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FORM 10-K

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(MARK ONE)

[X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
     SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2001

OR

[   ]  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:  000-24009

Com21, Inc.(Exact name of Registrant as Specified in its Charter)



|Delaware                                                       | 94-3201698                             
|-------------------------------------------------------------- | ---------------------------------------
|(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification Number)

750 Tasman DriveMilpitas, California     95035(Address of Principal Executive Offices including Zip Code)

(408) 953-9100(Registrant's Telephone Number, Including Area Code)

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  [     ]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. [     ]At February 28, 2002, the aggregate market value of the voting stock held
by non-affiliates of the registrant was approximately $23,530,003, based on the
last trade price as reported by The Nasdaq National Market. For purposes of this
calculation, shares owned by officers, directors, and 10% stockholders known to
the registrant have been excluded. Such exclusion is not intended, nor shall it
be deemed, to be an admission that such persons are affiliates of the
registrant.At February 28, 2002, there were 28,189,126 shares of the registrant's
common stock, $0.001 par value, issued and outstanding.DOCUMENTS INCORPORATED BY REFERENCE
Information required by Part III of this Form 10-K is incorporated therein by reference from the Company's definitive Proxy Statement with
respect to its 2002 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A within 120 days after December 31, 2001.

This Form 10-K contains forward-looking statements that have been made under the provisions of the Private
Securities Litigation Reform Act of 1995. These forward-looking statements are not historical facts but rather are
based on current expectations, estimates and projections about our industry, our beliefs, and assumptions. Words
such as "anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates" and variations of these words
and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of
future performance and are subject to certain risks, uncertainties and other factors, some of which are beyond our
control, are difficult to predict and could cause actual results to differ materially from those expressed or forecasted
in the forward-looking statements. These risks and uncertainties include those described in "Risk Factors" and
elsewhere in this Form 10-K. Readers are cautioned not to place undue reliance on these forward-looking
statements, which reflect our management's view only as of the date of this Form 10-K. We undertake no obligation
to update these statements or publicly release the result of any revisions to the forward-looking statements that we
may make to reflect events or circumstances after the date of this Form 10-K or to reflect the occurrence of
unanticipated events.


Com21, Inc.
                                   FORM 10-K

                      For The Year Ended December 31, 2001

                               TABLE OF CONTENTS

Part I.

PageItem 1.
Business3Item 2.
Properties18Item 3.
Legal Proceedings19Item 4.
Submission of Matters to a Vote of Security Holders19Part II.Item 5.
Market for the Registrant's Common Equity and Related Stockholder Matters20Item 6.
Consolidated Selected Financial Data21Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations21Item 7A.
Quantitative and Qualitative Disclosures About Market Risk28Item 8.
Consolidated Financial Statements29Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure54Part III.Item 10.
Directors and Executive Officers of the Registrant54Item 11.
Executive Compensation54Item 12.
Security Ownership of Certain Beneficial Owners and Management54Item 13.
Certain Relationships and Related Transactions54Part IV.Item 14.
Exhibits, Consolidated Financial Statement Schedules, and Reports on Form 8-K54Exhibit Index55Signatures56PART I

ITEM 1.  BUSINESSCom21, Inc., or the Company, is a leading global
supplier of system solutions for the broadband access market.  Our ATM and
DOCSIS-based products enable cable operators and service providers to deliver
high-speed, cost-effective Internet and telephony applications to corporate
telecommuters, small businesses, home offices, and residential users. To date,
we have shipped over 1.8 million cable modems and over 1,850 headend controllers
worldwide.
Com21 was incorporated in Delaware in June 1992.  Our principal executive
offices are located at 750 Tasman Drive, Milpitas, California 95035 and our
telephone number at that address is (408) 953-9100.  We can also be reached at
our web site http://www.com21.com.


INDUSTRY OVERVIEW

We believe the broadband industry, which in its most basic form is
identified with an always-on internet connection characterized by data transfer
rates significantly faster than dial-up services, is poised to offer much more
than faster web surfing.  With a significant upgrade to the cable and
telecommunication networks over the past several years, operators are now in a
position to utilize the power of broadband networks to deliver much more than
just data. Previously, service providers (both telecommunication and cable
companies) could deliver only one or two out of the three basic service types by
which most communications can be categorized: data, voice, and video.  With
newly upgraded networks and advanced equipment to service the networks,
broadband service providers are in a position to take advantage of the full
power of broadband and deliver all three services over a single unified network.
In the process, we believe broadband is driving the next wave of technology
innovation and investment, as the increase in bandwidth is also driving the pace
of innovation in software applications, computers, communications equipment,
semiconductors, and other similar devices.

Although the broadband industry is moving rapidly to capture the rewards of
offering data, voice, video over a single network, broadband still remains in
relative infancy, with much of the growth still ahead of it.  As broadband
rollout becomes more widespread, we believe these integrated services will drive
an accelerated demand for transmission equipment, cable and DSL modems, digital
set-top boxes, and voice gateways. Of all the broadcast mediums, we believe in
cable given its capability to deliver digital video, data, voice, and other two-
way services such as pay per view, or PPV, video-on-demand, or VOD, and
subscription video-on-demand, or sVOD, all over the same network.  Cable will be
the access platform of choice in carrying out the full service vision of the
broadband service providers. In spite of a challenging macroeconomic
environment, cable has continued to be a steady source of demand for broadband
equipment.  If the economy improves, and acceptance of integrated services
accelerates, we believe cable will be a strong driver of growth for broadband
equipment providers focused on equipment to facilitate digital service delivery
from the cable headend to a customer premise.


COM21 STRATEGY

Building upon the solutions that the Company has pioneered to date for the
cable data industry, Com21 is focused on delivering system solutions that allow
cable operators to realize the full potential of their digital networks.  As we
have demonstrated with our ComUNITY Access® System, which
comprised of the ComCONTROLLER® line of headends (over 1850
shipped to date), ComPORT® modems (over 1.1 million units shipped
worldwide), and network management and provisioning system, or NMAPS, (over 400
copies installed, covering over a million subscribers worldwide), end-to-end
product solutions are a key strength for Com21.  Leveraging on this core
competency, the following are some key elements of Com21's business
strategy:


Continue to service and protect the substantial installed base of ComUNITY
Access System customers through continued enhancement and evolution of the
product line.  To this end, we recently announced the ComPORT 1080 cable modem,
which represents a significant cost reduction over existing modems in the
ComPORT product line.  In addition, Com21 continues to enhance its pioneering
network management platform, NMAPS, maintaining a compelling value proposition
for the ComUNITY customer base.
Develop a cable modem termination system, or CMTS, and a network management
system to deliver a complete end-to-end (headend to modem) systems solution for
the DOCSIS customer base.  This is part of the renewed focus to be a complete
solutions provider in every product line.  Our first DOCSIS CMTS product, the
DOXcontroller 1000, has already been announced.  Not only do we believe this
CMTS will be a performance leader, we believe it will also be designed from the
ground up to be first a DOCSIS 1.1 compliant CMTS, followed by a DOCSIS 2.0
compliant CMTS. In concert with the CMTS, Com21 is also developing a network
management platform to leverage the same user interface, and architecture of the
existing NMAPS platform.  Given the role of network management software in the
selection of hardware equipment, Com21 will preserve continuity between ComUNITY
and DOCSIS network management software.  We believe this will facilitate a
smooth transition of Com21's ComUNITY customers to Com21's DOCSIS products.  The
full system, comprising the DOXcontroller headend, the NMAPS for DOCSIS, and the
DOXport cable modems, is known as the DOXcontrollerTMXB System (XB denotes extreme
bandwidth).
Deliver products and solutions around the edge of our core ComUNITY and
DOCSIS platforms that facilitate new service offerings from our customers such
as voice, networking, security, and engineering.



CURRENT YEAR DEVELOPMENTS

During March 2001, the Company entered into a definitive agreement to
complete a $7.7 million private equity financing.  Pursuant to a subscription
agreement dated February 28, 2001, the Company sold 2,450,000 shares of common
stock at a price of $3.1227 per share and a warrant to acquire up to an
additional 3,505,981 shares of the Company's common stock at $9.0951 per share.

During December 2001, Com21 entered into a new revolving line of credit
agreement, which allows Com21 to borrow up to the lesser of $10.0 million or 75%
of Com21's eligible domestic and foreign accounts receivable.  At December 31,
2001, $6.0 million was outstanding under the line of credit and there was no
availability for additional borrowings.
During 2001, Com21 announced a number of programs to reduce operating
expenses. These programs were designed to prioritize our initiatives around
high-growth areas of the business, focus on profit contribution, and reduce
expenses and capital spending.  These restructuring programs included workforce
reductions, reorganization and closure of certain business functions, and
consolidation of facilities.  As a result of the restructuring efforts, we
recorded restructuring charges of $69.3 million for the year ended December 31,
2001.
Workforce Reduction - The restructuring programs resulted in the
reduction of approximately 143 employees across all business functions and
operating units, including employees of the wireless business unit, Maryland
development center and corporate headquarters.
Closure of the Wireless Business Unit - In April 2001, we ceased
development in our wireless business unit to focus our efforts on projects with
shorter development cycles.  All wireless employees were terminated and the
facility located in Long Island, New York was closed in May 2001.
Closure of Maryland Development Center (formerly known as BitCom) - As
Com21 consolidated its facilities and focused on reducing expenses, the
development of ATM products was transferred from the Maryland development center
to the European development centre in April 2001.  The Maryland development
center was then closed and all employees terminated in May 2001.Sale of the Voice Systems Division (formerly known
as GADline) - In June 2001, Com21 sold the voice systems division to the
division's management team.  The division's goodwill and purchased intangible
assets were impaired.  The impairment amount was equal to the amount by which
the carrying amount exceeded the present value of the estimated future cash
flows for goodwill and purchased intangible assets.

Closure of Excess Facilities - In the second quarter 2001, Com21
exited the wireless business unit facility in Long Island, New York; the
Maryland development center in Germantown, Maryland; and a building in Milpitas,
California.

The programs noted above reduced recurring operating expenditures during 2001
while allowing us to focus our development efforts on our core ATM and DOCSIS
products, including our recently announced DOXcontrollerTM XB
System.

SEGMENT INFORMATION

For purposes of segment reporting, Com21 aggregates operating segments that
have similar economic characteristics and meet the aggregation criteria of
Statement of Financial Accounting Standards (SFAS) No. 131, "Disclosures about
Segments of an Enterprise and Related Information." Based on such criteria,
there are three operating and reportable segments: ATM Products, DOCSIS
Products, and Voice Products. The ATM Products segment develops, manufactures,
and markets the proprietary cable modems, ATM headend equipment and network
management software. The DOCSIS Products segment develops, manufactures, and
markets DOCSIS cable modems for both home and office.  The Voice Products
segment, based primarily in Israel, developed, manufactured, and marketed voice
over Internet cable modems, and was, as noted above, sold during 2001.

ATM Segment - The ATM-based ComUNITY Access® System is
an end-to-end system solution including our headend, cable modem, and management
software, all based on our proprietary technology.  The market and customers for
the segment are similar to the market and customers for our DOCSIS segment and
are discussed in the "Markets" and "Customers" sections
below.  For financial information related to the ATM segment, see Note 15 in the
Consolidated Financial Statements.

The ATM-based ComUNITY Access System consists of the following products:

ComCONTROLLER Headend Switches. The ComCONTROLLER controls the
flow of data communications between the ComPORT modem at a subscriber's site and
an external network, such as the Internet or a corporate network.

ComPORT Cable Modems (CP1080 and CP1165). The ComPORT cable
modem sends and receives data from the subscriber's site over coaxial cable,
cost-effectively providing high-speed connectivity. The ComPORT modem uses an
Ethernet interface and connects to the personal computer's Ethernet card or an
Ethernet hub.

Network Management and Provisioning System, or NMAPS. The
Network Management and Provisioning System is a network management software
package that facilitates subscriber provisioning, fault isolation, network
configuration, field inventory, auto-discovery and system performance for the
ComUNITY Access System. NMAPS provides for remote monitoring, remote modem
software upgrade, and has a graphical user interface.

DOCSIS Segment - The DOCSIS-based DOXport family of modems are Com21's
standards-based solution that combines the advantages of interoperability while
leveraging our technological leadership and modem expertise.   The market and
customers for the segment are similar to the market and customers for our ATM
segment and are discussed in the "Markets" and "Customers"
sections below.  For financial information related to the DOCSIS segment, see
Note 15 in the Consolidated Financial Statements.

The DOCSIS-based DOXport family of modems is based on the
DOXport 1110:



DOXport 1110. The DOXport 1110 cable modem takes advantage of
the speed and efficiency of the Broadcom 3350 chip, which leads to greater
overall performance of the modem.  The DOXport 1110 is also CableLabs®CertifiedTM, ensuring compatibility with any DOCSIS 1.0 or
1.1 Cable Modem Termination System, or CMTS.  Users can connect with USB 1.1,
10/100 Base-T Ethernet, or both for fast, flexible installation.  It is also
software upgradeable to the DOCSIS 1.1 standard, which provides for enhancements
such as tiered services, multicasting, and quality of service, or QoS.

Com21 currently has under development the following DOCSIS-
based products:

DOXport 1120 and DOXport 1122.

DOXcontrollerTMXB System.The
DOXcontroller XB System comprises a headend (DOXcontroller 1000) and the newly
expanded version of the popular NMAPS.  Previously available only for the
ComUNITY Access System, the updated NMAPS 5.0 now supports DOCSIS systems, as
well.  The one-rack unit high (1-3/4") headend offers full DOCSIS features with
advanced time division multiple access, or TDMA support, for advanced
symmetrical data rate applications.  The DOXcontroller 1000 provides full
upstream support for both DOCSIS and EuroDOCSIS environments, with user-
configurable upstream channel bandwidth allocation and load balancing.

The easy-to-use NMAPS 5.0 includes a standard command-line interface, plus
the ability to remotely configure and monitor the DOXcontroller 1000 through a
web browser.  Full-featured, NMAPS 5.0 provides QoS and virtual local area
network, or VLAN support, as well as fault and performance management tools.
The network management system's familiar interface provides a seamless
transition for current ComUNITY Access System users, minimizing the need for
training.

We expect to enter customer trials of the DOXcontroller XB System in the
spring, with volume customer shipments in the third quarter of 2002.

Voice Segment - The ANEXT 1 product provided an analog circuit
switching voice solution for cable networks that included a Public Switch
Telephone Network, or PSTN, gateway using V5.2 and subscriber equipment.  Both
Plain Old Telephone Service (POTS) RJ11 phones and Integrated Service Digital
Network, or ISDN devices are supported in the customer premise device.  Com21
sold this segment during 2001 in connection with our restructuring
activities.



CUSTOMERS



In North America, we generally sell directly to cable operators.
Internationally, we sell primarily to system integrators, who in turn sell to
cable operators.  In 1999, 2000 and 2001 revenues attributable to international
customers constituted 47%, 67% and 77%, respectively.

In 1999, revenues attributable to AT&T, Philips and Siemens accounted for
20%, 18% and 12% of net revenues, respectively.  In 2000, revenues attributable
to Siemens, Telindus, and Comcast Communications accounted for 12%, 11%, and 10%
respectively.  In 2001, revenues attributable to Telindus and Comcast
Communications accounted for 25% and 10% of net revenues, respectively.



MARKETS

Com21's products enable cable operators to serve three primary end-user
markets, each of which have varying speed, service and pricing requirements.

Residential consumer Internet users. Residential consumer
Internet users generally only require a connection to their Internet service
provider, or ISP, without the same level of security and reliability required by
business and small office/home office, or SOHO users. Frequent users desire
high-speed access to the Internet for Web browsing, gaming and downloading of
multimedia applications and files.

Corporate telecommuter and remote office users. Corporate
telecommuters and remote office business users need available, high-speed access
to corporate intranets and corporate local area networks, or LANs. These users
also must interconnect the LANs among their various offices. Such offices may be
collocated or widely dispersed. Connections to a central telephone Private
Branch Exchange, or PBX, rapid two-way transfer of large data files, desktop
video conferencing, security, and reliability exemplify the services that
business users may require.

Small office/home office, or SOHO users. SOHO users
increasingly find the Internet an efficient means of communicating and
processing transactions with customers and suppliers. Com21 believes these
businesses require high speed Internet access that is reliable and always
available. SOHO users may have a local area network to connect to cable modem
services, and may require routing in order to connect multiple terminals. These
businesses may also require desktop video conferencing capability, and
connectivity with other businesses.



MANUFACTURING

Com21 tests and assembles its ComCONTROLLER headend equipment in its
Milpitas, California facility. We outsource printed circuit board assemblies on
a turnkey basis and perform final integration and burn-in at our Milpitas
facility. We configure the headend equipment and the network management and
provisioning software prior to customer shipment.

Com21 outsources turnkey manufacturing of our cable modems to contract
manufacturers with facilities in Mexico and Malaysia.  In addition, we are in
the process of finalizing an agreement with a new third party contract
manufacturer to build our DOCSIS modems.  With these contract manufacturers, we
have and are currently developing and implementing a series of product test
methodologies, quality standards, and process control parameters. We believe
that employing turnkey manufacturers enables us to meet anticipated
manufacturing needs and reduces the cost of product procurement.

We believe our current manufacturing capabilities can accommodate our
requirements through the end of 2002 provided we are able to successfully begin
and sustain production of our DOCSIS modems at our new contract manufacturer.
Warranty and repair support is performed at third party repair facilities in
Europe and the United States. Com21 received ISO 9001 certification in December
1998 and continues to maintain its certification.



MARKETING AND SALES

Marketing.  Domestically, we have targeted our marketing efforts
primarily at cable operators.  We seek to work with local cable operators to
promote Com21's products and accelerate cable modem service penetration.
Internationally, we have focused our marketing efforts on supporting our systems
integration partners' marketing programs.

Sales.As of
December 31, 2001, we have sales force of 24 people located in Europe, Asia,
Latin America and the United States.Currently, Com21 sells its products in North America primarily through direct
sales to cable operators. Overseas, we sell our products primarily to systems
integrators, who resell our products to cable operators. Com21's two largest
systems integrators are Telindus and Siemens, both of whom have a strong
presence in many international markets. Our systems integrators have established
customer bases and relationships with cable operators. These relationships allow
us to market within each region by selling locally into their respective
markets, and the local presence of the systems integrators bridges cultural and
communication gaps.



RESEARCH AND DEVELOPMENT

We have focused our research and development efforts to prioritize
initiatives around high-growth areas of the business and with a focus on profit
contribution.  We rely on our research and development programs for the
development of new products and improvement of existing products in line with
our goal of maximizing profit contribution.

Our research and development expenditures were $29.8 million in 1999, $48.6
million in 2000, and $24.9 million in 2001. Research and development expenses
primarily consist of salaries and related costs of employees and consultants
engaged in ongoing research, design and development of our products and
technology. As of December 31, 2001, Com21 had a team of 84 engineers with
expertise in digital electronics design, encryption, radio frequency modulation
and demodulation, networking, embedded software, and network management.  The
engineers are located in development centers in Milpitas, California and Cork,
Ireland.



CUSTOMER SERVICE AND TECHNICAL SUPPORT

We believe that successful long-term relationships with our customers require
a service organization committed to customer satisfaction. As of December 31,
2001, Com21 had 10 technical support employees. Com21 makes available to all new
customers a five-day training course prior to receiving and installing a
ComUNITY Access System.



