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SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

(Mark One)

x	Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended: April 30, 2003

OR

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  0-22703

MCK Communications, Inc.

Registrant’s telephone number, including area code: (617) 454-6100

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.001 par value

      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 if disclosure of delinquent filers pursuant to item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.          o

      Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

      Yes o     No x

      The aggregate market value of voting and non-voting common stock held by non-affiliates of the registrant as of October 31, 2002, was approximately $13,115,154 based upon the last sales price reported for such date on The Nasdaq National Market. For purposes of this disclosure, shares of Common Stock held by persons who hold more than 5% of the outstanding shares of Common Stock and shares held by officers and directors of the registrant, have been excluded in that such persons may be deemed to be affiliates. This determination is not necessarily conclusive.

      At June 3, 2003 the registrant had outstanding 20,536,655 shares of Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE

      None

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INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

      This Annual Report on Form 10-K contains certain forward-looking statements (within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended) that involve risks and uncertainties. Forward-looking statements include, without limitation, statements containing the words “anticipates,” “believes,” “expects,” “intends,” “future” and words of similar import which express management’s belief, expectations or intentions regarding the future performance of MCK Communications, Inc. and its subsidiaries (hereafter, collectively, “we,” “us,” “our,” “MCK” or the “Company”). Actual results and the timing of certain events could differ materially from those projected in the forward-looking statements as a result of a number of factors. For a discussion of important factors that could affect the Company’s results, please refer to the Business section and to the financial statement line item and Critical Accounting Policies discussions and Factors Affecting Future Operating Results and Stock Price set forth in Management’s Discussion and Analysis of Financial Condition and Results of Operations discussed elsewhere in this Annual Report on Form 10-K.

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PART I

Item 1.     Business

Overview

      MCK is a leading provider of products that deliver distributed voice communications by enabling businesses to extend the functionality and applications of their business telephone systems from the main office to outlying offices, remote call centers, teleworkers and mobile employees over public and private networks. Business telephone systems consist of private branch exchange (“PBX”) systems and key systems (“KTS”). Whereas key systems are used in medium and small businesses or smaller locations within larger companies, PBXs are the most commonly used telephone systems in large corporations. PBXs deliver such features as 3- or 4-digit internal dialing, conferencing, call transfer and call forwarding. PBXs also generally support a range of telephony applications such as voicemail, automatic call distribution, auto attendant, call accounting and interactive voice response.

      Our EXTender and ConneX products cost-effectively deliver a unified enterprise-wide voice network by enabling the voice switch to function as a company-wide voice server that transmits call function and applications to distributed locations over the company’s existing voice and/or data networks. This enables a company to provide the same telephony functionality to all locations while reducing their total cost of ownership. Savings are achieved by leveraging current investments in voice and data equipment, flexibility of network choice for lowered communications service cost, streamlined network administration through the utilization of industry standard network management techniques and lowered training costs. These products also afford service providers the flexibility of combining the power of their network services such as data and/or mobile services with PBX/ KTS extension to expand the range of offers provided to their customers.

      In addition, our Extender products provide enterprises or service providers flexible choices for managing their path to the future by leveraging their current infrastructure investments while taking advantage of next generation “nextgen” telephony systems (i.e., CPE and/or hosted IP switches), applications (i.e., unified messaging) and devices (i.e., Internet Protocol (“IP”) phones, wireless devices) to provide employees enriched telephony experiences.

      Our embedded gateway recording products are used within a variety of telephony-based applications (i.e., call center, contact center, security and client services applications) and enable our customers to convert digital PBX signals into standard analog audio output so that calls can be easily and cost-effectively recorded for future use. We also provide a range of custom embedded gateway products for specific Original Equipment Manufacturer (“OEM”) partners.

      We market and distribute our products through an international network of distributors, resellers, equipment providers, system integrators, service providers and, to a lesser extent, through direct sales. We are headquartered in Needham, Massachusetts and have a development center in Calgary, Canada. We also maintain a sales office in the United Kingdom and a sales offices in Toronto and Montreal, Canada, as well as multiple locations throughout the United States. We outsource our manufacturing to a manufacturer that provides full turnkey services including material procurement, final assembly, test, shipment to our customers, and warranty services.

      Our customer support efforts complement our distribution partners’ offerings Our sales force and marketing efforts are primarily directed at supporting the sales efforts of our indirect distribution partners and developing brand awareness.

      On April 21, 2003, we entered into a definitive Agreement and Plan of Merger with Verso Technologies, Inc. (“Verso”), and Mickey Acquiring Sub, Inc., a wholly-owed subsidiary of Verso (the “Merger Sub”), as amended by the First Amendment to Agreement and Plan of Merger dated as of April 21, 2003 and the Second Amendment to the Agreement and Plan of Merger dated as of June 13, 2003, pursuant to which Merger Sub will be merged with and into MCK, with MCK to survive the merger as a wholly-owned subsidiary of Verso. In connection with the merger, an aggregate of 18,280,000 shares of Verso common stock will be issued in exchange for all of the shares of our common stock outstanding at the time of the merger. In

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Industry Background

      Most businesses today have deployed separate networks to support voice and data communications. As these businesses evolve to unite their geographically distributed locations such as branch or satellite locations and an increasingly virtual workforce either working at home or on the road, new demands are being placed on the traditionally localized voice communications networks. While data networks have evolved to meet this challenge by offering high-speed remote data access and a high degree of interoperability among data systems and components, telephony systems and voice networks have remained largely centralized and switch-specific with limited multi-vendor interoperability. Consequently, providing cost-effective, company-wide telephony services and applications to all locations and employees can be challenging.

      Businesses depend on company-wide communication to ensure critical internal collaboration, provide suitable levels of customer service, and maintain operational efficiency and productivity by sharing resources throughout the company. The shift to a more distributed voice environment results from a number of factors. These include extending business reach closer to key customers, suppliers and partners, lowering the cost of communications, complying with expanding environmental regulations, the competition for qualified employees and disaster preparedness and/or recovery.

      In trying to address these needs, companies are increasingly challenged by the need to integrate voice and data networks across multiple locations. As the business environment becomes more competitive, providing an appearance of one with common features and applications seamlessly connecting employees and callers into a virtual community is becoming increasingly important.

