Key Components of Our Results of Operations and Financial Condition Revenues
Our revenues are derived principally from the sale of networking hardware and management tools. In addition, while we do not sell maintenance and support separately, because we have historically included it free of charge in many of our arrangements, we attribute a portion of our systems revenues to this implied post-contract customer support ("PCS").
We classify our revenues into three product categories: systems, embedded radios and antennas/other.
• Systems consists of three product categories:

?            Our proprietary airMAX platform products for network operators and
             service providers;


?            Our new platform products which include significant platforms
             introduced in late fiscal 2011 and during 2012 which includes the
             UniFi, airVision and airFiber, mFi and EdgeMAX platforms; and


?            Other 802.11 standard products including base stations, radios,
             backhaul equipment and Customer Premise Equipment ("CPE").


•     Embedded radios consist of more than 25 radio products primarily for OEMs,
      including both point to point and point to multipoint radios in the 2.0 to
      6.0GHz spectrum, that are offered with a variety of features.


•     Antennas/other consist of antenna products in the 2.0 to 6.0GHz spectrum,
      as well as miscellaneous products such as mounting brackets, cables and
      power over Ethernet adapters. These products include both high performance
      sector and directional antennas. This category also includes our allocation
      of revenues to PCS.

We sell substantially all of our products through a limited number of distributors and other channel partners, such as resellers and OEMs. Sales to distributors accounted for 97% and 96% of our revenues in the three months ended December 31, 2012 and 2011, respectively. Sales to distributors accounted for 97% of our revenues in both the six months ended December 31, 2012 and 2011. Other channel partners, such as resellers and OEMs, largely accounted for the balance of our revenues. We sell our products without any right of return. Cost of Revenues
Our cost of revenues is comprised primarily of the costs of procuring finished goods from our contract manufacturers and chipsets that we consign to certain of our contract manufacturers. In addition, cost of revenues includes tooling, labor and other costs associated with engineering, testing and quality assurance, warranty costs, stock-based compensation and excess and obsolete inventory.
We outsource our manufacturing and order fulfillment and utilize contract manufacturers located primarily in China and, to a lesser extent, Taiwan. We also evaluate and utilize other vendors for various portions of our supply chain from time to time. Our manufacturing organization consists of employees and consultants engaged in the management of our contract manufacturers, new product introduction activities, logistical support and engineering. Gross Profit
Our gross profit has been, and may in the future be, influenced by several factors including changes in product mix, target end markets for our products, pricing due to competitive pressure, production costs, foreign exchange rates and global demand for electronic components. Although we procure and sell our products in U.S. dollars, our contract manufacturers incur many costs, including labor costs, in other currencies. To the extent that the exchange rates move unfavorably for our contract manufacturers, they may try to pass these additional costs on to us, which could have a material impact on our future average selling prices and unit costs.
Operating Expenses
We classify our operating expenses as research and development and sales, general and administrative expenses.
• Research and development expenses consist primarily of salary and benefit expenses, including stock-based compensation, for employees and costs for contractors engaged in research, design and development activities, as well as costs for prototypes, facilities and travel. Over time, we expect our research and development costs to increase as we continue making significant investments in developing new products and developing new versions of our existing products.

• Sales, general and administrative expenses include salary and benefit expenses, including stock-based compensation, for employees and costs for contractors engaged in sales, marketing and general and administrative activities, as well as the costs of outside legal expenses, trade shows, marketing programs, promotional materials, bad debt expense, professional services, facilities, general liability insurance and travel. As our product portfolio and targeted markets expand, we may need to employ different sales models, such as building a direct sales force. These sales models would likely increase our costs. Over time, we expect our sales, general and administrative expenses to increase in absolute

