8-K/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 8-K/A

Amendment No. 1

CURRENT REPORT

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

Date of Report (Date of earliest event reported) December 30, 2004

C-COR Incorporated

(Exact name of Registrant as specified in its charter)

Pennsylvania	0-10726	24-0811591
(State or other jurisdiction of incorporation or organization)	(Commission File Number)	(I.R.S. Employer Identification No.)

60 Decibel Road, State College, PA	16801
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (814) 238-2461

(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

C-COR Incorporated (the “Registrant”) is filing this 8-K/A to amend the Current Report on Form 8-K dated December 30, 2004 and filed on January 6, 2005, to file the required financial statements of nCUBE Corporation (“nCUBE”) and pro forma information required in Item 9.01 below.

Item 9.01. Financial Statements and Exhibits.

(a) Financial Statements of Business Acquired.

nCUBE consolidated balance sheets as of September 30, 2004 and December 31, 2003, and the related consolidated statements of operations, shareholders’ deficit and comprehensive loss, and cash flows for the nine-month period ended September 30, 2004 and the years ended December 31, 2003 and 2002, including the notes thereto, are included as Exhibit 99.2 to this Form 8-K/A and are incorporated herein by reference.

(b) Pro Forma Financial Information.

UNAUDITED PRO FORMA FINANCIAL INFORMATION

The unaudited pro forma condensed consolidated balance sheet as of September 24, 2004 and the unaudited pro forma condensed consolidated statements of operations for the thirteen-week period ended September 24, 2004 and year ended June 25, 2004, reflect the pro forma consolidation of the historical financial statements of C-COR Incorporated (“C-COR”) and of nCUBE Corporation (“nCUBE”), after adjusting for the effect of the acquisition using the purchase method of accounting. The pro forma acquisition adjustments appearing on the unaudited pro forma condensed consolidated balance sheet are computed as if the acquisition occurred on September 24, 2004, and the pro forma acquisition adjustments appearing on the unaudited pro forma condensed consolidated statements of operations are computed as if the acquisition occurred on June 28, 2003, including a full year of operations of nCUBE.

The pro forma financial information of C-COR with respect to the acquisition of nCUBE, as reflected herein, is intended to provide information regarding how C-COR’s financial position and results of operation might have looked if the acquisition had occurred as of the dates indicated. The pro forma information is based on the historical results of nCUBE, however, and therefore may not be indicative of the actual results of nCUBE when operated as part of C-COR. Moreover, the pro forma information does not reflect all of the changes that may result from the acquisition, including, but not limited to, challenges of transition, integration and restructuring associated with the transaction; challenges of achieving anticipated synergies; ability to retain qualified employees and existing business alliances; maintaining satisfactory relationships with employees; and customer demand for nCUBE products. The pro forma adjustments to the balance sheet and statement of operations represent C-COR’s best estimates based on information available at the time the pro forma information was prepared and may differ from the adjustments that may actually be required. Accordingly, the pro forma financial information should not be relied upon as being indicative of the historical results that would have been realized had the acquisition occurred as of the dates indicated or that may be achieved in the future.

This unaudited pro forma condensed consolidated balance sheet reflects a purchase price allocation based on preliminary estimates of the fair values of certain assets and liabilities. The fair values of certain of these assets and liabilities are based on information provided by nCUBE, which has not been finalized as of the date of this Form 8-K/A. In addition, the fair values reported herein for property, plant and equipment and other intangible assets are estimates based on preliminary third party valuations. These fair values are subject to change until these third party valuations have been finalized, and changes in these fair values could have a material impact on the purchase price allocation. Until this purchase price allocation is finalized, there may be material adjustments to the fair values of the assets and liabilities disclosed in this unaudited pro forma condensed consolidated balance sheet.

The unaudited pro forma condensed consolidated statements of operations are not necessarily indicative of the operating results that would have occurred had the acquisition occurred on June 28, 2003, nor is it necessarily indicative of the future operating results of the consolidated companies. The following unaudited pro forma condensed consolidated financial information has been prepared by C-COR and should be read in conjunction with C-COR’s historical consolidated financial statements, which have been previously filed in the Company’s Annual Report on Form 10-K for the year ended June 25, 2004 and Quarterly Report on Form 10-Q for the quarter ended September 24, 2004, and the historical consolidated financial statements of nCUBE, including the notes thereto, which are included in Exhibit 99.2 of this Form 8-K/A.

C-COR Incorporated

Unaudited Pro Forma Condensed Consolidated Balance Sheet

As of September 24, 2004

(in thousands)

	C-COR as of September 24, 2004			nCUBE as of September 30, 2004			Excluded Assets and Liabilities			Acquisition Adjustments			Consolidated Pro Forma
Assets:
Cash and cash equivalents	$	35,099		$	2,657		$	(2,657	)(2)	$	(20,000	)(1)	$	14,239
											(843	)(1)
											(17	)(9)
Marketable securities		48,096			—			—			—			48,096
Accounts receivable, net		52,985			7,457			—			—			60,442
Inventories		23,733			5,308			—			—			29,041
Other current assets		5,795			6,786			—			(6,472	)(7)		6,109
Total current assets		165,708			22,208			(2,657	)		(27,332	)		157,927
Property, plant and equipment, net		20,067			2,671			—			561	(3)		23,299
Goodwill		58,071			679			—			(679	)(6)		133,493
											75,422	(8)
Other intangible assets, net		13,465			—			—			5,800	(4)		19,265
Deferred taxes		767			—			—			—			767
Other long-term assets		3,743			—			—			—			3,743
Total assets	$	261,821		$	25,558		$	(2,657	)	$	53,772		$	338,494
Liabilities and shareholders’ equity:
Accounts payable	$	21,135		$	2,899		$	—		$	—		$	24,034
Accrued liabilities		28,870			16,685			(4,003	)(2)		(7,539	)(7)		34,013
Deferred taxes		471			—			—			—			471
Revolving line of credit		—			42,856			(42,856	)(2)		—			—
Current portion of long-term debt		159			134,103			(134,103	)(2)		—			159
Total current liabilities		50,635			196,543			(180,962	)		(7,539	)		58,677
Long-term debt, less current portion		730			—			—			35,000	(1)		35,713
											(17	)(9)
Other long-term liabilities		2,594			9,965			—			(6,206	)(7)		6,353
Total liabilities		53,959			206,508			(180,962	)		21,238			100,743
Shareholders’ Equity:
Common stock		2,335			—			—			225	(1)		2,560
Additional paid-in capital		344,984			—			—			32,364	(1)		377,348
Total nCube invested equity					(180,950	)		178,305	(2)		2,645	(5)		—
Accumulated deficit		(110,095	)		—			—			(2,700	)(4)		(112,795	)
Accumulated other comprehensive income		5,452			—			—			—			5,452
Unearned compensation		(464	)		—			—			—			(464	)
Treasury stock		(34,350	)		—			—			—			(34,350	)
Total shareholders’ equity		207,862			(180,950	)		178,305			32,534			237,751
Total liabilities and shareholders’ equity	$	261,821		$	25,558		$	(2,657	)	$	53,772		$	338,494

See notes to unaudited pro forma condensed consolidated financial information.