In North America, Com21 provides direct support by telephone and at the
customers' locations. Com21 supplies support 24 hours a day, seven days a week.
Internationally, systems integrators provide first level support, and Com21
provides second level support. Com21 maintains a customer call tracking system
that captures and monitors service activities. Com21 is able to identify
problems with a customer's ComUNITY Access System through a dialup analog modem
connection and a web-based management interface.



COMPETITION

The markets for Com21's products are intensely competitive, rapidly evolving,
and subject to rapid technological change. The principal competitive factors in
these markets are likely to include product performance and features,
reliability, technical support and service, relationships with cable operators
and systems integrators, compliance with industry standards, interoperability
with the products of other suppliers, sales and distribution capabilities,
strength of brand name, price, long-term cost of ownership to cable operators,
and general industry and economic conditions. Com21's current and potential
competitors include Motorola, Scientific-Atlanta, Inc., Toshiba America, Inc.,
Thomson, Samsung Electronics Company, Terayon Communication Systems, and Cisco
Systems, Inc.

BACKLOG

Our backlog on February 28, 2002 was approximately $7.6million compared with an approximate backlog of
$28.3 million at February 28, 2001.  We only include in our backlog orders that
have been confirmed with a purchase order for products to be shipped to
customers with approved credit status.  Because delivery schedules are always
subject to change, and orders are subject to being cancelled, we do not believe
that our backlog, as of any particular date, is necessarily indicative of actual
net sales for any future period.



INTELLECTUAL PROPERTY

Com21 relies on a combination of patent, copyright and trademark laws, and on
trade secrets, confidentiality provisions and other contractual provisions to
protect our proprietary rights. These measures afford only limited protection.
Com21 currently has sixteen issued U.S. patents and several pending patent
applications.



EMPLOYEES

As of December 31, 2001, Com21 had 180 full-time employees. Of the total
number of employees, 84 were in research and development, 18 in marketing and
technical support, 26 in operations, 24 in sales, and 28 in administration.
Com21's employees are not represented by any collective bargaining agreement
with respect to their employment by Com21, and Com21 has never experienced an
organized work stoppage.

RISK FACTORS

You should carefully consider the risks described below before making a
decision to invest in Com21. You may lose all or part of your investment. The
risks and uncertainties described below are not the only ones facing Com21.

Com21's revenues in one or more future periods are likely to fluctuate
significantly and may fail to meet or exceed the expectations of securities
analysts or investors.

Com21's operating results are likely to fluctuate significantly in the
future on a quarterly and an annual basis due to a number of factors, many of
which are outside Com21's control.  Supply of components, delays in getting new
products into high volume manufacturing, and manufacturing or testing
constraints could result in delays in the delivery of products and impact
revenues and gross margins.

Revenues for any future quarter are difficult to predict.  Delays in the
product distribution schedule of one or more of our cable operator customers
would likely reduce our operating results for a particular period.

Factors that could cause our revenues to fluctuate include:

- pressure to reduce prices;
- variations in the timing of orders and shipments of our products;
- variations in the size of orders by our customers;
- new product introductions by us or by competitors;
- delays in obtaining certification for our standards-based products;
- general economic conditions and economic conditions specific to the cable
and electronic data transmission industries;
- cable operators' financial ability to purchase our products; and
- delays in obtaining regulatory approvals necessary to sell our
products.



Com21 may be unable to obtain additional capital needed to operate and
grow our business, which could weaken our financial condition and make us unable
to develop our technologies and products.

We cannot assure you that any additional financing will be available to
us on acceptable terms, or at all, when required. As previously announced, we
are currently evaluating alternative forms of financing.  These alternatives may
include the sale of additional stock, additional lines of credit, and the
additional divestiture of certain business assets.  If issuing equity securities
raises additional funds, significant dilution to existing stockholders may
result given the current price of our common stock.  If additional funds are not
available, we may be required to delay, scale back, or eliminate one or more of
our research and development or manufacturing programs.

In light of our current financial situation and our history
of operating losses, we expect such financing to be available but it may be at
less favorable terms than our present financing arrangement. Further alternative
forms of financing may also restrict Com21's operations or limit our ability to
respond quickly to changes in the marketplace.



At December 31, 2001, we had an accumulated deficit of approximately $241.3
million.  If we do not increase revenues, improve gross margins, and reduce
operating expenses, we may also incur net losses during future quarters.
Because of a decline in our revenues in the fourth quarter of 2000, we
introduced measures to reduce operating expenses that resulted in restructuring
charges of $69.3 million in the twelve months ended December 31, 2001.   In
January 2002, we had an additional work force reduction due to the
reorganization of Com21 from a divisional structure centered on multiple product
lines to a single functional organization.  We continue to monitor market
conditions to assess the need to take further action, if necessary.  Any
subsequent actions may result in additional workforce reductions, restructuring
charges, discontinuation of product lines, and provisions for impairment of
long-lived assets, which could harm our financial position, results of
operations and stock price.



We may not be able to produce sufficient quantities of our products
because we depend on third-party manufacturers, their suppliers and original
equipment manufacturers and have limited manufacturing experience.

We contract for the manufacture of cable modems and integrated circuit
boards on a turnkey basis.  Our future success will depend, in significant part,
on our ability to have others manufacture our products cost-effectively, in
sufficient volumes and to meet production and delivery schedules.  Dependence on
third-party manufacturers presents a number of risks, including:

- not taking sufficient credit exposure on new product builds;
- the contract manufacturer may lower availablecredit limits;
- the contract manufacturer may not provide sufficient payment terms;
- failure of our contract manufacturer to meet delivery schedules;
- the contract manufacturer may not buildproducts which meet our quality
standards;
- the contract manufacturer may produce less than satisfactory manufacturing
yields and costs;
- the contract manufacturer may not be able to build product to meet our
demand;
- difficulty in planning mix of units to be produced by us; and
- the potential misappropriation of our intellectual property if the
manufacturer were to market our products as its own.

In the fourth quarter of 2001, we entered into a contract with a new contract
manufacturer for the manufacture of ATM cable modems.  If the transition from
the existing third-party manufacturers to this new contract manufacturer does
not occur on a timely basis, or if the new contract manufacturer is not able to
produce our product to our quality standards, or at a volume large enough to
fulfill our orders then our revenues and margins could be harmed.

We are in the process of entering into a contract with a new contract
manufacturer for the manufacture of DOCSIS cable modems and expect to finalize
the contract by April 2002.  If the transition from existing third-party
manufacturer to this new contract manufacturer does not occur on a timely basis,
or if the new contract manufacturer is not able to produce our product to our
quality standards, or at a volume large enough to fulfill our orders then our
revenues and margins could be harmed.

Any manufacturing disruption could impair our ability to fulfill orders.  We
have arrangements with any of our vendors that guarantee product availability,
the continuation of particular payment terms, or the extension of credit limits.
We may experience manufacturing or supply problems in the future.  We are
dependent on our manufacturers to secure components at favorable prices, and in
sufficient volume.  If our contract manufacturers fail to perform in any of
these areas, it could harm our relationships with customers.  Failure to obtain
these components and supply our customers with our products would decrease our
revenues.



Com21's gross margin in one or more future periods is likely to fluctuate
significantly and may cause operating results to fall below the expectations of
analysts and investors.

Our operating results are impacted significantly by our ability to
improve and sustain gross margins.  The factors which impact gross margins and
cause them to fluctuate from quarter to quarter include:

- pressures to reduce prices;
- write-off of excess inventory;
- changes in the cost of inventory;
- the sales mix within a product group, especially between proprietary ATM and
standards-based DOCSIS modems;
- component prices we secure from our vendors;
- the average selling prices of our products;
- the effectiveness of our cost reduction efforts;
- the sales mix between our headend equipment and cable modems;
- the ability of the new contract manufacturers to produce quality products;
and
- the volume of products manufactured.

Additionally, our inability to reduce inventory levels may result in
substantial inventory-related charges including marking component inventory to
current market prices because of falling component prices, carrying charges from
our contract manufacturers, and significant write-offs of excess and obsolete
inventory that would not be utilized.

A reduction in gross margins would harm our operating results and reduce the
amount of cash flow generated from our operations.  Additionally, if operating
results did not satisfy the expectations of analysts or investors, the trading
price of our common stock would likely decline.

Com21 signed agreements in March 2002, with our two primary contract
manufacturers to accept excess inventory from them which may have no value to
Com21, and would therefore reduce our gross profit.

In March 2002, Com21 cancelled all outstanding purchase orders with our
two primary contract manufacturers.  In connection with the cancellation, we
signed promissory notes for existing payables to the vendors and for excess
component inventory materials held by the vendors.  These notes total
approximately $22.5 million, bear interest at an average rate ranging from 8% to
10% and mature in December 2003 and May 2004.  The approximate $9.3 million of
materials held by the vendors will likely be of no future use to Com21 as a
result of the new DOCSIS contract manufacturing arrangement we entered into with
a new third party in March 2002.  Accordingly, the materials with no future use
will be written off during the first quarter of 2002.  Our provision for excess
and obsolete inventory at December 31, 2001 did not contain provisions for this
inventory held by the vendors.  In addition to the notes, Com21 granted warrants
to the vendors to purchase a total of 350,000 shares of common stock.  For
additional information see Note 17 to the financial statements.

Fluctuations in our stock price could impact our
relationships with existing customers and discourage potential customers from
doing business with us.



We may not be able to maintain our listing on the national market.Our common stock is currently listed on the Nasdaq National Market. We must
satisfy a number of requirements to maintain our listing on the Nasdaq National
Market, including maintaining a minimum bid price for our common stock of $1.00
per share. As of March 27, 2002, the price of our common stock was $1.34. If the
common stock loses its Nasdaq National Market status, it would likely trade on
the Over the Counter Bulletin Board maintained by Nasdaq, which is viewed by
most investors as a less desirable, less liquid marketplace.

We must reduce the cost of our cable modems to remain competitive.

Some of our competitors have assets and annual revenues that far exceed
ours and because of their financial status, greater product portfolio, and
higher volume sales are able to offer cable modem products at lower prices than
we can.  As headend equipment becomes more widely distributed, the price of
cable modems and related equipment will continue to decrease. In particular, the
adoption of the DOCSIS standard has caused increased price competition for cable
modems. To remain competitive, we may have to lower the price of our modems in
anticipation of planned product cost reductions of our DOCSIS modems.  We may
not be able to continually reduce the costs of manufacturing our cable modems or
to secure component parts at a low enough cost to enable us to lower our modem
prices to compete effectively.  As we perform on our cost reduction program, we
may not be able to continue to certify our DOCSIS modems in a timely manner by
various standards bodies, including CableLabs. If we are unable to continue to
reduce the manufacturing costs of our cable modems, our gross margin and
operating results could be harmed.

Com21 has a short operating history, has not made a profit, and expects to
incur losses in the future.

We have not made a profit, and we expect to continue to operate at a loss
through the first half of 2002. To achieve and subsequently maintain profitable
operations, we must successfully design, develop, test, manufacture, introduce,
market and distribute products on a broad commercial basis and secure higher
revenues and gross profits and contain our operating expenses. Our future
revenues will depend on a number of factors, many of which are beyond our
control. These factors include our ability to:

- reduce prices;
- manufacture products at acceptable quality standards;
- have product available when our customers need it;
- meet industry standards;
- respond to technological change; and
- have a strong competitive advantage.

Due to these factors, we cannot forecast with a degree of accuracy what our
revenues will be or how quickly cable operators will adopt our systems and buy
our cable modems. If we do not generate sufficient revenues and gross margins,
we may not achieve, or be able to sustain, profitability.

Com21's customer base is concentrated and the loss of one or more of our
customers could cause our business to suffer.

A relatively small number of customers have accounted for a large part of
our revenues, and we expect that this trend will continue. For the year ended
December 31, 2001, our top five customers accounted for 54% of total revenues.
We expect that our largest customers in the future could be different from our
largest customers today due to a variety of factors, including customers'
distribution schedules and budget considerations. Additionally, some of our
systems integrators could develop and manufacture products that compete with our
products and choose not to distribute our products. Because a limited number of
companies account for a majority of our prospective customers, our future
success will depend upon our ability to establish and maintain relationships
with these companies. We may not be able to retain our current accounts or to
obtain additional accounts. Both in the U.S. and internationally, a substantial
majority of households passed by cable access are controlled by a relatively
small number of companies. The loss of one or more of our customers or our
inability to successfully develop relationships with other significant cable
operators could cause our business to suffer.



Our future success will depend in part upon our ability to enhance our
existing products and to develop and introduce, on a timely basis, new products
and features that meet changing customer requirements and emerging industry
standards.

The market for cable modem systems and products is characterized by
rapidly changing technologies and short product life cycles. Our future success
will depend in large part upon our ability to:

- identify and respond to emerging technological trends in the market;
- develop and maintain competitive products;
- enhance our products by adding innovative features that differentiate our
products from those of competitors;
- bring products to market on a timely basis at competitive prices; and
- respond effectively to new technological changes or new product
announcements by others.

The technological innovations required for us to remain competitive are
inherently complex, require long development cycles, are dependent in some cases
on sole source suppliers and require us, in some cases, to license technology
from others.  If our product development and enhancements take longer than
planned, the availability of products would be delayed. We must continue to
invest in research and development to attempt to maintain and enhance our
existing technologies and products, but we may not have the funds available to
do so. Even if we have sufficient funds, these investments may not serve the
needs of our customers or be compatible with changing technological requirements
or standards. Most costs must be incurred before we can determine the
technological feasibility or commercial viability. In addition, revenues from
future products or product enhancements may not be sufficient to recover the
development costs incurred by these products or enhancements.

We may not be successful in managing the transition from our current products
to our new and enhanced products.  Product transitions contain a number of
inherent risks, including obsolescence of product inventory, unavailability of
product as inventory of existing product is exhausted before availability of new
product, market acceptance of new products, undetected defects in new products,
and availability of components and parts in new products. If we are unable to
successfully manage the risks of the release and transition of new and enhanced
products, our revenues could be reduced.

The market in which we sell our products is characterized by many
competing technologies, and the technology on which our product is based may not
compete effectively against other technologies.

There are many different methods of getting high speed Internet access to
the end customers.  These methods include:

- Regular dial up connection-using a telephone line and the average 28K or 56K
modem;
- Digital subscriber line/asymmetric digital subscriber line-a digital high-
speed modem connection offered by telephone companies, also known as DSL or
ADSL;
- Cable modems-high-speed modem connections offered by cable television
companies;
- Wireless-high-speed wireless local loop connections that work similar to
cell phones. Digital subscriber line/asymmetric digital subscriber line and
cable modems can operate in a wireless environment; and
- Fiber optics-strands of very pure glass capable of carrying enormous volumes
of data and voice traffic.

Because of the widespread reach of telephone networks and the financial
resources of telephone companies, competition from telephone-based solutions is
expected to be intense. Cable modem technology may not be able to compete
effectively against wireline or wireless technologies. Significant market
acceptance of alternative solutions for high-speed data transmission could
decrease the demand for our products if these alternatives are viewed as
providing faster access, greater reliability, increased cost-effectiveness or
other advantages.



Com21's market is highly competitive and has many established
competitors.

The market for Com21's products is intensely competitive, rapidly
evolving and subject to rapid technological change. Our competitors include
Motorola, Inc., Scientific-Atlanta, Inc., Toshiba America, Inc., Thomson,
Samsung Electronics Company, Terayon Communication Systems, and Cisco Systems,
Inc.

We believe that our business is affected by the following competitive
factors:



- costs;
- ease of installation;
- technical support and service;
- breadth of product line;
- conformity to industry standards; and
- implementation of additional product features and enhancements.

Many of our existing and potential competitors have been operating longer,
have better name recognition, more established business relationships, and
significantly greater financial, technical, marketing and distribution resources
than we do. These competitors may undertake more extensive marketing campaigns,
adopt more aggressive pricing policies, undertake more vendor financing programs
or longer customer payment cycles and devote substantially more resources to
developing new or enhanced products than we do.  Some competitors may sell their
modems at below cost to reduce excess inventories, causing severe price
competition.



Supply of our products may be limited by our ability to forecast demand
accurately.

Our customers have increasingly been requiring us to ship product upon
ordering instead of submitting purchase orders far in advance of expected
shipment dates.  This practice requires us to keep inventory on hand for
immediate shipment. Any significant cancellations or deferrals could adversely
affect our business by slowing our growth and decreasing our revenues.
Additionally, cancellations or deferrals could cause us to hold excess
inventory, which could reduce our profit margins and restrict our ability to
fund our operations. In particular, increases in inventory could cause a harmful
effect on operations if this inventory is not used or becomes obsolete.  This
risk could be realized in inventory write-offs in any given period.

We may be subject to product returns and product liability claims due to
defects in our products.

Our products are complex and may contain undetected defects, errors,
design deficiencies, or may have been manufactured incorrectly.  Our products
have contained errors in the past and may contain errors in the future.
Defects, errors, or failures in our products could result in delayed shipments,
returned products, and loss or delay of market acceptance of our products.  We
could incur costs or losses in excess of amounts that we have reserved for these
events. Although we have not experienced any product liability claims, due to
the highly technical nature of our products, such a risk exists. A successful
product liability claim brought against us could impair our business, operating
results, and financial condition by forcing us to use cash and personnel
resources.  This would limit our ability to grow the company and would decrease
our revenues.

Our stock price is highly volatile and broad market fluctuations may
impact the market price of our common stock.

The trading price of our common stock has fluctuated significantly since
our initial public offering in May 1998. The common stock price has fluctuated
between $3.03 per share and $0.43 per share in the last 12-month period.  The
price of our common stock could continue to be subject to wide fluctuations in
response  to a variety of factors including:

- variations in quarterly earnings;
- announcements of technological innovations or new products by us or our
competitors;
- announcements by certification and standards bodies;
- the state of Com21's patents or proprietary rights; and
- changes in financial estimates by securities analysts.

Additionally, the stock market is volatile.  This volatility has particularly
affected the stock prices of equity securities of many high technology companies
and, often, has been unrelated or disproportionate to the operating performance
of these companies. Our stock price has declined significantly and our stock
price may continue to decline because of these broad market and industry
factors, regardless of our actual operating performance. These broad market
fluctuations may lower the market price of Com21 common stock. Additionally,
Com21 may choose to structure acquisitions or other financing transactions by
issuing additional Com21 common stock, or warrants or options to purchase Com21
common stock that would dilute common stock outstanding. Although Com21's
management believes these types of transactions will increase the overall long-
term value of Com21, these transactions may initially decrease the market price
of our common stock.

Com21 may not be successful in attracting and retaining key personnel and
management.

Our success has always depended on our ability to attract and retain
highly skilled technical, managerial, sales, and marketing personnel. In spite
of the economic slowdown, competition for these personnel is intense, especially
in the Silicon Valley area of Northern California. We must retain and attract
high caliber personnel. Competitors and others have in the past and may in the
future attempt to recruit Com21's employees. We do not have employment contracts
with any of our key personnel.   Volatility or lack of positive performance in
our stock price may also adversely affect our ability to retain key employees,
all of whom have been granted stock options. We do not maintain key person life
insurance on key personnel.  The loss of services of any of our key personnel,
the inability to retain and attract qualified personnel in the future, or delays
in hiring required personnel, particularly engineers and sales personnel, could
make it difficult to meet key objectives, such as timely product
introductions

Competition for these personnel is intense; however,
there is less competition for these skilled workers in other countries.  In June
2001 we completed, the transfer of the research and development, product
management, and marketing functions for the proprietary ComUNITY Access System
product line to our facility in Cork, Ireland.  We made this transition to take
advantage of the greater availability of qualified personnel in Cork to support
this product line.  However, the loss of any key Cork employee with technical,
marketing or support knowledge may affect our ability to provide timely
development and support activities for the ComUNITY Access System product line.