     Enterprise Data Networks

      Initially, data networks were built to interconnect mainframe computers that served a single office location. They were accessible by a limited number of users and were often too costly for small organizations. Over the past 20 years, advances in open-systems, computer processing and networking technology have altered this centralized model to deliver cost-effective, high-speed distributed information processing and communications by using a distributed client-server architecture. This enables companies to deploy equipment from multiple vendors that is interoperable across local area networks (“LANs”), or wide area networks (“WANs”), using standard communication protocols, internetworking technologies, and industry-standard system management platforms. These same developments have also facilitated widespread data access through the deployment of remote access equipment capable of extending the reach of data networks beyond corporate locations over public and private networks.

      Historically, branch offices and telecommuters accessed corporate data networks over a variety of circuit-based networks that were designed for voice service. These circuit-based networks are dedicated point-to-point connections that require companies to constantly maintain sufficient bandwidth to meet their maximum communications requirements. Packet-based networks, deployed over the past decade, divide all types of data, including voice, into packets that can be simultaneously transmitted and reassembled into their original form at their final destination. These packet-based networks enable sharing of network resources and are more efficient in their use of available bandwidth than traditional circuit-based networks, thus minimizing network capacity constraints and management requirements.

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      As a result of the growing demand for high-bandwidth applications, such as Internet and Intranet access, service providers are migrating from existing circuit-based networks to packet-based networks. In doing so, they are creating new service offerings over private managed networks and public networks using new technologies, such as Quality of Service and firewalls, to ensure speed, quality and security.

      Deployment of packet-based networks and widespread access is enabling companies to realize tremendous productivity gains due to increased collaboration, internal communication and sharing of resources. Examples of specific benefits include company-wide e-mail capabilities, company-wide access to files and applications that run on a corporate server and ease of access for remote workers.

     Enterprise Voice Networks

      Enterprise telephony systems are generally based on a circuit-based architecture and telephone equipment known as PBX’s (Private Branch Exchanges). Given the mission critical nature of voice communications and related applications, enterprise voice systems have been architected with numerous built-in fault tolerant and redundancy features and are designed to deliver 99.999% up-time reliability. In addition to delivering reliable voice service, PBXs have the capability to serve as the platform for more than 500 critical voice features and applications, including:

	•	voicemail
	•	unified messaging that creates a single interface for accessing voicemail, e-mail and fax messages
	•	automatic call distribution
	•	auto-attendant
	•	directories
	•	call accounting and/or billing
	•	least-cost routing
	•	interactive voice response

      The PBX is also responsible for delivering features and capabilities such as:

	•	phone numbering plans
	•	3 or 4 digit internal dialing
	•	call transferring, conferencing, holding and forwarding
	•	receptionist call screening

      Despite the reliability and functionality of centralized circuit-based voice networks, the features, applications and inter-connectivity of traditional PBX systems and their switch-specific architectures make it difficult to integrate them with other systems and applications. Furthermore, they are not inexpensively networked to outlying offices or teleworkers. A number of factors have created this deficiency. PBX-based telephone systems are bandwidth constrained making them poor at networking, not easily integrated with other traffic types, such as data and video, and the quality of their voice transmission degrades beyond a limited distance. In addition, the high cost associated with deploying a PBX system and its supported voice applications typically makes them prohibitively expensive for smaller locations. Accordingly, companies seeking to extend voice services to outlying locations and/or incorporate new applications have traditionally had the following voice options, all of which have significant limitations:

	•	Key Systems. KTS systems have functionality similar to PBXs but have been cost-effectively architected to service small office environments. They lack the full feature set and scalability of more expensive PBX-based telephone systems. KTS systems have limited interoperability with PBX systems, and consequently function as stand-alone voice systems with separate voice applications. This creates a less than professional image due to dissimilar functionalities, inefficiencies and network

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		management complexities in a multi-office environment. More recently, KTS systems have been enhanced with multi-site networking to enable their residing within a network configuration either with other like KTS systems or same vendor PBXs. However, typically the transparent access to the full range of applications is not facilitated.
	•	IP PBXs. Recently introduced voice switches from voice and data networking vendors, such as LAN and Windows NT-server based PBXs, are based on data standards and tend to be more open than traditional PBX systems. Although providing new alternatives for medium to smaller locations, they lack the full feature set of the traditional PBXs, have limited ability to network with the proprietary, circuit-switched PBXs, limit business reach either to a LAN or nextgen network environment and provide less than the 99.999% service availability typically expected by the customer. In addition, IP based solutions require the use of IP phones. These are typically less reliable, less feature rich and more expensive than traditional phone sets. Although improvements are being made, most IP based solutions continue to fall short of business expectations.
	•	IP enabled PBX. Over the last 12 months many main stream PBX manufacturers have introduced migration plans for traditional or legacy infrastructures. These migration strategies allow the use of existing handsets and applications to varying degrees. These upgrades tend to be expensive, and somewhat complex, for most enterprises to deploy, but nonetheless do supply a viable alternative to reach off premise facilities of the enterprise, and realize the cost efficiencies promised by converged networks.
	•	Centrex. Centrex is a business telephone service that is offered by local telephone companies from their central offices. While Centrex offers some of the same features as PBXs, its effectiveness is constrained by phone companies’ capacity, its lack of interoperability with PBXs, its geographic limitations and its reliance upon the local phone company for service and support. Adding new services for a Centrex provider is time consuming, expensive, cumbersome and provisioning complexity can often prohibit customer acceptance.
	•	Off-Premises Extension. An Off-Premises Extension is a dedicated telephone line that originates from a PBX and extends a subset of PBX features and applications to remote users. These offerings cannot support digital telephone sets, and require an expensive dedicated leased line or private network connection.

      The inability of most of these solutions to fully integrate with the PBX has caused businesses to deploy separate voice networks for their outlying offices, limiting the effectiveness of company communications and increasing the burden on systems administrators. In addition, companies seeking to provide business telephony for their teleworking employees aren’t provided cost-effective, full-featured solutions.

     Enterprise Voice Evolution

      As business organizations decentralize, distributed networks are becoming increasingly important. While data networks have evolved to meet this critical business requirement, there is a similar need for a suitable voice solution that cost-effectively utilizes the company’s voice systems, its features and its applications to offer company-wide voice applications to all employees. This includes employees at smaller outlying offices, telecommuters and mobile workers. Furthermore, in order to lower costs and simplify network administration, companies are increasingly demanding that distributed voice and data services be offered over the same centrally-managed communications infrastructure. This convergence of voice and data is made possible by technology that can convert voice transmissions into packets of data and advances in Quality of Service (QoS) which enable the transmission of voice over private managed data networks and public data networks, such as managed IP networks.