dollars due to continued growth in headcount, expand our registration and defense of trademarks and patents efforts and to support our business and operations as a public company.
Deferred Revenues and Costs
In the event that collectability of a receivable from products we have shipped is not probable, we classify those amounts as deferred revenues on our balance sheet until such time as we receive payment of the accounts receivable. We classify the cost of products associated with these deferred revenues as deferred costs of revenues. At December 31, 2012 and June 30, 2012, we did not have any revenue deferred for transactions where we lacked evidence that collectability of the receivables recorded was reasonably probable. Also included in our deferred revenues is a portion related to PCS obligations that we estimate we will perform in the future. As of December 31, 2012 and June 30, 2012, we had deferred revenues of $815,000 and $805,000 respectively, related to these obligations.
Prepayments
We have historical agreements with certain contract manufacturers whereby we prepay for a portion of the product costs to assure the manufacture and timely delivery of our products. However, as of December 31, 2012 we did not have any prepayment balances with our contract manufacturers. As of June 30, 2012, we had a prepayment balance of $129,000.
Critical Accounting Policies
We prepare our condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America ("GAAP"). In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management's judgment in its application. In other cases, management's judgment is required in selecting among available alternative accounting standards that provide for different accounting treatment for similar transactions. The preparation of condensed consolidated financial statements also requires us to make estimates and assumptions that affect the amounts we report as assets, liabilities, revenues, costs and expenses and affect the related disclosures. We base our estimates on historical experience and other assumptions that we believe are reasonable under the circumstances. In many instances, we could reasonably use different accounting estimates, and in some instances changes in the accounting estimates are reasonably likely to occur from period to period. Accordingly, our actual results could differ significantly from the estimates made by our management. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected. Our critical accounting policies are discussed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2012, as filed on September 28, 2012 with the SEC, or the Annual Report, and there have been no material changes.

Results of Operations
Comparison of Three and Six Months Ended December 31, 2012 and 2011
                           Three Months Ended December 31,                  Six Months Ended December 31,
                             2012                     2011                   2012                   2011
                                                 (In thousands, except percentages)
Revenues            $    74,901       100 %   $  87,817      100 %   $ 136,436      100 %   $ 166,984      100 %
Cost of revenues         44,416        59 %      50,527       58 %      80,931       59 %      96,681       58 %
Gross profit             30,485        41 %      37,290       42 %      55,505       41 %      70,303       42 %
Operating expenses:
Research and
development               5,052         7 %       3,683        4 %       9,763        7 %       7,052        4 %
Sales, general and
administrative            5,314         7 %       2,431        3 %       9,848        7 %       4,575        3 %
Total operating
expenses                 10,366        14 %       6,114        7 %      19,611       14 %      11,627        7 %
Income from
operations               20,119        27 %      31,176       35 %      35,894       27 %      58,676       35 %
Interest expense
and other, net             (197 )       *          (312 )      *          (283 )      *          (946 )      *
Income before
provision for
income taxes             19,922        27 %      30,864       35 %      35,611       26 %      57,730       35 %
Provision for
income taxes              2,119         3 %       6,173        7 %       4,629        3 %      11,546        7 %
Net income          $    17,803        24 %   $  24,691       28 %   $  30,982       23 %   $  46,184       28 %

Cost of revenues    $       104               $      27              $     185              $      33
Research and
development                 401                     116                    667                    232
Sales, general and
administrative              388                     208                    697                    437
Total stock-based
compensation        $       893               $     351              $   1,549              $     702

Revenues
Revenues decreased $12.9 million, or 15%, from $87.8 million in the three months ended December 31, 2011 to $74.9 million in the three months ended December 31, 2012. Revenues decreased $30.5 million, or 18%, from $167.0 million in the six months ended December 31, 2011 to $136.4 million in the six months ended December 31, 2012. We believe the overall decrease in revenues during the three and six months ended December 31, 2012 was primarily driven by lost sales due to the proliferation of counterfeit versions of our products, which has also created customer uncertainty regarding the authenticity of their potential purchases. We believe these factors contributed to a buildup in channel inventory with our distributors, further impacting our revenues. This has had the most significant impact on our airMAX platform which decreased $4.2 million and $22.0 million, respectively, in the three and six months ended December 31, 2012 compared to the same periods in the prior year.
In the three months ended December 31, 2012, revenues from Customer A and Customer B represented 15% and 14% of our revenues, respectively. In the three months ended December 31, 2011, revenues from Customer A represented 21% of our revenues. In the six months ended December 31, 2012, revenues from Customer A represented 12% of our revenues. In the six months ended December 31, 2011, revenues from Customer A and Customer C represented 19% and 12% of our revenues, respectively. No other customer represented more than 10% of our revenues in the three or six months ended December 31, 2012 or 2011.