We may be subject to additional credit risk in the form of trade accounts
receivable.

Our standard credit terms are net 30 days from the date of shipment, and
we generally do not require collateral or other security to support customer
receivables.  Starting with third quarter 2001, we offered certain customers a
2% discount for payment received within 10 days of the invoice date.  We may
require letters of credit from a customer before shipping an order if we
determine that the customer has not proven to be creditworthy.

Com21 may be charged for excess inventory held or on order with contract
manufacturers which would reduce our gross profit.

We rely on contract manufacturers for the production of
our products.  Contract manufacturers generally require revenue forecasts in
order to manage component inventories to meet customer demand.  Accordingly, our
contract manufacturers may order substantial amounts of inventory to meet our
revenue forecasts.  If our future shipments do not utilize the committed
inventory, these contract manufacturers would have the right to charge us for
inventory carrying costs and to bill us for any excess component and finished
goods inventory. We would be required to fulfill these obligations even if
demand for our products were lower than we anticipate, which could reduce our
working capital and have a negative impact on our financial position.

Our standards-based products are subject to evolving industry standards.
If our products do not comply with any standard that achieves market acceptance,
customers may refuse to purchase our products.

Early cable modem equipment was not interoperable, meaning cable modem
products from different cable modem developers would not work together.  For
different companies' products to work together, each company must meet an
established standard.  For each standard, a certification body is established to
certify that a product does meet the standard.  Cable operators are demanding
certified standards-based cable modem products for two primary reasons.  First,
a certified product has proven to have the functionality they want.  Second,
certified interoperable products give cable operators the freedom to buy
products from a variety of cable modem manufacturers, creating increased
competition and driving down prices.

Different standards are emerging in different parts of the world.  In much of
the world, the DOCSIS

The adoption of standards could result in lower sales of Com21's
proprietary products.

The widespread adoption of DOCSIS, EuroDOCSIS or other standards could
cause aggressive competition in the cable modem market and result in lower sales
of Com21's proprietary products not design to these standards.  As cable
operators move to standards-based products, sales of Com21's proprietary headend
products, and revenues from licensing of our network management software could
decrease if our products do not meet the appropriate standards. This could
reduce our gross margin and our operating results.

New products and services may present additional and
unanticipated risks.



As we research and introduce new products and services such as the
DOXcontroller XB System, we may encounter risks not present in our current
business. We must anticipate and manage these risks, which may include new
regulations, competition, technological requirements and our own ability to
deliver or maintain reliable services to our customers or partners. Failure to
do so may result in unrecovered costs, loss of market share or adverse
publicity.



We rely on indirect distribution channels for our products and need to
develop additional distribution channels.

Today, cable operators and systems integrators purchase cable modems from
vendors through direct and indirect sales channels.  We anticipate that the
North American cable modem market may at some point shift to a consumer purchase
model. If this occurs, we will likely sell more of our cable modems directly
through consumer sales channels. Our success will be dependent on our ability to
market effectively to end users, to establish brand awareness, to set up the
required channels of distribution and to have cable operators' reference sell
our products. We have begun to establish new distribution channels for our cable
modems. We may not have the capital required or the necessary personnel or
expertise to develop these distribution channels, which could harm our business,
operating results, and financial condition. As large consumer electronics
companies enter the cable modem market, their well-established retail
distribution capabilities and brands would provide them with a significant
competitive advantage.

If we fail to adequately protect our proprietary rights we may be unable
to successfully compete in our industry.

We depend on our proprietary technology.  To protect our intellectual
property rights we rely on a combination of patent, copyright  and trademark
laws, and trade secrets, confidentiality provisions and contractual provisions
to protect our proprietary rights. However, any of our intellectual proprietary
rights could be challenged by third parties. Our means of protecting our
proprietary rights in the U.S. or abroad may not be adequate.  An unauthorized
party may attempt to copy aspects of our products or to obtain and use trade
secrets or other proprietary information. Additionally, the laws of some foreign
countries do not protect Com21's proprietary rights as fully as do the laws of
the U.S. Issued patents may not preserve Com21's proprietary position. Even if
they do, competitors or others may develop technologies similar to or superior
to those of Com21. If we do not enforce and protect our intellectual property,
our business will be harmed.

Our products may infringe on the intellectual property rights of third
parties, that may result in lawsuits and prohibit us from selling our
products.

Third parties may claim that we are infringing on their intellectual
property.  Even if we do not believe that our products are infringing third
parties' intellectual property rights, these claims can be time-consuming,
costly to defend, and divert management's attention and resources away from our
business.  Claims of intellectual property infringement might also require us to
enter into costly royalty or license agreements.  If we cannot or do not license
the infringed technology or substitute similar technology from another source,
our business could suffer.  We may initiate claims or litigation against third
parties for infringement of our proprietary rights or to establish the validity
of our proprietary rights.  Litigation to determine the validity of any claims,
whether or not the litigation is resolved in our favor, could result in
significant expense to us and divert the efforts of our technical and management
personnel from productive tasks.  If there is an adverse ruling against us in
any litigation, we may be required to pay substantial damages, discontinue the
use and sale of infringing products, expend significant resources to develop
non-infringing technology, or obtain licenses to infringing technology.  Our
failure to develop or license a substitute technology could prevent us from
selling our products.

Our failure to manage our operations could slow our growth rate or give
rise to inefficiencies which would reduce our revenues.

To drive costs out of our business and improve our operating
efficiencies, we may be required to:

- improve existing and implement new operational, financial and management
information controls, reporting systems and procedures;
- hire, train, and manage additional qualified personnel;
- expand and upgrade our core technologies and;
- effectively manage multiple relationships with our customers, suppliers, and
other third parties.

Additionally, we must continue to recruit and retain personnel, and failure
to do so would prevent us from achieving our operational goals. Also, our
management team may not be able to achieve the rapid execution necessary to
fully exploit the market for our products and services. In the future, we may
experience difficulties meeting the demand for our products and services. We
cannot assure you that our systems, procedures, or controls will be adequate to
support the anticipated growth in our operations or that we will be able to
achieve the operational efficiencies needed to be competitive.  Any failure
could materially cause us not to meet our operating revenues and cost objectives
and weaken our financial position.



Com21 depends on strategic relationships; if we are not able to find and
maintain these relationships, we may not be able to develop our technologies or
products, which could slow our growth and decrease our revenues.

Our business strategy relies to a significant extent on strategic
relationships with other companies. These relationships include:

- software license arrangements for our network management system;
- technology licensing agreements;
- development arrangements and agreements with original equipment
manufacturers for advanced products;
- marketing arrangements with system integrators and others; and
- collaboration agreements with suppliers of routers and headend equipment to
ensure the interoperability of our cable modems with these suppliers' products.

The failure to maintain and develop these relationships, or replace them if
any of these relationships are terminated and to renew or extend any license
agreements with a third party may harm our business.



Com21 is exposed to general economic and market
conditions

Our business is subject to the effects of general
economic conditions in the United States and globally, and, in particular,
market conditions in the communications and networking industries.  In recent
quarters, our operating results have been adversely affected by unfavorable
economic conditions and reduced capital spending in the United States, Europe
and Asia.  In particular, sales to North America, and the manufacturing industry
in the United States were materially affected during fiscal 2001.  If the
economic conditions in the United States and globally do not improve, or if we
experience a worsening in the global economic slowdown, we may continue to
experience negative impacts on our business, operating results, and financial
condition.



Com21 is subject to risks of operating in international markets.

For the year ended December 31, 2001, international sales accounted for
77% of revenues.  We intend to enter new international markets, and we expect
that a significant portion of our sales will continue to be in international
markets.  Because we sell primarily through systems integrators, a successful
expansion of our international operations and sales may require us to develop
relationships with new international systems integrators and distributors. If we
are unable to identify, attract or retain suitable international systems
integrators or distributors, we may not be able to successfully expand our
international operations. To increase revenues in international markets, we will
need to continue to establish foreign operations, to hire additional personnel
to run these operations and to maintain good relations with our foreign systems
integrators and distributors. If we are unable to successfully do so, our growth
in international sales will be limited, which would reduce our operating
results.  Additionally, international operations involve a number of risks not
typically present in domestic operations, including:

- changes in regulatory requirements;
- the possibility of difficult accounts receivable collections;
- costs and risks of distributing systems in foreign countries;
- licenses, tariffs and other trade barriers;
- political and economic instability;
- difficulties in staffing and managing foreign operations;
- potentially adverse tax consequences;
- difficulties in obtaining governmental approvals for products;
- the burden of complying with a wide variety of complex foreign laws and
treaties;
- the imposition of legislation and regulations on the import and export of
high technology products; and
- fluctuations in foreign currency especially with the increasing use of Euro
as common currency for members of European union, this could have an impact on
foreign exchange exposure.

The industry in which we compete is subject to consolidation.

There has been a trend toward industry consolidation for several years,
which is expected to continue through 2002. We expect this trend to continue as
companies attempt to strengthen or hold their market positions in an evolving
industry. We believe that industry consolidation may produce increasingly
stronger competitors that are better able to compete. This could lead to more
variability in operating results as we compete to be a vendor solution and could
harm our business, operating results, and financial condition. We believe that
industry consolidation may lead to fewer possible customers. If we are unable to
maintain our current customers or secure additional customers, our business
could be harmed.

Our business operations may be impacted by the California energy crisis.
        Our principal executive offices are located in the Silicon Valley in
Northern California.  In 2001, California  experienced an energy crisis that
resulted in disruptions in power supply and increased utility costs to consumers
and businesses throughout the State. Should the energy crisis continue, Com21,
together with many other Silicon Valley companies, may experience power
interruptions and shortages and be subject to significantly higher costs of
energy. Although we have not experienced any material disruption to our business
to date, if the energy crisis continues and power interruptions or shortages
occur in the future, they may cause a decline in our business.

The
location of Com21's facilities is subject to the risk of earthquakes and other
natural disasters.

Com21's corporate headquarters, including some of its
research and development operations and our in-house manufacturing facilities,
are located in the Silicon Valley area of Northern California, a region known
for seismic activity. A significant natural disaster in the Silicon Valley, such
as an earthquake or power loss, could halt our business, weaken our financial
condition and create disappointing operating results.



ITEM 2. PROPERTIES

Com21 leases approximately



ITEM 3. LEGAL PROCEEDINGS

A dispute has arisen with one of the
Company's significant shareholders regarding the terms of a March 6, 2001
private placement of securities.  To date, this investor has not resorted to
litigation and we believe that this dispute can be resolved amicably, and
without any material impact on the Company's results of operations, liquidity,
and financial condition.  Nevertheless, should litigation ensue, the Company
will be required to expend management time and financial resources to defend the
action.  We believe that any potential claims arising from this dispute are
without merit, and we will vigorously defend them.  However, failure to
successfully defend any such action could negatively affect our results of
operation, liquidity, or financial position.



Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS

None.



Part II

Item 5. MARKET FOR
REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Com21's common stock is traded on the Nasdaq National
Market under the symbol "CMTO".  There are 263 holders of record as of
February 28, 2002.

The following table sets forth the high and low bid quotations of the
Company's common stock for the periods indicated as reported by The Nasdaq
National Market or NASD electronic bulletin board. Prices shown in the table
represent inter-dealer quotations, without adjustment for retail markup,
markdown, or commission, and do not necessarily represent actual transactions.





|2001           | High   | Low   
|-------------- | ------ | ------
|First quarter  | $8.75  | $1.91 
|Second quarter | $3.05  | $1.09 
|Third quarter  | $2.05  | $0.39 
|Fourth quarter | $1.95  | $0.40 
|               |        |       
|2000           | High   | Low   
|First quarter  | $80.00 | $19.25
|Second quarter | $48.00 | $17.50
|Third quarter  | $36.13 | $11.25
|Fourth quarter | $14.00 | $ 3.63



Com21 has never declared or paid any cash
dividends on its common stock, and we do not intend to declare or pay dividends
in the near future.



On March 6, 2001, the Company entered into a definitive agreement to
complete a $7.7 million private equity financing with Fletcher International
Limited (Fletcher).  Pursuant to a subscription agreement, dated February 28,
2001, the Company sold 2,450,000 shares of unregistered common stock at a price
of $3.1227 per share and a warrant to acquire up to an additional 2,450,000
shares of the Company's common stock at $9.0951 per share.  The offer and sale
of these shares were not registered under the Securities Act of 1933, as
amended, at the time of issuance pursuant to the exemption provided by
Regulation D.  These shares were subsequently registered.  The warrant is
exercisable for a period of seven years from the date of issuance.  In
accordance with the agreement terms, Com21 amended the warrant to Fletcher to
provide that an additional 1,055,981 shares of common stock were issuable under
the warrant since the common stock sold in the financing was not registered by
June 5, 2001.  There are 553,731 shares of common stock issuable under the
warrant which have not yet been registered.

Item 6. Consolidated Selected Financial Data

The following selected consolidated financial data
should be read in conjunction with our consolidated financial statements and
related notes to consolidated financial statements and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included in this
Annual Report on Form 10-K. The consolidated statement of operations data for
each of the years in the three-year period ended December 31, 2001, and the
consolidated balance sheet data at December 31, 2000 and 2001, are derived from
consolidated financial statements which are included in this Form 10-K. The
consolidated statement of operations data set forth below for the fiscal years
ended December 31, 1997 and 1998 and the consolidated balance sheet data as of
December 31, 1997, 1998 and 1999 have been derived from our consolidated
financial statements not included in this Form 10-K.  The historical results are
not necessarily indicative of the operating results to be expected in the future
(amounts in thousands, except per share data):

`Years Ended December 31,
                                     -----------------------------------------------------
                                       1997       1998       1999       2000       2001
                                     ---------  ---------  ---------  ---------  ---------
Consolidated Statement of
  Operations Data:
Net revenues....................... $  15,649  $  48,114  $  95,743  $ 193,983  $ 122,761
Cost of net revenues...............     8,372     29,573     60,918    151,319    116,826
                                     ---------  ---------  ---------  ---------  ---------
  Gross profit.....................     7,277     18,541     34,825     42,664      5,935
                                     ---------  ---------  ---------  ---------  ---------
Operating expenses:
  Research and development.........    13,481     19,936     29,821     48,556     24,867
  Sales and marketing..............     5,277     10,273     16,250     29,145     19,490
  General and administrative.......     1,782      3,871      4,120     16,167     18,488
  Restructuring charges............        --         --         --         --     69,320
  In-process research and
     development...................        --         --         --      8,823         --
                                     ---------  ---------  ---------  ---------  ---------
    Total operating expenses.......    20,540     34,080     50,191    102,691    132,165
                                     ---------  ---------  ---------  ---------  ---------
Loss from operations...............   (13,263)   (15,539)   (15,366)   (60,027)  (126,230)
Total other income (expense), net..       229      2,190      5,104      3,993         (3)
                                     ---------  ---------  ---------  ---------  ---------
Loss before income taxes...........   (13,034)   (13,349)   (10,262)   (56,034)  (126,233)
Income taxes.......................        21         14         55         22         19
                                     ---------  ---------  ---------  ---------  ---------
    Net loss....................... $ (13,055) $ (13,363) $ (10,317) $ (56,056) $(126,252)
                                     =========  =========  =========  =========  =========

Net loss per share, basic
  and diluted...................... $   (6.15) $   (1.10) $   (0.49) $   (2.42) $   (4.67)
                                     =========  =========  =========  =========  =========
Shares used in computation,
  basic and diluted................     2,124     12,150     20,932     23,123     27,031
                                     =========  =========  =========  =========  =========


                                                          December 31,
                                     -----------------------------------------------------
                                       1997       1998       1999       2000       2001
                                     ---------  ---------  ---------  ---------  ---------
Consolidated Balance Sheet Data:
Cash, cash equivalents, restricted
  cash and short-term investments.. $  17,980  $  65,744  $ 106,023  $  45,914  $  29,735
Working capital....................    19,523     68,084    112,233     63,483     21,524
Total assets.......................    31,573     82,948    141,166    214,365     84,975
Long-term debt obligations.........     1,508        936        345          9        198
Total stockholders' equity......... $  23,283  $  73,366  $ 120,078  $ 142,638  $  31,206`

Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations

You should read the following discussion in
conjunction with Com21's consolidated financial statements and notes to
consolidated financial statements. The results described below are not
necessarily indicative of the results to be expected in any future period.
Certain statements in this discussion and analysis, including statements
regarding our strategy, financial performance and revenues sources, are forward-
looking statements based on current expectations and entail various risks and
uncertainties that could cause actual results to differ materially from those
expressed in the forward-looking statements, including those described in "Risk
Factors" and elsewhere in this Annual Report on Form 10-K.

Summary of Critical Policies and Estimates



Our discussion and analysis of our financial condition and results of
operations are based on our consolidated financial statements, which have been
prepared in conformity with accounting principles generally accepted in the
United States of America. Our preparation of these consolidated financial
statements requires us to make judgments and estimates that affect the reported
amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. We base our estimates on
historical experience and on various other assumptions that we believe to be
reasonable under the circumstances. Actual results may differ from such
estimates under different assumptions or conditions. The following summarizes
our critical accounting policies and significant estimates used in preparing our
consolidated financial statements:

Investments - Investments are stated at fair value based on quoted market
prices obtained from an independent broker. Investments are classified as
available-for-sale based on the intended use. Gains and losses on sales of
investments are determined on a specific identification basis. We perform
periodic reviews of their investments for impairment. Investments in publicly
held companies are generally considered impaired when a decline in the fair
value of an investment as measured by quoted market prices is less than its
carrying value and such decline is not considered temporary. Investments in
privately held companies are considered impaired when a review of the investee's
operations and other indicators indicate that the carrying value of the
investment is not likely to be recoverable. Such indicators used to evaluate
impairment include, but are not limited to, capital resources, prospects of
receiving additional financing, and prospects for liquidity of the related
securities.  If our estimates of fair value change in the future, we may be
required to record additional impairment charges.

Inventories - Inventories consist of networking equipment, modems and sub-
assemblies stated at the lower of cost (first-in, first-out method) or market.
We write-down our inventory for estimated obsolescence or unmarketable inventory
equal to the difference between the cost of the inventory and the estimated
market value based upon assumptions about future demand and market conditions.
If actual market conditions are less favorable than those projected by
management, additionally inventory write-downs may be required.

As of December 31, 2001, we also have made future commitments
of approximately $12.1 million in purchase commitments to our two primary
contract manufacturers. If our future shipments do not utilize the committed
inventory, these contract manufacturers have the right to charge us for
inventory carrying costs and to bill us for any excess components and finished
goods inventory. We also had a $10.4 million non-cancelable purchase order with
a major chip supplier at December 31, 2001.