C-COR Incorporated

Unaudited Pro Forma Condensed Consolidated Statement of Operations

For the Thirteen-Week Period Ended September 24, 2004

(in thousands, except per share data)

	C-COR Thirteen-Weeks Ended September 24, 2004			nCUBE Quarter Ended September 30, 2004			Excluded Operating Results			Acquisition Adjustments			Consolidated Pro Forma
Net sales	$	62,099		$	10,475		$	—		$	—		$	72,574
Operating costs and expenses:
Cost of sales		40,420			7,512			—			7	(10)		47,939
Selling, general and administrative		11,951			3,881			—			2	(10)		15,834
Research and product development		7,330			2,875			—			19	(10)		10,224
Amortization of other intangibles		1,146			—			—			483	(11)		1,629
Acquired in-process technology charge		1,850			—			—			—	(4)		1,850
Total operating costs and expenses		62,697			14,268			—			511			77,476
Income (loss) from operations		(598	)		(3,793	)		—			(511	)		(4,902	)
Interest expense		(19	)		(3,602	)		3,602	(2)		(308	)(9)		(327	)
Investment income		299			7			—			(94	)(12)		212
Other income, net		(208	)		(469	)		—			—			(677	)
Income (loss) before income taxes		(526	)		(7,857	)		3,602			(913	)		(5,694	)
Income tax expense		518			—			—			—	(13)		518
Net income (loss)	$	(1,044	)	$	(7,857	)	$	3,602		$	(913	)	$	(6,212	)
Net income (loss) per share:
Basic	$	(0.02	)										$	(0.13	)
Diluted	$	(0.02	)										$	(0.13	)
Weighted average common shares and common share equivalents:
Basic		43,034									4,500	(14)		47,534
Diluted		43,034									4,500	(14)		47,534

See notes to unaudited pro forma condensed consolidated financial information.

C-COR Incorporated

Unaudited Pro Forma Condensed Consolidated Statement of Operations

For the Year Ended June 25, 2004

(in thousands, except per share data)

	C-COR Year Ended June 25, 2004			nCUBE Year Ended June 30, 2004			Excluded Operating Results			Acquisition Adjustments			Consolidated Pro Forma
Net sales	$	240,918		$	39,275		$	(1,141	)(2)	$	—		$	279,052
Operating costs and expenses:
Cost of sales		150,651			28,056			(1,312	)(2)		28	(10)		177,423
Selling, general and administrative		43,260			10,507			(173	)(2)		9	(10)		53,603
Research and product development		21,495			14,974			—			76	(10)		36,545
Amortization of other intangibles		2,394			—			—			1,933	(11)		4,327
Acquired in-process technology charge		900			—			—			2,700	(4)		3,600
Restructuring recovery		(272	)		—			—			—			(272	)
Total operating costs and expenses		218,428			53,537			(1,485	)		4,746			275,226
Income (loss) from operations		22,490			(14,262	)		344			(4,746	)		3,826
Interest expense		(87	)		(12,518	)		12,518	(2)		(1,232	)(9)		(1,319	)
Investment income		1,128			18			—			(212	)(12)		934
Gain on sale of bankruptcy trade claims		21,075			—			—			—			21,075
Other income, net		576			(981	)		—			—			(405	)
Income (loss) before income taxes		45,182			(27,743	)		12,862			(6,190	)		24,111
Income tax expense		1,022			—			—			(575	)(13)		447
Net income (loss)	$	44,160		$	(27,743	)	$	12,862		$	(5,615	)	$	23,664
Net income (loss) per share:
Basic	$	1.14											$	0.55
Diluted	$	1.10											$	0.52
Weighted average common shares and common share equivalents::
Basic		38,832									4,500	(14)		43,332
Diluted		40,223									7,338	(14)		47,561

See notes to unaudited pro forma condensed consolidated financial information.

Notes to Unaudited Pro Forma Condensed Consolidated Financial Information

As of September 24, 2004, and for the Thirteen-Weeks ended September 24, 2004 and

Year Ended June 25, 2004 (in thousands, except share and per share data)

1. Basis of Presentation and Acquisition Information

On December 31, 2004, C-COR Incorporated (“C-COR” or the “Company”) completed the acquisition of the business of nCUBE Corporation (“nCUBE”), a privately held company headquartered in Beaverton, Oregon. Under the terms of the Member Interest Purchase Agreement, consideration for the acquisition consisted of 4,500,000 shares of the Company’s common stock, $35,000 principal amount of the Company’s 3.5% senior unsecured 5-year convertible notes, $20,000 in cash, and the assumption of certain liabilities. The common stock portion of the purchase consideration was based upon the Company’s average common stock price over a period which included two days before and after the measurement date, which was October 22, 2004. C-COR recorded estimated direct costs for the acquisition of approximately $843. Based upon the average common stock price, the aggregate purchase consideration was approximately $88,432, excluding certain liabilities assumed. The purchase price was subject to post closing adjustments for working capital, as well as the closing of the acquisition of the United Kingdom operation which occurred in March 2005. The cash component of the consideration was funded primarily from C-COR’s existing operating cash balances.

The unaudited pro forma condensed consolidated financial information gives effect to C-COR’s acquisition of nCUBE in a business combination accounted for under the purchase method of accounting. Except as discussed in the notes below, there are no pro forma adjustments to other asset or liability groups, and the book values approximate fair market values. Identifiable intangible assets with finite useful lives are amortized over their estimated useful lives under the purchase method of accounting. Identifiable intangible assets with indefinite lives are not amortized, but instead shall be tested for impairment at least annually. If the carrying amount of either a finite- or indefinite-lived intangible asset is subsequently determined to exceed its fair value, an impairment loss shall be recognized in an amount equal to that excess.

The unaudited pro forma condensed consolidated balance sheet assumes the acquisition occurred on September 24, 2004 and the unaudited pro forma condensed consolidated statements of operations assume the acquisition occurred on June 28, 2003.

The pro forma estimate of the total purchase price paid by C-COR in connection with the acquisition of nCUBE is as follows:

Cash paid to nCUBE	$	20,000
Estimated fair value of C-COR common stock issued to nCUBE (a)		32,589
3.5% Convertible Senior Unsecured Notes due 2009 (b)		35,000
Estimated direct costs of acquisition (c)		843
Total estimated purchase price	$	88,432

(a) The estimated fair value of the 4,500,000 shares of C-COR common stock, par value $0.05 per share, issued to nCUBE was $7.24 per share, which is the 5-day average market price over a period which included two days before and after the measurement date, which was October 22, 2004.

(b) C-COR issued $35,000 aggregate principal amount of Notes as part of the consideration for the acquisition. The Notes mature on December 31, 2009 and bear interest at an annual rate of 3.5%, which is payable semi-annually on June 30 and December 30 beginning June 30, 2005. Each Note may be converted by the holder, at its option, into shares of C-COR common stock at a conversion rate of 81.0905 shares per $1 of principal amount of the Note (as may be adjusted upon the occurrence of certain specified events). The Notes will be convertible at any time before the close of business on the maturity date, unless C-COR has previously repurchased the Notes.

(c) The estimated direct costs of acquisition are primarily related to third party advisory, legal and accounting costs paid by C-COR in conjunction with the acquisition of nCUBE.

The unaudited pro forma condensed consolidated statements of operations exclude certain one-time, nonrecurring charges resulting directly from the transactions since they are not expected to impact ongoing operations subsequent to the first twelve months following the date of acquisition.

2. Reflects adjustment for excluded assets, liabilities, equity and operating results according to the Member Interest Purchase Agreement. Amounts were provided by nCUBE.

