our components, cease operations entirely, or be acquired by, or enter into exclusive arrangements with, our competitors. We do not have long-term supply agreements with our suppliers, and our purchase volumes are currently too low for us to be considered a priority customer by most of our suppliers. As a result, these suppliers could stop selling components to us at commercially reasonable prices, or at all. Any such interruption or delay may force us to seek similar components from alternate sources, if available at all. Switching suppliers may require that we redesign our products to accommodate the new component and may potentially require us to re-qualify our products with our customers, which would be costly and time-consuming. Any interruption in the supply of sole source or limited source components would adversely affect our ability to meet scheduled product deliveries to our customers and would materially and adversely affect our business, consolidated financial condition and consolidated results of operations.

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

If we fail to accurately predict our manufacturing requirements and manage our inventory, we could incur additional costs, experience manufacturing delays, or lose revenue.

Lead times for the materials and components that we order through our contract manufacturers may vary significantly and depend on numerous factors, including the specific supplier, contract terms and market demand for a component at a given time. If we overestimate our production requirements, our contract manufacturers may purchase excess components and build excess inventory. If our contract manufacturers purchase excess components that are unique to our products or build excess products, we could be required to pay for these excess parts or products and recognize related inventory write-down costs. If we underestimate our product requirements, our contract manufacturers may have inadequate component inventory, which could interrupt manufacturing of our products and result in delays or cancellation of sales. In prior periods we have experienced excess and obsolete inventory write downs which impact our cost of revenue. This may continue in the future, which would have an adverse effect on our gross margins, consolidated financial condition and consolidated results of operations.

Demand for our products is dependent on the willingness of our customers to deploy new services, the success of our customers in selling new services to their subscribers, and the willingness of our customers to utilize IP and Ethernet technologies in local access networks.

Demand for our products is dependent on the success of our customers in deploying and selling services to their subscribers. Our BLC 6000 platform simultaneously supports IP-based services, such as broadband Internet, VoIP, IPTV and FTTP, and traditional voice services. If end-user demand for IP-based services does not grow as expected or declines and our customers are unable or unwilling to deploy and market these newer services, demand for our products may decrease or fail to grow at rates we anticipate.

Our strategy includes developing products for the local access network that incorporate IP and Ethernet technologies. If these technologies are not widely adopted by telecom service providers for use in local access networks, demand for our products may decline or not grow. As a result, we may be unable to sell our products to recoup our expenses related to the development of these products and our consolidated results of operations would be harmed.

Changes in existing accounting or taxation rules or practices may adversely affect our consolidated results of operations. In addition, as we expand our business, we could become subject to taxation in new states or jurisdictions, which will require us to incur additional compliance costs and potential taxes and fees associated with complying with such tax laws.

We are subject to numerous tax and accounting requirements, and changes in existing accounting or taxation rules or practices, or varying interpretations of current rules or practices, could have a significant adverse effect on our financial results or the manner in which we conduct our business. For example, prior to fiscal 2006, we accounted for options granted to employees using the intrinsic value method, which, given that we generally granted employee options with exercise prices equal to the fair market value of the underlying stock at the time of grant, resulted in no compensation expense. Beginning in fiscal 2006, we began recording expenses for our stock based compensation plans, including option grants to employees, using the fair value method, under which we expect our ongoing accounting charges related to equity awards to employees to be significantly greater than those we would have recorded under the intrinsic value method. We expect to continue to use stock based compensation as a significant component of our compensation package for existing and future employees.

Accordingly, changes in accounting for stock based compensation expense are expected to have a material adverse affect on our reported results. Any similar changes in accounting or taxation rules or practices could have a material impact on our consolidated financial results or the way we conduct our business.

In recent years, the geographic scope of our business has expanded, and such expansion requires us to comply with the tax laws and regulations of multiple jurisdictions. Requirements as to taxation vary substantially among states and other jurisdictions. We have recently expanded our international sales activity and may become subject to foreign tax laws as well, particularly related to value added taxes. Complying with the tax laws of these jurisdictions can be time consuming and expensive and could subject us to penalties and fees if we inadvertently fail to comply. In the United States, tax authorities in states where we believed we were not subject to sales tax could assert jurisdiction and seek to collect sales taxes, which could result in increased compliance expense as well as penalties and could adversely affect our customer relationships if it is determined we need to collect sales taxes for prior transactions. In the event we fail inadvertently to comply with applicable tax laws, it could have a material adverse effect on our business, results of operations, and financial condition.