      As a result of their reliability, the wide variety of applications supported and the size of their installed base, proprietary, circuit-switched PBXs are pervasive in the enterprise arena and are likely to remain entrenched as the central system delivering enterprise voice on which new applications are developed and deployed for many years to come. However, businesses are looking to IP-enable their present systems to

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      However, this only addresses inter node connectivity and doesn’t address emerging access networks and/or line side applications. To address these, a solution is required that packetizes both the voice traffic and PBX signaling information. Given that each PBX system has its own signaling information alogorithims which must be used to deliver features and applications to the user via the corresponding handset, solutions for the sizeable installed base must support the breadth of diverse signaling protocols. They must also offer a centrally-managed interface to the main system and have the capability of packetizing and transmitting voice and signaling information over both traditional circuit-based voice and data networks as well as emerging wired and wireless packet networks.

      IP PBX vendors are experiencing introductory success in targeting the smaller PBX and/or KTS environment and smaller scale enterprise networks. However, vendors have found a key barrier to acceptance is the inability to interoperate with legacy environments. To address this need a solution must enable an enterprise to leverage its existing applications and interoperate with legacy switches and desksets while incorporating new IP switches. This provides a company an affordable migration path.

      In taking a closer look at the enterprise telephony application environment, applications traditionally have sat behind the PBX and were historically switch-specific, in that they did not operate with other PBX vendor protocols. Over the last few years, applications have become open and sit behind a LAN or managed Intranet. On a smaller degree, this openness has allowed some applications to move out of the enterprise and into a “hosted model”. Solutions which support both Customer Premise Equipment (“CPE”) and network based applications provide another example of enabling an enterprise to have choices for their migration path.

      Over the next five to ten years, co-existence, in the form of hybrid or converged solutions, will likely prevail. This will allow an enterprise to leverage their existing infrastructures while having flexible choices for experiencing new solutions. Resulting solutions will support new platforms inter-working with legacy switches and applications, support legacy and IP voice terminals, support feature richness through digital line interfaces to preserve the user experience, as well as support CPE and service providers network environments.

MCK Enables the Distributed Enterprise

      MCK is a player in this enterprise voice transformation because of our unique physical position in the network. Our systems connect to the PBX, KTS and/or IP-based system, speaking their protocols (the system’s signaling language), and also connect to the network, speaking traditional or nextgen IP protocols. In doing so, MCK enriches a line side voice network while laying a solid foundation for the future by minimizing the impact of changing technology, bridging gaps and allowing enterprises to evolve their voice capabilities via the path of their choice.

      MCK’s solutions address the access or line side of the enterprise voice environment. MCK’s solutions support the majority of PBX and KTS systems in the industry. By packetizing both the voice traffic and CPE signaling information, MCK’s products deliver full-featured business telephony and applications to an end user via a range of devices — each of which are enabled to function as digital sets. MCK’s products also offer a centrally-managed interface to the main system and have the capability of packetizing and transmitting voice and signaling information over both traditional circuit-based voice and data networks as well as emerging wired and wireless packet networks. This enables end users to access their company’s voice system from anywhere — outlying offices, home offices, temporary offices and while on the road — while preserving the experience they have come to expect. This experience includes: four digit dialing, calling party display, call waiting/holding/forwarding/transfer/conferencing, telephony applications, etc. over any network and thru any telephony enabled device — whether wired, cordless or wireless.

      Supporting the broadest range of protocols, networks and devices, MCK solutions fulfill the market need for widespread interoperability, creating a more “open” enterprise by enabling business quality voice anytime,

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      In addition, MCK products have the benefit of reducing the total cost of ownership by enabling a company to: leverage their existing investments in voice and data equipment; eliminate voice network charges for traffic between offices by utilizing data networks in a toll bypass situation; streamline network administration through the utilization of industry standard network management techniques; simplify training and provide enterprises the flexibility of choosing their migration path for when and how they evolve to nextgen services, systems, features and applications.

      When many companies talk about convergence, they refer to voice and data over a unified IP network. At MCK, we’re committed to a more open enterprise by delivering convergence along three dimensions. We:

	•	Extend enterprise voice to distant locations through voice over a variety of networks, not just IP, creating an appearance of one company-wide system meeting the telephony needs of:

	•	Mobile workers (campus wide or over cellular)
	•	Employees working at home
	•	Branch office workers
	•	Remote call center agents

	•	Bundle with service providers to:

	•	Unite CPE and network services to deliver new value added PBX extension services
	•	Blend PSTN and wireless networks for greater portability while eliminating infrastructure restrictions

	•	Bridge technology gaps between existing and nextgen applications, switches and services to enable company managed migration from legacy to nextgen systems.

Key to enabling this power of convergence is the ability to preserve end user interfaces while providing access to the widest array of new experiences. The following are the key attributes of our solution:

	Full-Featured Remote Voice Access. Our solutions provide the features and applications of enterprise telephone systems to employees at outlying offices, which may be local or geographically dispersed, home workers and mobile workers over wired or wireless, circuit or packet networks. Our solutions allow these distributed workers to utilize voice switch features such as 3 or 4 digit internal dialing, call hold, transfer and conference. They also give employees access to company chosen telephony applications such as voicemail, unified messaging, auto attendant, directories and automated call distribution. Extending these voice applications to outlying or mobile employees improves business reach by making them closer to customers, partners and suppliers, increases employee productivity, facilitates internal collaboration and delivers to external callers transparent access to all telephone extensions throughout an enterprise.
	Digital Line Extension Technology. The features and applications of the voice switch reside on its digital line or user side. We have developed proprietary software and hardware interfaces that extract the voice and voice system signaling information from the user side of the switch. Our switch-side or gateway products then packetize and transmit this information to client-side or remote products over existing voice or data networks. Utilizing this captured information, our products mimic the digital line side of the PBX, thereby transparently connecting the user’s digital telephone set to the main voice system. Based on the protocol expertise and intellectual property we developed over the past decade, our products enable