3. Reflects the adjustment of property, plant and equipment to fair value. The estimated fair values reflected below were determined based on a preliminary third party appraisal. These fair values have not been finalized by the third party appraiser and are therefore unaudited and subject to further adjustment, which could materially affect the estimates of depreciation reflected in the pro forma financial statements included herein.

	Estimated Fair Value			Estimated Useful Life
				(years)
Property, plant and equipment:
Machinery and equipment	$	2,894		2 to 5
Furniture and fixtures		162		10
Leasehold improvements		176		5-months
Total property, plant and equipment of nCUBE, at estimated fair value	$	3,232
Property, plant and equipment of nCUBE at historical cost		(2,671	)
Pro forma adjustment	$	561

4. Reflects the adjustment of other identifiable intangible assets at estimated fair value. The estimated fair values reflected below were determined based on a preliminary third party appraisal. These fair values have not been finalized by the third party appraiser and are therefore unaudited and subject to further adjustment, which could materially affect the estimates of amortization reflected in the pro forma financial statements included herein. The fair value allocated to in-process research and development assets is reflected as a charge to expense in the unaudited pro forma condensed consolidated statement of operations for the year ended June 25, 2004 and as a charge to accumulated deficit in the unaudited pro forma condensed consolidated balance sheet as of September 24, 2004.

	Estimated Fair Value		Estimated Useful Life
			(years)
Identifiable intangible assets:
Completed technology	$	4,300	3
Customer relationships		1,500	3
Total amortizable intangible assets of nCUBE, at estimated fair value	$	5,800	3
In-process research and development		2,700	—
Total other identifiable intangible assets of nCUBE, at estimated fair value	$	8,500

5. Reflects elimination of the residual nCUBE invested equity accounts.

6. Reflects elimination of the pre-acquisition goodwill of nCUBE.

7. Reflects adjustment for the estimated fair value of deferred revenue and associated estimated deferred costs of nCUBE, for contracts in which a legal performance obligation was assumed by C-COR. The estimated fair value of the deferred revenue was estimated based upon the direct and incremental cost of fulfilling the obligation plus a normal profit margin.

8. Reflects the excess of acquisition cost over the estimated fair value of net assets acquired. The purchase price and purchase allocation are summarized as follows:

Total estimated purchase price (See Note 1)	$	88,432
Allocated to:
Historical book values of nCUBE assets and liabilities		(180,950	)
Excluded assets and liabilities		178,305
Adjustment in the basis of assets acquired as part of the purchase transaction
Property, plant and equipment		561
Pre-acquisition goodwill		(679	)
Fair Value adjustments:
Deferred costs		(6,472	)
Deferred revenue		13,745
Other intangible assets		8,500
Total allocations		13,010
Excess purchase price over allocation to identifiable tangible and intangible assets and liabilities	$	75,422

9. Reflects estimated interest expense and amortization of capitalized long-term financing costs of $17 related to the issuance of C-COR’s 3.5% senior unsecured 5-year convertible notes to partially fund the acquisition of nCUBE. The weighted average interest rate used to calculate pro forma interest expense, including fee amortization, for the $35,000 of additional debt was estimated to be 3.52%.

10. Reflects the estimated adjustment to depreciation expense during the periods presented herein resulting from the step-up of property and equipment to fair value, based on a third party appraisal commissioned by C-COR and related changes in expected useful life assumptions. Estimated useful lives used to calculate pro forma depreciation expense are disclosed in Note 3. The classification of depreciation expense within cost of sales, selling, general and administrative and research and product development expense is based on C-COR’s best estimate.

11. Reflects the estimated amortization expense during the periods presented herein associated with amortizable intangible assets, which have been identified and recorded at fair value and amortized over their expected useful lives, based on a preliminary third party appraisal. Estimated useful lives used to calculate pro forma amortization expense are disclosed in Note 4.

12. Reflects estimated interest that would not have been earned by C-COR as a result of the $20,000 cash payment to nCUBE for the acquisition, direct acquisition costs of $843, and $17 of debt service costs as if the transaction had occurred on June 28, 2003.

13. Reflects federal and state income tax that would not have been incurred by C-COR as a result of including nCUBE’s losses for the year ended June 25, 2004. The pro forma income tax expense reflects federal, state, and foreign income taxes (calculated at the effective tax rates for the appropriate tax jurisdictions) as if C-COR and nCUBE were a combined entity and were taxed as such under the laws of the various tax jurisdictions where the entities operated for the year ended June 25, 2004 and the quarter ended September 24, 2004. Income tax expense reflects C-COR’s and nCUBE’s assessment that valuation allowances against net deferred tax assets in the U.S. and some foreign jurisdictions are appropriate. For the year ended June 25, 2004, nCUBE’s losses would have reduced federal alternative minimum tax and state tax incurred by C-COR during that period.

14. Weighted average shares outstanding for basic and diluted net income (loss) per share have been adjusted to reflect the pro forma issuance of 4,500,000 shares to nCUBE as part of the purchase price. For the thirteen-week period ended September 24, 2004, the weighted average shares outstanding diluted net income (loss) per share calculation excludes the dilutive effect of convertible stock associated with the issuance of C-COR’s 3.5% senior unsecured 5 year convertible notes because they were antidilutive. For the year ended June 25, 2004, the weighted average shares outstanding diluted net income (loss) per share calculation includes 2,838,169 shares associated with the issuance of C-COR’s 3.5% senior unsecured 5-year convertible notes assumed converted at the beginning of the period, which were calculated under the if-converted method.

(c) Exhibits

Number	Description of Document
2.1	Member Interest Purchase Agreement by and among C-COR Incorporated, Broadband Management Solutions, LLC, nCUBE Corporation and nCUBE SUB, LLC dated as of October 20, 2004 (incorporated by reference to Exhibit 2.1 of the Registrant’s Form 10-Q for the quarter ended September 24, 2004).
2.2	Amendment to Member Interest Purchase Agreement by and among C-COR Incorporated, Broadband Management Solutions, LLC, nCUBE Corporation and nCUBE SUB, LLC dated as of December 30, 2004 (incorporated by reference to Exhibit 2.2 of the Registrant’s Form 8-K, dated December 30, 2004 and filed January 6, 2005).
4.1	Indenture, dated as of December 31, 2004, between C-COR Incorporated and Wachovia Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 of the Registrant’s Form 8-K, dated December 30, 2004 and filed January 6, 2005).
4.2	Form of 3.5% Convertible Senior Unsecured Notes due 2009 (incorporated by reference to Exhibit 4.2 of the Registrant’s Form 8-K, dated December 30, 2004 and filed January 6, 2005).
10.1	Offer Letter for Michael J. Pohl, effective January 1, 2005 (incorporated by reference to Exhibit 10.1 of the Registrant’s Form 8-K, dated December 30, 2004 and filed January 6, 2005).
23.1	Consent of KPMG LLP.
99.1	Press Release dated January 3, 2005, announcing the closing of the acquisition of nCUBE Corporation (incorporated by reference to Exhibit 99.1 of the Registrant’s Form 8-K, dated December 30, 2004 and filed January 6, 2005).
99.2	The financial statements of nCUBE Corporation as of September 30, 2004 and December 31, 2003 and for the nine-month period ended September 30, 2004 and the years ended December 31, 2003 and 2002.

