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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                            ------------------------

                                  FORM 10-K/A
                                 AMENDMENT NO.2

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   /X/     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
           SECURITIES EXCHANGE ACT OF 1934
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                     FOR THE YEAR ENDED DECEMBER 31, 2000,

                                       OR

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<C>        <S>
   / /     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
           SECURITIES EXCHANGE ACT OF 1934
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      FOR THE TRANSITION PERIOD FROM ________________ TO ________________

                        COMMISSION FILE NUMBER: 0-23289

                           --------------------------

                             HYBRID NETWORKS, INC.
             (Exact name of registrant as specified in its charter)

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                     DELAWARE                                           77-0252931
         (State or other jurisdiction of                   (I.R.S. Employer Identification No.)
          incorporation or organization)

            6409 GUADALUPE MINES ROAD
               SAN JOSE, CALIFORNIA                                       95120
     (Address of principal executive offices)                           (Zip Code)
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       Registrant's telephone number, including area code: (408) 323-6500

                           --------------------------

      Securities registered pursuant to Section 12(b) of the Exchange Act:

                                      NONE

      Securities registered pursuant to Section 12(g) of the Exchange Act:

                    COMMON STOCK, PAR VALUE $0.001 PER SHARE

                           --------------------------

    Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the past
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 / /

    As of January 31, 2001, there were outstanding 22,000,018 shares of the
Registrant's common stock, $0.001 par value per share. As of that date, the
aggregate market value of the shares of voting common stock held by
non-affiliates of the Registrant, based on the average bid and ask prices of
such stock as of such date as reported by The Nasdaq National Market was
approximately $100,352,000. This excludes shares of common stock held by
directors, officers and stockholders whose ownership exceeded ten percent of the
shares outstanding. Exclusion of shares held by any person should not be
construed to indicate that such person possesses power, direct or indirect, to
direct or cause the direction of the management or policies of the Registrant,
or that such person is controlled by or is under common control with the
Registrant.

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                               TABLE OF CONTENTS

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                                                                            PAGE
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PART I
  ITEM 1    Business....................................................      3
  ITEM 2    Properties..................................................      9
  ITEM 3    Legal Proceedings...........................................      9
  ITEM 4    Submission of Matters to a Vote of Security Holders.........     11
PART II
  ITEM 5    Market for the Registrant's Common Equity and Related
              Stockholder Matters.......................................     12
  ITEM 6    Selected Financial Data.....................................     13
  ITEM 7    Management's Discussion and Analysis of Financial Condition
              and Results of Operations.................................     13
  ITEM 7A   Quantitative and Qualitative Disclosures About Market
              Risk......................................................     26
  ITEM 8    Financial Statements........................................     27
  ITEM 9    Changes in and Disagreements With Accountants on Accounting
              and Financial Disclosure..................................     52
PART III
  ITEM 10   Directors and Executive Officers of the Company.............     53
  ITEM 11   Executive Compensation......................................     53
  ITEM 12   Security Ownership of Certain Beneficial Owners and
              Management................................................     53
  ITEM 13   Certain Relationships and Related Transactions..............     53
PART IV
  ITEM 14   Exhibits, Financial Statement Schedules and Reports on Form
              8-K.......................................................     53
Signatures..............................................................     56

Exhibits
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PART I

    THIS REPORT ON FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS RELATING TO
FUTURE EVENTS OR FINANCIAL RESULTS, INCLUDING SUCH STATEMENTS INDICATING THAT
"WE BELIEVE," "WE EXPECT," "WE ANTICIPATE", OR "WE INTEND" THAT CERTAIN EVENTS
MAY OCCUR OR CERTAIN TRENDS MAY CONTINUE. OTHER FORWARD-LOOKING STATEMENTS
INCLUDE STATEMENTS ABOUT THE FUTURE DEVELOPMENT OF PRODUCTS OR TECHNOLOGIES,
MATTERS RELATING TO OUR PROPRIETARY RIGHTS, FACILITIES NEEDS, OUR LIQUIDITY AND
CAPITAL NEEDS, AND OTHER STATEMENTS ABOUT FUTURE MATTERS. ALL THESE FORWARD-
LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES. YOU SHOULD NOT RELY TOO
HEAVILY ON THESE STATEMENTS; ALTHOUGH THEY REFLECT THE GOOD FAITH JUDGMENT OF
OUR MANAGEMENT, THEY INVOLVE FUTURE EVENTS THAT MIGHT NOT OCCUR. WE CAN ONLY
BASE SUCH STATEMENTS ON FACTS AND FACTORS THAT WE CURRENTLY KNOW. OUR ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE IN THESE FORWARD-LOOKING STATEMENTS
AS A RESULT OF VARIOUS FACTORS, INCLUDING THOSE SET FORTH UNDER "RISK FACTORS"
AND ELSEWHERE IN THIS FORM 10-K. WE DISCLAIM ANY OBLIGATION TO UPDATE THESE
FORWARD-LOOKING STATEMENTS AS A RESULT OF SUBSEQUENT EVENTS.

ITEM 1. BUSINESS

OVERVIEW

    We design, develop, manufacture, and market products designed primarily for
wireless systems that provide high-speed access to the Internet for business and
consumers. Our products are designed to remove the bottleneck in the connection
to the end-user, which greatly reduces the time required to access
bandwidth-intensive information on the Internet. Our customers are principally
wireless system operators and national and regional telephone companies. We
offer an alternative to digital subscriber line and cable for high-speed
Internet access for small businesses and residential subscribers.

    Our products are an integral part of a wireless system operator's high-speed
Internet access system. Our Series 2000 product line includes head end routers,
network and subscriber management tools, and a line of wireless end-user
routers, or modems.

    Our products are used by broadband wireless operators at their base
stations, or head ends, to connect Internet subscribers to the operator's
networks to give the subscribers high-speed Internet access. Our head end
products provide systems that allow the operators to manage their networks.

    The subscribers to the wireless operators' networks are typically
single-computer customers or local area networks used by small businesses and
high-end residential customers. The operators use our end-user products to
connect subscribers to the wireless systems networks at the subscribers' sites.

    In 2000, major Hybrid systems are used in 18 markets worldwide including 11
markets for Sprint Corp. Hybrid systems are now used in more than 70 markets on
six continents. We believe the demand for high-speed Internet access will
continue to grow internationally and domestically.

    We were incorporated in Delaware in June 1990. Our principal executive
offices are located at 6409 Guadalupe Mines Road, San Jose, California 95120.
Our telephone number is (408) 323-6500.

TECHNOLOGY, PRODUCTS, AND SERVICES

    TECHNOLOGY

    We have a scalable and deployable system with field-tested technology that
continues to evolve. We have developed solutions to multi-path interference and
frequency drift and have incorporated these

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solutions into our current products. We continue to evolve and improve our
technology through extensive deployments and are now able to service up to
thousands of subscribers in one cell. We are also continuing to work in
conjunction with system operators to continue to refine our technology in
accordance with their needs. Our products support two-way transmission on either
wireless or cable systems as well as asymmetric telephone return or router
return.

    Our Series 2000 system is expandable from an entry-level system to large
systems that are designed to serve up to 20,000 routers/modems. It has been
successfully deployed by wireless operators in systems that utilize multiple
antennas at the head end to increase capacity. Each of the multiple return
antennas is pointed in a slightly different direction, to increase the capacity
of the available return frequency spectrum.

    Downstream Optimization

    Our patented proprietary sub-channelization technology splits a standard 6
MHz channel into three 2 MHz sub-channels for downstream transmission, providing
greater service flexibility and minimizing the effects of multi-path
interference in wireless systems. Sub-channels mitigate the effects of
interference between transmitters and allow flexible sectorization in large
installations. They can also be loaded differently to provide different grades
of service. Our patented 2 MHz sub-channelization allows our products to serve
the newer wireless communication services bands, which are 5 and 10MHz wide.

    Upstream Optimization

    Our technology allows an operator's group of subscribers to share many 160
to 600 kHz bandwidth return channels. This provides redundancy and provides the
resistance to the interference common in large wireless installations,
especially those with multiple return sectors. Narrow channels allow smaller
antennas and lower power transceivers than are needed for conventional 1.6 to
2 MHz TDMA channels.

    Our proprietary software not only allows subscribers to share many return
channels, but also allows some to burst into a continuous transmission state to
transfer or send large amounts of data upstream. The operator can control the
parameters to optimize performance for business users yet still provide other
users access to capacity. It is usual for some operators to set up two or three
groups of return channels, often with different bandwidths so as to provide
different service levels or groups for business and residential customers.

    Alliances

    Our products are integrated with other telecommunications equipment to
create a complete wireless system. In 2000, Hybrid entered into agreements with
two global systems integrators, Andrew Corporation and Thomcast Communications,
as well as with system integrators in targeted markets. Each of these system
integrators offers wireless operators a complete turnkey system that integrates
our products with the associated radio and Internet equipment needed to deploy a
wireless system.

    PRODUCTS

    Head end Equipment

    CYBERMANAGER 2000.  The CyberManager 2000 (CMG-2000) is our proprietary
subscriber and network management workstation and allows the operator to set the
service levels or groups, for both business and residential end-users. The
CMG-2000 uses our software to provide the system administrator interface to the
upstream and downstream routers and end-customer equipment. The CMG-2000 has a
10/100BaseT (Ethernet) interface to connect to a fast Ethernet switch in the
head end.

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    CYBERMASTER DOWNSTREAM ROUTER.  The CyberMaster Downstream Router
(CMD-2000B) is a rack-mounted industrial microcomputer. It supports our
proprietary Serial Interface and Quadrature Amplitude Modulation, or QAM, cards,
which are used for downstream routing and for 64-QAM downstream modulation. The
CMD-2000 has a 10/100BaseT interface to connect to a fast Ethernet switch within
the head end.