Revenues by Product Type
                      Three Months Ended December 31,                 Six Months Ended December 31,
                          2012                    2011                  2012                  2011
                                           (in thousands, except percentages)
airMAX         $    48,752           65 %   $ 52,939     60 %   $    80,809     59 %   $ 102,774     62 %
New platforms       11,905           16 %      4,226      5 %        27,533     20 %       6,960      4 %
Other systems        4,835            6 %     18,254     21 %         8,619      7 %      31,019     19 %
Systems             65,492           87 %     75,419     86 %       116,961     86 %     140,753     85 %
Embedded radio       1,519            2 %      2,567      3 %         3,233      2 %       5,792      3 %
Antennas/other       7,890           11 %      9,831     11 %        16,242     12 %      20,439     12 %
Total revenues $    74,901          100 %   $ 87,817    100 %   $   136,436    100 %   $ 166,984    100 %

Systems revenues decreased $9.9 million, or 13%, from $75.4 million in the three months ended December 31, 2011 to $65.5 million in the three months ended December 31, 2012. Systems revenues decreased $23.8 million, or 17%, from $140.8 million in the six months ended December 31, 2011 to $117.0 million in the three months ended December 31, 2012. As noted above, we believe the decrease in systems revenues was primarily driven by lost sales due to the proliferation of counterfeit versions of our products, in particular our airMAX product line. The decrease in our airMAX product line was partially offset by increased sales in our new platforms category, which includes significant platforms introduced since late fiscal 2011. Our new platforms contributed $11.9 million and $4.2 million of revenue during the three months ended December 31, 2012 and 2011, respectively, and $27.5 million and $7.0 million of revenue during the six months ended December 31, 2012 and 2011, respectively. Our other systems revenue decreased $13.4 million during the three months ended December 31, 2012 as compared to the three months ended December 31, 2011 due primarily to our December 2011 quarter including a large order to a customer. Our other systems revenue decreased $22.4 million during the six months ended December 31, 2012 as compared to the six months ended December 31, 2011 due primarily to our December 2011 quarter including a large order to a customer.
Embedded radio revenues decreased $1.0 million, or 41%, from $2.6 million in the three months ended December 31, 2011 to $1.5 million in the three months ended December 31, 2012, and decreased $2.6 million, or 44%, from $5.8 million in the six months ended December 31, 2011 to $3.2 million in the six months ended December 31, 2012. We anticipate that embedded radio products will decline as a percentage of revenues in future periods as sales of these products are outpaced by sales of systems products.
Antennas/other revenues decreased $1.9 million, or 20% from $9.8 million in the three months ended December 31, 2011 to $7.9 million in the three months ended December 31, 2012. Antennas/other revenues decreased $4.2 million, or 21% from $20.4 million in the six months ended December 31, 2011 to $16.2 million in the six months ended December 31, 2012. The decline in antennas/other revenues was primarily due to the decreased sales of our systems platforms, which negatively impacted the demand for associated antennas. Other revenues also include revenues that are attributable to PCS. Antenna/other revenues will decline as a percentage of total revenues due to more rapid growth of systems revenues.

Revenues by Geography

We generally forward products directly from our manufacturers to our customers via logistics distribution hubs in Asia. Beginning in the quarter ended December 31, 2012, our products were predominantly routed through a third party logistics provider in China and prior to the quarter ended December 31, 2012, our products were mainly delivered to our customers through distribution hubs in Hong Kong. Our customers in turn ship to other locations throughout the world. We have determined the geographical distribution of our product revenues based on our customer's ship-to destinations. A majority of our sales are to distributors who in turn sell to resellers or directly to end customers. As a result of these factors, we believe that sales to certain geographic locations might be higher or lower, as the ultimate destinations are difficult to ascertain. Revenues in North America decreased primarily due to a significant decline in orders from one of our customers. We believe the decrease in revenues in South America and Europe, the Middle East and Africa was primarily driven by the proliferation of counterfeit versions of our products, which has also created customer uncertainty regarding the authenticity of their potential purchases. Revenues in the Asia Pacific region tend to be volatile given the low levels of revenues. The following are our revenues by geography for the three and six months ended December 31, 2012 and 2011 (in thousands, except percentages):