SIGNATURES

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

	C-COR Incorporated (Registrant)
March 18, 2005	By:	/s/ Joseph E. Zavacky
	Name:	Joseph E. Zavacky
	Title:	Controller and Assistant Secretary

EX-23.1

EXHIBIT 23.1

Independent Accountants’ Consent

The Board of Directors

C-COR Incorporated:

We consent to the use of our report dated March 4, 2005 and included herein with respect to the consolidated balance sheets of nCUBE Corporation as of September 30, 2004 and December 31, 2003, and the related consolidated statements of operations, shareholders’ deficit and comprehensive loss, and cash flows for the nine-month period ended September 30, 2004 and the years ended December 31, 2003 and 2002, which report appears in the Form 8-K/A of C-COR Incorporated dated March 18, 2005.

/s/ KPMG LLP

Portland, Oregon

March 17, 2005

EX-99.2

Exhibit 99.2

nCUBE CORPORATION

Consolidated Financial Statements

September 30, 2004 and December 31, 2003

(With Independent Auditors’ Report Thereon)

KPMG LLP

Suite 3800

1300 South West Fifth Avenue

Portland, OR 97201

Independent Auditors’ Report

The Board of Directors and Shareholders

nCUBE Corporation:

We have audited the accompanying consolidated balance sheets of nCUBE Corporation and subsidiaries as of September 30, 2004 and December 31, 2003, and the related consolidated statements of operations, shareholders’ deficit and comprehensive loss, and cash flows for the nine-month period ended September 30, 2004 and the years ended December 31, 2003 and 2002. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of nCUBE Corporation and subsidiaries as of September 30, 2004 and December 31, 2003, and the results of their operations and their cash flows for the nine-month period ended September 30, 2004 and the years ended December 31, 2003 and 2002 in conformity with accounting principles generally accepted in the United States of America.

/s/ KPMG LLP

March 4, 2005

KPMG, LLP. KPMG LLP, a limited liability partnership, is

a member of KPMG International, a Swiss association.

2

nCUBE CORPORATION

Consolidated Balance Sheets

September 30, 2004 and December 31, 2003

(In thousands except shares)

	2004			2003
Assets
Current assets:
Cash	$	2,657		3,649
Accounts receivable, net of allowances of $1,134 at September 30,2004 and $808 at December 31,2003		7,457		7,046
Inventories		5,308		5,539
Prepaid expenses		314		290
Deferred costs related to deferred revenue		6,472		10,478
Total current assets		22,208		27,002
Property and equipment, net		2,671		3,003
Goodwill		679		679
Other assets, net		—		50
Total assets	$	25,558		30,734
Liabilities and Shareholders’ Deficit
Current liabilities:
Revolving line of credit	$	42,856		42,336
Notes payable to shareholder		134,103		118,103
Accounts payable		2,899		2,567
Accrued interest on debt		3,443		2,960
Accrued liabilities		2,484		1,844
Current portion, sales deposits and deferred revenue		10,758		15,810
Total current liabilities		196,543		183,620
Sales deposits and deferred revenue, less current portion		9,965		4,880
Total liabilities		206,508		188,500
Shareholders’ deficit:
Preferred stock, $0.001 par value. Authorized 2,500,000 shares; issued and outstanding 65,726 shares		—		—
Common stock, $0.001 par value. Authorized 17,000,000 shares; issued and outstanding 7,824,985 and 7,827,485 shares, respectively		8		8
Additional paid-in capital		232,973		232,971
Accumulated deficit		(411,452	)	(388,436	)
Accumulated other comprehensive loss		(2,479	)	(2,309	)
Total shareholders’ deficit		(180,950	)	(157,766	)
Total liabilities and shareholders’ deficit	$	25,558		30,734

See accompanying notes to consolidated financial statements.

3

nCUBE CORPORATION

Consolidated Statements of Operations

Nine months ended September 30, 2004

and years ended December 31, 2003 and 2002

(In thousands)

	2004			2003		2002
Sales	$	32,369		31,498		22,613
Cost of sales		23,605		24,356		22,626
Gross profit		8,764		7,142		(13	)
Costs and expenses:
Research and development		11,074		17,270		22,358
Selling		6,530		7,810		9,198
General and administrative		2,353		3,018		6,616
		19,957		28,098		38,172
Operating loss		(11,193	)	(20,956	)	(38,185	)
Other income (expense):
Interest income		16		22		96
Interest expense		(10,169	)	(10,947	)	(7,506	)
Other		(1,670	)	(268	)	142
Total other income (expense)		(11,823	)	(11,193	)	(7,268	)
Net loss	$	(23,016	)	(32,149	)	(45,453	)

See accompanying notes to consolidated financial statements.

4

nCUBE CORPORATION

Consolidated Statements of Changes in Shareholders’ Deficit

Nine months ended September 30, 2004

and years ended December 31, 2003 and 2002

(In thousands)

	Preferred stock			Common stock			Additional paid-in capital	Accumulated deficit		Accumulated other comprehensive income		Total
	Shares	Amount		Shares	Amount
Balances at December 31, 2001	65,726	$	—	7,807,462	$	8	232,953	(310,834	)	1,365		(76,508	)
Stock issued under employee stock plans	—		—	16,574		—	17	—		—		17
Comprehensive loss:
Net loss	—		—	—		—	—	(45,453	)	—		(45,453	)
Foreign currency translation adjustment	—		—	—		—	—	—		—		(1,507	)
Comprehensive loss										(1,507	)	(46,960	)
Balances at December 31, 2002	65,726		—	7,824,036		8	232,970	(356,287	)	(142	)	(123,451	)
Stock issued under employee stock plans	—		—	949		—	1	—		—		1
Comprehensive loss:
Net loss	—		—	—		—	—	(32,149	)	—		(32,149	)
Foreign currency translation adjustment	—		—	—		—	—	—		(2,167	)	(2,167	)
Comprehensive loss												(34,316	)
Balances at December 31, 2003	65,726		—	7,824,985		8	232,971	(388,436	)	(2,309	)	(157,766	)
Stock issued under employee stock plans	—		—	2,500		—	2	—		—		2
Comprehensive loss:
Net loss	—		—	—		—	—	(23,016	)	—		(23,016	)
Foreign currency translation adjustment	—		—	—		—	—	—		(170	)	(170	)
Comprehensive loss												(23,186	)
Balances at September 30, 2004	65,726	$	—	7,827,485	$	8	232,973	(411,452	)	(2,479	)	(180,950	)

See accompanying notes to consolidated financial statements.

5

nCUBE CORPORATION

Consolidated Statements of Cash Flows

Nine months ended September 30, 2004

and years ended December 31, 2003 and 2002

(In thousands)

	2004			2003		2002
Cash flows from operating activities:
Net loss	$	(23,016	)	(32,149	)	(45,453	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		1,378		3,050		4,012
Noncash write-down of investment to net realizable value		50		—		—
Loss on disposal of assets		1		69		161
Changes in operating assets and liabilities, net of noncash transactions:
Decrease (increase) in:
Accounts receivable		(411	)	1,013		(1,456	)
Inventories		(158	)	2,730		(1,916	)
Prepaid expenses and other assets		(24	)	364		538
Deferred costs		4,006		2,696		(7,718	)
Increase (decrease) in:
Accounts payable		332		(2,207	)	1,539
Accrued liabilities, including interest on debt		1,123		1,407		(1,148	)
Sales deposits and deferred revenue		33		(5,885	)	11,479
Net cash used in operating activities		(16,686	)	(28,912	)	(39,962	)
Cash flows from investing activities:
Acquisition of property and equipment		(658	)	(1,599	)	(1,022	)
Net cash used in investing activities		(658	)	(1,599	)	(1,022	)
Cash flows from financing activities:
Proceeds from revolving lines of credit		520		672		835
Proceeds of notes payable		—		81		17
Proceeds from shareholder note payable		16,000		33,550		—
Proceeds from issuance of common stock		2		1		42,253
Net cash provided by financing activities		16,522		34,304		43,105
Effect of exchange rate changes on cash		(170	)	(2,167	)	(1,507	)
Net increase (decrease) in cash		(992	)	1,626		614
Cash at beginning of period		3,649		2,023		1,409
Cash at end of period	$	2,657		3,649		2,023

See accompanying notes to consolidated financial statements.