    CYBERMASTER UPSTREAM ROUTER QPSK RETURN.  The Cybermaster upstream router is
a rack-mounted industrial microcomputer. The product houses dual Quaternary
Phase Shift Keying, or QPSK, receiver cards that demodulate upstream QPSK
signals. The CMU-2000-14CB has a 10/100BaseT interface to connect to a fast
Ethernet switch at the head end.

    Wireless Broadband Router

    The Multi-User Wireless Broadband Router supports 10 Mbps, 64-QAM downstream
data transmission on both wireless and cable systems and upstream transmission
using a wireless or cable return, telephone modem or router. The current
production router family includes the WBR-5, WBR-20, and WBR-60 with capacities
of 5, 20, and 60 networked devices respectively, with their own distinct IP
addresses. These units have a number of security features including system
authentication and user ID.

    SERVICES

    Our product support services include consulting, systems engineering,
systems integration, installation, training, and technical support. Our network
operations group also works with the customer during site preparation to aid in
systems engineering, system integration, installation, and acceptance testing
for system start-up.

CUSTOMERS

    Our customers are principally wireless system operators and national and
regional telephone companies. A small number of customers have traditionally
accounted for a large portion of our net sales. In 2000, Sprint Corporation
accounted for 54% of our gross sales, while Look Communications, a
Canadian-based service provider, accounted for 23% of our gross sales. We had
two customers that individually accounted for 31% and 28% of gross sales during
1999 and for 25% and 13% of gross sales in 1998.

    In 2000, Sprint purchased our products to support what we believe
constituted the largest number of MMDS deployments in the world during that
year. Look Communications made substantial purchases in connection with their
Canadian deployments. Overall international sales accounted for 24% of total
sales during the year, virtually all of which were to Look Communications, and
included deployments in Canada, Ireland, Nigeria, Korea, Peru, and Argentina.

    Sprint Corporation holds 4,066,466 shares of our common stock and warrants
to purchase $8.4 million principal amount of convertible debentures which is
convertible into 2,946,622 shares of our common stock. Two of our directors are
Sprint designees, and we cannot issue any securities, with limited exceptions,
or, in most cases, take any material corporate action without Sprint's approval.
Sprint has other rights and privileges as well, including pre-emptive rights and
a right of first refusal in the case of any proposed change of control
transaction, which right of first refusal is assignable by Sprint to any third-
party.

    Prior to 2000, most of our sales were to cable customers. However, these
sales represented only 6% of our total sales in 2000 and they will continue to
represent a small portion of net sales in the future.

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SALES AND MARKETING

    Sales in 2000 were made primarily to companies in the United States and
Canada. Sales are made through our field sales force as well as global and
regional system integrators.

    Customer internal procedures related to the completion of the evaluation and
approval of the large capital expenditures that are typically required to
purchase our products can result in purchasing delays. Customers usually engage
in a significant technical evaluation before making a purchase commitment and
any delay or loss of an order that is expected in a quarter can have a major
effect on our sales and operating results for that quarter. As of December 31,
2000, the total amount of shipments not recognized as revenue due to acceptance
or testing criteria or because they were sales to a distributor were
$5.6 million.

    Our product sales backlog on February 28, 2001 was $2.7 million and
consisted of customer purchase orders which had been received and accepted and
for which we have a reasonable expectation of shipment within the current fiscal
period. The comparable backlog figure as of February 28, 2000 was $274,000.

    Our marketing efforts are targeted to broadband wireless system operators in
the U.S. and abroad. Many of our international opportunities are marketed in
tandem with one or more of our system integrators who often provide in-country
support. Concentrated efforts in 2000 and 2001 have been, and will be, in the
areas of South America, Australia, Korea, Malaysia, and China.

MANUFACTURING

    We configure, test, and perform quality assurance procedures on the final
product at the Hybrid facility. We outsource manufacturing of the product
modules to third parties, while maintaining a limited in-house manufacturing
capability for pre-production assembly and testing.

    Our Series 2000 client routers are manufactured by Sharp Corporation through
an agreement we have had since early 1997 with Sharp and its distributor, Itochu
Corporation. We have not developed an alternative manufacturing source given the
quality of the Sharp product and our limited volumes. We continue cost reduction
efforts in response to market pressures to reduce our prices. Given that Sharp
remains our only manufacturing source of our routers and production rates remain
level, our ability to reduce the manufacturing costs may be limited.

    Our CyberManager 2000 is built on the Ultra 10/Solaris platform by
installing our proprietary network subscriber and network management software.
Our CyberMaster Downstream Router and CyberMaster Upstream Router are built on
Intel's Pentium-based PCI/ISA-based computer cards installed in a standard
rack-mounted chassis from Industrial Computer Source. Our proprietary software,
Hybrid OS, is overlaid on a standard Berkeley Systems operating system for the
CMD and CMU.

    We are dependent upon these and other key suppliers for a number of
components within our Series 2000 products. The WBR series routers use a Texas
Instrument chip set for the 64-QAM demodulator. Hitachi is the sole supplier of
the processors used in our routers. Intel is currently the sole supplier for
certain components used in our products. There can be no assurance that these
and other single-source components will continue to be available to us, or that
deliveries to us will not be interrupted or delayed due to shortages. Having
single-source components also makes it more difficult for us to reduce our costs
for these components and makes us vulnerable to price increases by the component
manufacturer. Any significant interruption or delay in the supply of components
for our products or any increase in our costs for components, or our inability
to reduce component costs, could adversely affect our business.

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    We typically provide a 12 to 18 month warranty on our hardware products that
includes factory repair service. We also provide customer support as a purchase
option that includes telephone and e-mail support, software maintenance
releases, and technical bulletins.

RESEARCH AND DEVELOPMENT

    As of December 31, 2000, our research and development staff consisted of 20
full-time employees, and eight local consultants. To supplement our research and
development efforts, we have hired a consulting firm in India to work on various
projects. Our total research and development expenses for 2000, 1999, and 1998
were $6,715,000, $4,191,000, and $7,771,000, respectively. Our research and
development during 2000 was directed primarily towards improving the performance
of our 2-way wireless products and reducing the cost of our routers. We enhanced
our return product software and increased the capacity of the CMG 2000 and the
WBR multi user modem.

    In 2001, we are continuing our efforts to reduce the cost of manufacturing
and improve the performance of client routers significantly through design and
engineering changes. Our efforts to improve performance are focused on
increasing coverage, capacity, and ease of installation.

    Coverage: We are working to enhance our patented downstream sub-channels to
enable the use of three modulation schemes. These include QPSK and 16-QAM, which
are more robust and will allow successful operation in customer locations that
may not currently be serviceable. Other features such as diversity are under
development.

    Capacity: Our new capability with multiple modulation schemes (ThruWAVE)
will have multiple downstream interleaving options. This has the potential to
increase the number of users that may share a return channel on the upstream by
20-40%, improving total number of active users on the system. Additionally, the
use of QPSK and 16-QAM allows our customers the ability to put multiple cells
into a geographic region and reuse frequencies in these cells, thus improving
overall system capacity. We are also working on enhancements to our MAC layer to
further increase the capacity.

    Ease of Installation: Hybrid works continuously to simplify and reduce the
installation of the CPE. Having the ability to use a variety of modulation
schemes will allow the installation to proceed more rapidly. Hybrid is
investigating, with numerous vendors (RF, wireless LAN, etc.), how to make the
overall CPE installation simpler.

COMPETITION

    We are primarily engaged in the business of manufacturing FBBW high-speed
Internet access equipment. Our market is intensely competitive and we expect
even more competition in the future. Most of our competitors are substantially
larger and have greater financial, technical, marketing, distribution, customer
support, and other resources, as well as greater name recognition and access to
customers than we have.

    The principal competitive factors in this market include:

    - Product performance and features, including downstream and upstream
      capacity, reliability, and operational stability

    - Cost of installation

    - Solutions to line-of-sight limitations

    - Integration with major operator's management and customer care systems

    - Price

    - Sales and distribution capability

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    - Technical support

    - Relationships with broadband wireless system operators, affiliates and
      Internet Service Providers (ISPs)

    Our principal competitors in the wireless market include Vyyo, Inc., which
is marketing a technology based on the Data Over Cable Systems Interface
Specification, or DOCSIS, standard, and Cisco Systems, Inc., which is promoting
Vector Orthogonal Frequency Division Multiplex, or VOFDM. Other wireless
competitors include ADC, Com21, IOSpan, Aperto, and Adaptive Broadband.

    Participants in the wireless broadband access market have not settled on a
technology standard for equipment to serve this market. Our major competitors
have created or joined in consortia to promote the technology they are employing
as the industry standard, which are different from our underlying technology.
While Hybrid also actively promotes its technology, if the marketplace settles
on a standard that we do not employ, our competitive position would be seriously
impaired. We are not making material sales into the broadband cable access
market because cable operators adopted the DOCSIS standard, to which our
products do not conform.

    Our Customer's Competition

    Our customers compete with providers of other forms of high-speed Internet
access, including digital subscriber lines, commonly referred to as DSL, and
cable. Telephone companies are deploying DSL, providing high-speed Internet
access over existing phone wires. They are working with computer vendors to
install DSL cards in PCs manufactured by those companies, thereby reducing the
telephone companies' distribution costs. Although DSL poses a significant
competitive threat to the services offered by our customers, in some instances,
the availability of DSL service may be viewed as complementary to the use of
fixed broadband wireless products. In other words, some operators may offer DSL
service to customers in those locations where line-of-sight access may not be
optimal, while also offering wireless service in areas where line-of-sight
transmission is uninterrupted.

    As our focus has shifted to wireless operators, cable operators may now be
considered as competing with our customers for the end-user.

INTELLECTUAL PROPERTY

    Patents

    We rely on a combination of patent, trade secret, copyright and trademark
laws and contractual restrictions to establish and protect proprietary rights in
our products. We have received 14 patents from the U.S. Patent and Trademark
Office. These patents are directed to various aspects of wireless and cable
modems and head end systems. In addition, the U.S. Patent and Trademark Office
has issued formal notices of allowances for pending patent applications which
are also directed to wireless and cable modems and head end systems, and various
modulation and transmission schemes used in wireless cable modem systems. We
have other patent applications pending before the U.S. Patent and Trademark
Office. We have patent applications pending in a number of foreign jurisdictions
as well. It is unknown whether any pending or foreign patent applications will
result in the issuance of patents.