                                 Three Months Ended December 31,                    Six Months Ended December 31,
                                   2012                      2011                    2012                    2011
North America(1)        $    12,106            16 %   $ 21,440       24 %   $    32,467       24 %   $  46,381       28 %
South America                17,081            23 %     24,250       28 %        27,324       20 %      44,085       26 %
Europe, the Middle East
and Africa                   35,929            48 %     30,356       35 %        59,073       43 %      55,139       33 %
Asia Pacific                  9,785            13 %     11,771       13 %        17,572       13 %      21,379       13 %
Total revenues          $    74,901           100 %   $ 87,817      100 %   $   136,436      100 %   $ 166,984      100 %

(1) Revenue for the United States was $11.4 million and $20.7 million for the three months ended December 31, 2012 and 2011, respectively. Revenue for the United States was $30.7 million and $45.1 million for the six months ended December 31, 2012 and 2011, respectively.

Cost of Revenues and Gross Profit
Cost of revenues decreased $6.1 million, or 12%, from $50.5 million in the three months ended December 31, 2011 to $44.4 million in the three months ended December 31, 2012. Cost of revenues decreased $15.8 million, or 16%, from $96.7 million in the six months ended December 31, 2011 to $80.9 million in the six months ended December 31, 2012. The decreases in cost of revenues in both the three and six months ended December 31, 2012 was primarily due to decreased revenues and to a lesser extent, changes in product mix.
Gross profit decreased from 42% in the three months ended December 31, 2011 to 41% in the three months ended December 31, 2012. Gross profit decreased from 42% in the six months ended December 31, 2011 to 41% in the six months ended December 31, 2012. The decrease in gross profit in both periods reflects increases in variable operating costs.
Operating Expenses
Research and Development
Research and development expenses increased $1.4 million, or 37%, from $3.7 million in the three months ended December 31, 2011 to $5.1 million in the three months ended December 31, 2012. As a percentage of revenues, research and development expenses increased from 4% in the three months ended December 31, 2011 to 7% in the three months ended December 31, 2012. Research and development expenses increased $2.7 million, or 38%, from $7.1 million in the six months ended December 31, 2011 to $9.8 million in the six months ended December 31, 2012. As a percentage of revenues, research and development expenses increased from 4% in the six months ended December 31, 2011 to 7% in the six months ended December 31, 2012. The increase in research and development expenses in absolute dollars in both periods was due to increases in headcount as we broadened our research and development activities to new product areas. As a percentage of revenues, research and development expenses increased in both periods primarily due to our overall decrease in revenues. Over time, we expect our research and development costs to increase in absolute dollars as we continue making significant investments in developing new products and developing new versions of our existing products.
Sales, General and Administrative
Sales, general and administrative expenses increased $2.9 million, or 119%, from $2.4 million in the three months ended December 31, 2011 to $5.3 million in the three months ended December 31, 2012. As a percentage of revenues, sales, general

and administrative expenses increased from 3% in the three months ended December 31, 2011 to 7% in the three months ended December 31, 2012. Sales, general and administrative expenses increased $5.3 million, or 115%, from $4.6 million in the six months ended December 31, 2011 to $9.8 million in the six months ended December 31, 2012. As a percentage of revenues, sales, general and administrative expenses increased from 3% in the six months ended December 31, 2011 to 7% in the six months ended December 31, 2012. Sales, general and administrative expenses increased in both periods due largely to increased legal expenses associated with our anti-counterfeiting litigation, increased marketing and tradeshow activity and increases in our bad debt allowance. As a percentage of revenues sales, general and administrative expenses increased in both periods primarily due to our overall revenue decrease in revenues. Over time, we expect our sales, general and administrative expenses to increase in absolute dollars due to continued efforts to protect our intellectual property and growth in headcount to support our business and operations. Interest Expense and Other, Net
Interest expense and other, net was $197,000 for the three months ended December 31, 2012, representing a decrease of $115,000 from $312,000 for the . . .