6

nCUBE CORPORATION

Notes to Consolidated Financial Statements

September 30, 2004 and December 31, 2003

(1) The Company

nCUBE Corporation (the Company or nCUBE) is a Delaware corporation that specializes in providing highly scalable, high-performance streaming media systems. nCUBE delivers solutions that combine the Company’s streaming media systems with software applications and technical services for applications such as broadband Video-on-Demand (VOD) and Advertising Insertion (ASG) to its global customer base. The Company serves the worldwide interactive multimedia market from its headquarters in Beaverton, Oregon, and through subsidiaries located in the United States, Europe and Asia. The assets and certain liabilities of Company were acquired by C-COR Incorporated on December 31, 2004 (see note 3).

(2) Significant Accounting Policies

(a) Principles of Consolidation

The consolidated financial statements include the accounts of nCUBE and its wholly owned subsidiaries. Intercompany balances and transactions between the companies have been eliminated.

(b) Foreign Currency Translation

The Company converts the assets and liabilities of foreign operations to their U.S. dollar equivalents at rates in effect at the balance sheet dates, and records translation adjustments in shareholders’ deficit as accumulated other comprehensive income. Income statements of foreign operations are translated from the operations functional currency to U.S. dollar equivalents at average rates. Foreign currency transaction gains and losses are recorded in the consolidated statements of operations.

(c) Inventories

Inventories are stated at the lower of cost or market using the first-in, first-out (FIFO) method of determining cost. In assessing the ultimate realization of inventories, the Company is required to make estimates regarding future events in an industry where rapid technological changes are prevalent. Provisions are established for excess and obsolete inventories after evaluation of historical sales and usage, current economic trends, market conditions, product rationalization, forecasted sales, product lifecycles, and current inventory levels.

(d) Property and Equipment

Equipment and furniture are carried at cost and depreciated for financial reporting purposes using the straight-line method over estimated useful lives of three years. Leasehold improvements are amortized over the life of the property or lease term, whichever is shorter. Expenditures for maintenance and repairs are charged directly to the appropriate operating accounts at the time the expense is incurred. Expenditures determined to represent additions and betterments are capitalized. The cost of property sold or retired and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in income.

7

nCUBE CORPORATION

Notes to Consolidated Financial Statements

September 30, 2004 and December 31, 2003

(e) Accounting for Long-Lived Assets

The Company reviews its long-lived assets and related intangibles for impairment periodically or as events or circumstances indicate that the carrying amount of long-lived assets and related intangibles may not be recoverable. If the estimated net cash flows are less than the carrying amount of the long-lived assets, the Company recognizes an impairment loss in an amount necessary to write down long-lived assets to fair value as determined from expected discounted future cash flows.

(f) Research and Development Costs

Costs incurred for research and development are charged to operations as incurred.

(g) Revenue Recognition and Related Matters

System and software revenues are recognized based on the guidance in American Institute of Certified Public Accountants Statement of Position (SOP) 97-2, Software Revenue Recognition (SOP 97-2) and related amendments, SOP 98-4, Deferral of the Effective Date of a Provision of SOP 97-2, Software Revenue Recognition and SOP 98-9, Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions. nCUBE recognizes revenue from VOD and ASG systems when persuasive evidence of an arrangement exists, the system has been delivered, the fee is fixed and determinable and collectibility of the fee is probable. Under multiple element arrangements, nCUBE allocates revenue to the various elements based on vendor-specific objective evidence (VSOE) of fair value. nCUBE’s VSOE of fair value is determined based on the price charged when the same element is sold separately. If VSOE of fair value does not exist for all elements in a multiple element arrangement, nCUBE recognizes revenue ratably over the delivery period of the undelivered elements. If VSOE exists for the undelivered elements, nCUBE uses the residual method to recognize revenue. Under the residual method, the fair value of the undelivered elements is deferred and recognized ratably, and the remaining portion of the arrangement is recognized as revenue upon delivery, which generally occurs on completion of installation.

Customers are billed for installation, project management, training and maintenance at the time of the product sale. Revenue from technical support and maintenance is deferred and recognized ratably over the period of the related agreements. Installation costs are expensed as incurred.

Custom engineering and integration services performed are typically completed within 90 days from receipt of an order. Revenues from these services are recognized upon completion and delivery of such services to the customer.

In certain instances, nCUBE’s customers require significant customization of both the software and hardware products and, therefore, the revenues are recognized as long term contracts in conformity with Accounting Research Bulletin (ARB) No. 45, Long Term Construction Type Contracts and SOP 81-1, Accounting for Performance of Construction-Type and Certain Production-Type Contracts. For long-term contracts, revenue is recognized using the completed contract method of accounting where no revenue is recognized until the contract is completed and the customer has accepted the end product.

8

nCUBE CORPORATION

Notes to Consolidated Financial Statements

September 30, 2004 and December 31, 2003

(h) Deferred Revenue and Costs

Deferred revenue consists of billings for maintenance contracts and for products that are pending completion of the revenue recognition process. Maintenance revenue, whether bundled with the product or priced separately, is recognized ratably over the maintenance period. At September 30, 2004 and December 31, 2003, deferred revenue includes billings to certain customers who agreed to make progress payments for systems that had been delivered but were waiting testing and acceptance. For these systems, revenue will be recognized on completion of testing and acceptance and any remaining revenues at the end of the period are recognized under the residual method.

Deferred costs represent the hardware costs of sales shipped but not installed, for which no revenue has been recognized.

(i) Capitalized Software

nCUBE accounts for research and development costs in accordance with several accounting pronouncements, including SFAS 2, Accounting for Research and Development Costs and SFAS 86, Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed (SFAS 86). SFAS 86 specifies that costs incurred internally in researching and developing a computer software product should be charged to expense until technological feasibility has been established for the product. Once technological feasibility is established, all software costs should be capitalized until the product is available for general release to customers. Judgment is required in determining when technological feasibility of a product is established. We have determined that technological feasibility for our software products is reached shortly before the products are released to manufacturing. Costs incurred by nCUBE between technological feasibility and the point at which the products are ready for market have been insignificant and as a result nCUBE has no internal software development costs capitalized at September 30,2004 and December 31,2003.

(j) Shipping and Handling Costs

The Company classifies shipping and handling costs as a component of cost of good sold in the consolidated statements of operations. Shipping and handling costs included in cost of goods sold for the nine months ended September 30, 2004 and the years ended December 31, 2003 and 2002 were $123, $111, and $180, respectively.

(k) Income Taxes

Income taxes are accounted for in accordance with SFAS No. 109, Accounting for Income Taxes (SFAS 109). SFAS 109 requires an asset and liability method of accounting for income taxes. Under the asset and liability method, deferred tax assets and liabilities are recognized for temporary differences between financial statement and income tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using the tax rates and laws that are currently in effect. In addition, the standard requires that the amount of any future tax benefits be reduced by a valuation allowance until it is more likely than not such benefits will be realized.