    We cannot be certain that our patents will not be challenged or invalidated,
or that the claims allowed in our patents will be of sufficient scope or
strength to provide meaningful protection or commercial advantage to us. We have
initiated one patent infringement litigation to enforce our patent rights, and
it resulted in a settlement in which we granted licenses to the defendants
containing certain terms that are in some respects favorable to them, including
a right of first refusal to purchase our patents that we granted to one
defendant (Com21, Inc.) in the event that, in the future, we propose to sell our
patents (separately or in conjunction with our other assets) to any third party.
We do not know whether we will bring litigation in the future in an effort to
assert our patent rights, or whether other

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companies will bring litigation challenging our patents. Any such litigation
could be time consuming, costly, and could result in our patents being held
invalid or unenforceable. Furthermore, even if the patents are upheld or are not
challenged, third parties might be able to develop other technologies or
products without infringing any such patents.

    Software Protection

    We have entered into confidentiality and invention assignment agreements
with our employees, and we enter into non-disclosure agreements with certain of
our suppliers, distributors and customers, in order to limit access to and
disclosure of our proprietary information. There can be no assurance that these
contractual arrangements or the other steps we take to protect our intellectual
property will prove sufficient to prevent misappropriation of our technology or
deter independent third-party development of similar technologies. The laws of
certain foreign countries may not protect our products or intellectual property
rights to the same extent, as do the laws of the United States.

    Infringement

    We have in the past, received, and may in the future receive, notices from
third parties claiming that our products, software or asserted proprietary
rights infringe the proprietary rights of third parties. We expect that
developers of wireless and cable modems will be increasingly subject to
infringement claims as the number of products and competitors in our market
grows. While we are not currently subject to any such claim, any future claim,
with or without merit, could be time consuming, result in costly litigation,
cause product shipment delays or require us to enter into royalty or licensing
agreements. Such royalty or licensing agreements might not be available on terms
acceptable to us or at all.

    In the future, we may also file lawsuits to enforce our intellectual
property rights, to protect our trade secrets or to determine the validity and
scope of the proprietary rights of others. Such litigation, whether successful
or not, could result in substantial costs and diversion of resources.
Nonetheless, we may find it necessary to institute further infringement
litigation in the future.

EMPLOYEES

    As of December 31, 2000, we had 62 full-time employees. None of our
employees is represented by a collective bargaining unit with respect to his or
her employment, and we have never experienced an organized work stoppage. We use
consultants, contractors, and temporary workers to supplement our workforce and,
as of December 31, 2000, we had 18 of these in various areas.

ITEM 2. PROPERTIES

    We currently sublease approximately 55,000 square feet of office, research
and development and manufacturing space in San Jose, California. The sublease
expires in April 2004, and we have an option to extend the term of the lease
through October 2009.

ITEM 3. LEGAL PROCEEDINGS

CLASS ACTION LITIGATION

    In June 1998, five class action lawsuits were filed in San Mateo County
Superior Court, California against us, two of our directors, four former
directors and two former officers. The lawsuits were brought on behalf of
purchasers of our common stock during the class period commencing November 12,
1997, the date of our initial public offering, and ending June 1, 1998. In July
1998, a sixth class action lawsuit was filed in the same court against the same
defendants, although the class period was extended to June 18, 1998. All six
lawsuits, which we refer to in this section as the state

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actions, also named as defendants the underwriters in our initial public
offering, but the underwriters were dismissed from the cases.

    The complaints in the state actions claimed that we and the other defendants
violated the anti-fraud provisions of the California securities laws, alleging
that the financial statements used in connection with our initial public
offering and the financial statements issued subsequently during the class
period, as well as related statements made on our behalf during the initial
public offering and subsequently regarding our past and prospective financial
condition and results of operations, were false and misleading. The complaints
also alleged that the other defendants and we made these misrepresentations in
order to inflate the price of our common stock for the initial public offering
and during the class period. The other defendants and we denied the charges of
wrongdoing.

    In July and August 1998, two class action lawsuits were filed in the U.S.
District Court for the Northern District of California, which we refer to in
this section as the federal actions. Both of the federal actions were brought
against the same defendants as the state actions, except that the second federal
action also named as a defendant PricewaterhouseCoopers LLP, or PWC, our former
independent accountants. The underwriters in our initial public offering were
named as defendants in the first federal action but were subsequently dismissed.
The class period for the first federal action is from November 12, 1997 to
June 1, 1998, and the class period in the second Federal Action extends to
June 17, 1998. The complaints in both federal actions claimed that we and the
other defendants violated the anti-fraud provisions of the federal securities
laws, on the basis of allegations that are similar to those made by the
plaintiffs in the state class action lawsuits. The other defendants and we
denied these charges of wrongdoing.

    We and the other parties, other than PWC, to the state actions and the
federal actions reached an agreement to settle the lawsuits in March 1999. The
agreement was approved by the U.S. District Court for the Northern District of
California in June 1999. In November 1999, the settlement of the State Actions
and the Federal Actions became final. The time to appeal from the Court's
approval of the settlement has expired. Under the settlement:

    - our insurers paid $8.8 million on our behalf and on behalf of the other
      officer and director defendants; and

    - we issued 3,045,000 shares of common stock to the plaintiffs and their
      counsel, with 750,000 shares issued in November 1999 and the balance in
      February 2000.

    As a result of the settlement and a related agreement between us and our
insurers, we have paid, and will not be reimbursed by our insurers for, $1.2
million in attorneys fees and other litigation expenses that would otherwise be
covered by our insurance, and we will not have insurance coverage for the
attorneys fees and expenses relating to the settlement that we incur in the
future.

SEC INVESTIGATION

    In October 1998, the Securities and Exchange Commission, or SEC, began a
formal investigation of us and other individuals with respect to our 1997
financial statements and public disclosures. During 1999, we produced documents
in response to the SEC's subpoena and cooperated with the investigation. A
number of current and former officers and employees and outside directors
testified before the staff of the SEC.

    In November 1999, the SEC staff attorneys informed us in writing that the
staff intended to file a civil injunctive action and seek civil monetary
penalties against us for alleged violations of the federal securities laws.

    On June 29, 2000, the SEC filed, in the United States District Court for the
Northern District of California, a complaint against us and three former
employees. On the same day, the court approved

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our settlement with the SEC and entered judgment against us. The court's order
enjoins us from violating the books and records and related provisions of the
federal securities laws but does not include any monetary penalties or an
injunction against the violation of the antifraud provisions of the securities
laws. At December 31, 2000, we had accrued $775,000 in legal fees in connection
with this settlement and related continuing matters.

    We do not believe, based on current information, that the order will have an
adverse impact on our business or financial condition.

PACIFIC MONOLITHICS LAWSUIT

    In March 1999, Pacific Monolithics, Inc., which has filed a voluntary
petition under Chapter 11 of the U.S. Bankruptcy Code and is suing as
debtor-in-possession, filed a lawsuit in Santa Clara County Superior Court,
California against us, two of our directors, four former directors, one of whom
was subsequently dismissed, a former officer and PWC. The lawsuit concerns an
agreement that we entered into in March 1998 to acquire Pacific Monolithics
through a merger, which was never consummated. The complaint alleged that we
induced Pacific Monolithics to enter into the agreement by providing it with our
financial statements, and by making other representations concerning our
financial condition and results of operations, which were false and misleading,
and further alleged that we wrongfully failed to consummate the acquisition. The
complaint claimed the defendants committed breach of contract and breach of
implied covenant of good faith and fair dealing, as well as fraud and negligent
misrepresentation. The complaint sought compensatory and punitive damages
according to proof, plus attorneys' fees and costs. In July 1999, the court
granted our motion to compel arbitration and to stay the lawsuit pending the
outcome of the arbitration.

    In October 1999, the plaintiff filed a demand for arbitration against us and
the individual defendants with the San Francisco office of the American
Arbitration Association. In the demand, the plaintiff alleged claims for breach
of contract, breach of implied covenant of good faith and fair dealing, fraud
and negligent misrepresentation arising out of the proposed merger between the
two companies. The demand sought unspecified compensatory and punitive damages,
pre-judgment interest and attorneys' fees and costs. In November 1999, the
individual defendants and we answered the demand by denying the claims and
seeking an award of attorneys' fees and costs under the agreement for the
proposed merger. The arbitration hearing was held in September 2000.

    On July 7, 2000, the parties participated in a mediation of the dispute in
San Jose, California before the Honorable (Ret.) Peter Stone of Judicial
Arbitration and Mediation Services. The mediation resulted in a stipulation for
settlement of the litigation. The parties formalized the terms of settlement by
entering a settlement agreement and mutual general release and covenant not to
sue dated August 21, 2000. Our former auditors also joined in this agreement.

    Under the terms of the agreement, in full settlement and compromise of all
of Pacific Monolithics' claims against us and our current and former officers
and directors, and in exchange for Pacific Monolithics full release, we agreed
to deliver to Pacific Monolithics the total sum of 213,333 shares of our common
stock, valued at $2,000,000 as of July 7, 2000.

    We delivered 213,333 shares of its common stock to Pacific Monolithics on
September 14, 2000. On September 19, 2000, we filed, and the Santa Clara
Superior Court entered, a request for dismissal with prejudice of the lawsuit.

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

    None.