In March 2002, Com21 cancelled all outstanding purchase
orders with its two primary contract manufacturers. In connection with the
cancellation, we signed promissory notes for existing payables to the vendors
and for certain materials held by the vendors. These notes total approximately
$22.5 million, bear interest at an average rate ranging from 8% to 10% and
mature in December 2003 and May 2004. The approximate $9.3 million of materials
held by the vendors will likely be of no future use to Com21 as a result of the
new DOCSIS contract manufacturing arrangement we are in the process of entering
into with a new third party in 2002.  Accordingly, the materials with no future
use will be written off during the first quarter of 2002.  Our provision for
excess and obsolete inventory at December 31, 2001 did not contain provisions
for this inventory held by the vendors. In addition to the notes, Com21 granted
warrants to the vendors to purchase a total of 350,000 shares of common stock.
For additional information see Note 17 to the financial statements.



In March 2002, Com21 also signed a letter agreement with our
major chip supplier to cancel the purchase order of $10.4 million in exchange
for an exclusive relationship on certain components over a two-year period with
no specified volume commitment.

Closure of Excess Facilities Restructuring Accrual - In calculating the
charge related to our facilities consolidation, certain estimates were used,
sublease terms upon the negotiation of future subleases, broker commissions,
tenant improvements and operating costs. In developing our estimates, we
obtained information from third party leasing agents to calculate anticipated
third party sublease income and the vacancy period prior to finding a sub
lessee. In calculating the undiscounted value of ongoing lease commitments for
unused facilities, we considered ongoing facilities needs and the sublease rate.
Market conditions will affect our ability to sublease facilities on terms
consistent with our estimates. Management re-evaluates these estimates
quarterly, based on the availability of more recent information and makes
adjustments to the facilities charges accordingly. Our ability to sublease
facilities ahead of schedule or the negotiation of lease terms resulting in
higher or lower sublease income than estimated will affect our accrual and the
related restructuring charge. Difference between estimates of related broker
commissions, tenant improvements and operating costs may increase or decrease
the accrual upon final negotiation.  The restructuring accrual for closure of
excess facilities at December 31, 2001 was $5.1 million, which is comprised of
$9.6 million of future rent obligations offset by $4.5 million of estimated
future sublease income, net of costs.



Overview

We are a leading global supplier of system solutions for the broadband
access market. Our products enable domestic and international cable operators to
provide high-speed, cost-effective Internet access, reduce operating costs, and
maximize revenues opportunities in a variety of subscriber markets - including
residential, corporate telecommuters, and small businesses. We develop,
manufacture and sell headend equipment, subscriber cable modems, and network
management software, all designed to support Asynchronous Transfer Mode, or ATM,
Data Over Cable System Interface Specification, or DOCSIS, and Euro-DOCSIS
industry standards. In the North American market, we primarily sell directly to
cable operators and systems integrators. Internationally, we sell primarily to
systems integrators, who in turn sell to cable operators.

During March 2001, the Company entered into a definitive agreement to
complete a $7.7 million private equity financing.  Pursuant to a subscription
agreement, dated February 28, 2001, the Company sold 2,450,000 shares of
unregistered common stock at a price of $3.1227 per share and a warrant to
acquire up to an additional 3,505,981 shares of the Company's common stock at
$9.0951 per share.

During December 2001, Com21 entered into a new revolving line of credit
agreement, which allows Com21 to borrow up to the lesser of $10.0 million or 75%
of Com21's eligible domestic and foreign accounts receivable.  At December 31,
2001, $6.0 million was outstanding under the line and there was no availability
for additional borrowings.

During 2001, Com21 announced a number of programs to reduce operating
expenses. These programs were designed to prioritize our initiatives around
high-growth areas of the business, focus on profit contribution, and reduce
expenses and capital spending.  These restructuring programs included workforce
reductions, reorganization and closure of certain business functions, and
consolidation of facilities.  As a result of the restructuring efforts, we
recorded restructuring charges of $69.3 million for the year ended December 31,
2001.

Workforce Reduction - The restructuring programs resulted in the
reduction of approximately 143 employees across all business functions and
operating units, including employees of the wireless business unit, Maryland
development center and corporate headquarters.

Closure of the Wireless Business Unit - In April 2001, we ceased
development in our wireless business unit to focus our efforts on projects with
shorter development cycles.  All wireless employees were terminated and the
facility located in Long Island, New York was closed in May 2001.

Closure of Maryland Development Center (formerly known as BitCom) - As
Com21 consolidated its facilities and focused on reducing expenses, the
development of ATM products was transferred from the Maryland development center
to the European development centre in April 2001.  The Maryland development
center was then closed and all employees terminated in May 2001.

Sale of the Voice Systems Division (formerly known
as GADline)

Closure of  Excess Facilities - In the second quarter 2001, Com21
exited the wireless business unit facility in Long Island, New York; the
Maryland development center in Germantown, Maryland; and a building in Milpitas,
California.

The programs noted above reduced recurring operating expenditures during 2001
while focused our development efforts on our core ATM and DOCSIS products,
including our recently announced DOXcontrollerTM XB System.

Results of
Operations - Years Ended December 31, 1999, 2000, and 2001

Net Revenues. Net revenues in 2001 decreased by 36.7% to $122.8
million as compared to $194.0 million in 2000.  Unit sales of all our cable
modem products decreased 14.8% from 2000, and unit sales of our headend products
decreased 26.1% from 2000.  The decrease in revenues is due to the economic
slowdown, which has affected and continues to affect our customers' purchases
and the rebalancing of their inventory levels. The decrease in revenues is also
due to a shift in product mix to include higher unit volumes of the lower priced
DOCSIS modems coupled with a decline in the average selling price of DOCSIS
cable modems from the third quarter of 2000 due to heavy price competition.



Cable modem sales accounted for 83.9% of net revenues in 2001, as compared to
85.4% of net revenues in 2000. The average sales price of all cable modems
declined during 2001.  Our prices decreased due to planned price reductions to
meet pricing pressures from competitors and due to the increased acceptance of
our lower priced DOCSIS products.  We anticipate that the average sales price of
modems will continue to decline during 2002 due to competitive price pressures
and the number of suppliers competing for market share.

Total revenues increased by 102.6% to $194.0 million in 2000 as compared to
$95.7 million in 1999. Our revenues growth was principally due to the growth in
cable modem revenues over the prior year. Cable modem sales accounted for 85.4%
of net revenues in 2000 as compared to 78.1% of net revenues in 1999.  The
average sales price of our cable modems declined during 2000, as expected.  Our
prices decreased primarily due to planned price reductions to meet pricing
pressures from competitors and due to the increased acceptance of our lower
priced DOCSIS products. We anticipate continued pricing pressure on our cable
modems and headend equipment, and declines in the average selling price of our
ATM and DOCSIS cable modems and headend equipment.

Gross Margins. Gross margins decreased to 4.8% in 2001 from
22.0% in 2000. The decrease in margins is primarily due to the following
factors:

During 2001 we experienced continued pressure on margins
due to the following:

- The sale of more DOCSIS modems, which have lower gross margins than our
proprietary ATM modems.  DOCSIS modem shipments increased from 49.8% of total
Com21 modems shipped in 2000 to 55.3% of total Com21 modems shipped in 2001.
The adoption of the DOCSIS-based standard has caused considerable price pressure
due to the number of competitors in the marketplace.
- Carrying charges resulting from excess inventory at our contract
manufacturers.
- Write off of our obsolete component and finished goods inventory.
- Sales of high cost OEM DOCSIS modems and first generation DOCSIS modems at
clearance prices resulting in negative gross margins.
- Amortization of intangible assets acquired core and existing technologies as
a result of the GADline acquisition.

During 2002 we anticipate continued pressure on margins due to the
following:

- In March 2002, Com21 cancelled all outstanding purchase orders with its two
primary contract manufacturers.  In connection with the cancellation, we signed
promissory notes for existing payables to the vendors and for certain materials
held by the vendors.  These notes total approximately $22.5 million, bear
interest at an average rate ranging from 8% to 10% and mature in December 2003
and May 2004.  The approximate $9.3 million of materials held by the vendors
will likely be of no future use to Com21 as a result of the new DOCSIS contract
manufacturing arrangement we are in the process of entering into with a new
third party in March 2002.  Accordingly, the materials with no future use will
be written off during the first quarter of 2002.  Our provision for excess and
obsolete inventory at December 31, 2001 did not contain provisions for this
inventory held by the vendors.  In addition to the notes, Com21 granted warrants
to the vendors to purchase 350,000 shares of common stock.  For additional
information see Note 17 to the financial statements.
- Increased sales of our DOCSIS modems.  If the mix of shipments shifts to the
lower margin DOCSIS modems from ATM modems, then our total margin percentage
will decline.

- Continuing price pressure due to competitive pricing offered by our
competitors to move inventory and increase market share.

We are taking steps to counter the impact of this price erosion by continuing
modem cost reduction programs.

As noted above, cable modem sales accounted for 83.9% of revenues in 2001 and
85.4% in 2000.  Additionally, revenues from our DOCSIS modems have become a more
significant portion of our total cable modem revenues.  Cable modems have lower
margins than our headend products and our DOCSIS cable modems currently have
lower margins than our proprietary ATM modems.

Gross margin decreased to 22.0% in 2000 from 36.4% in 1999.  The decrease in
margins was due primarily to the rapid acceptance of the DOCSIS cable modems
especially in North America.  DOCSIS cable modem shipments increased from 29,000
units or 10.0% of total Com21 modem shipments in 1999 to 393,000 units or 49.8%
of total Com21 modems shipped in 2000.  The adoption of the DOCSIS-based
standard has caused considerable price pressure due to the number of competitors
in the market place.

Research and Development. Research and development expenses
consist primarily of personnel costs, as well as prototype material expenditures
and equipment and supplies required to develop and to enhance our products.
Research and development expenses decreased 48.8% to $24.9 million in 2001 from
$48.6 million in 2000.  The decrease in research and development expenses is due
to our efforts to reduce expenses.  These efforts involved workforce reductions,
elimination of certain development programs, and closure and consolidation of
research and development facilities, as we refocus our development efforts on
key technology initiatives.  In 2002, we anticipate that research and
development expenses will be less than the 2001 level by $8.0 million to $11.0
million.	 The decline is likely to result from the 2001 personnel reductions
as well as the continuing effort to reduce expenses and future work force
reductions.

Research and development expenses increased 62.8% to $48.6 million in
2000 from $29.8 million in 1999. The increase in 2000 was primarily due to
higher consulting expenses, increases in personnel related expenses in our Cork,
Ireland development center, and a $2.5 million impairment charge related to a
development project, and the addition of engineering headcount from our
acquisitions of GADline and BitCom.  In addition, a charge of $1.3 million was
incurred in 2000 due to the amortization of intangibles associated with these
acquisitions.

Sales and Marketing. Sales and marketing expenses consist
primarily of salaries and commissions for sales personnel, marketing and support
personnel and costs related to trade shows, consulting and travel.  Sales and
marketing expenses decreased 33.1% to $19.5 million in 2001 from $29.1 million
in 2000. This decline is due to our efforts to reduce costs which involved
workforce reductions and a decrease in spending on marketing programs.  In 2002,
we anticipate that sales and marketing expenses will be less than the 2001 level
by $8.0 million to $10.0 million. The decline is likely to result from the 2001
personnel reductions as well as the continuing effort to reduce expenses and
future work force reductions.

Sales and marketing expenses increased 79.4% to $29.1 million in 2000 from
$16.3 million in 1999.  The increase in 2000 was primarily due to higher costs
associated with increased personnel in the sales, marketing, and service
organizations.  We increased sales personnel internationally strengthening our
sales presence in Asia and Latin America.  We also increased our customer
service personnel to support the growth of our installed base of equipment and
help manage our growing number of customers.  Marketing headcount and expenses
increased due to the acquisition of GADline in Israel, additional marketing and
advertising investments related to the introduction of new products, and general
corporate branding projects.



General and Administrative. General and administrative expenses
primarily consist of salary and benefits for administrative officers and support
personnel, travel expenses, legal, accounting and consulting fees. General and
administrative expenses increased 14.4% to $18.5 million in 2001 from $16.2
million in 2000.  This increase is related to higher personnel related costs,
increased rent, inclusion of expenses of our GADline acquisition, professional
fees, and insurance costs.  In 2002, we anticipate that sales and marketing
expenses will be less than the 2001 level by $7.0 million to $9.0 million. The
decline is likely to result from the 2001 personnel reductions as well as the
continuing effort to reduce expenses and future work force reductions.

General and administrative expenses increased 292.4% to $16.2 million in 2000
from $4.1 million in 1999.  The increase in general and administrative expenses
was primarily related to the addition of new personnel in Milpitas, the addition
of administration headcount from our acquisition of GADline, and investments in
infrastructure.  General and administrative expenses included acquisition
related charges of $5.0 million related to the amortization of goodwill,
intangibles and deferred stock compensation.

Restructuring Charges.  Restructuring charges of $69.3 millions
resulted from the measures Com21 introduced during 2001 to reduce operating
expenses.  This included reductions in workforce, reorganization and closure of
certain business functions, and consolidation of excess facilities.

In-Process Research and Development. Com21 recorded a one-time
charge associated with the GADline acquisition of $8.8 million in the third
quarter of 2000 for purchased in-process technology related to a development
project that had not reached technological feasibility, had no alternative
future use, and for which successful development was uncertain. Management
believes that the in-process research and development had no alternative future
use.

Total Other Income (Expense), Net. Total other income
(expense), net decreased to a $3,000 expense in 2001 from $4.0 million in income
in 2000. This decrease was attributable to lower interest income on a declining
cash and investments balance during 2001 coupled with $867,000 in interest
expenses charged by the line of credit and term loan, and $769,000 of recognized
unrealized loss on a current investment.

Total other income (expense), net decreased to $4.0 million in 2000 from $5.1
million in 1999. This decrease was attributable to lower interest income on a
declining cash and investments balance during 2000 coupled with $628,000 in
foreign exchange losses.

Income Taxes.  Income tax expense for all years consisted
solely of state franchise taxes.  We have not recorded any income tax benefit as
we have not generated taxable income and as we have provided a full valuation
allowance against our deferred tax assets based on our evaluation of the
likelihood of realization of future tax benefits.

Liquidity and Capital Resources

At December 31, 2001, we had cash, cash equivalents and
short-term investments of $29.7 million of which $10.0 million is restricted for
use under a stand-by letter of credit.  The stand-by letter of credit was issued
to our primary contract manufacturer, Celestica, to provide financial support
for our manufacturing plans during 2000.

Net cash used in operating activities was $18.0 million in 2001.  Cash used
in operating activities primarily resulted from outflows due to: a net loss of
$126.3 million which included restructuring charges of $65.7 million; a decrease
in accounts payable of $10.4 million; a decrease in accrued compensation and
related benefits of $2.0 million; and a decrease in other current liabilities of
$2.9 million.  The cash outflows were offset by a decrease in total accounts
receivable of $27.4 million; a decrease in inventory of $13.5 million; and a
decrease in prepaid and other assets of  $2.7 million.

Net cash provided by investing activities was $8.6 million in 2001.  Cash
provided by investing activities was primarily attributable to net proceeds from
the sales and maturities of investments of $9.7 million offset by purchases of
property and equipment of $1.1 million.

Net cash provided by financing activities was $3.8 million.  Cash provided by
financing activities consisted primarily of net proceeds from the issuance of
debt obligations of $6.0 million and net proceeds from the equity financing of
$6.9 million offset by repayment on the line of credit of $10.5 million.

At December 31,2000, we had cash, cash equivalents and short-term investments
of $45.9 million compared to $106.0 million at December 31, 1999, a decrease of
$60.1 million.  The decrease is primarily a result of net cash used in operating
activities of $55.3 million and cash used for investing in purchases of property
and equipment of $11.9 million partially offset by cash provided by financing
activities.

During 1999, 2000 and 2001 we generated net losses of approximately $10.3
million, $56.1 million and $126.3 million, respectively.  We may also incur net
losses during future periods.  Due to a decline in our sales in the fourth
quarter 2000, we introduced measures to reduce operating expenses that included
reductions in our workforce in December, 2000, February, 2001, April, 2001 and
October 2001.  Management continues to monitor market conditions to assess the
need to take further action.  Any subsequent actions may result in additional
work force reductions, restructuring charges, reductions in inventory carrying
values, discontinuation of product lines, and provisions for impairment of long-
lived assets which could materially adversely affect our results of operations
and stock price.  We are currently evaluating several alternatives to improve
liquidity and working capital as required.  These alternatives include the sale
of additional stock, additional lines of credit, and the divestiture of certain
business assets.  There can be no assurance, however, that any additional
financing will be available to us on acceptable terms, or at all, when
required.

At December 31, 2001, we had outstanding borrowing of $6.0 million under our
line of credit, which expires November 30, 2002.  The borrowing was paid off in
February 2002.  At February 28, 2002, we have $3.2 million available for
borrowing needs, and we are required to maintain a minimum tangible net worth of
$24.0 million at each quarterly reporting period.  The following table depicts
our contractual obligations as of December 31, 2001:

`Contractual Obligations
                                      -----------------------------------
                                                 Less Than   Greater Than
                                        Total      1 Year       1 Year
                                      ---------  ----------  ------------
                                                 (in thousands)

Line of Credit...................... $   6,000  $    6,000  $         --
Inventory Purchase Commitments (*)..    22,406      22,406            --
Capital Lease Obligations...........       376         178           198
Operating Lease Obligations.........    14,847       3,888        10,959
                                      ---------  ----------  ------------
Total Contractual Cash Obligations.. $  43,629  $   32,472  $     11,157
                                      =========  ==========  ============`

(*) See Note 9 to the consolidated financial statements

We also have available $10.0 million in a letter of credit facility to be
utilized for contract manufacturer security.  Any letter of credit commitments
requires 100% cash collateral by Com21.

Com21 subleases certain of its office to third parties. If
the subleasees fail to make the payments, Com21 would be liable for $893,000
over the next four years.



We believe that our cash, cash equivalents, short-term investments and
available borrowings under our credit facilities at December 31, 2001 coupled
with the continuing cost reduction programs, will be sufficient to meet our
working capital requirements through December 31, 2002.

New
Accounting Standards



On January 1, 2001, the Company adopted SFAS No. 133,Accounting for
Derivative Instruments and Hedging Activities. SFAS No. 133, as amended,
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. Under SFAS No. 133, certain contracts that were not formerly
considered derivatives may now meet the definition of a derivative. The adoption
of SFAS No. 133 did not have an impact on the Company's consolidated financial
position, results of operations or cash flows.

In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No.
141,Business Combinations and SFAS No. 142,Goodwill and Other
Intangible Assets. SFAS No. 141 requires that all business combinations
initiated after June 30, 2001 be accounted for under the purchase method and
addresses the initial recognition and measurement of goodwill and other
intangible assets acquired in a business combination. SFAS No. 142 addresses the
initial recognition and measurement of intangible assets acquired outside of a
business combination and the accounting for goodwill and other intangible assets
subsequent to their acquisition. SFAS No. 142 provides that intangible assets
with finite useful lives be amortized and that goodwill and intangible assets
with indefinite lives will not be amortized, but will be tested at least
annually for impairment. The Company will adopt SFAS No. 142 for its fiscal year
beginning January 1, 2002. Upon adoption of SFAS No. 142, the Company ceases the
amortization of intangible assets with indefinite lives (goodwill) with a net
carrying value of $3.6 million at December 31, 2001.  The Company recognized
annual amortization of $1.5 million for the year ended December 31, 2001. The
Company has evaluated goodwill under SFAS No. 142 and has determined that the
adoption of this statement will not result in an impairment.