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The amount of our net operating loss (NOL) and credit carryforwards is uncertain. Prior transactions to which we or our stockholders or their affiliates have been a party, and future transactions to which we or our stockholders or their affiliates may become a party, including stock issuances and certain shareholder stock transactions could jeopardize our ability to use some or all of our NOLs and tax credits, and the amounts of NOLs or tax credits we would be precluded from using could be material. In addition, California and certain states have recently suspended or are considering suspending, the ability to use net operating loss carryforwards in future years and this could adversely affect future operating results.

Based on current tax law, we believe we have certain NOLs and tax credits for U.S. federal and state income tax purposes to offset future taxable income and related taxes. As of December 31, 2009, we had incurred significant losses and credits in the United States. Our ability to utilize these tax attributes may be subject to significant limitations under Sections 382 and 383 of the Internal Revenue Code if we have undergone, or undergo in the future, an ownership change. An ownership change occurs for purposes of Section 382 of the Internal Revenue Code if, among other things, stockholders who own or have owned, directly or indirectly, 5% or more of our common stock (with certain groups of less-than-5% stockholders treated as a single stockholder for this purpose) increase their aggregate percentage ownership of our common stock by more than fifty percentage points above the lowest percentage of the stock owned by these stockholders at any time during the relevant three-year testing period. In the event of an ownership change, Sections 382 and 383 impose an annual limitation, based upon our company valuation at the time of the ownership change, on the amount of taxable income a corporation may offset with NOLs and credits. Any unused annual limitation may be carried over to later years until the applicable expiration date for the respective NOLs and credits. In general, the higher our company valuation at the time of such an ownership change, the higher the annual limitation would be, and we could offset a greater amount of taxable income with the NOLs and credits. However, if an ownership change has occurred in a period when our company valuation was low, the annual limitation would be lower, and we could only offset a lesser amount of taxable income with the NOLs and credits. To the extent that these tax attributes become significantly limited, we expect to be taxed on our income, if any, at the U.S. federal and state statutory rates.

To the extent that these NOLs and credits become significantly limited, we expect to be taxed on our income, if any, at the U.S. federal and state statutory rates. As a result, any inability to utilize these tax attributes would adversely affect future operating results by the amount of the federal or state taxes that would not have otherwise been payable, having an adverse impact on our operating results and financial condition. In addition, inability to use NOLs and credits would adversely affect our financial condition relative to our financial condition had these tax attributes been available. In addition, California and certain states have suspended use of NOLs, and other states are considering similar measures. Although the suspension in California does not currently apply for 2010, it is possible the state could reinstitute the suspension as it seeks to address budget challenges. As a result, we may incur higher state income tax expense in the future. Depending on our future tax position, continued suspension of our ability to use state NOLs could have an adverse impact on our operating results and financial condition.

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

The jurisdiction of the Federal Communications Commission, or FCC, extends to the entire telecommunications industry, including our customers. Future FCC regulations affecting the broadband access industry, our customers, or the service offerings of our customers, may harm our business. For example, FCC regulatory policies affecting the availability of data and Internet services may impede the penetration of our customers into certain markets or affect the prices they may charge in such markets. Furthermore, many of our customers are subject to FCC rate regulation of interstate telecommunications services, and are recipients of federal universal service subsidies implemented and administered by the FCC. In addition, many of our customers are subject to state regulation of intrastate telecommunications services, including rates for such services, and may also receive state universal service subsidies. Changes in FCC or state rate regulations or federal or state universal service subsidies or the imposition of taxes on Internet access service, could adversely affect our customers’ revenues and capital spending plans. In addition, international regulatory bodies are beginning to adopt standards and regulations for the telecom industry. These domestic and foreign standards, laws and regulations address various aspects of VoIP and broadband use, including issues relating to liability for information retrieved from, or transmitted over, the Internet. Changes in standards, laws and regulations, or judgments in favor of plaintiffs in lawsuits against service providers could adversely affect the development of Internet and other IP-based services. This, in turn, could directly or indirectly materially adversely impact the telecom industry in which our customers operate. To the extent our customers are adversely affected by laws or regulations regarding their business, products or service offerings, our business, financial condition and results of operations would suffer.

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

The markets for our products are characterized by a significant number of laws, regulations and standards, both domestic and international, some of which are evolving as new technologies are deployed. Our products are required to comply with these laws, regulations and standards, including those promulgated by the FCC. For example, the FCC required that all facilities based providers of broadband Internet access and interconnect VoIP services meet the capability requirements of the Communications Assistance for Law Enforcement Act by May 14, 2007. Subject to certain statutory parameters, we were required to make available to our customers, on a reasonably timely basis and at a reasonable charge, such features or modifications as are necessary to permit our customers to meet those capability requirements. In some cases, we are required to obtain certifications or authorizations before our products can be introduced, marketed or sold. There can be no assurance that we will be able to continue to design our products to comply with all necessary requirements in the future. Accordingly, any of these laws, regulations and standards may directly affect our ability to market or sell our products.