                                       11
<Page>
PART II

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

MARKET INFORMATION FOR COMMON STOCK

    Our common stock was traded on the Nasdaq National Market under the symbol
"HYBR" during the period from our initial public offering on November 12, 1997
through June 16, 1998. On June 17, 1998, trading in our common stock was
suspended by the Nasdaq National Market, in response to our independent
auditors, PWC, withdrawing their reports to our 1997 financial statements. The
suspension continued until December 1, 1998, when our common stock was de-listed
by the Nasdaq National Market due to continuing noncompliance with listing
requirements. From December 1, 1998 to July 5, 2000, our stock traded in the
over-the-counter market on the pink sheets. On July 6, 2000, our stock was
re-listed on Nasdaq. The table below shows the range of high and low closing
sale prices reported. The table reflects inter-dealer prices without retail
mark-up, mark down or commission. On February 28, 2001, the closing price of our
common stock on the Nasdaq was $3.94.

<Table>
<Caption>
                                                                HIGH       LOW
                                                              --------   --------
<S>                                                           <C>        <C>
First Quarter 1998..........................................   $13.00     $4.00
Second Quarter 1998.........................................   $ 8.75     $2.13
Third Quarter 1998..........................................           Not Traded
Fourth Quarter 1998.........................................   $ 0.75     $0.13
First Quarter 1999..........................................   $ 1.25     $0.13
Second Quarter 1999.........................................   $ 2.88     $0.38
Third Quarter 1999..........................................   $ 9.03     $2.00
Fourth Quarter 1999.........................................   $20.00     $4.75
First Quarter 2000..........................................   $24.50     $8.00
Second Quarter 2000.........................................   $13.50     $4.75
Third Quarter 2000..........................................   $20.19     $5.56
Fourth Quarter 2000.........................................   $18.75     $3.13
</Table>

STOCKHOLDERS

    As of December 31, 2000, there were approximately 660 holders of record of
our common stock

DIVIDENDS

    We have not paid any cash dividends on our capital stock to date. We
currently anticipate that we will retain any future earnings for use in our
business and do not anticipate paying any dividends in the foreseeable future.
The terms of our outstanding debentures and our agreement with Sprint prohibit
us from paying any cash dividends without the consent of the debenture holders
and Sprint.

                                       12
<Page>
ITEM 6. SELECTED FINANCIAL DATA

    The following selected financial data should be read in conjunction with our
financial statements and related notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this Form 10-K.

<Table>
<Caption>
                                                           YEARS ENDED DECEMBER 31,
                                           --------------------------------------------------------
                                             2000        1999        1998       1997(1)      1996
                                           ---------   ---------   ---------   ---------   --------
<S>                                        <C>         <C>         <C>         <C>         <C>
  STATEMENT OF OPERATIONS DATA:
Net sales................................     22,795      13,016      12,418       4,120      2,962
Cost of sales............................     23,139      13,341      14,046       8,899      3,130
                                           ---------   ---------   ---------   ---------   --------

Gross profit.............................       (344)       (325)     (1,628)     (4,779)      (168)

Operating expenses:
  Research and development...............      6,715       4,191       7,771       7,831      5,076
  Sales and marketing....................     16,491       1,740       3,642       4,678      1,786
  General and administrative.............     11,625       7,660       8,933       2,964      1,714
  Asset impairment charge................                     --       1,250          --         --
  Write off of technology license........         --          --       1,283          --         --
                                           ---------   ---------   ---------   ---------   --------

    Total operating expenses.............     34,831      13,591      22,879      15,473      8,576
                                           ---------   ---------   ---------   ---------   --------

      Loss from operations...............    (35,175)    (13,916)    (24,507)    (20,252)    (8,744)
Interest income and other expense, net...       (717)        171         779         316        257
Interest expense.........................     (1,311)     (8,447)       (897)     (1,666)       (28)
                                           ---------   ---------   ---------   ---------   --------

Net loss.................................  $ (37,203)  $ (22,192)  $ (24,625)  $ (21,602)  $ (8,515)
                                           =========   =========   =========   =========   ========

Basic and diluted net loss per share.....  $   (2.03)  $   (2.08)  $   (2.37)  $   (6.10)  $  (3.36)
                                           =========   =========   =========   =========   ========

Shares used in basic and diluted per
  share calculation(2)...................     18,309      10,678      10,410       3,541      2,535
                                           =========   =========   =========   =========   ========
</Table>

<Table>
<Caption>
                                                                     DECEMBER 31,
                                                 ----------------------------------------------------
                                                   2000       1999       1998     1997(1)      1996
                                                 --------   --------   --------   --------   --------
<S>                                              <C>        <C>        <C>        <C>        <C>
  BALANCE SHEET DATA:
Cash and cash equivalents......................  $ 1,878    $13,394    $ 3,966    $27,143    $ 3,886
Working capital................................    6,324     11,527       (812)    23,795      6,944
Total assets...................................   19,664     21,152     15,420     39,065     10,539
Long-term debt.................................    5,632     23,978        419        654        472
Total stockholders' equity (deficit)...........    2,957     (9,820)     2,702     27,303      7,709
</Table>

------------------------

(1) All financial data in the table above as of and for the year ended
    December 31, 1997, as presented, reflect the restated financial statement.

(2) See Note 3 of Notes to Financial Statements for an explanation of the number
    of shares used to compute basic and diluted net loss per share.

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
  OF OPERATIONS

    THE DISCUSSION BELOW SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL
STATEMENTS AND THE NOTES THERETO INCLUDED IN ITEM 8 OF THIS REPORT. THE
DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS RELATING TO

                                       13
<Page>
FUTURE EVENTS OR FINANCIAL RESULTS, SUCH AS STATEMENTS INDICATING THAT "WE
BELIEVE," "WE EXPECT," "WE ANTICIPATE" OR "WE INTEND" THAT CERTAIN EVENTS MAY
OCCUR OR CERTAIN TRENDS MAY CONTINUE. OTHER FORWARD-LOOKING STATEMENTS INCLUDE
STATEMENTS ABOUT THE FUTURE DEVELOPMENT OF PRODUCTS OR TECHNOLOGIES, MATTERS
RELATING TO OUR PROPRIETARY RIGHTS, FACILITIES NEEDS, OUR LIQUIDITY AND CAPITAL
NEEDS AND OTHER STATEMENTS ABOUT FUTURE MATTERS. ALL THESE FORWARD-LOOKING
STATEMENTS INVOLVE RISKS AND UNCERTAINTIES. YOU SHOULD NOT RELY TOO HEAVILY ON
THESE STATEMENTS; ALTHOUGH THEY REFLECT THE GOOD FAITH JUDGMENT OF OUR
MANAGEMENT, THEY INVOLVE FUTURE EVENTS THAT MIGHT NOT OCCUR. WE CAN ONLY BASE
SUCH STATEMENTS ON FACTS AND FACTORS THAT WE CURRENTLY KNOW. OUR ACTUAL RESULTS
COULD DIFFER MATERIALLY FROM THOSE IN THESE FORWARD-LOOKING STATEMENTS AS A
RESULT OF VARIOUS FACTORS, INCLUDING THOSE SET FORTH UNDER "RISK FACTORS" AND
ELSEWHERE IN THIS REPORT ON FORM 10-K.

OVERVIEW

    GENERAL

    We are a broadband access equipment company that designs, develops,
manufactures and markets wireless systems that provide high-speed access to the
Internet for businesses and consumers. Our products greatly accelerate the
response time for accessing bandwidth-intensive information. Since 1996, our
principal product line has been the Hybrid Series 2000, which consists of head
end routers, network and subscriber management tools and a line of wireless
end-user routers or modems.

    We currently sell our products primarily in the United States and Canada,
although we are pursuing opportunities in other countries and we think that
international sales may represent an increasingly greater proportion of our
sales in the future. Our customers primarily include broadband wireless system
operators and national and regional telephone companies. A small number of
customers have accounted for a substantial portion of our net sales, and we
expect that trend to continue. As a result, we have experienced, and expect to
continue to experience, significant fluctuations in our results of operations on
a quarterly and an annual basis. The sales cycle for our products has been
lengthy, and is subject to a number of significant risks, including customers'
budgetary constraints and internal acceptance reviews. Any delay or loss of an
order that is expected in a quarter can have a major effect on our sales and
operating results for that quarter. The same is true of any failure of a
customer to pay for products on a timely basis.

    The market for high-speed network connectivity products and services is
intensely competitive and is characterized by rapid technological change, new
product development, product obsolescence, and evolving industry standards. Our
ability to develop and offer competitive products on a timely basis could have a
material effect on our business. The market for our products has historically
experienced significant price erosion over the life of a product, and we have
experienced, and expect to continue to experience, pressure on our unit average
selling prices. While we have initiated cost reduction programs to offset
pricing pressures on our products, there can be no assurance that we will keep
pace with competitive price pressures or improve our gross margins. Further, we
anticipate that in the future the sales mix of our products will be increasingly
weighted toward lower-margin products, thereby adversely affecting our gross
margins.

    At December 31, 2000, we had 62 full-time employees and 18 local
consultants, contractors, and temporary workers.

                                       14
<Page>
REVENUE RECOGNITION

    We normally ship our products based upon a bona fide purchase order and
volume purchase agreement. We recognize revenue at the time a transaction is
shipped and collection of the resulting account receivable is probable.
Shipments on customer orders with acceptance criteria, installation criteria or
rights of return are recognized as revenue only when the criteria are satisfied.
Revenue related to shipments to distributors is normally recognized upon receipt
of payment for such transactions. As of December 31, 2000, the total amount of
shipments not recognized as revenue due to acceptance or testing criteria or
because they were sold to a distributor was $5.6 million, of which $4.9 million
was in connection with shipments to Sprint. Sprint's purchases of head end
equipment are generally subject to testing and acceptance procedures, and we
anticipate that we will continue to defer recognition of revenue for those
shipments until those procedures have been satisfied and the products have been
accepted by Sprint. In 2000, we recognized $16.1 million as gross revenue from
sales to Sprint Corporation

    The CMG-2000 includes installed software that manages the data flowing to
and from the users of the system and the outside world. Prior to 2000, we
generally sold this product with a three-year technical support contract for
which we did not charge separately. Beginning in 2000, we began offering a
separate one-year technical support contract. As required by Statements of
Position 97-2 "Software Revenue Recognition", revenues from the CMG-2000 are
recognized upon customer acceptance and the revenues from the support contract
are recognized over the term of the contract on a straight-line basis based on
vendor-specific objective evidence of fair value.