9

nCUBE CORPORATION

Notes to Consolidated Financial Statements

September 30, 2004 and December 31, 2003

(l) Statement of Cash Flows

Cash paid for interest for the nine months ended September 30, 2004 and years ended December 31, 2003 and 2002 was $9,166, $8,222, and $6,226, respectively. The Company transferred internally constructed computer hardware of $389 and $375 and $1,131 during 2004, 2003, and 2002, respectively from inventory to equipment. The hardware, which was subsequently used as an operating asset, was transferred at cost. These transactions represent noncash investing activities.

(m) Advertising Costs

Advertising costs are charged to expense as incurred. Advertising costs were $48, $30, and $185 for the nine months ended September 30, 2004 and the years ended December 31, 2003 and 2002, respectively.

(n) 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 reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

(o) Risk Factors

The media streaming market is highly competitive and the competition is likely to intensify. While the Company believes that its products are superior to those of its competitors, there can be no assurance that the Company will be able to compete successfully with existing and future products.

The following summarizes revenues by significant customer where such revenue exceeded 10% of total revenues of that year.

	Nine months ended September 30, 2004		Year ended December 31
			2003		2002
Customer A	24	%	5	%	2	%
Customer B	13		16		19
Customer C	13		13		—
Customer D	15		16		13
Customer E	8		11		1
	73	%	61	%	35	%

(p) Comprehensive Loss

The components of comprehensive loss include net loss and foreign currency translation gains (losses), net of tax. Comprehensive loss is presented in the consolidated statements of shareholders’ deficit.

10

nCUBE CORPORATION

Notes to Consolidated Financial Statements

September 30, 2004 and December 31, 2003

(q) Allowance for Doubtful Accounts

The Company is required to estimate the collectibility of its accounts and notes receivable. The Company establishes a general allowance for doubtful accounts based on percentages applied to certain aged receivable categories. These percentages are determined by a variety of factors including, but not limited to, current economic trends, contractual terms and conditions, and historical payment experience. In addition, the Company establishes allowances to charge off specifically identified doubtful accounts for the amount deemed worthless when a loss is determined to be both probable and estimable.

(r) Product Warranty

The Company warrants its products against defects in materials and workmanship for twelve months. A provision for estimated future costs related to warranty activities is recorded when the product is shipped, based upon our historical experience of known product failure rates and historical costs incurred in correcting product failures. In addition, from time to time, the recorded amount is adjusted for specifically identified warranty exposures if unforeseen technical problems arise. Product warranty costs are insignificant in all periods presented.

(s) Goodwill and Other Intangible Assets

Goodwill represents the excess of acquisition cost over the fair value of the net assets, including identifiable intangible assets, of businesses acquired. The Company adopted the provisions of SFAS No. 141, Business Combinations effective July 1, 2001, and adopted SFAS No. 142, Goodwill and Other Intangible Assets (Statement 142) effective January 1, 2002. Statement 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead be tested for impairment at least annually in accordance with the provisions of Statement 142.

Other intangible assets represent purchased intangible assets, which include purchased technology, patents and trademarks. Amounts allocated to purchased technology, patents, and trademarks are amortized on a straight-line basis over three years.

The Company’s identifiable intangible assets were fully amortized in 2003. Amortization expense related to identifiable intangible assets was $625 in 2003 and $900 in 2002.

(t) Accounting Pronouncements

In December 2004, the FASB issued SFAS No. 123R (revised 2004), Share-Based Payment, (SFAS 123R). SFAS 123R replaces SFAS N . 123, Accounting for Stock-Based Compensation and APB Opinion No. 25, Accounting for Stock Issued to Employees. This statement requires that the cost of all forms of equity-based compensation issued to employees, excluding employee stock ownership plans, be recognized in a company’s consolidated statements of income and that such cost be measured at the fair value of the stock options. SFAS 123R also amends SFAS No. 95, Statement of Cash Flows, to require that excess tax benefits be reported as a financing cash inflow rather than as a reduction of taxes paid. This statement is effective for financial statements relating to the first interim reporting period that begins after June 15, 2005.

11

nCUBE CORPORATION

Notes to Consolidated Financial Statements

September 30, 2004 and December 31, 2003

(u) Accounting for Employee Stock Award Plans

The FASB issued SFAS No. 123, Accounting for Stock-Based Compensation (SFAS 123), which defines a fair value based method of accounting for employee stock options and similar equity instruments. However, SFAS 123 allows an entity to continue to measure compensation cost for employee stock plans using the method of accounting prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25). Entities electing to remain with the accounting in APB 25 must make pro forma disclosures of net income as if the fair value based method of accounting defined in SFAS 123 had been adopted.

The Company has elected to account for its stock-based compensation plans in accordance with the provisions of APB 25; accordingly, the Company has elected to provide pro forma disclosures as required by SFAS 123. The Company has computed, for pro forma disclosure purposes, the value of all options granted under the stock option plans during 2004, 2003, and 2002 using the minimum value option-pricing model as prescribed by SFAS 123, with the following weighted average assumptions:

	Nine months ended September 30, 2004		Year ended December 31
			2003		2002
Risk-free interest rate	3.05	%	2.80	%	2.49	%
Expected dividend yield	—	%	—	%	—	%
Expected life	4 years		4 years		4 years
Expected volatility	—	%	—	%	—	%

The total value of options granted would be amortized on a pro rata basis over the vested period of the options. Options generally vest equally over four years. If the Company had accounted for these plans in accordance with SFAS 123, the Company’s net loss would have increased as reflected in the following pro forma amounts:

	Nine months ended September 30, 2004		Year ended December 31
			2003	2002
Net loss as reported	$	23,016	32,149	45,453
Add total stock-based employee compensation expense determined under fair value based method for all awards		207	470	497
Pro forma net loss	$	23,223	32,619	45,950

12

nCUBE CORPORATION

Notes to Consolidated Financial Statements

September 30, 2004 and December 31, 2003

In December 2002, the FASB issued Statement 148. The provisions of Statement 148 amend Statement 123, to provide alternative methods of transitioning to a fair value-based method of accounting for stock-based employee compensation. In addition, Statement 148 also expands the disclosure requirements of Statement 123 by requiring more detailed disclosure in both annual and interim financial statements. The Company adopted Statement 148 effective December 28, 2002. The transition provisions of Statement 148 did not have a material impact on the Company’s financial results, as the Company has not adopted the fair value-based accounting provisions of Statement 123.

(3) Acquisition of the Company

On December 31, 2004, nCUBE completed the sale of its business to C-COR Incorporated (C-COR), a publicly held company headquartered in State College, Pennsylvania (NASDAQ-CCBL). nCUBE became part of C-COR’s Broadband Management Solutions segment. Consideration for the acquisition consisted of 4,500,000 shares of the C-COR’s common stock, $35,000 principal amount of the C-COR’s 3.5% senior unsecured 5-year convertible notes, $20,000 in cash, and the assumption of certain liabilities. The common stock portion of the consideration was based upon the C-COR’s average common stock price over a period which included two days before and after the measurement date, which was October 22, 2004. Based upon the average common stock price, the aggregate purchase consideration was approximately $88,000, excluding certain liabilities assumed.