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	companies to deploy effective extended voice solutions without significant reconfigurations or upgrades to their existing enterprise voice systems.
	Similarly, our products enable employees at satellite or branch offices, home workers and mobile employees to use their digital telephone sets and existing user interfaces to seamlessly connect with their company’s voice system. Using our digital line extension technology, we are also working with a number of companies to enable digital telephone sets to interface with next generation corporate voice systems such as IP-PBXs and network-based voice systems and applications. This digital line extension technology also enables us to terminate multiple types of telephone sets, including a variety of third-party digital telephone sets, analog telephone sets, cordless sets and IP-based telephone sets, off traditional and/or nextgen voice systems using MCK gateway products.
	Packet Voice Architecture. Our extensive experience in packetizing voice, voice signaling information and voice applications enables us to deliver a complete distributed voice solution over traditional circuit-based, packet-based and wireless networks. We have expanded our original proprietary Remote Voice Protocol (“RVP”) software platform to include a Common Terminal Protocol, Common Network Protocol and Common Switch Protocol. Using these, we packetize, compress, encode, transmit and decode voice, interfacing with a broad range of switches, to a diverse range of devices over a range of networks, providing enterprises and services providers broad business reach alternatives. Networks supported include asynchronous transfer mode, or (“ATM”), digital subscriber line, or DSL, fiber, frame relay, IP, integrated services digital network, or (“ISDN”), leased line, T-1, fractional T-1 and PSTN. Additionally, during the past year, we have evolved RVP to support cellular and broadband wireless enabling increased access portability and eliminating infrastructure restrictions. Our support of this broad range of signaling protocols creates a more open enterprise by providing enterprises migration alternatives.
	We are evolving this technology to enable enterprises to incorporate new IP switches which interoperate with legacy switches, desksets and applications. This includes adding support for H.323, SIP and MGCP protocols which enable our products to interface with nextgen voice equipment located in either the enterprise or the network infrastructure or service providers. Our products packetize voice using industry standard compression algorithmns.

	Lower Cost Solution. Our products provide a cost-effective solution, lowering costs in the following areas:

	•	Transmission. Our products lower transmission costs by consolidating voice and data traffic over a single network, eliminating local loop service charges through toll bypass and enabling remote users to utilize volume-based, corporate long distance rates.
	•	Management. Our products provide telecom managers the ability to centrally manage our remote devices using Telnet, hypertext mark-up language (“HTML”), and simple network management protocol (“SNMP”), with graphical user interfaces. Our customers can use these remote monitoring and diagnostic capabilities to solve problems on-line, thereby reducing the time and cost associated with dispatching a technician to a remote site.
	•	Equipment. Our products enable companies to utilize their existing capital investment in enterprise voice systems, voice applications and data networks, thereby eliminating the need to expend significant additional capital on disparate, incompatible solutions such as KTS systems.
	•	Facilities. Our products allow companies to reduce physical facility costs and infrastructure investments by enabling employees to work effectively outside of standard company locations.

Compatibility with Leading voice switch manufacturers. We have worked with Alcatel, Avaya, Ericsson, Iwatsu, NEC, Nitsuko, Nortel, Panasonic and Toshiba to develop interfaces between our software platform and their primary voice communications systems. These manufacturers have tested and validated in their labs that our platform is interoperable with their primary switching products, including 4400/4200 (Alcatel), DEFINITY and MAGIX (Avaya), MD110/ BP250 (Ericsson), ADIX (Iwatsu), NEAX 1000/2000/2400 (NEC), 1-Series (Nitsuko), Meridian and, Norstar (Nortel), DBS (Panasonic) and Strata DK (Toshiba) equipment.

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Strategy

      Overall, our strategy is to balance our need to focus on today’s revenue with the opportunity to be a leader in nextgen environments. Our marketing, sales and service delivery strategy is to partner with leading companies to deliver solutions for enterprise customers. Our network of partners include distributors, resellers, equipment providers, system integrators and service providers. We occasionally deal with end-users of our products on a direct basis. During the fiscal year ended April 30, 2003, the reduction in capital spending decreased the demand for our products with these partners and subsequently our revenues. In response to this reduction, we optimized our territory sales model in the U.S, enabling us to deepen our relationships with our large channel partners. We implemented this model across Canada and Europe as well. We worked with partners to closely map sell-in and sell-through, enabling tighter channel inventory management. During the year, we strengthened our channel contribution blend thereby decreasing our dependency on any one segment as well as capitalized on the value of our new products, and strengthened the mix of products our channel partners offered to customers.

      We continue to strengthen our partnerships with PBX and KTS manufacturers, developing complimentary solutions to their product portfolios. However, we have decreased our reliance on their distribution and branding. MCK has developed our own brand and independent channels. Given the development in the market for this type of solution, we believe this has better positioned MCK to more fully develop our business potential.

      Our product strategy is to create a more open enterprise by being a leading provider of distributed voice solutions that enable businesses to unleash the power of their enterprise by connecting disparate voice systems and networks. Historically, our business-quality remote voice solutions allowed corporations to extend the features and applications of switch-specific, circuit-based PBXs across distances to branch offices, remote call centers, and teleworkers using circuit networks. We have evolved this capability to work with the majority of enterprise voice systems — PBX, KTS and IP based systems, through our Common Switch Interface; a diverse range of devices — digital, analog, cordless and cellular, through our Common Terminal Interface; as well as circuit, packet and wireless networks, through our Common Network Interface. Utilizing these, we cost effectively develop products which meet the needs of growing segments within enterprise voice environments.

      During the fiscal year ended April 30, 2003, we introduced the MCK EXTender™ 7000 for Branch Offices, which provides survivability and greater local dial tone access capabilities in an extended branch office environment.

      In addition to our traditional MCK EXTender™ products, we introduced: the CampusConneX PBXgateway™ to provide an intra facility wireless solution that provides all the features of the PBX in campus type environments such as warehouses, hospitals, schools, etc. The CampusConnex PBXgateway together with our Mobile ConneX, give us a much wider offering to address the wireless enterprise.

      We will continue to evolve our products. The strategy for our single-user solutions is to continue emphasis on simplicity, lower cost and expanding the range of devices supported. Our multi-user products will continue to meet the needs of smaller offices, embracing the broadest range of networks, including the emerging local and wide area wireless networks, while incorporating expanded ranges of local dialing and survivability. Our bridge-the-gap solutions break down the closed system environments found in today’s enterprise voice infrastructures by hooking protocols together, thereby enabling disparate systems to interoperate. Examples include enabling KTS systems to work within legacy PBX networks and/or with IP switches, or enabling IP switches to work with the installed based of digital sets and/or legacy voice networks. These solutions will be developed when requested by specific OEM partners.

      As the voice infrastructure evolves over the next five to ten years, we believe that legacy and nextgen systems will co-exist. However, in time, we believe that the switch-specific, circuit-switched PBX will begin to be replaced with nextgen IP-based CPE or network-hosted voice solutions located on the network outside of the company’s premise. Concurrently, we envision associated voice applications migrating from a switch-

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      As MCK’s distributed voice solutions continue to enable more openness and push control out to the edge of the network, end users will gain access to full business functionality from any edge device by simply dialing into a gateway and passing authentication. Over time, users will be provided a range of applications and services from which to choose their own defined experience. Ultimately we believe in voice communications enabled via an infrastructure accessible as easily as today’s internet access adaptable on an individual’s own needs.