    In September 1999, Sprint committed to purchase $10 million of our products
subject to certain conditions. In connection with Sprint's commitment, we issued
to Sprint warrants to purchase up to $8,397,873 in debentures that are
convertible into 2,946,622 shares of our common stock at $2.85 per share. Ten
percent of the warrants became exercisable on the shipment dates when aggregate
shipments of products and services pursuant to purchase orders submitted by
Sprint to us were at least $1 million. Thereafter, each additional shipment of
$1 million entitled Sprint to exercise an additional 10% of its warrants, until
all shipments aggregated $10,000,000. In accordance with the Statement of
Financial Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-Based
Compensation," transactions in equity instruments with non-employees for goods
or services are accounted for using the fair value method prescribed by
SFAS 123. SFAS 123 requires that in each period in which the warrants are
earned, a non-cash charge is to be recorded. The amount of such shipments during
the year ended December 31, 2000 reached the $10,000,000 maximum and therefore,
the warrants became fully exercisable. We originally determined that this
warrant had an estimated value, using the Black-Scholes valuation model, of
$16.1 million, which was fully applied as $2.5 million of sales discounts and
$13.6 million of sales and marketing expense during the nine months ended
September 30, 2000. As part of the year-end closing process, we determined that
subsequent events and market conditions necessitated further analysis of the
warrants' estimated value. In particular, the probability of Sprint's near term
exercise of its warrants diminished with our success in raising equity capital
in February 2001, Sprint's November 2000 announcement of its change in focus of
its broadband efforts for consumers and small businesses, and the recent drop in
our stock price. Consequently, we applied the Black-Scholes method using a
longer expected life of the warrants, that is, the full contract term, and
arrived at an estimated warrant value of $20.8 million. We applied the
additional $4.7 million arising from this change in estimate as sales discounts
in the fourth quarter of 2000.

    WARRANTY COSTS

    We accrue for estimated warranty costs when the related sales revenue is
recognized. Our modem manufacturer, Sharp Corporation, provides warranty on all
cable routers manufactured by them. We provide a warranty on all head end
equipment and CPE equipment that ranges between 12 and 18 months, and we
typically provide a 90-day warranty on software media.

                                       15
<Page>
    NET LOSSES

    We incurred net losses for the years ended December 31, 2000, 1999, and 1998
of $37,203,000, $22,192,000, and $24,625,000, respectively. Our accumulated
deficit was $122,964,000 as of December 31, 2000. We expect to incur losses for
the foreseeable future.

RESULTS OF OPERATIONS

    YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998

    NET SALES.  After non-cash sales discounts of $7,129,000 in 2000 and
$407,000 in 1999, net sales increased 75% to $22,795,000 in 2000 from
$13,016,000 in 1999 and 5% from $12,418,000 in 1998 to $13,016,000 in 1999.
There were no non-cash sales discounts in 1998. The non-cash sales discounts
recorded in 2000 are discussed above in "Revenue Recognition". Non-cash sales
discounts recorded in 1999 were in connection with the issuance of common stock
purchase warrants issued to two customers. We do not have any plans for issuing
additional warrants with sales agreements in the future. Broadband wireless
system operators accounted for 94% of sales in 2000, 48% in 1999, and 43% of
sales in 1998. The growth in revenues in 2000 compared to 1999 is primarily due
to increased sales of fixed broadband wireless equipment, particularly to Sprint
Corporation and Look Communication. Although Look Communications purchased a
substantial amount of our equipment in 2000, we expect to make limited sales to
them in 2001.

    International sales accounted for 24% of gross sales in 2000, 5% in 1999,
and 0% in 1998. In 2000, Hybrid systems were deployed in Canada, Ireland,
Nigeria, Korea, Peru, and Argentina.

    GROSS MARGIN.  Gross margin was negative 1.5% in 2000, negative 2.5% in
1999, and negative 13.1% in 1998. The improved gross margins from 1998 to 1999
was primarily due to an increase in sales volume coupled with a decrease in
fixed manufacturing costs. The improvement in gross margins from 1999 to 2000
was primarily due to an increase in the sales volume of higher margin head end
equipment as compared to total sales. We believe that in 2001 our existing
customers are likely to purchase a greater proportion of CPEs relative to head
end equipment as compared to 2000. We earn substantially higher margins on our
head end equipment than on CPEs and, consequently, expect that gross margin for
2001 will decline unless we either make substantial head end sales to new
customers or secure better margins on the CPEs that we sell to our current
customers.

    RESEARCH AND DEVELOPMENT.  Research and development expenses include ongoing
head end and software development expenses as well as design expenditures
associated with new product development, new product production, manufacturing
cost reduction programs and improvements in the manufacturing of existing
products. Research and development expenses were $6,715,000, $4,191,000, and
$7,771,000 for 2000, 1999, and 1998, respectively. Research and development
expenses included non-cash charges of $470,000, $668,000, and $0 in 2000, 1999,
and 1998, respectively for compensation recognized on stock options granted at
exercise prices below fair market value to employees and fair value for stock
options granted to consultants engaged in research and development. The increase
in research and development expenses in 2000 as compared to 1999 was primarily
due to an increase in personnel costs ($1,037,000) and consulting fees
($1,024,000). The decrease in research and development expenses in 1999 as
compared to 1998 was due to reduced staffing and associated personnel costs
($1,780,000).

    SALES AND MARKETING.  Sales and marketing expenses include primarily
salaries and related payroll costs for sales and marketing personnel,
commissions, advertising, promotions and travel. Sales and marketing expenses
were $16,491,000, $1,740,000, and $3,642,000 during 2000, 1999, and 1998,
respectively and included charges related to the Sprint Warrant in 2000. Sales
and marketing expenses included non-cash charges of $47,000, $88,000, and $0 in
2000, 1999, and 1998, respectively for compensation recognized on stock options
granted at exercise prices below fair market value for

                                       16
<Page>
employees and fair value for stock options granted to consultants engaged in
sales and marketing. In 2000, we incurred non-cash charges, totaling
$13,671,000, due to the recording of the fair value of the earned, but
unexercised Sprint warrants described above. The increase in sales and marketing
expenses in 2000 as compared to 1999 was primarily due to the Sprint warrant
charge ($13,671,000) and to an increase in consulting expenses ($548,000). The
decrease in sales and marketing expenses in 1999 as compared to 1998 was due
principally to a decrease in headcount and related payroll costs ($818,000) and
reduced expenses for advertising, promotion and travel ($566,000). We expect to
increase our sales and marketing expenses as we expand our sales and marketing
efforts in future periods.

    GENERAL AND ADMINISTRATIVE.  General and administrative expenses consist
mainly of salaries and benefits for administrative officers and support
personnel, travel expenses, legal, accounting, and consulting fees. General and
administrative expenses were $11,625,000, $7,660,000, and $8,933,000 during
2000, 1999, and 1998, respectively. General and administrative expenses included
non-cash charges of $287,000, $219,000, and $0 during 2000, 1999, and 1998,
respectively, for compensation recognized on stock options granted at exercise
prices below fair market value to employees and fair value for stock options
granted to consultants engaged in providing general and administrative services.
In addition, the 2000 general and administrative expenses also included non-cash
charges of $3,176,000 relating to the separation of two of our executives, and
$2,000,000 in connection with the Pacific Monolithics lawsuit (see Item 3 "Legal
Proceedings"). No such charges were recorded to general and administrative
expenses in 1999 and 1998. Excluding the non-cash charges described above,
general and administrative expenses in 2000 decreased $1,279,000 compared to
1999. This decrease was due to reductions in legal fees ($2,624,000) that were
offset in part by increases in personnel related costs ($675,000). The decrease
in general and administrative expenses in 1999 as compared to 1998 was primarily
due to a decrease in legal fees ($1,110,000).

    INTEREST INCOME (EXPENSE) AND OTHER.  We incurred net interest expense of
$2,028,000, $8,276,000, and $118,000 in 2000, 1999, and 1998, respectively. In
August 1999, we issued $18.1 million of convertible debentures that were
converted into common stock in June 2000. In 2000, net interest expense included
a premium paid on the conversion of the debentures resulting in a beneficial
conversion element valued at $1,170,000. The increase in net interest expense in
1999 compared to 1998 was due to amortization of the deemed discount on the
debentures of $7,400,000, which resulted from the difference between the
conversion price of the convertible debentures and the then market price of our
common stock. This deemed discount was amortized through December 31, 1999 (the
date on which the debentures became convertible). Excluding the $7,400,000
discount in 1999, the increase in interest expense in 1999 compared to 1998 was
due to accrued interest on the convertible debentures. Excluding the $1,170,000
premium paid in 2000 and the $7,400,000 deemed discount in 1999, interest
expense would have been $858,000 and $876,000 in 2000 and 1999, respectively.

    LIQUIDITY AND CAPITAL RESOURCES

    We have historically financed our operations primarily through a combination
of debt, equity and equipment lease financing. In 1997, we raised $42.5 million
in net proceeds through our initial public offering (in November 1997) and other
debt and equity financing. By September 1999, our cash and cash equivalents had
been virtually exhausted. In September 1999, we raised $18.1 million through the
issuance and sale of convertible debentures to Sprint (in the amount of
$11.0 million) and certain venture capital sources (in the amount of
$7.1 million). During the quarter ended June 30, 2000, at our request, the
holders agreed to convert the entire principal amounting to a face value of
$18.1 million plus accrued interest through June 30, 2000 of $594,000, into
6,559,310 shares of common stock. Upon the conversion, we paid a premium, as an
inducement to the holder's equivalent to the interest that would have been added
to the principal of the debentures for the third and fourth quarters of 2000,
amounting to $375,750. The premium was paid in the form of additional shares of
common stock

                                       17
<Page>
calculated at the conversion price of $2.85 per share and was equivalent to
131,842 shares of common stock.