In August 2001, the FASB issued SFAS No 144,Accounting for Impairment or
Disposal of Long-Lived Assets. SFAS No. 144 supersedes SFAS No. 121,Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of, and addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. This statement is effective for the
Company on January 1, 2002. Management believes the adoption of this statement
will not have an impact on the consolidated financial position, results of
operations or cash flows of the Company.

Item 7A.
Quantitative and Qualitative Disclosures About Market Risk



Interest Rate Sensitivity. Com21 maintains an investment portfolio of
government and corporate debt obligations. These available-for-sale securities
are subject to interest rate risk and will fall in value if market interest
rates increase. If market interest rates were to increase immediately and
uniformly by 10 percent from levels at December 31, 2000, the fair value of the
portfolio would decline by an immaterial amount. We generally have the ability
to hold our fixed income investments until maturity and therefore we would not
expect our operating results or cash flows to be affected to any significant
degree by the effect of a sudden change in market interest rates on our
securities portfolio.  We had no such investments at December 31, 2001.

Com21 is also subject to interest rate risk as of December 31, 2001, related
to variable rate debt obligations totaling $6,000,000.  The variable rates debt
obligations are linked to the prime rate and the LIBOR rate and any increases in
such market interest rates will increase the repayment obligation.  If market
rates were to increase immediately and uniformly by 10 percent from levels at
December 31, 2001, the fair value of the repayment obligation would increase by
$65,000.

Com21 has fixed rate debt obligations of $291,000 and $376,000 at December
31, 2000 and 2001, respectively, that have no interest rate risk.  The fixed
rates on such obligations ranged from 7% to 12% in 2000 and ranged from 8% to
11% in 2001, and matures on various dates through 2004.

Market Price Risk.  Com21 is also exposed to market price risk through
investments in marketable equity securities held as available-for-sale
investments.  These investments are in publicly traded companies as well as
private companies in the volatile high-technology industry sector.  A 50%
adverse change in the equity price would result in an approximate $2,714,000 and
$1,019,000 decrease in the fair value of the investment in the marketable equity
security as of December 31, 2000 and 2001, respectively.



Foreign Currency Risk.  To date, our international sales have been dominated
solely in U.S. dollars, and accordingly, we have not been exposed to foreign
currency exchange rate fluctuations related to sales transactions.  The
functional currency of our subsidiary in Ireland is the U.S. dollar; however,
the local accounts are maintained in Irish pounds subjecting us to foreign
currency exchange rate fluctuations associated with remeasurement to U.S.
dollars.  A hypothetical change of 10% in the foreign currency exchange rates
would not have a material impact on our consolidated financial positions or
results of operation.



Item 8. Consolidated Financial Statements





|Index To Consolidated Financial
Statements                                                                                                                                                                                                       
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                 
|Independent Auditors'
Report..........................................................................
.................................                                                                                                         
|Consolidated Balance Sheets as of December 31,
2000 and 2001..................................................                                                                                                                                   
|Consolidated Statements of Operations and
Comprehensive Loss for the Years Ended December 31, 1999, 2000 and
2001............................................................................
.....................                              
|Consolidated Statements of Stockholders' Equity
for the Years Ended December 31, 1999, 2000 and
2001............................................................................
................................................................
|Consolidated Statements of Cash Flows for the
Years Ended December 31, 1999, 2000 and
2001............................................................................
.......................................................................   
|Notes to Consolidated Financial
Statements......................................................................
...............                                                                                                                 
|                                                                                                                                                                                                                                                 

---



INDEPENDENT AUDITORS' REPORT



To the Board of Directors and Stockholders of

Com21, Inc.:



We have audited the accompanying consolidated balance sheets of Com21, Inc.
and its subsidiaries (the Company) as of December 31, 2000 and 2001, and the
related consolidated statements of operations and comprehensive loss,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 2001. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Com21, Inc. and its subsidiaries as
of December 31, 2000 and 2001, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 2001 in
conformity with accounting principles generally accepted in the United States of
America.



Deloitte & Touche LLP

San Jose, California

January 16, 2002

(March 29, 2002 as to Note 17)

---

COM21, INC.
                          CONSOLIDATED BALANCE SHEETS
               (In thousands, except share and par value amounts)

`December 31,
                                                               --------------------
                                                                 2000       2001
                                                               ---------  ---------
                           ASSETS
Current Assets:
  Cash and cash equivalents.................................. $  25,237  $  19,673
  Restricted cash............................................    11,250     10,025
  Short-term investments.....................................     9,427         37
  Accounts receivable:
     Trade (net of allowances of $1,100 and $2,383 in 2000
      and 2001, respectively)................................    39,997     11,945
     Related parties.........................................       612         63
     Other...................................................    10,159     10,837
  Inventories................................................    33,960     18,335
  Prepaid expenses and other.................................     4,188        970
                                                               ---------  ---------
          Total current assets...............................   134,830     71,885
Long-term investments........................................     2,000      2,000
Property and equipment -- net................................    16,690      7,365
Intangibles assets -- net....................................    60,057      3,570
Other assets.................................................       788        155
                                                               ---------  ---------
          Total assets....................................... $ 214,365  $  84,975
                                                               =========  =========
            LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
  Accounts payable........................................... $  48,543  $  36,818
  Accrued compensation and related benefits..................     4,447      1,635
  Accrued restructuring charges..............................        --      2,211
  Other current liabilities..................................     7,045      3,519
  Current capital lease and debt obligations.................    11,312      6,178
                                                               ---------  ---------
          Total current liabilities..........................    71,347     50,361
Deferred rent................................................       371        239
Accrued restructuring charges................................        --      2,971
Capital lease and debt obligations...........................         9        198
                                                               ---------  ---------
          Total liabilities..................................    71,727     53,769
                                                               ---------  ---------
Commitments and contingencies (Note 9)
Stockholders' Equity:
  Preferred stock, $0.001 par value; 5,000,000 shares
     authorized and undesignated; none issued and
     outstanding.............................................        --         --
  Common stock, $0.001 par value; shares authorized:
     2000, 40,000,000; 2001, 160,000,000; shares issued and
     outstanding: 2000, 24,679,217; 2001, 28,106,848.........        25         28
  Additional paid-in capital.................................   263,803    272,502
  Deferred stock compensation................................    (5,839)        --
  Accumulated deficit........................................  (115,072)  (241,324)
  Accumulated other comprehensive loss.......................      (279)        --
                                                               ---------  ---------
          Total stockholders' equity.........................   142,638     31,206
                                                               ---------  ---------
          Total liabilities and stockholders' equity......... $ 214,365  $  84,975
                                                               =========  =========`

See Notes to Consolidated Financial Statements.

---

COM21, INC.
          CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
                   (In thousands, except per share amounts)

`Years Ended December 31,
                                                             ----------------------------------
                                                                1999        2000        2001
                                                             ----------  ----------  ----------

Net revenues ($19,402, $2,122 and $42, in 1999, 2000
     and 2001, respectively, from related parties)......... $   95,743  $  193,983  $  122,761

Cost of revenues ($11,767, $1,588 and $58 in
  1999, 2000 and 2001, respectively, for related parties)..     60,918     151,319     116,826
                                                             ----------  ----------  ----------
Gross profit...............................................     34,825      42,664       5,935
                                                             ----------  ----------  ----------
Operating expenses:
  Research and development.................................     29,821      48,556      24,867
  Sales and marketing......................................     16,250      29,145      19,490
  General and administrative...............................      4,120      16,167      18,488
  Restructuring charges....................................         --          --      69,320
  In-process research and development......................         --       8,823          --
                                                             ----------  ----------  ----------
          Total operating expenses.........................     50,191     102,691     132,165
                                                             ----------  ----------  ----------
Loss from operations.......................................    (15,366)    (60,027)   (126,230)
                                                             ----------  ----------  ----------
Other income (expense):
  Interest income..........................................      5,261       4,825       1,765
  Interest expense.........................................       (164)        (74)       (867)
  Other income (expense) -- net............................          7        (758)       (901)
                                                             ----------  ----------  ----------
          Total other income (expense), net................      5,104       3,993          (3)
                                                             ----------  ----------  ----------
Loss before income taxes...................................    (10,262)    (56,034)   (126,233)
Incomes taxes..............................................         55          22          19
                                                             ----------  ----------  ----------
Net loss...................................................    (10,317)    (56,056)   (126,252)
Other comprehensive income (loss), net of tax:
  Unrealized gain (loss) on available-for-sale
     investments...........................................        167        (443)        279
                                                             ----------  ----------  ----------
Comprehensive loss......................................... $  (10,150) $  (56,499) $ (125,973)
                                                             ==========  ==========  ==========

Net loss per share, basic and diluted...................... $    (0.49) $    (2.42) $    (4.67)
                                                             ==========  ==========  ==========

Shares used in computation, basic and diluted..............     20,932      23,123      27,031
                                                             ==========  ==========  ==========`

See Notes to Consolidated Financial Statements.

---

COM21, INC.
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                      (In thousands, except share amounts)

`Accumulated
                                                                                                Other
                                                                       Deferred                Compre-      Total
                                         Common Stock      Additional   Stock-                 hensive     Stock-
                                      -------------------   Paid-In    Compensa-  Accumulated   Income    holders'
                                        Shares     Amount   Capital      tion      Deficit      (Loss)     Equity
                                      -----------  ------  ----------  ---------  ----------  ----------  ---------
Balances, January 1, 1999............ 18,685,560  $   19  $  122,131  $     (82) $  (48,699) $       (3) $  73,366
Exercise of stock options............    356,793      --       1,365         --          --          --      1,365
Exercise of common stock warrants....     32,844      --          54         --          --          --         54
Issuance of common stock (net of
  issuance costs of $3,950)..........  2,480,000       3      54,327         --          --          --     54,330
Sale of stock under employee
  stock purchase plan................     97,908      --       1,025         --          --          --      1,025
Repurchase of shares.................    (33,933)     --         (31)        --          --          --        (31)
Deferred stock compensation..........         --      --         193       (193)         --          --         --
Issuance of nonemployee
  stock options for services.........         --      --          74         --          --          --         74
Amortization of deferred
  stock compensation.................         --      --          --         45          --          --         45
Unrealized gain on
  available-for-sale investments.....         --      --          --         --          --         167        167
Net loss.............................         --      --          --         --     (10,317)         --    (10,317)
                                      -----------  ------  ----------  ---------  ----------  ----------  ---------
Balances, December 31, 1999.......... 21,619,172      22     179,138       (230)    (59,016)        164    120,078
Exercise of stock options............    637,472       1       3,489         --          --          --      3,490
Sale of stock under employee
  stock purchase plan................     92,556      --         946         --          --          --        946
Repurchase of shares.................   (196,733)     --        (272)        --          --          --       (272)
Value of stock options
  issued in acquisitions.............         --      --       4,683         --          --          --      4,683
Issuance of common stock
  in acquisitions....................  2,281,750       2      67,340         --          --          --     67,342
Issuance of restricted stock.........    245,000      --       6,049     (6,049)         --          --         --
Deferred stock compensation..........         --      --       1,372     (1,372)         --          --         --
Issuance of stock options
  and warrants to
  nonemployees for services..........         --      --       1,058         --          --          --      1,058
Amortization of deferred
  stock compensation.................         --      --          --      1,812          --          --      1,812
Unrealized loss on
  available-for-sale investments.....         --      --          --         --          --        (443)      (443)
Net loss.............................         --      --          --         --     (56,056)         --    (56,056)
                                      -----------  ------  ----------  ---------  ----------  ----------  ---------
Balances, December 31, 2000.......... 24,679,217      25     263,803     (5,839)   (115,072)       (279)   142,638
Exercise of stock options............    387,347      --         229         --          --          --        229
Sale of stock under employee
  stock purchase plan................    295,998      --         386         --          --          --        386
Repurchase of shares.................       (440)     --          (1)        --          --          --         (1)
Issuance of common stock
  for acquisition milestones.........    244,726      --       1,333         --          --          --      1,333
Issuance of common stock in private
  equity financing (net of issuance
  costs of $780).....................  2,450,000       3       4,348         --          --          --      4,351
Issuance of warrants in private
  equity financing...................         --      --       2,513         --          --          --      2,513
Net reversal of deferred stock
  compensation from forfeitures......         --      --        (293)       293          --          --         --
Issuance of common stock
  to employees for services..........     50,000      --         127         --          --          --        127
Issuance of stock options to
  non-employees for services.........         --      --          57         --          --          --         57
Amortization of deferred
  stock compensation.................         --      --          --      5,546          --          --      5,546
Unrealized gain on
  available-for-sale investments.....         --      --          --         --          --         279        279
Net loss.............................         --      --          --         --    (126,252)         --   (126,252)
                                      -----------  ------  ----------  ---------  ----------  ----------  ---------
Balances, December 31, 2001.......... 28,106,848  $   28  $  272,502  $      --  $ (241,324) $       --  $  31,206
                                      ===========  ======  ==========  =========  ==========  ==========  =========`

See Notes to Consolidated Financial Statements.

---

COM21, INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)

`Years Ended December 31,
                                                                              -------------------------------
                                                                                1999       2000       2001
                                                                              ---------  ---------  ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss.................................................................. $ (10,317) $ (56,056) $(126,252)
  Adjustments to reconcile net loss to net cash used in operating activities:
    Stock-based compensation................................................       119      2,870      1,625
    Depreciation and amortization...........................................     3,784     11,904     11,330
    Non-cash restructuring charges..........................................        --         --     60,561
    In-process research and development.....................................        --      8,823         --
    Deferred rent...........................................................        20         67       (118)
    Gain on sales and maturities of investments.............................    (1,408)      (536)      (830)
     Loss on  investments...................................................        --         --        769
    Write-off of impaired asset.............................................        --      2,518      1,456
    Changes in operating assets and liabilities:
      Accounts receivable -- trade..........................................   (11,233)   (24,902)    27,495
      Accounts receivable -- related parties................................    (3,140)     4,172        549
      Accounts receivable -- other..........................................      (888)    (9,271)      (678)
      Inventories...........................................................       764    (24,599)    13,451
      Prepaid expenses and other............................................    (1,450)    (1,519)     2,165
      Other assets..........................................................       (41)    (2,165)       572
      Accounts payable......................................................     8,837     33,812    (10,406)
      Accrued compensation and related benefits.............................     1,993        715     (2,007)
      Accrued restructuring charges.........................................        --         --      5,182
      Other current liabilities.............................................     1,720     (1,129)    (2,903)
                                                                              ---------  ---------  ---------
        Net cash used in operating activities...............................   (11,240)   (55,296)   (18,039)
                                                                              ---------  ---------  ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of property and equipment.......................................    (5,735)   (11,911)    (1,087)
  Purchases of investments..................................................  (160,996)   (55,794)        --
  Proceeds from sales and maturities of investments.........................   131,765    133,875      9,730
  Purchase of companies, net of cash acquired...............................        --       (783)        --
                                                                              ---------  ---------  ---------
        Net cash provided by (used in) investing activities.................   (34,966)    65,387      8,643
                                                                              ---------  ---------  ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from private equity financing, net...............................        --         --      6,864
  Proceeds from issuance of common stock....................................    56,774      4,436        615
  Repurchases of common stock...............................................       (31)      (272)        (1)
  Proceeds from issuance of debt obligations................................        --     10,000      6,000
  Repayments under debt obligations.........................................        --         --    (10,480)
  Repayments under capital lease obligations................................      (937)      (592)      (391)
  Repayments on debt obligations............................................      (236)    (3,675)        --
  Restricted cash (increase) decrease.......................................        --    (11,250)     1,225
                                                                              ---------  ---------  ---------
        Net cash provided by (used in) financing activities.................    55,570     (1,353)     3,832
                                                                              ---------  ---------  ---------
Net change in cash and cash equivalents.....................................     9,364      8,738     (5,564)
Cash and cash equivalents, beginning of year................................     7,135     16,499     25,237
                                                                              ---------  ---------  ---------
Cash and cash equivalents, end of year...................................... $  16,499  $  25,237  $  19,673
                                                                              =========  =========  =========
NONCASH INVESTING AND FINANCING ACTIVITIES:
  Property acquired under capital lease..................................... $      --  $      --  $     476
                                                                              =========  =========  =========

  Deferred stock compensation............................................... $     193  $   7,421  $    (293)
                                                                              =========  =========  =========

  Unrealized gain (loss) on available-for-sale investments.................. $     276  $    (552) $    (279)
                                                                              =========  =========  =========

  Common stock issued to acquire companies.................................. $      --  $  67,342  $      --
                                                                              =========  =========  =========

  Value of stock options issued in acquisitions............................. $      --  $   4,683  $      --
                                                                              =========  =========  =========

  Issuance of common stock for acquisition milestones....................... $      --  $      --  $   1,333
                                                                              =========  =========  =========
SUPPLEMENTAL CASH FLOW INFORMATION:
  Cash paid for income taxes................................................ $      55  $      22  $      19
                                                                              =========  =========  =========
  Cash paid for interest.................................................... $     155  $     190  $     867
                                                                              =========  =========  =========`

See Notes to Consolidated Financial Statements.



Com21, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1999, 2000 and 2001

1. Business and Significant Accounting Policies

Business - Com21, Inc. (the Company or Com21) was incorporated in
Delaware in June 1992. The Company is a global supplier of broadband access
solutions.  The Company develops and sells headend equipment, subscriber cable
modems and network management software to support the Asynchronous Transfer Mode
(ATM) and Data Over Cable System Interface Specification (DOCSIS).  Such
products enable domestic and international cable operators to provide high-
speed, cost-effective Internet access to a variety of subscriber markets
including corporate telecommuters, small businesses and private homes.
Basis of Presentation - The consolidated financial statements include the
Company and its wholly-owned subsidiaries.  All significant intercompany
accounts and transactions have been eliminated in consolidation.
Financial Statement Estimates - The preparation of financial statements
in conformity with accounting principles generally accepted in the United States
of America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Such management estimates
include an allowance for doubtful accounts receivable, reserves for sales
returns, provisions for inventory to reflect the net realizable value, estimates
of fair value for investments in publicly and privately held companies,
estimates of remaining obligations on leased facilities, valuation allowances
against deferred income taxes and accruals for product warranty and other
liabilities.  Actual results could differ from those estimates.
Cash Equivalents - The Company considers all highly liquid debt
instruments with maturities at the date of purchase of three months or less to
be cash equivalents.

Restricted Cash - As of December 31, 2000 and 2001, cash held in a
certificate of deposit is restricted as cash collateral for letters of credit
used as security on purchases from a third-party outsource manufacturer and a
vendor.

Investments - Investments are stated at fair value based on quoted
market prices obtained from an independent broker. Investments are classified as
available-for-sale based on the Company's intended use. The difference between
amortized cost and fair value representing unrealized holding gains or losses,
net of deferred taxes, are recorded as a component of stockholders' equity as
accumulated other comprehensive income (loss). Gains and losses on sales of
investments are determined on a specific identification basis.

The Company performs periodic reviews of their investments
for impairment.  Investments in publicly held companies are generally considered
impaired when a decline in the fair value of an investment as measured by quoted
market prices is less than its carrying value and such decline is not considered
temporary.  Investments in privately held companies are considered impaired when
a review of the investee's operations and other indicators indicate that the
carrying value of the investment is not likely to be recoverable.  Such
indicators used to evaluate impairment include, but are not limited to, capital
resources, prospects of receiving additional financing, and prospects for
liquidity of the related securities.  In 2001, the Company recorded a non-cash,
other-than-temporary write down of $769,000 related to the impairment of one of
its investments in a publicly traded company.