Technology

      We have developed expertise in digital line interface emulation and the packetization of voice for transmission over data networks to address the technology challenges of extending the features and applications of enterprise voice systems to distributed locations as well as enable a more “open” enterprise. Another key component of our technological advantage is the flexible software and hardware architecture upon which we build our solutions. We will continue to prudently invest to maintain and extend our technological advantage.

      The rich features and applications of enterprise voice systems are accessed through the proprietary user or digital line side of the voice switch. These line-side interfaces enable the delivery of the features and applications of enterprise voice systems to digital telephone sets. As a result of our years of experience in working with major PBX voice equipment, we have gained a significant understanding of these line-side interfaces and have developed line-side software interfaces to most of today’s enterprise voice systems. In addition to our software interfaces, we have developed a hardware subsystem capable of duplicating the electrical interfaces of Alcatel, Avaya, Ericsson, Iwatsu, NEC, Nitsuko, Nortel, Panasonic and Toshiba systems. These line-side software and hardware interfaces extract the voice and the signaling information required to interface with PBX and KTS systems and, using our software platform, packetize this voice and signaling information for transmission over voice and data networks as well as wired and wireless to our access products. We have developed messaging software that transmits this voice and signaling information from our access products to the digital telephone sets of the manufacturers that we support, thereby transparently connecting these sets to the PBX or KTS.

      To deliver voice over data networks, solutions must convert voice into packet form and then transmit these voice packets alongside data packets. Despite the advantages of simultaneous transmission of voice and data, there are also a number of technological challenges to delivering voice over data networks because audio quality can be distorted by jitter and latency associated with congestion on the data network.

      Our uniquely designed software platform, packetizes, compresses and encodes circuit voice and signaling information for transmission over data networks. We have implemented both industry standard and proprietary voice prioritization and voice fragmentation techniques that use bandwidth efficiently while also ensuring that delay sensitive voice packets are delivered with the quality expected from voice. Much of this technology revolves around our core expertise in developing software that runs on standard digital signal processors, which are required for encoding voice for transmission over bandwidth constrained networks. In particular, we have designed and implemented the following software features in our products to improve the quality of packet voice transmission, minimize system delay and jitter, and utilize bandwidth efficiently:

	•	Voice Compression. We integrate a number of industry standard voice coding algorithms, including G.711, G.726, G.729A and G.723.1, that compress voice to reduce the total bandwidth required for transmission.

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	•	Echo Cancellation. We deliver echoless voice by integrating industry standard acoustic echo cancellation technology, known as G.165 and G.168, to which we have made proprietary enhancements.
	•	Silence Detection. Our proprietary silence detection technology eliminates unnecessary transmission of voice packets during the periods of silence that occur in normal conversation, freeing bandwidth for other uses.
	•	Comfort Noise. We incorporate technology that inserts comfort noise during periods of silence so that users do not inadvertently think that the phone call is no longer active.
	•	Jitter Buffering Techniques. Our products adapt to the real-time irregularities in network transmission and ensure all traffic reaches its endpoint at the appropriate time by introducing delay that is unrecognizable to the user.
	•	Dual Tone Multi-Frequency or (“DTMF”) Processing Technology. Dual tone multi-frequency tones are generated by depressing buttons on digital telephone sets, enabling the digital telephone set to recognize dialed numbers used for outbound calls and for applications such as voicemail. Our proprietary technology improves the transmission of these tones over packet networks.

      We have been awarded a United States patent for technology developed and implemented on our MobileConneX product. This technology allows for the translation of DTMF tones into various PBX signals needed to control and access the PBX from a cellular or analog phone. We also have filed additional United States and foreign patent applications for technology developed in the EXTender 7000 for branch offices. We believe this patent activity enhances our technology value and helps protect our intellectual property.

      We have significant experience in transmitting packet voice over both low-speed, traditional telephone networks and higher speed, broadband networks. We have developed network interfaces for the delivery of distributed voice over traditional telephone, ISDN, wireless and broadband connections and have incorporated third-party network devices to support T-1, fractional T-1, leased line, frame relay, IP, ATM, DSL, fiber, cable and broadband wireless networks. In addition, to deliver data alongside our packet voice transmission, we have expertise in terminating dial-up networking connections and bridging standard data traffic.

      Our software platform has the ability to extract and translate legacy, switch-specific signaling, as well as a number of evolving industry standard protocols, such as GR-303, H.323, SIP and MGCP. This enables our products to not only interface with the large and diverse installed base of voice systems but with next generation enterprise voice systems and applications as well as terminate analog, ADSI, digital and IP-based telephone sets. Supporting both legacy and nextgen protocols enable our products to foster an open enterprise interfacing with voice CPE as well as voice equipment and applications located in the network infrastructure of traditional, application and nextgen service providers.

      We develop our products using a combination of proprietary and commercial hardware and software subsystems. Our product architecture enables these subsystems to be configured and adapted in order to deliver a broad range of enterprise voice product solutions, thereby minimizing product development cycles and maximizing manufacturing efficiency. Our products are fully compatible with the large installed base of telephone systems from Alcatel, Avaya, Ericsson, Iwatsu, NEC, Nitsuko, Nortel, Panasonic and Toshiba, and require no design modifications or upgrades to these systems or their respective digital telephone sets.

      We have designed a standard hardware architecture that serves as a common platform for our software modules. We use industry standard digital signal processors and programmable logic devices to build a standard hardware platform that can be software modified to support different applications or telephone systems without requiring a hardware change. We have also architected our products with a variety of standard telephony and data network interfaces to ensure that we can transmit packet voice over the multiple network environments currently available.

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      Most of our products share a common software code base that comprise our digital line interface software subsystem and our software platform. Our digital line interface software subsystem is responsible for the interface to the proprietary software located on the digital line of the legacy and IP-based voice switch. This software subsystem has been designed to emulate a majority of the business markets’ telephone systems without requiring a change to our hardware architecture. This flexible software architecture also enables us to easily add software support for new enterprise voice systems. The software platform is responsible for packetizing voice and signaling information, as well as conditioning these voice packets for transmission over data networks.

      All the software for our IP EXTender 4000, EXTender 6000, EXTender 7000 for branch offices and PBXgateway family runs on the VxWorks® real-time operating system from Wind River Systems. This industry standard operating system provides our engineers with a standard development environment in which to design new proprietary software applications and easily incorporate third-party software applications. A standard development environment such as VxWorks allows for the rapid prototyping and application development necessary for our products that serve as platforms for future applications.