    Additionally, Sprint acquired warrants to purchase up to $8.4 million of
additional convertible debentures, which debentures were convertible at
December 31, 2000 into 2,946,622 shares of common stock common stock, on the
same terms as the convertible debentures referred to above. The warrants were
issued in consideration for Sprint's obligation to purchase at least
$10 million of our products. The amount of shipments in 2000 totaled at least
$10,000,000. Assuming that as of December 31, 2000, Sprint exercised all its
warrants, it would own 7,013,000 shares of our common stock, representing
approximately 28.2% of the 24,881,570 shares of our common stock that would then
be outstanding (assuming no other security holders exercised their options,
warrants or conversion privileges). On a fully diluted basis, assuming that as
of December 31, 2000 all other security holders exercised their options,
warrants and conversion privileges as well as Sprint, Sprint would own
approximately 21.6% of the 32,431,063 fully diluted shares of our common stock
that would then be outstanding. The actual and fully diluted shares at
December 31, 2000 do not include shares of underlying convertible debentures and
warrants that we sold in February 2001.

    In addition to the above financing, we have outstanding a senior secured
convertible debenture in the face amount of $5.5 million due in April 2002 and
bearing interest at 12% per annum, payable quarterly. The conversion price is
subject to weighted average antidilution provisions whereby, if we issue shares
in the future for consideration below the existing conversion price, then (with
certain exceptions) the conversion price will automatically be decreased,
allowing the holder of the debenture to receive additional shares of common
stock upon conversion.

    Under a securities purchase agreement between us and the Halifax Fund, a
fund managed by the Palladin Group, we issued and sold to the Halifax Fund on
February 16, 2001 securities, including:

    - a $7.5 million principal amount 6% convertible debenture due 2003, which
      will be convertible into shares of our common stock;

    - a common stock purchase warrant to purchase 833,333 shares of common stock
      at $9.00 per share (subject to adjustment) which is exercisable at the
      election of the Halifax Fund, or at our election at a price per share
      equal to the lower of $9.00 or 94% of the daily volume weighted average
      price; and

    - an adjustment warrant.

    The adjustment warrant will be exercisable beginning on the 18th day
following the date (referred to in this discussion as the effective date) that
there is declared effective by the Securities and Exchange Commission the
registration statement that we are required to file with respect to the resale
of the shares of common stock underlying the debentures and warrants. The
adjustment warrant will only be exercisable, however, if the volume weighted
average sale price for our common stock is not more than $7.2694 per share. The
aggregate number of shares issuable pursuant to the exercise of the adjustment
warrant will be determined by dividing $8,625,000 by the adjustment price, as
defined below, and then subtracting the sum of the number of shares of common
stock previously issued pursuant to the conversion of the debenture and the
number issued upon any previous exercise of the adjustment warrant. The
adjustment price is the average of the 15 lowest daily volume weighted average
sale prices of our common stock as reported on Nasdaq, not including the three
lowest days, during the 65 trading day period following the effective date. The
adjustment price will not be below $3.50 per share. The adjustment warrant
terminates three months after the end of the 65 trading day adjustment period.
In consideration for such securities, Palladin paid an initial purchase price of
$7,500,000. We granted to Palladin in the purchase agreement rights of first
refusal, preemptive rights and other rights. Pursuant to the purchase agreement,
we also entered into a Registration Rights Agreement with Palladin.

                                       18
<Page>
    Net cash used in operating activities was $11,742,000, $8,017,000, and
$19,302,000 during 2000, 1999, and 1998, respectively. The net cash used in
operating activities in 2000 was primarily the result of our net loss of
$37,203,000 and an increase in net current assets related to operating
activities of $9,517,000, offset by the beneficial conversion of convertible
debentures of $20,800,000, non-cash compensation charges of $4,596,000
recognized on the grant of stock and stock options at exercise prices which were
lower than fair market on the date of grant to employees and fair value for
stock options granted to consultants, non-cash charges related to the issuance
of stock for settlement of litigation of $2,000,000, non-cash charges related to
the issuance of common stock to induce conversion of debentures of $1,170,000,
and an increase in current liabilities of $5,698,000. The $9,517,000 increase in
current assets was primarily attributable to an increase in net accounts
receivable of $6,561,000, of which $6,108,000 was accounted for by Sprint
Corporation. Inventory increased during 2000 by $1,067,000 after allowing for
amounts related to unrecognized revenues of $3,339,000 and $858,000 as of
December 31, 2000 and 1999, respectively. This net increase was related to the
higher level of sales activity in 2000. The net cash used in operating
activities in 1999 was primarily the result of our net loss of $22,192,000,
partially offset by non-cash charges attributable to the amortization of a
deemed discount on the debentures amounting to $7,394,000, depreciation and
amortization charges of $1,323,000, non-cash compensation charges of $1,031,000,
and a reduction in current operating assets of $3,158,000. Net cash used in
operating activities in 1998 was primarily due to our net loss of $24,625,000,
partially offset by non-cash charges of $6,336,000 and an increase in net
current assets related to operating activities of $1,013,000.

    Net cash used in investing activities was $788,000, $21,000, and $3,014,000
in 2000, 1999, and 1998, respectively. Aggregate capital expenditures for
property and equipment (primarily computers, leasehold improvements, furniture,
fixtures and engineering test equipment) were $788,000, $21,000, and $3,907,000
in 2000, 1999, and 1998, respectively. The significant decrease in capital
expenditures in 2000 and 1999 as compared to 1998 was primarily due to higher
expenditures for leasehold improvements in 1998 that were offset by proceeds
from short-term investments of cash reserves. In the past, we have funded a
substantial portion of our property and equipment expenditures from direct
vendor leasing programs and third party commercial lease arrangements. At
December 31, 2000, we did not have any material commitments for capital
expenditures.

    Net cash provided by financing activities of $1,014,000 in 2000 was
primarily due from the net proceeds of $1,349,000 from the exercise of stock
options. Net cash provided by financing activities was $17,981,000 in 1999
primarily due from proceeds from issuance of convertible debentures and related
common stock warrants and from issuance of common stock for $18,446,000, offset
by repayment of capital lease obligations amounting to $465,000. Net cash used
in financing activities was $391,000 in 1998 primarily as a result of payment of
$478,000 on capital lease obligations, partially offset by net proceeds of
$87,000 from the exercise of stock options. At December 31, 2000, our liquidity
consisted of cash and cash equivalents of $1,878,000 and working capital of
$6,324,000.

    Other than the agreement with Palladin above, as of December 31, 2000 we
have no available line of credit or other source of borrowings or financing. We
believe that, with respect to our current operations, our cash balance, after
giving effect to the financing completed in February 2001, plus revenues from
operations and non-operating cash receipts will be sufficient to meet our
working capital and expenditure needs through 2001. We may seek additional
financing during 2001 through debt, equity or equipment lease financing, or
through a combination of financing vehicles. There is no assurance that
additional financing will be available to us on acceptable terms, or at all,
when we require it.

                                       19
<Page>
    SEASONALITY AND INFLATION

    We do not believe that our business is seasonal or is impacted by inflation.

    NEW ACCOUNTING PRONOUNCEMENTS

    In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS 133). The new standard requires companies to
record derivatives on the balance sheet as assets or liabilities, measured at
fair value. Under SFAS 133, gains or losses resulting from changes in the values
of derivatives are to be reported in the statement of operations or as a
deferred item, depending on the use of the derivatives and whether they qualify
for hedge accounting. The key criterion for hedge accounting is that the
derivative must be highly effective in achieving offsetting changes in fair
value or cash flows of the hedged items during the term of the hedge. This
statement was amended by SFAS 137, issued in June 1999, and it is effective for
our financial statements for the year ended December 31, 2001. We currently
transact substantially all of our revenues and costs in U.S. dollars and have
not entered into any material amounts of derivative instruments. Accordingly,
management does not currently expect adoption of this new standard to have a
significant impact on us.

    RISK FACTORS

    AN INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD
CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW AND THE OTHER INFORMATION IN THIS
REPORT ON FORM 10-K BEFORE INVESTING IN OUR COMMON STOCK. IN THE FUTURE,
ADDITIONAL RISKS THAT WE ARE NOT CURRENTLY AWARE OF OR THAT WE CURRENTLY BELIEVE
ARE IMMATERIAL MAY BECOME IMPORTANT FACTORS THAT AFFECT OUR BUSINESS. IF ANY OF
THE FOLLOWING RISKS OCCUR, OR IF OTHERS OCCUR, OUR BUSINESS, OPERATING RESULTS
AND FINANCIAL CONDITION COULD BE SERIOUSLY HARMED AND THE PRICE OF OUR COMMON
STOCK COULD DECLINE.

    WE EXPECT THAT WE WILL NEED ADDITIONAL CAPITAL TO CONTINUE OUR OPERATIONS

    Although we raised over $35 million in net proceeds from our initial public
offering in November 1997, our capital resources were nearly exhausted by
September 1999. In September 1999, we raised $18.1 million through the issuance
and sale of convertible debentures. In February 2001, we entered an agreement
with the Halifax Fund, L.P., under which we have raised $7.5 million and may
raise an additional $7.5 million upon the exercise of warrants issued to Halifax
under the agreement. We believe we have sufficient capital to continue
operations through the year 2001. However, we expect that we will need to raise
additional cash in the future to support further growth in our business. If we
engage in research and development under our agreement with Sprint, we may need
additional capital.

    Our ability to raise additional capital may be limited by a number of
factors, including:

    - Sprint's veto rights, right of first refusal and other substantial rights
      and privileges,

    - our dependence upon Sprint's business and, to a lesser extent, the
      business of our other customers,

    - uncertainties and concerns resulting from our past financial reporting
      difficulties, class action litigation and related issues,

    - our need to increase our work force quickly and effectively and to reduce
      the cost of our existing products and develop new products,

    - uncertainty about our financial condition and results of operations and,

    - our history of heavy losses,

                                       20
<Page>
    We can give no assurance that we will be able to raise the additional
capital we will need in the future. Further, any financing we may be able to
obtain may be on terms that are harmful to our business and our ability to raise
additional capital. We may not have sufficient capital or other resources
necessary to meet the requirements of our equipment purchase agreement with
Sprint or with other large customers in the future.

