Washington (State or Other Jurisdiction of Incorporation or Organization)

91-1405022 (I.R.S. Employer Identification Number)

21919 30th Drive SE, Bothell, WA (Address of Principal Executive Offices)

98021-3904 (Zip Code)

Common Stock, $0.01 par value (Class)

14,193,497 (Outstanding as of November 11, 2002)

				Page No.
PART I		FINANCIAL INFORMATION
Item 1.		Financial Statements (unaudited)
		Condensed Consolidated Balance Sheets—September 30, 2002 and December 31, 2001		3
		Condensed Consolidated Statements of Operations—Three and nine months ended September 30, 2002 and 2001		4
		Condensed Consolidated Statements of Cash Flows—Nine months ended September 30, 2002 and 2001		5
		Notes to Condensed Consolidated Financial Statements		6
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		9
Item 3.		Quantitative and Qualitative Disclosures about Market Risk		23
Item 4.		Controls and Procedures		24
PART II		OTHER INFORMATION
Item 1.		Legal Proceedings		24
Item 6.		Exhibits and Reports on Form 8-K		24
SIGNATURE				25
CERTIFICATIONS				26

(In thousands, except share data)		September 30, 2002				December 31, 2001
Assets
Current assets:
Cash and cash equivalents		$	37,910			$	33,116
Short-term investment securities			7,029				—
Accounts receivable, less allowance for doubtful accounts of $754 and $932			14,696				14,003
Inventories			11,761				8,299
Prepaid expenses and other current assets			1,458				1,017
Total current assets			72,854				56,435
Property and equipment, net			6,143				5,685
Investment securities			24,388				—
Other assets			451				1,058
Total assets		$	103,836			$	63,178
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable		$	5,320			$	1,914
Accrued expenses			4,979				3,816
Current portion of long-term obligations			186				131
Deferred revenue			2,557				1,248
Total current liabilities			13,042				7,109
Deferred rent			236				201
Long-term obligations, less current portion			69				185
Total liabilities			13,347				7,495
Commitments and contingencies
Shareholders’ equity:
Preferred stock, $1.00 par value Authorized shares – 6,000,000 Issued and outstanding shares – none			—				—
Common stock, $.01 par value: Authorized shares – 50,000,000 Issued and outstanding shares: As of September 30, 2002 – 14,095,052 As of December 31, 2001 – 11,363,231			141				114
Additional paid-in-capital			176,232				133,470
Accumulated deficit			(86,501	)			(77,901	)
Accumulated other comprehensive income			617				—
Total shareholders’ equity			90,489				55,683
Total liabilities and shareholders’ equity		$	103,836			$	63,178

		Three Months Ended September 30,								Nine Months Ended September 30,
(In thousands, except loss per share)		2002				2001				2002				2001
Revenue		$	18,468			$	11,911			$	47,911			$	30,357
Cost of revenue			7,485				5,167				19,824				15,358
Gross margin			10,983				6,744				28,087				14,999
Operating expenses:
Research and development			2,867				3,333				9,210				10,119
Sales and marketing			9,329				4,991				23,375				16,047
General and administrative			1,539				1,053				4,453				3,139
Total operating expenses			13,735				9,377				37,038				29,305
Other income (loss):
Interest income			365				438				660				867
Interest expense			(43	)			(49	)			(123	)			(117	)
Equity in losses of affiliates			(15	)			(70	)			(192	)			(227	)
Gain (loss) on investments			6				50				6				(240	)
Total other income (loss)			313				369				351				283
Net loss		$	(2,439	)		$	(2,264	)		$	(8,600	)		$	(14,023	)
Basic and diluted net loss per share		$	(0.17	)		$	(0.21	)		$	(0.68	)		$	(1.41	)
Weighted average common and potential common shares used in computing net loss per share			14,087				10,629				12,704				9,943

		Nine Months Ended September 30,
(In thousands)		2002				2001
Operating activities:
Net loss		$	(8,600	)		$	(14,023	)
Adjustments to reconcile net loss to net cash used in operating activities:
Loss on investments			—				240
Depreciation and amortization			1,870				1,747
Equity in loss of affiliates			192				227
Changes in operating assets and liabilities:
Accounts receivable			(320	)			(4,438	)
Inventories			(3,394	)			4,409
Prepaid expenses and other current assets			(555	)			665
Other assets			163				(423	)
Accounts payable			3,399				(3,888	)
Accrued expenses			1,145				(347	)
Deferred liabilities			1,344				1,101
Net cash used in operating activities			(4,756	)			(14,730	)
Investing activities:
Purchase of investments			(31,802	)			(2,624	)
Proceeds from sale/maturity of investments			643				18,601
Purchase of equipment			(2,214	)			(1,280	)
Net cash provided by (used in) investing activities			(33,373	)			14,697
Financing activities:
Proceeds from sale of common shares			42,614				23,175
Repayment of long-term obligations			(61	)			(422	)
Exercise of stock options			175				1,032
Net cash provided by financing activities			42,728				23,785
Effect of exchange rate changes on cash and cash equivalents			195				—