Products

      We have worked with Alcatel, Avaya, Ericsson, Iwatsu, NEC, Nitsuko, Nortel, Panasonic and Toshiba to develop interfaces between the protocols of these leading enterprise voice vendors and our standard software platform and hardware architecture. We have entered into agreements with leading vendors which provide us access to their protocols, to develop, manufacture and sell products which interface with each vendor’s equipment. As a result, we have developed substantial expertise in understanding and interfacing with their systems. We have tested and validated or had vendors certify in their own labs that our software platform is interoperable with a variety of their equipment. Currently, our products are compatible with the following PBX systems: 4400/4200 (Alcatel); DEFINITY and MAGIX (Avaya); MD110/BP250 (Ericsson); ADIX (Iwatsu); NEAX and Elite (NEC); 1-Series (Nitsuko); Meridian and Norstar (Nortel); DBS (Panasonic); and Strata DK (Toshiba).

      The MCK solution consists of the following component parts:

	•	Gateways. Devices located near the voice switch, PBX or KTS, that extend the signaling along with the voice traffic and applications to our remotely located client devices; and
	•	Clients. Single or multi-user remotely based, CPE devices that service outlying offices, teleworkers and mobile workers.

      Our products enable companies to provide the functionality of enterprise voice systems and all of their supported applications to users who traditionally have not had access to the company’s telephone system and its voice applications because of the limitations of traditional systems. Our products enable the main telephone system to act as a server that distributes features and applications to any and all locations over networks such as ATM, DSL, cable, fiber, frame relay, IP, PSTN, ISDN, leased line, T-1, fractional T-1, cellular and broadband wireless connections. Employees can utilize digital telephone sets identical to the sets deployed at company headquarters or cell phones, analog sets or ADSI sets provided by third parties and access the central voice system for applications such as voicemail, automated call distribution, auto attendant, directories and interactive voice response, and features such as 3 or 4 digit internal dialing, conferencing and call forwarding. By enabling all employees, regardless of location, to have access to a company-wide system, our solutions create a unified voice network.

     PBXgateway^tm Products

      Our family of PBXgateway products, located at the company’s PBX/KTS site, interface with the line side of the switch and create extensions of voice and telephony applications to our clients or remotes.

	•	PBXgatewayTM II. The PBXgateway II supports up to 24 simultaneous users connected via both our multi-user and single-user EXTender client devices. The PBXgatewayTM II will transmit voice over a

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		wide variety of data networks including ATM, DSL, fiber, frame relay, IP, ISDN, leased line, T-1 and fractional T-1 connections. It also has available internal network termination optionals.
	•	PBXgatewayTM. The PBXgateway supports our multi-user and IP-based single user EXTender client devices and is available in both 8 and 12 port versions. Like the PBXgateway II, the PBXgateway will transmit voice over a wide variety of data networks including ATM, DSL, fiber, frame relay, IP, ISDN, leased line, T-1 and fractional T-1 connections.
	•	MobileConneX PBXGatewayTM. The MobileConneX PBXgateway allows a cellular handset to act as a fully functioning digital handset. Using a cellular handset, a user can send and receive calls through the PBX as well as access all of the company’s voice applications — even when the user is on the road. This enables a user to handle a call just as if they were sitting at their desk in the office. This includes call hold, transfer, conferencing, 4-digit dialing, auto attendant, directories as well as receiving calls via the cellular handset. This ability to receive calls is more powerful than a “find me” capability since the PBX treats the cell phone as if it were a digital deskset. The MobileConnex PBXgateway bridges the call traffic directly to the cellular handset through the enterprise voice switch. For instance, if there is no answer, the voice mail system responds giving the user the convenience of one voice mailbox to check. This solution requires no modification to standard cell or service equipment.
	•	CampusConneXTM System. The CampusConneX System is an in-building wireless solution that operates in the Unlicensed Personal Communications Services (UPCS) spectrum between 1920 and 1930 MHz allocated by the Federal Communications Commission (FCC) for a new generation of wireless systems and delivers portable voice and PBX/KTS applications over existing communications networks to users anywhere on campus, increasing employee productivity, business effectiveness and overall customer satisfaction. The CampusConneX System consists of three components: the PBXgatewayTM, base stations and wireless phones. The CampusConneXTM PBXgateway connects to digital or analog ports on the PBX/ KTS and processes calls to and from system users. The CampusConneXTM Base Stations are strategically located throughout the customer premises to ensure reliable connectivity to the CampousConneXTM Phones.
	•	RemoteConneX TM PBXGatewayTM. Targeted specifically to the needs of casual teleworkers and tapping the power of the traditional corporate communications system much like the MCK EXTender solutions, the RemoteConneX PBXgateway and its associated Interactive Phone uniquely utilizes standard POTS connections and feature-enhanced analog phones to provide PBX or KTS system functionality. In doing so, MCK is able to offer one of the lowest price points in the industry for true PBX functionality over analog lines. Access to popular business telephony features are provided through the use of the screenphone menu — call hold, transfer and conference, four digit internal dialing, corporate directories, voice mail and more. Each of these are useable at the touch of a button. Incoming calls to the employee’s office phone number are simultaneously directed to their RemoteConneX Phone. An employee’s daily work location is transparent to callers, auto attendant support is maintained, if available, and unanswered calls continue to be routed to the corporate voicemail system. In addition, the employee has the added convenience of full accessibility when away from home by simply redirecting incoming calls to their cellular phone.
	•	SetConneX TM PBXgatewayTM. Targeted for enterprises which desire manageable migration paths linking together heterogenous environments this gateway is initially targeted for enterprises looking to link their IP-based switches with legacy sets. This is the only gateway in the industry that bridges the gaps between legacy sets and next generation switches, applications and services. Other versions may be developed based upon the specific requirements of OEM partners.

      All of our Gateways can be centrally administered over a Telnet connection, an in-band RVP connection, or with SNMP and HTML interfaces.

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     PBX Client Devices

      Our multi-user or branch office products connect outlying users to the company’s telephone system over voice and/or data networks.