Some of our operations are regulated under various federal, state and local environmental laws. Our planned international expansion will likely subject us to additional environmental and other laws. For example, the European Union Directive 2002/96/EC on waste electrical and electronic equipment, known as the WEEE Directive, requires producers of certain electrical and electronic equipment, including telecom equipment, to be financially responsible for the specified collection, recycling, treatment and disposal of past and present covered products placed on the market in the European Union. The European Union Directive 2002/95/EC on the restriction of the use of hazardous substances in electrical and electronic equipment, known as the RoHS Directive, restricts the use of certain hazardous substances, including lead, in covered products. Failure to comply with these and other environmental laws could result in fines and penalties and decreased sales, which could adversely affect our planned international expansion and our consolidated operating results.

Compliance with changing regulation of corporate governance and public disclosure may result in additional expenses.

Changing laws, regulations and standards relating to corporate governance and public disclosure may create uncertainty regarding compliance matters. New or changed laws, regulations and standards are subject to varying interpretations in many cases. As a result, their application in practice may evolve over time. We are committed to maintaining high standards of corporate governance and public disclosure. Complying with evolving interpretations of new or changed legal requirements may cause us to incur higher costs as we revise current practices, policies and procedures, and may divert management time and attention from revenue generating to compliance activities. If our efforts to comply with new or changed laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice, our reputation might also be harmed. Further, our board members, chief executive officer and chief financial officer could face an increased risk of personal liability in connection with the performance of their duties. As a result, we may have difficulty attracting and retaining qualified board members and executive officers, which could harm our business.

We may not be able to protect our intellectual property, which could adversely affect our ability to compete effectively.

We depend on our proprietary technology for our success and ability to compete. We currently hold 27 issued patents and have several patent applications pending. We rely on a combination of patent, copyright, trademark and trade secret laws, as well as confidentiality agreements and licensing arrangements, to establish and protect our proprietary rights. Existing patent, copyright, trademark and trade secret laws will afford us only limited protection. In addition, the laws of some foreign countries do not protect proprietary rights to the same extent, as do the laws of the U.S. We cannot assure you that any pending patent applications will result in issued patents, and issued patents could prove unenforceable. Any infringement of our proprietary rights could result in significant litigation costs. Further, any failure by us to adequately protect our proprietary rights could result in our competitors offering similar products, resulting in the loss of our competitive advantage and decreased sales.

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

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

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

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

Our business and operations depend on the extent to which our facilities and products are protected against damage from fire, earthquakes, power loss and similar events. Some of our key business activities currently take place in regions considered as high risk for certain types of natural disasters. Despite precautions we have taken, a natural disaster or other unanticipated problem could, among other things, hinder our research and development efforts, delay the shipment of our products and affect our ability to receive and fulfill orders. While we believe that our insurance coverage is comparable to those of similar companies in our industry, it does not cover all natural disasters, in particular, earthquakes and floods.

Risks Related to Our Common Stock

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

As of March 31, 2010, our executive officers, directors and their affiliates beneficially owned, in the aggregate, approximately 27% of our outstanding common stock, of this 25% is collectively owned by investment funds affiliated with U.S. Venture Partners and Norwest Venture Partners. Representatives of U.S. Venture Partners and Norwest Venture Partners are directors of Occam. These stockholders have significant influence over most matters requiring approval by stockholders, including the election of directors, any amendments to our certificate of incorporation and significant corporate transactions.

Our stock price may be volatile, and you may not be able to resell shares of our common stock at or above the price you paid.

Our shares of common stock began trading on The NASDAQ Global Market in November 2006. An active public market for our shares on The NASDAQ Global Market may not be sustained. In particular, limited trading volumes and liquidity may limit the ability of stockholders to purchase or sell our common stock in the amounts and at the times they wish. Trading volume in our common stock tends to be modest relative to our total outstanding shares, and the price of our common stock may fluctuate substantially (particularly in percentage terms) without regard to news about us or general trends in the stock market.