    WE ARE LARGELY DEPENDENT ON SPRINT FOR OUR FUTURE BUSINESS, AND SPRINT HAS A
     GREAT DEAL OF INFLUENCE OVER OUR CORPORATE GOVERNANCE.

    We expect that a substantial portion of our future business will primarily
come from wireless customers who hold spectrum license rights. Sprint has
acquired a significant portion of the wireless spectrum licenses in the United
States, so our future business will be substantially dependent upon orders from
Sprint. Sprint accounted for 54% of our gross sales in the year ended
December 31, 2000 and 84% of our net sales in the quarter ended March 31, 2001.
Sprint uses our products in its initial offering of wireless Internet access
services. We have only a small number of other customers.

    Sprint also has significant control over our corporate governance. For
example, Sprint may designate two directors to serve on our board of directors.
Further, we cannot issue any securities, with limited exceptions, or, in most
cases, take important corporate action without Sprint's approval. Sprint has
other rights and privileges, including a right of first refusal on any proposed
change in our control. This right of first refusal is assignable by Sprint to
any third party. Further, if Sprint exercises warrants it currently holds, and
assuming that no other warrant holders exercise, Sprint would beneficially own
as of March 31, 2001, approximately 27.9% of our common stock. Sprint will have
a great deal of influence on us in the future. We cannot be sure that Sprint
will exercise this influence in our best interests, as Sprint's interests are in
many respects different than ours.

    We have entered into an equipment purchase agreement with Sprint that
imposes substantial requirements on us. We must:

    - meet Sprint's schedule for the manufacture and shipment of products;

    - satisfy commitments for product development;

    - satisfy installation and maintenance obligations; and

    - license our technology to specified third parties.

    Sprint's obligation to purchase our products is subject to extensive testing
and acceptance procedures. If we fail to meet the requirements of the agreement,
we could be subject to heavy penalties, including the obligation to license our
intellectual property rights to Sprint on a royalty-free basis. Sprint may also
gain access to the key source code of our products.

    CHANGES IN PLANS OR CIRCUMSTANCES AT OUR LARGEST CUSTOMERS COULD SERIOUSLY
     HARM OUR SALES.

    In late 2000, Sprint, our largest customer for that year, completed a
reorganization of its operations including the business to which we sell our
products. As part of this reorganization, Sprint announced that it was focusing
its broadband efforts in 13 geographical markets in the residential and small
business areas. In light of these plans, we expect to sell a relatively smaller
amount of our higher margin head end equipment to Sprint as compared to our
earlier plans. This could reduce our sales and gross margins.

    In late 2000, Look Communications, our second largest customer for that
year, encountered difficulties in securing additional financing to support the
continued growth of its operations. We believe that Look Communications is
exploring alternatives to obtain additional financing but cannot be sure that it
will succeed. We did not make any sales to Look in the quarter ended March 31,
2001.

                                       21
<Page>
    WE HAVE NOT BEEN PROFITABLE, AND WE MAY NEVER BE PROFITABLE. WE EXPECT
     CONTINUING LOSSES IN THE FUTURE.

    We have not been profitable and we cannot assure you that we will ever
achieve or sustain profitability. We were organized in 1990 and have had
operating losses every year. Our accumulated deficit was $129 million as of
March 31, 2001. The potential of our business to produce revenue and profit is
unproven. The market for our products has only recently begun to develop and is
rapidly changing. Our market has an increasing number of competing technologies
and competitors, and several of our competitors are significantly larger than
us. We have experienced pressure to lower the price of our products in the past
and we expect that these pressures will continue. We expect to incur losses in
the future.

    WE MUST BE ABLE TO QUICKLY AND EFFECTIVELY DEVELOP NEW PRODUCTS AND
     ENHANCEMENTS FOR OUR EXISTING PRODUCTS, AND DISTRIBUTE OUR PRODUCTS ON A
     MUCH LARGER SCALE THAN WE HAVE IN THE PAST. WE MIGHT NOT BE ABLE TO MEET
     THESE CHALLENGES.

    To meet the existing and future demands of the broadband wireless market, we
must develop new products and enhance our existing products. Further, Sprint and
other potential large customers will require us to demonstrate that our system
can be successfully distributed on a much larger scale than it has been in the
past. We might be unable to meet these challenges.

    Sprint and other potential customers are also requesting equipment that can
serve customers in locations that do not have direct line-of-sight to the
wireless operators' antenna. We are developing new products to serve these
subscribers. If another company is successful in developing a cost effective non
line-of-sight system before we do, our business will be harmed.

    WE DEPEND ON THE BROADBAND WIRELESS MARKET, WHICH IS A NEWLY DEVELOPING
     MARKET THAT IS SUBJECT TO UNCERTAINTIES.

    Before 2000, over half our sales were to cable customers. The cable industry
has now developed a standard known as the Data Over Cable System Interface
Specification. Our products do not conform to this standard, and we have
experienced substantially reduced sales to cable customers. We are now focusing
our business on the wireless industry, which is new and subject to
uncertainties.

    The wireless industry competes with other technologies, including cable and
digital subscriber lines to provide high-speed Internet access. The cable and
digital subscriber line technologies avoid the principal disadvantage of
wireless, which requires direct line-of-sight between the wireless operator's
antenna and the customer's location. Wireless system operators also face a
number of licensing and regulatory restrictions. Conditions in the wireless
market could change rapidly and significantly from technological changes.
Further, the development and market acceptance of alternative technologies could
decrease the demand for our products or make them obsolete. There can be no
assurance that the wireless industry market will grow or that our products will
be accepted in the emerging market. We expect to face substantial competition in
this market, which could limit our sales and impair our business.

    WE FACE SIGNIFICANT COMPETITION, INCLUDING COMPETITION FROM LARGE COMPANIES.

    Our market is intensely competitive, and we expect even more competition in
the future. Several of our competitors are substantially larger and have greater
financial, technical, marketing, distribution, customer support, greater name
recognition and access to customers, than we have. One of our principal
competitors, Cisco, has recently announced that it has a competitive wireless
technology that will offer cost effective performance and will operate
successfully in environments in which it is difficult to obtain a line-of-sight
between the customer's location and the wireless operators' antennae. Cisco's
system may provide benefits superior to ours. We believe that other companies
also have similar

                                       22
<Page>
products under development. Further, our product development may be harmed by
our lack of engineering resources. There can be no assurance that we will be
able to compete successfully in the future.

    We have agreed with Sprint that in the future we will allow third parties to
license our technology. These third parties may offer products that compete with
ours, using our technology. This could create significant new competitive
challenges for us. Our business depends upon the technical success and working
relationships of companies that produce other parts of our system. These
companies may decide to compete with us in the future, which could limit our
growth and harm our business.

    WE MAY BECOME INVOLVED IN LITIGATION OVER OUR INTELLECTUAL PROPERTY WHICH
     COULD RESULT IN SIGNIFICANT COSTS AND MIGHT DIVERT THE ATTENTION OF OUR
     MANAGEMENT.

    Litigation may be necessary in the future to enforce our intellectual
property rights, to determine the validity and scope of our patents, and to
determine the validity and scope of the proprietary rights of others. This
litigation might result in substantial costs and could divert the attention of
our management. Further, others may claim that our products infringe upon their
proprietary rights. These claims, with or without merit, could result in
significant litigation costs, diversion of the attention of our management and
serious to our business. We may be required to enter into royalty and license
agreements that may have terms that are disadvantageous to us. If litigation is
successful against us, it could result in the invalidation of our proprietary
rights and our incurring liability for damages, which could have a harmful
effect on our business. In the past, we initiated one patent infringement
litigation to enforce our patent rights. This litigation resulted in a
settlement in which we granted licenses to the defendants containing terms that
are in some respects favorable to them. For example, we granted to one of the
defendants, Com21, Inc. a right of first refusal to purchase our patents. We may
find it necessary to institute further infringement litigation, and third
parties may institute litigation against us challenging the validity of our
patents.

    MARKET PRESSURE TO REDUCE THE PRICE OF OUR PRODUCTS HAS HURT OUR BUSINESS,
     AND THE PRESSURE IS LIKELY TO INCREASE.

    We have experienced pressure from our customers, including Sprint, to lower
prices for our products, and we expect that this pressure to lower the prices of
our products will continue and increase. Market acceptance of our products, and
our future success, will depend in part on reductions in the unit cost of our
products. Our ability to reduce our prices has been limited by several factors,
including our reliance on one manufacturer of our modems and on limited sources
for other components of our products. Our research and development efforts seek
to reduce the cost of our products through design and engineering changes. We
have no assurance that we will be able to redesign our products to achieve
substantial cost reductions or that we will otherwise be able to reduce our
manufacturing and other costs. Any reductions in cost may not be sufficient to
improve our gross margins, which must substantially improve for us to operate
profitably.

    WE RELY ON A SINGLE MANUFACTURER FOR OUR END-USER PRODUCTS AND ON LIMITED
     SOURCES FOR OUR COMPONENTS, SOME OF WHICH ARE BECOMING OBSOLETE

    We outsource manufacturing of our Series 2000 modem products to a single
manufacturer, Sharp Corporation, while maintaining only a limited manufacturing
capability for pre-production assembly and testing. Since we have only one
manufacturing source for our modems, our ability to reduce our manufacturing
costs may be limited.

    We are dependent upon key suppliers for a number of components within our
Series 2000 products, including Texas Instruments, Hitachi, and Intel. There can
be no assurance that these and other single-source components will continue to
be available to us, or that deliveries to us will not be

                                       23
<Page>
interrupted or delayed due to shortages. Having single-source components also
makes it more difficult for us to reduce our costs for these components and
makes us vulnerable to price increases by the component manufacturer. Any
significant interruption or delay in the supply of components for our products
or any increase in our costs for components could seriously harm our business.