(4) Related Party Transactions

The Company has historically relied on a shareholder to provide working capital, some of which is in the form of loans payable on demand, to the Company. As of September 30, 2004 and December 31, 2003, the Company has an outstanding loan payable to this shareholder totaling $134,103 and $118,103, respectively. The loans bear interest at 10.0% and interest payable at September 30, 2004 and December 31, 2003 is $3,397 and $2,920, respectively.

A shareholder of the Company has guaranteed the Company’s revolving line of credit under a guarantee fee arrangement. The arrangement provides for the shareholder to receive a guarantee fee on revolving notes equal to the difference between the bank’s interest rate and 7.0%. Guarantee fee expense totaled $1,744, $2,327, and $2,049 in 2004, 2003, and 2002, respectively. Guarantee fees payable totaling $560 and $597 are included in accrued liabilities as of September 30, 2004 and December 31, 2003, respectively.

Oracle Corporation, whose Chairman and Chief Executive Officer is a shareholder of the Company, provided products and maintenance services to the Company totaling $196, $83, and $167 during the nine months ended September 30, 2004 and the years ended December 31, 2003 and 2002, respectively. These costs were paid with cash. At September 30, 2004 and December 31, 2003, the Company had accounts payable owed to Oracle Corporation of $17 and $0, respectively.

13

nCUBE CORPORATION

Notes to Consolidated Financial Statements

September 30, 2004 and December 31, 2003

(5) Inventories

Inventories consist of the following at:

	September 30, 2004		December 31, 2003
Raw materials	$	3,371	4,119
Work-in-process		964	236
Service spare parts		773	866
Finished goods		200	318
	$	5,308	5,539

(6) Property and Equipment

	September 30, 2004			December 31, 2003
Property and equipment consist of the following at:
Machinery and equipment	$	12,949		12,794
Furniture and fixtures		313		313
Leasehold improvements		960		916
Accumulated depreciation		(11,551	)	(11,020	)
Net property and equipment	$	2,671		3,003

(7) Revolving Line of Credit

At September 30, 2004, the Company had a $44,000 revolving line of credit with Chase Manhattan Bank, which was scheduled to expire on February 28, 2005. The line of credit is collateralized by personal property and guaranteed by a shareholder. Interest is payable periodically at (i) the rate of interest announced from time to time by the bank at its reference rate or (ii) optional rates, as defined in the agreement and as elected by the borrower at the time of advance. The loan was paid in full in January 2005.

(8) Shareholders’ Deficit

Preferred Stock

The Company has authorized 2,500,000 shares of preferred stock, par value $0.001 per share, of which 65,726 shares of Series A have been issued. Such stock may be issued by the board of directors in one or more series, with the preferences, limitations and rights of each series to be determined by the board of directors. The Series A preferred stock has preferential liquidation and dividend rights, and is convertible to common stock, either at the shareholder’s option or automatically on the occurrence of certain specified events.

14

nCUBE CORPORATION

Notes to Consolidated Financial Statements

September 30, 2004 and December 31, 2003

Stock Option Plans

The Company has a 1997 Company stock option plan and a 2000 executive stock option plan. The Company also has a SkyConnect stock option plan as a result of the merger with SkyConnect in 1999. Under the plans, selected individuals are granted either incentive stock options (ISOs) or nonqualified stock options (NQSOs). NQSOs may be granted to any employee, officer, director, consultant, independent contractor or advisor of the Company. ISOs may be granted only to employees (including officers and directors who are also employees). Under the terms of these plans, the purchase price of shares subject to options granted as ISOs and NQSOs will not be less than 100% and 85% of their fair market value, respectively, at the date of grant. No options have been granted at less than 100% of their fair market value. Options granted are exercisable for a period as determined by the Company at date of grant. The terms of the 1997 plan provide that optionees must give advance notice of intent to exercise and that the Company has an option redemption right to buy out the options rather than issue shares. There have been no option redemptions under the 1997 plan.

At September 30, 2004, 1,451,413 and 105,730 shares have been authorized for issuance under the 1997 plan and the SkyConnect plan, respectively. The 2000 executive plan has 1,200,000 shares authorized for issuance, and all options granted to date under this plan have an exercise price of $15 per share. Under the 1997 plan, all option grants prior to 1999 are at an exercise price of $0.50 per share, while options granted in 1999 are at an exercise price of $ 1.00 per share and options granted after 2000 are at an exercise price of $15.00 per share. Options outstanding under the SkyConnect plan have exercise prices ranging from $31.82 to $37.55 per share. The Company has a total of 1,354,532 shares available for grant under all plans.

The following table summarizes activity in the stock plans:

	2004				2003				2002
	Shares		Weighted average exercise price		Shares		Weighted average exercise price		Shares		Weighted average exercise price
Options outstanding at beginning of period	1,476,019		$	13.772			$	13.856	2,328,981		$	13.634
Granted	25,500			15.000	98,500			15.000	66,000			15.000
Exercised	(2,500	)		1.000	(949	)		1.000	(16,574	)		1.024
Canceled	(98,908	)		16.981	(348,417	)		14.504	(615,522	)		13.485
Options outstanding at end of period	1,400,111			13.591	(250,866	)		13.772	1,762,885			13.856
Exercisable at end of period	1,211,638			13.371	1,015,887			13.216	836,624			13.505
Weighted average fair value of options granted during the period				1.72				1.59				1.42

15

nCUBE CORPORATION

Notes to Consolidated Financial Statements

September 30, 2004 and December 31, 2003

The following table sets forth the exercise price range, number of shares outstanding at September 30, 2004 weighted average remaining contractual life, weighted average price, number of exercisable options, and weighted average exercise price of exercisable options by groups of similar and grant date:

		Options outstanding				Options exercisable
Exercise price range		Outstanding shares at September 30, 2004	Weighted average remaining contractual life (partner)	Weighted average exercise price		Exercisable options	Weighted average exercise price
$	0.500	1,110	3.25	$	0.50	1,110	$	0.50
	1.000	193,758	5.09		1.00	193,758		1.00
	15.000	1,170,000	6.30		15.00	981,527		15.00
	31.820	6,881	3.03		31.82	6,881		31.82
	37.550	28,362	1.46		37.55	28,362		37.55
		1,400,111	6.01		13.59	1,211,638		13.37

Stock Warrants

At September 30, 2004, the following warrants are outstanding:

Number of shares	Exercise price per share	Expiration date
62,225	26.52	December 31, 2004
75,030	33.32	July 27, 2010
512,000	33.32	November 14, 2011
292,617	33.32	February 23, 2011
941,872

No warrants were exercised during 2004, 2003, or 2002. Of the warrants outstanding, 941,872 shares are exercisable as of September 30, 2004.

(9) 401(k) Plan

The Company has a savings incentive plan (the 401 (k) Plan) that is intended to qualify under Section 401(k) of the Internal Revenue Code (the Code). All U.S. employees of nCUBE are eligible to participate in the 401(k) Plan except the following: (1) those covered by collective bargaining agreements; (2) nonresident aliens who receive no earned income from the Company; and (3) “leased” employees within the meaning of Section 414(n) of the Code. There were no contributions made by the Company into the plan for the nine months September 30, 2004 or years ended December 31, 2003 and 2002.

(10) Income Taxes

As of September 30, 2004, the Company had federal and state net operating loss carryforwards and tax credit carryforwards of approximately $210,000 and $344, respectively. In addition, the Company had net operating loss carryforwards in foreign jurisdictions. In certain circumstances, due to ownership changes, the net operating loss and credit carryforwards may be subject to limitations under the Internal Revenue Code. The carryforwards expire in varying amounts beginning in 2005 through 2024.