	•	MCK EXTenderTM 6000 for branch offices. EXTender 6000 for branch offices is a multi-user product that is available in both 8 and 12 port configurations and is designed for those offices within the same calling area as the company’s voice switch. The EXTender 6000 for branch offices located at the remote office connects to our PBXgateway I and II products located at the company’s PBX site. The product has dual external network interfaces that allow for multiple connection options over a wide variety of data networks including ATM, DSL, fiber, frame relay, IP, ISDN, leased line, T-1, fractional T-1 and broadband wireless connections. It also provides redundancy capability. An optional analog card is also available, which provides local dialing capabilities and emergency 911 access. The EXTender 6000 for branch offices can be centrally administered over a Telnet connection, an in-band RVP connection, or with SNMP or HTML interfaces. The product’s ability to dynamically allocate bandwidth between multiple users allows for flexible configurations and bandwidth conservation. The product is designed using a standard 19-inch, rack-mountable form factor so multiple units can be deployed in parallel to service larger outlying offices.
	•	MCK EXTenderTM 7000 for branch offices. EXTender 7000 for branch offices is a multi-user product that is designed for branch offices which are more geographically dispersed and/or larger. The EXTender 7000 provides additional local calling ability, survivability, and optional built in WAN interfaces. It is available in a 24 port configuration and also connect to our PBXgateway II product located at a company’s PBX site over a wide variety of networks. As with the EXTender 6000, the EXTender 7000 can be centrally administered over a Telnet connection, an in-band connection or with SNMP or HTML interfaces. It also uses a standard 19-inch, rack-mountable form factor so multiple units can be deployed in parallel for scalability.

      Our EXTender single-user product line enables teleworkers and geographically distributed call center agents to connect to the company’s main telephone system and data network via a PBXgateway over public and private networks.

	•	MCK EXTenderTM 1000. The EXTender 1000 supports both voice and data over a single POTS telephone line. The product contains a built-in, industry-standard 56 kilobits per second, or Kbps, modem which enables the user to access the corporate data network and supports standard Windows-based, dial-up networking technology. The remote user’s personal computer and full-featured digital telephone set plug into the product, which terminates and multiplexes voice and data over a single telephone line. The EXTender 1000 unit is situated at the remote location and connects to another EXTender 1000 unit located at the company’s PBX site.
	•	MCK EXTenderTM 3000. The EXTender 3000 supports both voice and data over an ISDN connection. An integrated services digital network connection is composed of two 64 Kbps channels that each can deliver a separate network connection. With its built-in network interface, the EXTender 3000 enables the remote user to connect a digital telephone set and a personal computer into the EXTender 3000. The EXTender 3000 unit situated at the remote location is connected to either another EXTender 3000 unit or a PBXgateway II located at the company’s PBX site. There are two versions of the EXTender 3000:
	•	MCK EXTenderTM3000 S/T. The EXTender 3000S/ T utilizes a serial data connection and offers simultaneous voice and data multiplexed over a single channel. The second channel is available for analog devices such as a fax, additional phone or a modem. It incorporates a standard Windows-based, dial-up networking technology to enable the user to set up a dial-up network connection to a remote access server.
	•	MCK EXTenderTM3000 E. The EXTender 3000E offers dedicated voice over one channel and a 64 Kbps Ethernet data connection on the second channel. The EXTender 3000E uses an Ethernet port and bridging technology to enable simultaneous voice and data network access capabilities. In addition,

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		standard hardware compression technology is utilized to significantly enhance data throughput. When not used for Ethernet data, the second channel is available as an analog port, supporting a fax, additional phone or modem.
	•	MCK EXTenderTM 4000. The EXTender 4000 delivers voice extension over any IP network. The product sits behind an external network termination device and delivers IP-based voice over data networks. The IP EXTender 4000 connects to a PBXgateway product located at the corporate site.

     Other Products

	•	Recording Interface. Our Recording Interface products convert digital voice from proprietary PBXs into a standard audio output so that voice calls can be recorded on any voice logger or recording device. They are used in a variety of applications such as call center, contact center, voice security and test verification applications. We offer 3 configurations that support from 2 to 48 lines, and are modular in nature, allowing for easy expansion to accommodate more users. Our Recording Interface is compatible with the following voice systems: 4400/4200 (Alcatel); DEFINITY (Avaya); ADIX (Iwatsu); Meridian (Nortel); Norstar (Nortel); DMS Centrex (Nortel); CallCenter (Aspect); NEAX (NEC); and HiCom (Siemens).

Sales and Marketing

      We primarily sell our products through an indirect distribution system that includes the following channels: Distributors, OEMs, Teleco resellers, systems integrators, telecom and datacom VARs, and service providers. Over the past 12 – 18 months, we have migrated to the use of Distributors as our primary distribution channel. We support our sales channels with our own internal sales professionals as well as marketing programs, lead generation, educational programs, field technical support and telephone technical support. Our multi-channel strategy enables us to create end-user demand for our products and services, and access corporate opportunities identified by our channel partners, while also allowing the enterprise customers to choose the reseller that is most appropriate for delivering those products and services to them. Our primary distribution channels include:

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      During the fiscal year ended April 30, 2003, we focused a majority of our internal resources on distributor partners. As the same time, we established a team focused on the OEM’s and ILEC’s/ RBOC’s. This approach has enabled MCK to gain resource efficiencies while at the same time strengthening relationships with our primary partners by increasing their revenue stream and sell-through for MCK products.

      Our channel sales managers work at both a corporate level and a local level with our channel partners to develop sales and marketing plans that are implemented at the field level. Our channel managers are regionally deployed and are located across the United States, Canada and Europe.

      Channel sales managers provide support to the channels in their geographic territory. They work closely with our channel partners, participating in end user briefings, proposals, product training sessions, end user seminars, trade shows and other demand generating activities. In addition, they are involved in generating and qualifying end user leads that are closed in partnership with our channel partners.

      Our field-based systems engineers provide our channels with technical training and perform pre- and post-sale technical support for our distribution partners and end user customers. These sales engineers have in-depth industry experience and product expertise. They assist our channel partners with proposals, configurations, requests for quotations and executive briefings, and perform other consultative duties. Our territory managers and sales engineers regularly visit our distribution partners’ offices to conduct product and technical training.

      Our distribution channels are responsible for identifying potential business customers, selling our products as part of complete solutions, and installing and supporting the equipment at end-user sites. We generally establish relationships with our most significant distribution channels through written distribution agreements that provide pricing, discounts, and terms and conditions under which they may purchase our products for resale. These agreements are generally non-exclusive, may be terminated at will and do not prevent our resellers from carrying competing lines. Many of these agreements are based on attaining specific sales levels. However, a number of our distribution partners resell our products without written agreements, with terms determined on a purchase order basis.

      Sales outside of the United States accounted for 18%, 20%, and 12% of sales in the fiscal years ended April 30, 2001, 2002, and 2003 respectively. We sell primarily products which interface with Alcatel, Avaya, Ericsson, Nortel and Toshiba systems, globally.