Other Accounts Receivable - Other accounts receivable consists of
receivables due from third-party outsource manufacturers for the sale of
component inventories used by the manufacturers in the production of the
Company's product.
Inventories - Inventories consist of networking equipment, modems
and sub-assemblies stated at the lower of cost (first-in, first-out method) or
market.

Property and Equipment - Property and equipment are stated at cost.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets, generally three to seven years. Amortization of
leasehold improvements and assets recorded under capital lease agreements are
computed using the straight-line method over the shorter of the lease term or
the estimated useful lives of the related assets.

Intangible Assets - Intangibles assets, including goodwill, are
amortized on a straight-line basis over useful lives of three to five years.
Long-Lived Assets - The Company evaluates long-lived tangible and
intangible assets for impairment using a discounted cash flows method whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable.

In June 2000, the Company entered into a 43-month development agreement with
a third party for a cash payment of $2,250,000 which was recorded as an asset at
the time the payment was made.  In December 2000, in accordance with Statement
of Financial Accounting Standards (SFAS) No. 121, Accounting for the
Impairment of Long-Lived Assets To Be Disposed Of, the Company recorded an
impairment charge of $2,518,000 as research and development expense in the
accompanying consolidated statement of operations and comprehensive loss for
2000.  The amount consisted of the remaining net book value of the initial
payment as well as noncancelable commitments to purchase materials for the
development project.  Such assets were determined to be impaired based on a
comparison of the carrying amount of such assets to future undiscounted cash
flows expected to be generated by the asset.  As the development project was
canceled with undeveloped product, there were no future cash flows.

Income Taxes - The Company accounts for income taxes under an asset
and liability approach. Deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes, and
operating loss and tax credit carryforwards measured by applying currently
enacted tax laws. Valuation allowances are provided when necessary to reduce net
deferred tax assets to an amount that is more likely than not to be
realized.

Certain Significant Risks and Uncertainties - The Company participates
in a dynamic high technology industry and believes that changes in any of the
following areas could have a material adverse effect on the Company's future
consolidated financial position, results of operations or cash flows: advances
and trends in new technologies and industry standards; competitive pressures in
the form of new products or price reductions on current products; changes in
product mix; changes in the overall demand for products offered by the Company;
changes in third-party manufacturers; changes in key suppliers; changes in
certain strategic relationships or customer relationships; litigation or claims
against the Company based on intellectual property, patent, product, regulatory
or other factors; risks associated with changes in domestic and international
economic and/or political conditions or regulations; availability of necessary
components; the Company's ability to obtain additional capital to support
operations; and the Company's ability to attract and retain employees necessary
to support its growth.

Since inception, the Company has incurred net losses and has an
accumulated deficit of $241,324,000 at December 31, 2001.  If profitability is
not achieved in the near term, it could have a material adverse effect on the
Company's consolidated financial position, results of operations or cash flows.
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of cash and cash equivalents,
investments and accounts receivable. Cash and cash equivalents are held
primarily with two financial institutions and consist primarily of cash in bank
accounts. The Company's investment policy is to invest in instruments with
minimum credit ratings of A-1/P-1 (Short-Term) or AA (Long-Term) and in
strategic equity investments requiring Board of Directors approval. The Company
sells its products primarily to cable operators in North America and to systems
integrators in Europe, Asia and South/Central America, and generally does not
require its customers to provide collateral or other security to support
accounts receivable. To reduce credit risk, management performs ongoing credit
evaluations of its customers' financial condition. The Company maintains
allowances for estimated bad debt losses. The recorded carrying amount of cash
and cash equivalents, investments, accounts receivable, accounts payable, and
debt obligations approximates fair value.

The Company's customer base is highly concentrated.  A relatively small
number of customers have accounted for a significant portion of the Company's
net revenues and the Company expects that this trend will continue for the
foreseeable future.  For the years ended December 31, 1999, 2000 and 2001, the
top five customers comprised 64%, 47% and 54%, respectively, of the Company's
net revenues.

Revenue Recognition - The Company recognizes revenue when persuasive
evidence of an arrangement exists, delivery has occurred or services have been
rendered, the price is fixed and determinable, and collectibility is reasonably
assured.  The Company generates revenue from the sale of products and related
services to its customers.

Product revenue is generated from the sale of broadband access equipment
embedded with software that is essential to its functionality, and accordingly,
the Company accounts for these transactions in accordance with SEC Staff
Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial
Statements, and Statement of Position (SOP) 97-2, Software Revenue
Recognition.  Product revenue is recognized when all SAB No. 101 and SOP 97-
2 criteria are met which generally occurs at the time of product shipment.
Estimated sales returns and warranty costs, based on historical experience by
product, are recorded at the time product revenue is recognized.

Service revenue is generated from the sale of training and postcontract
customer support and maintenance agreements (PCS) associated with the broadband
access equipment.  The Company also accounts for these transactions in
accordance with SAB No. 101 and SOP 97-2, and as such, recognizes revenue when
all of the related revenue recognition criteria are met which is: (i) at the
time the training service is delivered; and (ii) ratably over the term of the
PCS agreement.  Service revenue has been less than 10% of net revenues for all
periods presented in the accompanying consolidated statements of operations and
comprehensive loss.

In multiple element arrangements where there are undelivered elements at
the time of product shipment, the relative fair value of the delivered product,
based on vendor specific objective evidence (VSOE), is recognized at the time of
shipment and the relative fair value of the undelivered elements, based on VSOE,
is deferred and recognized as the elements are delivered.  VSOE of products and
services is based on the price when the elements are sold separately, or, when
not sold separately, the price established by management having the relevant
authority.  Additionally, where discounts are offered in a multiple element
arrangement, a proportionate amount of the discount is applied to each element
based on their fair values.

Software Development Costs - Development costs incurred in the
research and development of new software products and enhancements to existing
software products are expensed as incurred until technological feasibility has
been established, at which time certain development costs required to attain
general production release would be capitalized. To date, the Company's software
development has essentially been completed concurrent with the establishment of
technological feasibility, and accordingly, no costs have been capitalized.

Stock-Based Compensation - The Company accounts for stock-based awards
to employees using the intrinsic value method in accordance with Accounting
Principles Board Opinion (APB) No. 25, Accounting for Stock Issued to
Employees.

Foreign Currency - The functional currency of the Company's
foreign subsidiaries is the U.S. dollar.  Accordingly, all monetary assets and
liabilities are translated at the current exchange rate as of the balance sheet
date, nonmonetary assets and liabilities are translated at historical rates and
revenues and expenses are translated at average exchange rates in effect during
the period.  Transaction gains and losses, which are included in other income
(expense) - net in the accompanying consolidated statements of operations and
comprehensive loss, were not significant in 1999  and 2001, and was a loss of
$628,000 in 2000.
Comprehensive Loss - In accordance with SFAS No. 130, Reporting
Comprehensive Income, the Company reports by major components and as a
single total, the change in net assets during the period from nonowner sources
in a consolidated statement of comprehensive loss which has been included with
the consolidated statements of operations.  Accumulated other comprehensive loss
in the accompanying consolidated balance sheets consists entirely of unrealized
gains and losses on available-for-sale investments for all periods
presented.

Net Loss Per Share - Basic earnings per share, or EPS, excludes
dilution and is computed by dividing net income attributable to common
stockholders by the weighted average of common shares outstanding for the
period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock (restricted stock, common
stock options and warrants using the treasury stock method) were exercised or
converted into common stock. Potential common shares in the diluted EPS
computation are excluded in net loss periods as their effect would be
antidilutive.

New Accounting Standards - On January 1, 2001, the Company adopted
SFAS No. 133,Accounting for Derivative Instruments and Hedging
Activities. SFAS No. 133, as amended, establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. Under SFAS No. 133,
certain contracts that were not formerly considered derivatives may now meet the
definition of a derivative. The adoption of SFAS No. 133 did not have an impact
on the Company's consolidated financial position, results of operations, or cash
flows.

In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No.
141,Business Combinations, and SFAS No. 142,Goodwill and Other
Intangible Assets. SFAS No. 141 requires that all business combinations
initiated after June 30, 2001 be accounted for under the purchase method and
addresses the initial recognition and measurement of goodwill and other
intangible assets acquired in a business combination. SFAS No. 142 addresses the
initial recognition and measurement of intangible assets acquired outside of a
business combination and the accounting for goodwill and other intangible assets
subsequent to their acquisition. SFAS No. 142 provides that intangible assets
with finite useful lives be amortized and that goodwill and intangible assets
with indefinite lives will not be amortized, but will be tested at least
annually for impairment. The Company adopted SFAS No. 142 for its fiscal year
beginning January 1, 2002. Upon adoption of SFAS No. 142, the Company ceased the
amortization of intangible assets with indefinite lives (goodwill) with a net
carrying value of $3,570,000 at December 31, 2001.  The Company recognized
amortization of $1,530,000 for the year ended December 31, 2001. The Company has
evaluated goodwill under SFAS No. 142 and has determined the adoption of this
statement will not result in an impairment.

In August 2001, the FASB issued SFAS No 144,Accounting for Impairment or
Disposal of Long-Lived Assets. SFAS No. 144 supersedes SFAS No. 121,Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of, and addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. This statement is effective for the
Company on January 1, 2002. Management believes the adoption of this statement
will not have an impact on the consolidated financial position, results of
operations or cash flows of the Company.

2. Investments

The amortized cost and the fair value of available-for-sale securities
are presented in the tables below:

December 31, 2000
                                             ----------------------------------
                                                         Unrealized
                                                         Holding
                                             Amortized   Gains          Fair
                                                Cost     (Losses)      Value
                                             ----------  ----------  ----------
                                                     (in thousands)
U.S. Government obligations................ $    6,000  $       --  $    6,000
Corporate equity securities................      5,706        (279)      5,427
                                             ----------  ----------  ----------
          Total............................ $   11,706  $     (279) $   11,427
                                             ==========  ==========  ==========
Reported as:
  Short-term  investments.......................................... $    9,427
  Long-term  investments...........................................      2,000
                                                                     ----------
          Total.................................................... $   11,427
                                                                     ==========


                                                     December 31, 2001
                                             ----------------------------------
                                                         Unrealized
                                                         Holding
                                             Amortized   Gains          Fair
                                                Cost     (Losses)      Value
                                             ----------  ----------  ----------
                                                     (in thousands)
Corporate equity securities................ $    2,037  $       --  $    2,037
                                             ==========  ==========  ==========
Reported as:
  Short-term  investments.......................................... $       37
  Long-term  investments...........................................      2,000
                                                                     ----------
          Total.................................................... $    2,037
                                                                     ==========




3. Inventories

Inventories consist of:

December 31,
                                             ----------------------
                                                2000        2001
                                             ----------  ----------
                                                (in thousands)
Raw materials and sub-assemblies........... $   10,363  $    5,719
Work-in-process ...........................      5,477         909
Finished goods ............................     18,120      11,707
                                             ----------  ----------
                                            $   33,960  $   18,335
                                             ==========  ==========




4. Property and Equipment

Property and equipment consists of:

December 31,
                                                         ----------------------
                                                            2000        2001
                                                         ----------  ----------
                                                            (in thousands)
Equipment under capital lease.......................... $    3,650  $      476
Computer equipment and software........................     13,808      12,445
Production equipment...................................     11,713       7,768
Leasehold improvements.................................      2,219       1,021
Furniture and fixtures.................................      1,584       1,167
                                                         ----------  ----------
                                                            32,974      22,877
Accumulated depreciation and amortization..............    (16,284)    (15,512)
                                                         ----------  ----------
          Total........................................ $   16,690  $    7,365
                                                         ==========  ==========





Accumulated amortization on equipment under capital lease as of December 31,
2000 and 2001 was $3,495,000 and $161,000, respectively.

5.	Acquisitions

In July 2000, the Company acquired GADline, Ltd., or GADline, a developer
and manufacturer of fully managed networking solutions that deliver high-speed
data and telephony services over a hybrid fiber coaxial infrastructure, and
BitCom, Inc. (BitCom), an engineering consulting and development company
specializing in wired and wireless telecommunications, satellite and networking
engineering.  Both transactions were accounted for as purchases.

To acquire GADline, the Company issued 2,281,750 shares of Com21 common
stock with a fair value of $67,342,000 to the GADline shareholders and converted
all outstanding GADline options into options to purchase 168,193 shares of Com21
common stock with a fair value of $3,205,000.  In addition, the Company assumed
the operating assets and liabilities of GADline and incurred acquisition
expenses of $3,060,000.  In connection with the acquisition, the Company
recorded $61,112,000 of intangible assets which were amortized over useful lives
of three to five years.  The Company also recorded a one-time charge of
$8,823,000 in 2000 for purchased in-process technology.

To acquire BitCom, the Company paid $4,000,000 in cash to the BitCom
shareholders, converted all outstanding BitCom options into options to purchase
100,000 shares of Com21 common stock with a fair value of $1,478,000, and paid
acquisition expenses of $200,000.  In connection with the acquisition, the
Company recorded $5,636,000 of intangible assets which are being amortized over
a five-year useful life.

Pro Forma Financial Results

The operating results of GADline and BitCom have been included in the
accompanying consolidated statement of operations and comprehensive loss since
their acquisition date.  The following unaudited pro forma consolidated results
of operations have been prepared assuming the acquisitions occurred at the
beginning of 1999.  The following pro forma financial information is not
necessarily indicative of the actual results that would have occurred had the
acquisitions been completed at the beginning of 1999, nor is it indicative of
future operating results:

Years Ended December 31
                                                     1999        2000
                                                  ----------  ----------
                                                   (in thousands, except
                                                     per share data)
Total revenues.................................. $  100,141  $  196,824
Net loss........................................ $  (30,664) $  (59,384)
Net loss per share, basic and diluted........... $    (1.32) $    (2.44)
Shares used in computation, basic and diluted...     23,214      24,346



The pro forma results of operations give effect to certain adjustments,
including amortization of purchased intangibles, goodwill, and deferred stock
compensation associated with the acquisition.  The $8,823,000 charge, in 2000,
for purchased in-process research and development has been excluded from the pro
forma results, as it is a material non-recurring charge.

6.  Intangible Assets

Intangible assets consist of:

December 31,
                                             ----------------------
                                                2000        2001
                                             ----------  ----------
                                                (in thousands)
Core and current technology................ $   15,152  $       --
Goodwill...................................     48,146       5,100
Other intangibles..........................      3,450          --
                                             ----------  ----------
                                                66,748       5,100
Accumulated amortization...................     (6,691)     (1,530)
                                             ----------  ----------
          Total............................ $   60,057  $    3,570
                                             ==========  ==========




7.  Debt Obligations

Debt obligations consist of:

December 31,
                                                  ----------------------
                                                     2000        2001
                                                  ----------  ----------
                                                      (in thousands)
Line of credit, expired December 2001........... $   10,000  $       --
Israeli lines of credit, expired March 2001.....      1,030          --
Line of credit, expires November 2002...........         --       6,000
                                                  ----------  ----------
Total........................................... $   11,030  $    6,000
                                                  ==========  ==========

Line of Credit, Expired December 2001 - In December 2000, the
Company entered into a revolving line of credit agreement, for working capital
purposes, with a commercial bank.  Under the terms of the initial agreement, the
Company could borrow up to the lesser of $20,000,000 or 65% of the Company's
eligible accounts receivable.  Borrowings under the line were secured by
substantially all of the assets of the Company and bore annual interest at the
bank's prime rate plus 0.25%.  Subsequent amendments to the line of credit
agreement in 2001 reduced the maximum borrowings to the lesser of $7,500,000 or
55% of the Company's eligible accounts receivable and increased the annual
interest rate to the bank's prime rate plus 2%.  As of December 31, 2001, all
interest and principal on the line of credit had been repaid by the Company and
no future borrowings are available under the line of credit.

Israeli Lines of Credit, Expired March 2001 - As of December 31,
2000, the Company's Israeli subsidiary had outstanding borrowings, denominated
in Israeli New Shekels, under lines of credit with various financial
institutions.  The borrowings were secured by substantially all the assets of
the Company's Israeli subsidiary and bore interest at rates ranging from 10% to
11% per annum.  The Company repaid all interest and principal outstanding on
such lines of credit in March 2001, and no future borrowings are available under
the lines of credit.

Line of Credit, Expires November 2002 - In December 2001, Com21
entered into a borrowing agreement with another commercial bank which consists
of a revolving line of credit, for working capital purposes, and a $10,000,000
letter of credit facility which can be utilized as security for a contract
manufacturer.  The line of credit agreement allows Com21 to borrow up to the
lesser of $10,000,000 or 75% of Com21's eligible domestic and foreign accounts
receivable.  Borrowings under the line are secured by substantially all the
assets of Com21 and bear annual interest at the bank's prime rate (4.75% at
December 31, 2001) plus 2.0%, which is payable monthly. The line expires on
November 30, 2002, at which time all outstanding borrowings and unpaid interest
are due.  The letter of credit requires cash collateral by the Company in an
amount equal to the outstanding letter of credit commitments.  The borrowing
arrangement requires Com21 to comply with a financial covenant to maintain
minimum tangible effective net worth of $24,000,000.  At December 31, 2001,
Com21 had no availability for additional borrowings or draws under the line and
$10,000,000 was available for letters of credit.  The Company was in compliance
with the financial covenant at December 31, 2001.

8.  Restructuring Charges

During 2001, Com21 announced a number of programs to reduce operating
expenses.  These programs were designed to prioritize Com21's initiatives around
high-growth areas of the business, focus on profit contribution and reduce
expenses and capital spending.  These restructuring programs included workforce
reductions, reorganization and closure of certain business functions and
consolidation of excess facilities.  As a result of the restructuring efforts,
Com21 recorded restructuring charges totaling $69,320,000 for the year ended
December 31, 2001.

A summary of the accrued restructuring charges for the year ended December
31, 2001 is as follows:

2001
                                              Restruc-               Accrual at
                                               turing                December 31
                                             Provision    Utilized      2001
                                             ----------  ----------  ----------
                                                         (in thousands)
Workforce reduction........................ $    1,212  $   (1,142) $       70
Closure of Maryland development center.....      4,704      (4,704)         --
Spin-off of voice systems division.........     55,647     (55,647)         --
Exiting excess facilities..................      7,757      (2,645)      5,112
                                             ----------  ----------  ----------
     Total................................. $   69,320  $  (64,138) $    5,182
                                             ==========  ==========  ==========
Workforce Reduction - The restructuring programs resulted in the
reduction of approximately 143 employees across all business functions and
operating units, including employees of the wireless business unit, Maryland
development center and corporate headquarters.  The remaining $70,000 accrual at
December 31, 2001 related to severance and fringe benefits to be disbursed in
2002.



Closure of the Wireless Business Unit



Closure of the Maryland Development Center (formerly known as BitCom)
- As Com21 consolidated its facilities and focused on reducing expenses, the
development of ATM products was transferred from the Maryland development center
to the facility in Cork, Ireland in April 2001.  The Maryland development center
was then closed and all employees terminated in May 2001.This closure resulted in a restructuring
charge of $4,704,000 resulting primarily from the acceleration of deferred stock
compensation related to stock awards given to employees upon termination.