16

nCUBE CORPORATION

Notes to Consolidated Financial Statements

September 30, 2004 and December 31, 2003

Significant components of deferred tax assets are as follows:

	September 30, 2004			December 31, 2003
Deferred tax assets:
Net operating loss carryforwards	$	84,062		76,770
Tax credits		344		344
Inventory		1,262		1,665
Fixed assets		986		986
Accruals and reserves		599		702
Revenue recognition		4,617		2,882
Book loss in excess of tax loss		345		345
Other		387		387
		92,602		84,081
Deferred tax liabilities:
Prepaid assets and other accruals		(111	)	(598	)
Tax loss in excess of book loss		(2,981	)	(2,981	)
		89,510		80,502
Less valuation allowance		(89,510	)	(80,502	)
Net deferred tax assets	$	—		—

The Company has provided a valuation allowance for the deferred tax assets due to the uncertainty of the Company being able to generate sufficient taxable income to realize these deferred tax assets. The Company’s valuation allowance increased approximately $9,000 and $12,100 in 2004 and 2003, respectively primarily due to the increase in its deferred tax assets for net operating losses incurred during these periods. Certain of the deferred tax assets may be realized as a result of the acquisition of the Company discussed in Note 3.

(11) Commitments and Contingencies

Leases

The Company has noncancelable operating lease commitments on leased office space. The lease agreements for several leased offices provide for rent and a common area maintenance fee. The rent schedules and the common area maintenance fees are subject to escalation depending on the actual costs of tenant improvements and maintenance cost, respectively, incurred by the lessor.

The Company has cash deposits being held as security on the various leases described above. Rent expense was approximately $798, $1,007 and $1,242 for the nine months ended September 30, 2004 and years ended December 31, 2003 and 2002, respectively.

During 2002, the Company had sublease income of $186. These amounts are included as an offset to general and administrative expenses in the consolidated statements of operations.

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nCUBE CORPORATION

Notes to Consolidated Financial Statements

September 30, 2004 and December 31, 2003

Future minimum payments, by year and in the aggregate, under a noncancelable operating lease were $655 at September 30, 2004. The lease was renewed early in February 1, 2005 for an additional five year term which reduced the future minimum payments due under the previous lease by $328.

The minimum lease payments under the renewal are as follows:

2005	$	115
2006		633
2007		652
2008		671
2009		692
Thereafter		772
Total future minimum lease payments	$	3,534

Guarantees and Indemnification Obligations

nCUBE enters into indemnification agreements in the ordinary course of business with customers. Most of these agreements require nCUBE to defend and/or indemnify the other party against intellectual property infringement claims brought by a third party with respect to nCUBE’s products.

nCUBE warrants that its products, including software products, will substantially perform in accordance with its standard published specifications in effect at the time of delivery. Most warranties have at least a one year duration commencing from installation. In addition, nCUBE provides maintenance support to all customers and therefore allocates a portion of the systems purchase price to the initial warranty period and recognizes revenue on a straight line basis over that warranty period related to both the warranty obligation and the maintenance support agreement. When nCUBE receives revenue for extended warranties beyond the standard duration, it is deferred and recognized on a straight line basis over the contract period. Related costs are expensed as incurred. As of September 30, 2004 and December 31, 2003, nCUBE had revenue deferrals related to initial and extended warranties of approximately $20,723 and $20,690, respectively, in deferred revenue. nCUBE believes that the likelihood is remote that any such arrangements could have a material adverse effect on its financial position, results of operation or liquidity.

Legal Proceedings

SeaChange International, Inc. (SeaChange) filed a suit against the Company in a federal district court in Delaware on June 13, 2000 for infringement of U.S. Patent No. 5,862,312 entitled Loosely Coupled Mass Storage Computer Cluster (the 312 patent). The trial began on September 18, 2000 to determine the sole issue of the validity of the ‘312 patent. At the conclusion of the trial on September 25, 2000, the district court entered a judgment that Company infringed the asserted claims and that such claims were not invalid. No monetary damages were awarded. The Company appealed the district court’s judgment to the United States Court of Appeals for the Federal Circuit. Oral arguments were heard on February 11, 2005 and the parties await the disposition of those arguments by the appellate court.

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nCUBE CORPORATION

Notes to Consolidated Financial Statements

September 30, 2004 and December 31, 2003

Immediately following the jury’s verdict, and based on design modifications agreed to by SeaChange during the trial, the Company made a minor change to its data storage design, and the Company’s products have not experienced any loss in performance.

The Company initiated litigation against SeaChange for patent infringement on January 8, 2001 in a federal district court in Delaware. The complaint alleges that SeaChange is violating nCUBE’s U.S. patent 5,805,804 entitled “Method and Apparatus for Scalable, High Bandwidth Storage, Retrieval, and Transportation of Multimedia Data on a Network” (the ‘804 patent). Following a week-long trial, the jury returned a verdict finding that: (1) SeaChange infringed the asserted claims both literally and under the doctrine of equivalents; (2) SeaChange’s infringement was willful; (3) the asserted claims were not invalid; and (4) Company was entitled to damages of $1.7 million plus a running royalty of 7% on all SeaChange sales of the accused product. In April 2004, the district court entered judgment on the jury verdict and awarded Company 2/3 of its attorney fees and enhanced by damages by a factor of two. SeaChange appealed the jury’s verdict and the district court’s award to the United States Court of Appeals for the Federal Circuit. SeaChange filed its opening brief on November 22, 2004. Company’s response brief was filed on January 6, 2005. No oral argument has yet been scheduled in this appeal.

In addition to the SeaChange proceedings, the Company is also involved in routine legal matters incidental to its business. The Company believes that the resolution of the SeaChange suits and these other routine matters will not have a material effect on its financial position or results of operations.

(12) Segment Reporting

The Company has adopted SFAS No. 131, Disclosure about Segments of an Enterprise and Related Information (SFAS 131). SFAS 131 establishes standards for reporting information about operating segments in annual financial statements and for related disclosures about products and geographic areas. nCUBE designs and manufactures products that target several markets within the broadband streaming media segment of the interactive multimedia industry. The Company generally manages its resources on an enterprise-wide basis for assessing performance. Accordingly, based on the provisions of SFAS 131, the Company operates in one segment.

The Company has geographic operations in the United States and Europe. Operating income is total revenue less operating expenses. In computing operating income, none of the following items have been added or deducted: interest income or expense, other income or expense or a provision for income taxes. Identifiable assets are those assets of the Company that are identified with the operations in each geographic location.

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nCUBE CORPORATION

Notes to Consolidated Financial Statements

September 30, 2004 and December 31, 2003

The following data represents geographic information.

	United States			Europe		Consolidated
Nine months ended September 30, 2004:
Net sales	$	29,643		2,726		32,369
Operating loss		(10,222	)	(971	)	(11,193	)
Identifiable assets		24,340		1,218		25,558
Year ended December 31, 2003:
Net sales	$	29,616		1,882		31,498
Operating loss		(17,692	)	(3,264	)	(20,956	)
Identifiable assets		29,175		1,559		30,734
Year ended December 31, 2002:
Net sales	$	21,275		1,338		22,613
Operating loss		(35,547	)	(2,638	)	(38,185	)

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