In addition, the trading price of our common stock could become highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control. These factors include those discussed in this “Risk Factors” section of this Annual Report on Form 10-K and others such as:

· quarterly variations in our consolidated results of operations or those of our competitors;

· changes in earnings estimates or recommendations by securities analysts;

· announcements by us or our competitors of new products, significant contracts, commercial relationships, acquisitions or capital commitments;

· developments with respect to intellectual property rights;

· our ability to develop and market new and enhanced products on a timely basis;

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· commencement of, or involvement in, litigation;

· general market volatility;

· lack of capital to invest in Occam;

· changes in governmental regulations or in the status of our regulatory approvals;

· a slowdown in the telecom industry or general economy; and

· continuation of the current economic and credit crisis.

In recent years, the stock market in general, and the market for technology companies in particular, has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. Broad market and industry factors may seriously affect the market price of our common stock, regardless of our actual operating performance. In addition, in the past, following periods of volatility in the overall market and the market price of a particular company’s securities, securities class action litigation has often been instituted against these companies. Any litigation that may be instituted against us could result in substantial costs and a diversion of our management’s attention and resources.

Provisions in our charter documents and under Delaware law could discourage a takeover that stockholders may consider favorable.

Provisions in our certificate of incorporation and bylaws, as amended and restated, may have the effect of delaying or preventing a change of control or changes in our management. These provisions include the following:

· our board of directors has the right to elect directors to fill a vacancy created by the expansion of the board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors;

· our stockholders may not act by written consent or call special stockholders’ meetings; as a result, a holder, or holders, controlling a majority of our capital stock would not be able to take certain actions other than at annual stockholders’ meetings or special stockholders’ meetings called by the board of directors, the chairman of the board, the chief executive officer or the president;

· our certificate of incorporation prohibits cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;

· stockholders must provide advance notice to nominate individuals for election to the board of directors or to propose matters that can be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquiror from conducting a solicitation of proxies to elect the acquiror’s own slate of directors or otherwise attempting to obtain control of our company; and

· our board of directors may issue, without stockholder approval, shares of undesignated preferred stock; the ability to authorize undesignated preferred stock makes it possible for our board of directors to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to acquire us.

As a Delaware corporation, we are also subject to certain Delaware anti-takeover provisions. Under Delaware law, a corporation may not engage in a business combination with any holder of 15% or more of its capital stock unless the holder has held the stock for three years or, among other things, the board of directors has approved the transaction. Our board of directors could rely on Delaware law to prevent or delay an acquisition of us.

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

While we anticipate our cash balances and any cash from operations, will be sufficient to fund our operations for at least the next 12 months, we may need to raise additional capital to fund operations in the future. There is no guarantee that we will be able to

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raise additional equity or debt funding when or if it is required. The terms of any financing, if available, could be unfavorable to us and our stockholders and could result in substantial dilution to the equity and voting interests of our stockholders. Any failure to obtain financing when and as required would have an adverse and material effect on our business, consolidated financial condition and consolidated results of operations.

If securities or industry analysts do not publish research or publish misleading or unfavorable research about our business, our stock price and trading volume could decline.

The trading market for our common stock depends in part on the research and reports that securities or industry analysts publish about us or our business. If no or few securities or industry analysts cover our company, the trading price for our stock would be negatively impacted. If one or more of the analysts who covers us downgrades our stock or publishes misleading or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts ceases coverage of our company or fails to publish reports on us regularly, demand for our stock could decrease, which could cause or stock price or trading volume to decline.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. REMOVED AND RESERVED

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS

		Exhibit Title
31.01		Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.02		Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.01		Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES

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

Dated: April 30, 2010	OCCAM NETWORKS, INC.


	By:	/s/ JEANNE SEELEY
		Jeanne Seeley
		Senior Vice President and Chief Financial Officer
		(Principal Financial and Accounting Officer)

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EXHIBIT INDEX

Exhibit Number		Exhibit Title
31.01		Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.02		Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.01		Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Positive
Negative
Uncertain
Constraining
Legalese
Litigous
Readability	H.S. freshman Good

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PART I—FINANCIAL INFORMATION		1

Item 1.	Financial Statements		1

Item 2.	Management’s Discussion And Analysis Of Financial Condition And Results Of Operations		11

Item 3.	Quantitative And Qualitative Disclosures About Market Risk		18

Item 4.	Controls And Procedures		18

PART II—OTHER INFORMATION		18

Item 1.	Legal Proceedings		18

Item 1a.	Risk Factors		20

Item 2.	Unregistered Sales Of Equity Securities And Use Of Proceeds		34

Item 3.	Defaults Upon Senior Securities		34

Item 4.	Removed and Reserved		34

Item 5.	Other Information		34

Item 6.	Exhibits		34

Occam Networks Inactive 10-Q2010 Q1 Quarterly report

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