Sale of the Voice Systems Division (formerly known as GADline) - In
June 2001, Com21 sold the voice systems division to the division's management
team and recorded a restructuring charge of $55,647,000.  Of the amount,
$50,753,000 related to the impairment of goodwill and purchased intangible
assets, measured as the amount by which the carrying amount exceeded the present
value of the estimated future cash flows for goodwill and purchased intangible
assets.  The $50,753,000 consists primarily of all the goodwill and technology
capitalized in the GADline acquisition.

Through a review of Com21's existing product portfolio and future product
roadmap, management determined at the time of the sale, the technologies
purchased from GADline were not and would not be utilized in Com21 products
subsequent to the sale.  The technology behind GADline products included a cable
modem designed by GADline, and an end-to-end network system providing voice and
data services over cable television lines.  As Com21 will not integrate these
technologies into its product portfolio, and the rights to these technologies
and these products were sold to the purchasers of the voice systems division,
the intangible asset of $12,374,000 associated with the purchased technology was
written off.

In connection with the sale, the Company also wrote off
$2,351,000 of acquired intangibles associated with acquired workforce-in-place,
tradename and customer base, as Com21 expects no future cash flows associated
with these intangible assets.

The goodwill associated with the voice systems division related primarily to
voice technology still in development at the time of the GADline acquisition.
Com21 does not plan to continue to fund this technology, to develop alternative
technology or to integrate any existing GADline voice technology in future
products.  As there would be no future benefit to Com21 from the GADline
business, the remaining net book value of $36,028,000 of goodwill was written
off at the time of the sale.

The remaining $4,894,000 of the charge associated with the sale of the voice
systems division includes a cash payment to the buyers of $1,570,000, which was
paid at the time of separation and disposal of net intangible assets.  A
convertible note received from the buyers was not valued as the estimated
collection was zero.

Closure of Excess Facilities - In connection with the restructure
actions, the Company exited the wireless business unit facility in Long Island,
New York; the Maryland development center in Germantown, Maryland; and a
building in Milpitas, California in the second quarter of 2001. Com21 initially
recorded a charge of $6,255,000 related primarily to the net rental expense on
non-cancelable leases and the write-off of fixed assets and leasehold
improvements associated with the exit activity.  As a result of changing real
estate market conditions in California, Com21 revised the assumptions related to
the timeframe to sublease the Milpitas building, resulting in an additional
provision of $1,502,000 in the second half of 2001. We expect to pay the
remaining accrued lease obligations of  $5,112,000, net of estimated sublease
income, over the next four years.

9.  Commitments and Contingencies

The Company leases its facilities and certain equipment under
noncancelable capital and operating leases. The Company leases its primary
facilities under a noncancelable operating lease which expires in August 2004.

In 2000, the Company's Irish subsidiary entered into two operating lease
agreements for research and development facilities with terms of 20 years and 25
years.  Under both leases, rental payments are subject to review and
renegotiation every five years.  The subsidiary can also terminate the leases,
subject to penalty provisions, at the end of the tenth year on the 20-year lease
and at the end of the fifth or tenth years on the 25-year lease.

Future minimum lease payments under capital and operating leases and the
present value of minimum lease payments under capital leases as of December 31,
2001 are as follows:

`Capital    Operating
Year Ending December 31,                                   Leases      Leases
-------------------------------------------              ----------  ----------
                                                            (in thousands)
2002................................................... $      205  $    3,888
2003...................................................        174       4,040
2004...................................................         36       3,920
2005...................................................         --       2,075
2006...................................................         --         173
Thereafter.............................................         --         751
                                                         ----------  ----------
Future minimum lease payments..........................        415  $   14,847
Amounts representing interest (9%).....................        (39)  ==========
                                                         ----------
Present value of future minimum lease payments......... $      376
                                                         ==========`

The Company subleases certain of its office to third parties.
If the subleasees fail to make the payments, the Company would be liable for
$893,000 over the next four years.



Rent expense incurred under the operating leases was $1,438,000, $2,924,000
and $3,014,000 for the years ended December 31, 1999, 2000 and 2001,
respectively. Rent expense under the facilities leases is recognized on a
straight-line basis over the term of the leases. The difference between the
amounts paid and the amounts expensed is classified as deferred rent in the
accompanying consolidated balance sheets.

Com21's contract manufacturers have obtained or have on order substantial
amounts of inventory to meet the Company's revenue forecasts.  If future
shipments do not utilize the committed inventory, these contract manufacturers
have the right to bill the Company for any excess component and finished goods
inventory.  As of December 31, 2001, Com21's two largest contract manufacturers
had approximately $12,052,000 of on hand inventory and purchase commitments for
materials and components used to manufacture Com21's products.  In addition, as
of December 31, 2001, Com21 has a $10,354,000 non-cancelable purchase order with
a major chip supplier.  See Note 17 - Subsequent Events for additional
information concerning the excess materials at Com21's contract manufacturers
and Com21's non-cancelable purchase order with a major chip supplier.

The Company is subject to various legal proceedings and claims that arise in
the normal course of business.  The Company does not believe that any current
litigation or claims will have a material adverse effect on the Company's
business, operating results or financial condition.

10.  Stockholders' Equity

Public Offering

In February 1999, the Company completed a follow on offering of 2,480,000
shares which generated net proceeds to the Company of $54,330,000.

Common Stock Warrants

Prior to the Company's initial public offering in May 1998, the Company
issued warrants to purchase shares of various series of convertible preferred
stock. Upon completion of the Company's initial public offering, the outstanding
warrants to purchase 46,286 shares of convertible preferred stock were
automatically converted into warrants to purchase 46,286 shares of common stock
at the same exercise prices. All such warrants were exercised in full during
1999 under a net issuance method resulting in the issuance of 32,844 shares of
common stock.

During 2000, as consideration for services provided under two product
development agreements, the Company issued warrants to purchase a total of
75,000 shares of common stock at a weighted average exercise price of $20.40 per
share.  The warrants are immediately exercisable until expiration (25,000
warrants in May 2001 and 50,000 warrants in January 2002).  The fair value of
these warrants in the amount of $832,000 was recognized as research and
development expense in the accompanying consolidated statement of operations and
comprehensive loss for 2000.  The Company determined the fair value of the
awards using the Black-Scholes option pricing model over the contractual term of
the warrants with the following weighted average assumptions: stock volatility,
75%; risk free interest rate, 6.5%; and no dividends during the expected term.
None of the warrants have been exercised and 50,000 remain outstanding at
December 31, 2001.

Common Stock

At December 31, 2000, the Company had the right to repurchase 978 shares of
common stock outstanding. The number of shares subject to repurchase is reduced
over a two to four year vesting period.

In 2001, Com21 issued an additional 194,726 shares of common stock to former
GADline shareholders upon completion of certain predefined development
milestones included in the share purchase agreement.  The common stock was
valued on the measurement date at $1,070,000 and recorded as additional
goodwill.  All remaining unearned milestone shares expired during the quarter
ended March 31, 2001.

In 2001, Com21 issued an additional 50,000 shares of common stock to former
BitCom employees upon completion of certain product development milestones
defined in the purchase agreement.  These shares were valued on the measurement
date at $263,000 and recorded as stock-based compensation. All remaining
unearned milestone shares expired during the quarter ended March 31, 2001.

In 2001, Com21 completed an equity financing with Fletcher International
Limited (Fletcher).  Pursuant to a subscription agreement, dated February 28,
2001, Fletcher agreed to purchase 2,450,000 shares of Com21's common stock at a
price of $3.1227 per share and a warrant to acquire up to an additional
3,505,981 shares of Com21's common stock. The warrants are exercisable for a
period of seven years from the date of issuance at the exercise price of $9.0951
per share. The proceeds from the financing were allocated to the common stock
and the warrants based on their relative fair values.  Com21 determined the fair
value of the warrants using the Black-Scholes option pricing model over the
contractual term of the warrants with the following weighted average
assumptions: stock volatility, 75%; risk free interest rate, 5.4%; and no
dividends during the expected term.  Net proceeds from the private equity
financing were $6,864,000.

In 2001, Com21 issued 50,000 shares of common stock to an employee in lieu of
a bonus.  These shares were valued on the measurement date at $127,000 and
recorded as stock-based compensation.

Net Loss Per Share

The following is a reconciliation of the numerators and denominators of the
basic and diluted net loss per share computations:

`Years Ended December 31,
                                                             ----------------------------------
                                                                1999        2000        2001
                                                             ----------  ----------  ----------
                                                       (in thousands, except per share amounts)

Net Loss (Numerator):
     Net loss, basic and diluted........................... $  (10,317) $  (56,056) $ (126,252)
                                                             ----------  ----------  ----------
Shares (Denominator):
     Weighted average common shares outstanding............     21,001      23,256      27,232
     Weighted average common shares outstanding subject to
        repurchase or forfeiture...........................        (69)       (133)       (201)
                                                             ----------  ----------  ----------
     Shares used in computation, basic and diluted.........     20,932      23,123      27,031
                                                             ----------  ----------  ----------
Net loss per share, basic and diluted...................... $    (0.49) $    (2.42) $    (4.67)
                                                             ==========  ==========  ==========`

During 1999, 2000 and 2001, the Company had securities outstanding which
could potentially dilute basic EPS in the future, but were excluded in the
computation of diluted EPS in such periods, as their effect would have been
antidilutive due to the net loss reported in such periods. Such outstanding
securities consist of the following at December 31, 2001: warrants to purchase
3,555,980 shares of common stock; and options to purchase 6,521,324 shares of
common stock.

Equity Plans

Under the 1998 Stock Incentive Plan (the 1998 Stock Plan), the Company is
authorized to issue shares of common stock to employees, directors and
consultants under five separate programs: Discretionary Option, Stock Issuance,
Salary Investment Option Grant, Automatic Option Grant and Director Fee Option
Grant. The number of shares reserved for issuance under the 1998 Stock Plan
automatically increases at the beginning of each calendar year by an amount
equal to 5% of the total number of shares of common stock outstanding at the end
of the preceding year (1,405,342 shares on January 2, 2002). The Discretionary
Option Program of the 1998 Stock Plan provides for the grant of incentive stock
options and nonstatutory stock options to employees and consultants at prices
not less than the fair market value at the date of grant.  These options
generally vest and become exercisable 25% after the first 12 months from the
date of grant and then ratably over a 36-month period. Options granted under the
1998 Stock Plan generally expire ten years from the date of grant.

Under the 2000 Stock Option Plan  (the 2000 Stock Plan), the Company is
authorized to issue up to 3,000,000 shares of common stock to employees,
directors and consultants as discretionary option awards.  The 2000 Stock Plan
only provides for common stock issuance under a Discretionary Option Program
which provides for awards under terms that are substantially comparable to stock
option awards under the 1998 Stock Plan.



Stock option activity under the equity plans was as follows:

`Weighted
                                               Shares                   Average
                                              Available   Number of    Exercise
                                              for Grant     Shares       Price
                                             ----------- ------------  ---------
Balances, January 1, 1999 (464,507 shares
   vested at a weighted average price of
   $1.42 per share).........................     23,524    2,369,341  $    7.42
Reserved....................................  1,934,278           --         --
Granted (weighted average fair value of
   $11.24 per share)........................ (2,544,450)   2,544,450      18.36
Canceled....................................    653,869     (653,869)     13.59
Repurchased.................................     33,933           --         --
Exercised...................................         --     (356,793)      3.83
                                             ----------- ------------
Balances, December 31, 1999 (1,124,453
   shares vested at a weighted average
   price of $5.03 per share)................    101,154    3,903,129      13.85
Reserved....................................  2,580,959           --         --
Granted (weighted average fair value of
   $12.54 per share)........................ (4,556,623)   4,556,623      19.75
Canceled....................................  2,119,892   (2,119,892)     19.10
Repurchased.................................    196,733           --         --
Exercised...................................         --     (637,472)      5.47
                                             ----------- ------------
Balances, December 31, 2000 (1,147,269
   shares vested at a weighted average
   price of $10.90 per share)...............    442,115    5,702,388      17.55
Reserved....................................  2,734,417           --         --
Granted (weighted average fair value of
   $1.20 per share)......................... (5,373,638)   5,373,638       1.92
Canceled....................................  4,167,355   (4,167,355)     13.67
Repurchased.................................        440           --         --
Exercised...................................         --     (387,347)      0.59
Direct issuance of common stock from plan...    (50,000)          --         --
                                             ----------- ------------
Balances, December 31, 2001.................  1,920,689    6,521,324  $    8.17
                                             =========== ============`

Additional information regarding options outstanding at December 31, 2001 is
as follows:

`Options Outstanding            Vested Options
                     --------------------------------- ---------------------
                                 Weighted
                                 Average
                                Remaining    Weighted              Weighted
      Range of         Number   Contractual  Average                Average
      Exercise          Out-       Life      Exercise    Number    Exercise
       Prices         standing   (years)      Price      Vested      Price
-------------------- ---------- ----------  ---------- ----------  ---------
 $ 0.43 -- $0.98       203,418        8.8  $     0.86     41,418  $    0.80
 $ 1.00  -- $2.84    3,282,014        9.6        1.06    365,000       1.19
 $ 3.30 -- $7.31       831,562        8.8        5.43    139,331       6.65
 $ 8.00 -- $18.00    1,065,752        8.2       13.10    548,017      12.91
 $18.38 -- $38.94    1,026,678        8.1       24.47    642,448      25.25
 $47.63 -- $73.50      111,900        8.2       53.93     70,508      54.54
                     ----------                        ----------
 $ 0.43 -- $73.50    6,521,324        9.0  $     8.17  1,806,722  $   15.79
                     ==========                        ==========`

Under the 1998 Stock Purchase Plan (the 1998 Purchase Plan), eligible
employees may elect to have salary withholdings of up to 10% of their base
compensation to purchase shares of common stock at a price equal to 85% of the
lower of the market value of the stock at the beginning or end of defined
purchase periods (April and October of each year). Shares issued under the 1998
Purchase Plan were 97,908, 92,556 and 295,998 in 1999, 2000 and 2001 at weighted
average prices of $10.47, $10.22 and $1.30 per share, respectively. The weighted
average fair value of the shares issued under the 1998 Purchase Plan in 1999,
2000 and 2001 was $12.26, $11.14 and $0.47 per share, respectively.

At December 31, 2001, the Company had 823,135 shares of its common stock
reserved for future issuance under the 1998 Purchase Plan.

Deferred Stock Compensation

As discussed in Note 1, the Company accounts for its stock-based awards to
employees using the intrinsic value method in accordance with APB No. 25.
Accordingly, in 1997 the Company recorded deferred compensation expense equal to
the difference between the grant price and deemed fair value of the Company's
common stock for options granted prior to December 31, 1997. Such deferred
compensation expense aggregated $136,000 and is being amortized to expense over
the four-year vesting period of the options.

During 1999 and 2000, the Company issued nonstatutory options to nonemployees
for the purchase of 21,000 and 72,500 shares of common stock at weighted average
exercise prices of $23.79 and $36.41 per share, respectively.  Such options
originally vested over a period of one to five years, and in accordance with
SFAS No. 123, and its related interpretations, the Company accounted for these
awards under the fair value method and as variable awards.  Accordingly, the
Company recorded deferred compensation expense at the grant date equal to the
fair value of the options (using the Black-Scholes option pricing model) on the
grant date and adjusted the deferred compensation expense at the end of each
period.  The related amortization of deferred compensation expense, which was
recognized over the vesting period, was also adjusted accordingly. At December
31, 1999, such deferred compensation expense aggregated $193,000.

In December 2000, the Company accelerated all remaining unvested awards
to nonemployees, thereby creating a measurement date. On the measurement date,
the Company recorded the fair value associated with the remaining deferred stock
compensation as compensation expense in the accompanying consolidated statement
of operations and comprehensive loss for 2000.  The aggregate compensation
expense related to these awards in 2000 was $645,000.  Com21 determined the
value of the awards using the Black-Scholes option pricing model with the
following weighted average assumptions: expected life, contractual term; stock
volatility, 75%; risk free interest rate, 6.5%; and no dividends during the
expected term.

During 1999, 2000 and 2001, the Company issued nonstatutory options to
nonemployees for the purchase of 47,500, 28,000 and 135,000 shares of common
stock at weighted average exercise prices of $24.82, $25.69 and $1.03 per share,
respectively.  Such options were issued for services provided and were
immediately vested and exercisable.  Accordingly, the Company recorded the
$74,000, $226,000 and $57,000 fair value of such awards (using the Black-Scholes
option pricing model) as an expense in the accompanying consolidated statements
of operations and comprehensive loss.

In accordance with FASB Interpretation No. 44, Accounting for Certain
Transactions involving Stock Compensation, the Company recorded the intrinsic
value, measured as the difference between the grant price and fair market value
on the acquisition consummation date, of unvested options assumed in the GADline
acquisition as deferred compensation expense.  Such deferred stock compensation,
which aggregated $727,000, was recorded as a separate component of stockholders'
equity and was amortized over the vesting term of the related options.  In
connection with the sale of the voice systems division (formerly GADline) in
2001, the unvested options were forfeited by the employees, and accordingly, the
Company reversed the remaining unamortized deferred compensation expense
associated with these awards.

In connection with the BitCom acquisition, the Company granted 245,000 shares
of restricted common stock to former BitCom employees who executed employment
agreements with Com21.  The shares are released from restriction, in
proportionate amounts, at each of the three anniversary dates of the
acquisition.  The Company recorded deferred compensation expense of $6,049,000,
as a separate component of stockholders' equity, for the fair value of the
common shares on the issuance date and amortized the amount over the three-year
vesting period.  In connection with the closure of the Maryland development
center (formerly BitCom) in 2001, the Company released the restricted shares to
the terminated employees as part of their severance arrangements.  Accordingly,
the Company recognized the remaining unamortized amount as a part of
restructuring charges in the accompanying consolidated statements of operations
and comprehensive loss for 2001.

Additional Stock Plan Information

Since the Company continues to account for its stock-based awards to
employees using the intrinsic value method in accordance with APB No. 25, SFAS
No. 123 requires the disclosure of pro forma net income (loss) and EPS had the
Company adopted the fair value method. Under SFAS No. 123, the fair value of
stock-based awards to employees is calculated through the use of option pricing
models, even though such models were developed to estimate the fair value of
freely tradable, fully transferable options without vesting restrictions, which
significantly differ from the Company's stock option awards. These models also
require subjective assumptions, including future stock price volatility and
expected time to exercise, which greatly affect the calculated values. The
Company's fair value calculations on stock-based awards to employees were made
using the Black-Scholes option pricing model with the following weighted average
assumptions: expected life, 4.5 years from the date of grant; stock volatility,
75%; risk-free interest rate, 6.0% in 1999 and 2000, and 4.5% in 2001; and no
dividends during the expected term. The Company's calculations are based on a
single option award valuation approach, and forfeitures are recognized as they
occur. The Company's fair value calculations on stock-based awards under the
1998 Purchase Plan were also made using the Black-Scholes option pricing model
with the following weighted average assumptions: expected life, six months;
stock volatility, 75%; risk free interest rate, 5.5% in 1999, 5.4% in 2000 and
4.5% in 2001; and no dividends during the expected term. If the computed fair
values of the employee awards had been amortized to expense over the vesting
period of the awards, pro forma net loss would have been $(16,158,000) ($(0.77)
per share, basic and diluted) in 1999, $(73,045,000) ($(3.16) per share, basic
and diluted) in 2000 and $(150,911,000) ($(5.58) per share, basic and diluted)
in 2001.

11. Income Taxes

Income tax expense for the years ended December 31, 1999, 2000 and 2001
consisted solely of state franchise taxes.