      We focus our marketing efforts on brand awareness, lead generation, sales tools, promotions and sales support activities. Our marketing audience includes existing and prospective customers, channel partners, trade and business press, industry analysts and others who are influential in the industry.

      We selectively participate in trade shows, taking advantage of joint marketing opportunities with our channel partners whenever possible. Trade show efforts may include shows in the telecommunications, teleworking, CTI, networking, call center and service provider industries. We participate in many seminars, dealer and user group events, and industry-related conferences with our channel partners. We use direct marketing programs, including electronic methods, to generate awareness and qualified leads. Most campaigns are executed in conjunction with our channel partners, customized with their messages and contact information and then mailed to their prospect and customer lists. Additionally, our marketing resources also support public relations activities, including joint press releases with our partners, editorial coverage and speaking opportunities, as well as create by-lined articles, product reviews, customer success stories, competitive assessments and white papers.

      To support our sales channels, we prepare training materials, presentations, collateral, cost-justification tools, competitive analysis, case studies, product configurations, fact sheets, product introduction kits and customer solution success guides. Our web site serves as an information source for end users, prospects and channel partners, as well as provides a lead generation, configuration tool, and customer service resource.

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Customer Support

      A high level of customer support and service is critical to developing long-term relationships with our major distribution channels and end user customers. The majority of our service and support activities are related to installation support and initial network configuration issues. In North America, we also offer a variety of comprehensive and flexible maintenance and support programs including basic product warranty, installation services, 24 hour a day, seven days a week remote telephone support and onsite maintenance services. Our products are architected with support in mind. For example, our products are engineered with remote monitoring, management and diagnostic capabilities so that problems can be diagnosed on-line, thereby reducing the time and costs associated with dispatching a technician to a remote site.

      A number of our distribution partners provide customer support offerings for our products. These distribution partners provide installation, onsite maintenance and telephone support services to our end users. To complement this service infrastructure, we have engaged Vital Network Services, an outsourced technical support and customer services organization, to provide fee-based telephone support, installation and onsite maintenance services. We sell these services indirectly and sometimes directly, to end users. To date, our revenues attributable to customer service and support services have been immaterial. We provide high-level, back-up technical support and engineering assistance for our distribution partners, and Vital Network Services. We have established certification and escalation guidelines with our channel partners, and Vital Network Services to ensure that the appropriate technical resources and management attention within our company are focused on problems that are not solved in a timeframe commensurate with the problem’s priority. At April 30, 2003, we employed six people in customer support.

      In 2003, we added a “pay for service” capability, offering support for our customers for Network wide issues where our expertise can add value for issues outside of MCK products. Examples include edge routers and various PBX’s. This “pay for service” capability has resulted in a small growth to our service revenue stream, but more importantly, has provided a value added service for our customers.

Customers

      We sell substantially all of our products through independent channel partners. The following is a representative list of our indirect channel partners who have repeatedly purchased products from us during the fiscal year ending April 30, 2003:

      Through these channel partners, we continue to target medium to large enterprises. More than 400,000 ports of our products have been shipped to corporations such as 3M, Alberta Energy Company, American Express, Avis, BancOne, Bank of America, Bear Stearns, Bloomberg, Caisse Populaire, Canadian Auto Association, Carlson Wagonlit, Continental Airlines, Circuit City, CNN, Compaq, Deloitte and Touche, Fairmont Hotels, Federal Bureau of Investigation, Fidelity Investments, General Electric, Merrill Lynch, Morgan Stanley, Oracle, Pan Canadian, Petro Canada, Pepsico, Promus Hotels, Prudential Securities, Raytheon, TD Waterhouse Group, Thrifty Car Rental, United Airlines, US Postal Service, Whirlpool and Xerox, among others. We will work with our existing and new partners to increase the market opportunity for, and drive market acceptance of, our products. For the fiscal year ended April 30, 2003, sales to Catalyst and GBH represented more than 10% of our revenues.

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Research and Development

      To maintain our technology leadership position, we focus our research and development efforts on improving the functionality and performance of our existing products and designing new products that address customer needs and changes in the marketplace. We have assembled a team of experienced software and hardware engineers with capabilities in both voice and data networking. Our engineering expertise includes a significant understanding of:

	•	the digital line or user side of proprietary enterprise voice systems
	•	digital audio technology, such as echo cancellation and voice compression algorithms
	•	voice enabling signaling
	•	voice over packet networks including IP telephony
	•	data network and telephony interfaces
	•	network diagnostic and management frameworks

      At April 30, 2003, we employed 27 people in our engineering organization, and intend to continue to expand all functional areas of the engineering organization as revenues increase or market competitiveness demands. We perform research and product development activities primarily in our Calgary, Alberta development facilities.

      Our research and development process is driven by market demand. Product development begins with a comprehensive functional product specification based on input from all functional groups and levels within our company. In addition, we value feedback from our end-user customers and distribution channel partners, and have incorporated a significant amount of customer-requested functionality in our products. We utilize information from industry standards committees organizations in our product development process. Finally, we have maintained an ongoing dialogue and established technology relationships with a number of PBX and KTS manufacturers, internetworking vendors, broadband equipment suppliers and service providers. We will continue to focus our efforts with these companies to develop products that meet specific market requirements in growth sectors.

      We intend to continue enhancing the functionality of our existing EXTender, ConneX and PBXgateway systems by expanding the range of products and client devices supported, including the emerging wireless devices, and expanding support of remote management and provisioning. We also will enhance our product offering to more fully provide the international market requirements. This will further differentiate our products from the competition while broadening our addressable market. We will focus our new products’ efforts on mobile environments and bridging the gap between different switch environments such as, legacy and nextgen switches, devices and applications. Specifically for the later, we will enable IP switch and telephony application providers, whether CPE or network based, to distribute their systems’ functionality to the broadest installed base of endpoints. This will not only give vendors a stronger solution equation, but provide enterprises more flexibility in managing their path to nextgen environments.

Product Validation Laboratory

      Over the past few years, we have hired the personnel and purchased the equipment necessary to build and improve our product validation laboratory. Of the 27 people in our engineering organization, six are dedicated full time to our product validation efforts. Their efforts are focused on ensuring world class product quality. At our Calgary, Alberta development facility, we have constructed a state of the art laboratory with equipment from such vendors as ADC Kentrox, Alcatel, Broadsoft, Cisco, Ericsson, IBM, Iwatsu, Avaya, NEC, Netopia, Newbridge, Nitsuko, Nortel Networks, Packeteer, Panasonic, Parady