Differences between income taxes computed by applying the statutory federal
income tax rate to the loss before income taxes and the provision for income
taxes consist of the following:

`Years Ended December 31,
                                                     -------------------------------
                                                       1999       2000       2001
                                                     ---------  ---------  ---------
                                                                (in thousands)
Income taxes computed at 35% U.S. statutory rate... $  (3,592) $ (19,612) $ (44,182)
State income taxes.................................        55         22         19
Tax credits........................................    (2,052)    (5,059)    (1,113)
Foreign losses for which no benefit may be realized        --      6,110      1,833
Non-deductible acquisition charges.................        --      1,178     15,227
Non-deductible stock compensation..................        48      1,700         69
Change in valuation allowance......................     5,548     16,196     26,002
Other..............................................        48       (513)     2,164
                                                     ---------  ---------  ---------
Provision for income taxes......................... $      55  $      22  $      19
                                                     =========  =========  =========`

The components of deferred income tax assets are as follows:

`December 31,
                                                          ----------------------
                                                             2000        2001
                                                          ----------  ----------
                                                             (in thousands)

Deferred tax assets:
     Accruals and reserves not currently deductible..... $    4,068  $    7,085
     Capitalized research and development costs.........      3,651       4,073
     Net operating loss carryforwards...................     24,970      42,418
     Tax credit carryforwards...........................     12,700      13,358
     Capital loss carryforwards.........................         --       5,461
     Depreciation.......................................        527        (477)
                                                          ----------  ----------
Total gross deferred tax assets.........................     45,916      71,918
Valuation allowance.....................................    (45,916)    (71,918)
                                                          ----------  ----------
Total deferred tax assets............................... $       --  $       --
                                                          ==========  ==========`

The increase of $26,002,000 in the valuation allowance during the year ended
December 31, 2001 was primarily a result of increased net operating loss and tax
credit carryforwards generated in 2001. The Company provided a full valuation
allowance against the deferred tax assets based on the Company's evaluation of
the likelihood of realization of future tax benefits resulting from the deferred
tax assets.

As of December 31, 2000, the Company had $214,000 of deferred tax
liabilities relating to certain intangible assets acquired in the BitCom
acquisition.  The deferred tax liabilities have been included in other current
liabilities in the accompanying 2000 consolidated balance sheet.

As of December 31, 2001, the Company had available for carryforward net
operating losses for federal and state income tax purposes of $117,696,000 and
$34,709,000, respectively.  Net operating losses of $14,000 for federal and
state tax purposes attributable to the tax benefit relating to the exercise of
nonqualified stock options and disqualifying dispositions of incentive stock
options are excluded from the components of deferred income tax assets.  The tax
benefit associated with this net operating loss will be recorded as an
adjustment to stockholders' equity when the Company generates taxable income.
Federal net operating loss carryforwards will expire if not utilized beginning
in the years 2009 through 2021. State net operating loss carryforwards will
expire if not utilized beginning in the years 2002 through 2006.

As of December 31, 2001, the Company had available for carryforward research
and experimental tax credits for federal and state income tax purposes of
$7,698,000 and $5,029,000, respectively. Federal research and experimentation
tax credit carryforwards expire from 2009 through 2021. The Company also had
$637,000 in California manufacturers investment credits which expire from 2005
through 2011, and capital loss carryforwards of $13,400,000 for federal and
state income tax purposes which will expire in 2006.

Current Federal and California tax laws include substantial restrictions on
the utilization of net operating losses and tax credits in the event of an
"ownership change" of a corporation. Accordingly, the Company's ability to
utilize net operating loss and tax credit carryforwards may be limited as a
result of such "ownership change". Such a limitation could result in the
expiration of carryforwards before they are utilized.

12. Major Customers

The following table summarizes net revenues and net trade accounts
receivable for unaffiliated customers which accounted for 10% or more of net
revenues or net trade accounts receivable:

`Accounts Receivable           Revenues
                December 31,        Years Ended December 31,
             ------------------  ----------------------------
Customer       2000      2001      1999      2000      2001
------------ --------  --------  --------  --------  --------
A                 --        --        20 %      --        --
B                 --        --        18 %      --        --
C                 26 %      --        --        10 %      10 %
D                 19 %      21 %      --        11 %      25 %
E                 --        --        12 %      12 %      --`

13. Related Party Transactions

For the year ended December 31, 1999, net revenues included sales to a
customer of $8,289,000 (with related cost of revenues of $4,825,000) in which
the Company had an investment in during 1999, and sales to a stockholder of
$11,113,000 (with related cost of revenues of $6,942,000).



For the year ended December 31, 2000, net revenues included sales to a
customer of $1,567,000 (with related cost of revenues of $1,225,000) of which a
member of the Company's Board of Directors was an executive officer of, and
sales to a customer of $555,000 (with related cost of revenues of $363,000) in
which the Company has an equity investment in during 2000.  As of December 31,
2000, accounts receivable included amounts from these customers of $278,000 and
$334,000, respectively.



For the year ended December 31, 2001, net revenues included sales to a
customer of $42,000(with related cost of revenues of $58,000) that the
Company has an equity investment in during 2001.  As of December 31, 2001,
accounts receivable included amounts from this customer of $63,000.

14. Employee Benefit Plan

The Company has a defined contribution retirement plan (the Retirement
Plan), which has been determined by the Internal Revenue Service to be qualified
under Section 401(k) of the Internal Revenue Code of 1986. The Retirement Plan
covers essentially all full-time employees. Eligible employees may make
voluntary contributions to the Retirement Plan up to 15% of their annual
compensation. The Company has not made any employer contributions to the
Retirement Plan.

15. Segment Information

For the years ended December 31, 1999, 2000 and 2001, the Company
recorded revenue from customers throughout the United States; Canada; The
Netherlands; Switzerland, Germany, the U.K., France, Spain, Denmark, Norway,
Sweden, Finland, Belgium, Czech Republic, Hungary, Iceland, Israel, Austria
(collectively referred to as Other Europe); Japan; China, Korea, Taiwan,
Singapore, Indonesia (collectively referred to as Asia); Mexico, Argentina,
Chile, Panama, Brazil (collectively referred to as South/Central America); and
Australia/New Zealand. The following presents net revenues for the years ended
December 31, 1999, 2000 and 2001 and long-lived assets as of December 31, 2000
and 2001 attributed to significant countries (in thousands):

`1999            2000                  2001
                          ---------  ---------------------  ---------------------
                             Net        Net     Long-Lived     Net     Long-Lived
                          Revenues*  Revenues*   Assets**   Revenues*   Assets**
                          ---------  ---------  ----------  ---------  ----------
United States........... $  50,385  $  64,365  $   14,708  $  28,495  $    7,266
The Netherlands.........    15,900     44,848         323     40,185         366
Other Europe............    14,039     26,015       4,423     17,588       1,840
Japan...................     6,719     30,761          --     26,059          --
Canada..................     3,273     12,580          15      4,968          --
Asia....................       322     10,626           9         34          48
South/Central America...     1,688      4,222          --      5,419          --
Australia/New Zealand...     3,417        566          --         13          --
                          ---------  ---------  ----------  ---------  ----------
          Total......... $  95,743  $ 193,983  $   19,478  $ 122,761  $    9,520
                          =========  =========  ==========  =========  ==========`

* Net revenues are attributed to countries based on invoicing
location of customer.

** Long-lived assets exclude net intangible assets resulting
from acquisitions of $60,057,000 and $3,570,000 in 2000 and 2001,
respectively.



For purposes of segment reporting, the Company aggregates operating segments
that have similar economic characteristics and meet the aggregation criteria of
SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information. Based on such criteria, there are three operating and
reportable segments: ATM Products, DOCSIS Products and Voice Products. The ATM
Products segment develops, manufactures, and markets the proprietary cable
modems, ATM headend equipment and network management software. The DOCSIS
Products segment develops, manufactures, and markets DOCSIS cable modems for
both home and office.  The Voice Products segment, based primarily in Israel,
developed, manufactured, and marketed voice over Internet cable modems and was
sold during 2001.

The following tables are the financial results the chief operating decision
maker, as defined by SFAS No. 131, utilizes in evaluating the performance of the
Company's reportable segments:

`Years Ended December 31,
                                     -------------------------------
                                       1999       2000       2001
                                     ---------  ---------  ---------
                                                (in thousands)
Revenues:
  ATM Products..................... $  89,552  $ 125,037  $  78,727
  DOCSIS Products..................     6,191     67,170     43,381
  Voice Products...................        --      1,776        653
                                     ---------  ---------  ---------
          Total.................... $  95,743  $ 193,983  $ 122,761
                                     =========  =========  =========
Cost of Revenues:
  ATM Products.....................    55,009     87,073     60,964
  DOCSIS Products..................     5,909     62,315     53,820
  Voice Products...................        --      1,931      2,042
                                     ---------  ---------  ---------
          Total.................... $  60,918  $ 151,319  $ 116,826
                                     =========  =========  =========
Gross Profit
  ATM Products..................... $  34,543  $  37,964  $  17,763
  DOCSIS Products..................       282      4,855    (10,439)
  Voice Products...................        --       (155)    (1,389)
                                     ---------  ---------  ---------
          Total.................... $  34,825  $  42,664  $   5,935
                                     =========  =========  =========`

The Company's product lines differ primarily based on product functions.
Headend equipment controls the flow of data communications between cable modems
and an external network, such as the Internet or a corporate network. Cable
modems send and receive data over coaxial cable. Network management software
facilitates provisioning, fault isolation, network configuration, field
inventory, auto-discovery and performance for the headend equipment.  For the
years ended December 31, 1999, 2000 and 2001, the Company recorded net revenues
from sales of headend equipment, cable modems and network management software as
follows:

`Years Ended December 31,
                                     -------------------------------
                                       1999       2000       2001
                                     ---------  ---------  ---------
                                                (in thousands)
Headend Equipment.................. $  19,970  $  27,583  $  19,456
Cable Modems.......................    74,738    165,641    102,983
Network Management Software........     1,035        759        322
                                     ---------  ---------  ---------
Net Revenues....................... $  95,743  $ 193,983  $ 122,761
                                     =========  =========  =========`





16.  Selected Quarterly Financial Results (Unaudited)

The following tables set forth selected quarterly results of
operations for the years ended December 31, 2000 and 2001:

`Quarters Ended
                                       ------------------------------------------
                                       Mar. 31,   Jun. 30,   Sep. 30,   Dec. 31,
                                         2000       2000       2000       2000
                                       ---------  ---------  ---------  ---------
                                          (in thousands, except per share amounts)
Net revenues......................... $  41,556  $  51,358  $  60,636  $  40,433
Gross profit.........................    12,564     14,036      9,696      6,368
Loss from operations.................    (3,840)    (5,097)   (25,643)   (25,447)
Net loss.............................    (2,423)    (3,741)   (24,812)   (25,080)
Net loss per share, basic and diluted $   (0.11) $   (0.17) $   (1.02) $   (1.02)
Shares used in computation, basic
  and diluted........................    21,763     21,931     24,242     24,555



                                                    Quarters Ended
                                       ------------------------------------------
                                       Mar. 31,   Jun. 30,   Sep. 30,   Dec. 31,
                                         2001      2001 *      2001       2001
                                       ---------  ---------  ---------  ---------
                                          (in thousands, except per share amounts)
Net revenues......................... $  32,789  $  34,121  $  30,096  $  25,755
Gross profit.........................     2,900      1,563        405      1,067
Loss from operations.................   (22,319)   (82,550)   (11,113)   (10,248)
Net loss.............................   (22,062)   (82,425)   (10,653)   (11,112)
Net loss per share, basic and diluted $   (0.87) $   (3.02) $   (0.39) $   (0.40)
Shares used in computation, basic
  and diluted........................    25,493     27,268     27,484     27,877`

*  The results of operations for the quarter ended June 30, 2001,
include a restructuring charge of $67,450,000.

17.  Subsequent Event

On March 11, 2002, the Company signed a letter agreement with our major chip
supplier to cancel the Company's purchase order for $10,354,000 worth of chips
in exchange for an exclusive relationship on certain components over a two-year
period with no specified volume commitment.

On March 20, 2002, the Company signed a binding agreement with one of its
contract manufacturers to cancel all orders currently in place and executed a
promissory note for all net accounts payable and excess materials purchased by
the contract manufacturer for the Company's product.  The principal amount of
the note is $20,000,000, bears interest at an average rate of 10%, and is
payable monthly beginning on March 31, 2002 and maturing on May 30, 2004.  The
principal amount includes approximately $8,556,000 of excess materials subject
to the Company's review.  A significant portion of the excess material may have
no net realizable value to the Company and would therefore be written off in the
first quarter of 2002.

On March 29, 2002, the Company executed a promissory note with another one of
its contract manufacturers for all net accounts payable owed to the contract
manufacturer and all excess materials purchased by the contract manufacturer for
the Company's product.  The principal amount of the note is $2,518,000, bears
interest at 8%, and is payable monthly beginning on April 30, 2002 and maturing
on December 31, 2003.  The principal amount includes $771,000 of excess
materials subject to the Company's review.  A significant portion of the excess
material may have no net realizable value to the Company and would therefore be
written off in the first quarter of 2002.

In connection with the above agreements, the Company issued warrants to
purchase a total of 350,000 shares of common stock at a weighted average price
of $1.22 per share.

Item 9.
Changes In and Disagreements With Accountants On Accounting and Financial
Disclosure

Not applicable.

PART III



Pursuant to General Instruction G. to Form 10-K, the
information required by Items 10, 11, 12, and 13 of Part III is incorporated by
reference from the Company's definitive Proxy Statement with respect to its 2002
annual meeting of stockholders, to be filed pursuant to Regulation 14A within
120 days after December 31, 2001.



PART IV



Item 14. Exhibits, Consolidated Financial Statement Schedules,
and Reports on Form 8-K

(a) The following documents are filed as
part of this annual report:



1.  Consolidated Financial Statements.  The following
Consolidated Financial Statements of Com21, Inc. and related Independent
Auditors' Report are filed as part of this annual report:



Independent Auditor's Report

Consolidated Balance Sheets, as of December 31, 2000 and
2001

For the years ended December 31, 1999, 2000, and
2001:



|Consolidated Statements of Operations and
Comprehensive Loss
|------------------------------------------------------------
|Consolidated Statements of Stockholders'
Equity             
|Consolidated Statements of Cash
Flows                       

Notes to Consolidated Financial Statements



2.  Consolidated Financial Statement Schedules.  The
following consolidated financial statement schedules of Com21, Inc. are filed as
part of this annual report and should be read in conjunction with the
Consolidated Financial Statements of Com21, Inc.:



Financial Statement Schedules for the years ended December
31, 1999, 2000, 2001:



|Schedule                             | Page
|------------------------------------ | ----
|II - Valuation & Qualifying
Accounts | 58  



Schedules not filed herein are omitted because of the absence
of conditions under which they are required or because the information called
for is shown in the consolidated financial statements or notes thereto.



3.  Exhibits.



The Exhibits listed on the accompanying Index to Exhibits are
filed or incorporated by reference as part of this annual report.



(b) Reports on Form 8-K



On February 14, 2001, Com21 filed a report on Form 8-K which
announced its earnings for the fourth quarter ended December 31, 2000.



On March 7, 2001, Com21 filed a report on Form 8-K
which announced that it had entered into a definitive agreement to complete an
equity financing with Fletcher International Limited.



(c) Exhibits



The following exhibit list states, in the case of certain
exhibits, a prior SEC filing which contains the exhibit and from which it is
incorporated by reference.

|Index to Exhibits
|-----------------
|                 
|Number           
|3.1(1)           
|3.2 (1)          
|4.1(1)           
|4.2(1)           
|10.1(1)          
|10.2+(1)         
|10.3+(1)         
|10.4+(1)         
|10.6(1)          
|10.7(1)          
|10.8(1)          
|10.11+(1)        
|10.12+(1)        
|10.13+(1)        
|10.18 (3)        
|10.21 (5)        
|10.24 (7)        
|10.25            
|10.26            
|10.27            
|10.28            
|21.1             
|23.1             
|23.2             
|+                
|(1)              
|(2)              
|(3)              
|(4)              
|(5)              
|(6)              
|(7)              

---





SIGNATURES

Pursuant to the requirements of the Securities Exchange
Act of 1934, the Registrant has duly caused this Annual Report on Form 10-K to
be signed on its behalf by the undersigned, thereunto duly authorized.

In accordance with Section 13 or 15(d) of the Exchange Act,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

|Date: | March 29, 2002
|----- | --------------





|COM21, INC.
|-----------
|           
|By:        
|           
|           



POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person
whose signature appear below hereby constitutes and appoints, jointly and
severally, George Merrick and Ralph Marimon, and each of them acting
individually, as his attorney-in-fact, each with full power of substitution and
resubstitution, for him or her in any and all capacities, to sign any and all
amendments to this Annual Report on Form 10-K (including amendments), and to
file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact full power and authority to do and perform each and every act
and thing requisite and necessary to be done in connection therewith as fully to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact, or their substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.

In pursuant to the requirements of the Securities Exchange
Act of 1934, this Report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated.



|SIGNATURE                                   | TITLE                                                                                            | DATE          
|------------------------------------------- | ------------------------------------------------------------------------------------------------ | --------------
|/s/  GEORGE MERRICKGeorge Merrick           | President, Chief Executive Officer and Director (Principal
Executive Officer)                    | March 29, 2002
|/s/  RALPH MARIMONRalph Marimon             | Vice President, Finance and Chief Financial Officer (Principal
Financial and Accounting Officer) | March 29, 2002
|/s/  PAUL BARANPaul Baran                   | Director                                                                                         | March 29, 2002
|Jim Gagnard                                 | Director                                                                                         | March 29, 2002
|/s/  SUSAN HUBBELL NYCUMSusan Hubbell Nycum | Director                                                                                         | March 29, 2002
|/s/  JAMES SPILKERJames Spilker, Jr.        | Director                                                                                         | March 29, 2002
|/s/  DANIEL PIKEDaniel J. Pike              | Director                                                                                         | March 29, 2002



| |  | 
| |  | 
| |  | 
| |  | 
| |  | 
| |  | 
| |  | 
| |  | 
| |  | 
| |  | 
| |  | 
| |  | 





COM21, INC.



SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND
RESERVES

YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001

(IN THOUSANDS)

`Balance   Additions
                                         at      Charged to             Balance
                                      Beginning  Costs and              at End
                                      of Period  Expenses   Deductions of Period
                                      ---------  ---------  ---------  ---------
1999
Accounts Receivable Allowances *     $     908  $     392  $    (139) $   1,161
Inventory Reserve                    $   1,432  $   2,314  $  (1,211) $   2,535
Warranty Reserve                     $     299  $     743  $     (90) $     952

2000
Accounts Receivable Allowances *     $   1,161  $   1,373  $  (1,434) $   1,100
Inventory Reserve                    $   2,535  $   7,083  $  (3,125) $   6,493
Warranty Reserve                     $     952  $   1,666  $    (143) $   2,475

2001
Accounts Receivable Allowances *     $   1,100  $   1,648  $    (365) $   2,383
Inventory Reserve                    $   6,493  $   3,979  $  (3,843) $   6,629
Warranty Reserve                     $   2,475  $   1,093  $  (2,345) $   1,223`



* Deductions for accounts receivable allowances include miscellaneous
discounts and price adjustments.

---