    OUR LONG SALES CYCLE MAKES IT DIFFICULT FOR US TO FORECAST REVENUES,
     REQUIRES US TO INCUR HIGH SALES COSTS AND AGGRAVATES FLUCTUATIONS IN
     QUARTERLY OPERATING RESULTS. OUR SALES CYCLE MAY GET LONGER.

    The sale of our products typically takes between six and twelve months.
Customers usually want to perform significant technical evaluation before making
a purchase. There are often delays resulting from our customers' internal
procedures to approve the large capital expenditures that are typically involved
in purchasing our products. This makes it difficult for us to predict revenue.
Since we incur sales costs before we make a sale or recognize related revenues,
the length and uncertainty of our sales cycle increases the volatility of our
operating results because we have high costs without offsetting revenues. Over
the last year, our industry has consolidated so that our principal and potential
customers are large service providers, including telecommunications companies.
These larger customers tend to have longer and more exhaustive review and
testing processes, which has increased our selling expenses and lengthened our
sales cycle.

    INTERNATIONAL SALES COULD INVOLVE GREATER RISKS.

    Although we sell our products primarily in the United States and Canada, we
are pursuing opportunities in other countries. We believe that international
sales may represent an increasingly greater proportion of our sales in the
future. In 2000, international sales accounted for 24% of our gross sales,
compared to 5% in 1999. Sales will be subject to a number of risks, including
longer payment cycles, export and import restrictions, foreign regulatory
requirements, greater difficulty in accounts receivable collection, potentially
adverse tax consequences, political and economic instability and reduced
intellectual property protection. To increase our international coverage we rely
on value added resellers, commonly known as VARs, or integrators. These VARs may
not remain our exclusive distributors. They also compete with each other in some
areas so it may be difficult for us to protect our international distribution
channels. Further, the frequency spectrum and amount of spectrum available
internationally varies from country to country. We will depend on our VARs to
develop radio equipment that complies with local licenses, which may slow
distribution in some international markets.

    WE DEPEND ON OUR KEY PERSONNEL, AND HIRING AND RETAINING QUALIFIED EMPLOYEES
     IS DIFFICULT.

    Our success depends in significant part upon the continued services of our
key technical, sales and management personnel. Our officers or employees can
terminate their relationships with us at any time. Our future success also
depends on our ability to attract, train, retain and motivate highly qualified
technical, marketing, sales and management personnel. There can be no assurance
that we will be able to attract and retain key personnel. The loss of the
services of one or more of our key personnel or our failure to attract
additional qualified personnel could prevent us from meeting our product
development goals and could significantly impair our business.

    WE MAY BE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY.

    We rely on a combination of patent, trade secret, copyright and trademark
laws and contractual restrictions to establish and protect our intellectual
property rights. We cannot assure that our patents will cover all the aspects of
our technology that require patent protection or that our patents will not be
challenged or invalidated, or that the claims allowed in our patents may not be
of sufficient scope or strength to provide meaningful protection or commercial
advantage to us. We initiated one patent infringement lawsuit to enforce our
rights, which resulted in a settlement. We do not know whether we will need to
bring litigation in the future to assert our patent rights, or whether other
companies will

                                       24
<Page>
bring litigation challenging our patents. This litigation could be time
consuming and costly and could result in our patents being held invalid or
unenforceable. Even if the patents are upheld or are not challenged, third
parties might be able to develop other technologies or products without
infringing any of these patents.

    We have entered into confidentiality and invention assignment agreements
with our employees, and we enter into non-disclosure agreements with some of our
suppliers, distributors, and customers, to limit access to and disclosure of our
proprietary information. These contractual arrangements or the other steps we
take to protect our intellectual property may not be sufficient to prevent
misappropriation of our technology or deter independent third-party development
of similar technologies. The laws of foreign countries may not protect our
products or intellectual property rights to the same extent, as the laws of the
United States.

    We have in the past received, and may in the future receive, notices from
persons claiming that our products, software or asserted proprietary rights
infringe the proprietary rights of these persons. We expect that developers of
wireless technologies will be increasingly subject to infringement claims as the
number of products and competitors as our market grows. While we are not subject
to any infringement claims, any future claim, with or without merit, could be
time consuming, result in costly litigation, cause product shipment delays or
require us to enter into royalty or licensing agreements. Royalty or licensing
agreements might not be available on terms acceptable to us or at all.

    DEFECTS IN OUR PRODUCTS COULD CAUSE PRODUCT RETURNS AND PRODUCT LIABILITY.

    Products as complex as ours frequently contain undetected errors, defects or
failures, especially when introduced or when new versions are released. In the
past, our products have contained these errors, and there can be no assurance
that errors will not be found in our current and future products. The occurrence
of errors, defects or failures could result in product returns and other losses.
They could also result in the loss of or delay in market acceptance of our
products. These might also subject us to claims for product liability.

    GOVERNMENT REGULATION MAY NEGATIVELY IMPACT OUR FUTURE GROWTH

    We are subject to federal, state and local government regulation. For
instance, the regulations of the Federal Communications Commission, or FCC,
extend to high-speed Internet access products such as ours. Further,
governmental regulation of our customers may limit our growth and hurt our
business. Each of our customers has filed applications to operate within a
frequency spectrum regulated by the FCC. Delays in approvals by the FCC may
limit our future growth. If the FCC changes its decision to open the frequency
spectrum for full utilization, the future growth of the wireless industry could
be limited.

    IF WE ARE DE-LISTED FROM THE NASDAQ NATIONAL MARKET, THE PRICE OF OUR COMMON
     STOCK COULD DROP, AND IT MAY BE MORE DIFFICULT TO TRADE OUR COMMON STOCK.

    The factors referred to in this section tend to cause our operating results
to vary substantially from quarter to quarter. These fluctuations have caused
the prices of our common stock to decline in the past and may reduce these
prices in the future.

    Our common stock trades on the Nasdaq National Market, which imposes
requirements to maintain the continued listing of our common stock on that
market, including that we must maintain a minimum bid price of $5.00 per share
for our common stock and have a market capitalization of at least $50 million.
Our common stock was de-listed from the Nasdaq National Market and did not trade
on Nasdaq between mid-June 1998 and July 6, 2000. We have received notices from
Nasdaq indicating that we failed to meet its requirements and that our common
stock may be de-listed from trading on the Nasdaq National Market. On June 7,
2001, we received a determination letter from the staff of

                                       25
<Page>
Nasdaq indicating that we had failed to comply with the minimum market
capitalization requirement for continued listing on the Nasdaq National Market,
and that our common stock would be de-listed. Further, the staff denied our
application to transfer the listing of our stock to the Nasdaq Small Cap Market.
We have requested a hearing before the Nasdaq Listing Qualifications Panel to
review the determination by the staff of Nasdaq. This hearing, scheduled for
July 19, 2001, defers the de-listing of our common stock by Nasdaq pending a
decision by the Listing Qualifications Panel.

    De-listing of our common stock could reduce our stockholders' ability to buy
or sell shares as quickly and as inexpensively as they have done historically.
This reduced liquidity would make it more difficult for us to raise capital in
the future. The trading price of our common stock could decline due to the
change in liquidity and reduced publicity resulting from being de-listed from
the Nasdaq National Market.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

    Not applicable.

                                       26
<Page>
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL DATA

<Table>
<S>                                                           <C>
Independent Auditor's Report................................     28

Financial Statements:

Balance Sheets as of December 31, 2000 and 1999.............     29
Statements of Operations for the Years Ended December 31,
  2000, 1999, and 1998......................................     30
Statement of Stockholders' Equity (Deficit) for the Years
  Ended December 31, 2000,
  1999, and 1998............................................     31
Statements of Cash Flows for the Years Ended December 31,
  2000, 1999, and 1998......................................     32
Notes to Financial Statements...............................     33

Supplementary Financial Data:

Selected Quarterly Financial Data (Unaudited). Two years
  ended December 31, 2000...................................     52
</Table>

                                       27
<Page>
                          INDEPENDENT AUDITOR'S REPORT

The Stockholders and Board of Directors
Hybrid Networks, Inc.
San Jose, California

    We have audited the accompanying balance sheets of Hybrid Networks, Inc. as
of December 31, 2000 and 1999, and the related statements of operations,
stockholders' equity (deficit), and cash flows for each of the years in the
three year period ended December 31, 2000. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audits 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, the financial statements referred to above present fairly,
in all material respects, the financial position of Hybrid Networks, Inc. as of
December 31, 2000 and 1999, and the results of its operations and its cash flows
for each of the years in the three year period ended December 31, 2000, in
conformity with generally accepted accounting principles.

/s/ HEIN & ASSOCIATES LLP
HEIN & ASSOCIATES LLP
Certified Public Accountants
Orange, California
February 16, 2001

                                       28
<Page>
                             HYBRID NETWORKS, INC.
                                 BALANCE SHEETS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)

<Table>
<Caption>
                                                                   DECEMBER 31,
                                                              ----------------------
                                                                 2000        1999
                                                              ----------   ---------
<S>                                                           <C>          <C>
                           ASSETS
Current assets:
    Cash and cash equivalents...............................  $    1,878   $  13,394
    Accounts receivable, net of allowance for doubtful
      accounts of $200 in 2000 and 1999 (Includes related
      party receivables of $6,164 and $56 at December 31,
      2000 and 1999, respectively)..........................       7,699       1,138
    Inventories (Includes inventory subject to acceptance by
      related party of $2,472 and $0 at December 31, 2000
      and 1999, respectively)...............................       7,303       3,755
    Prepaid expenses and other current assets...............         519         234
                                                              ----------   ---------

      Total current assets..................................      17,399      18,521
  Property and equipment, net...............................       2,000       2,244
  Intangibles and other assets..............................         265         387
                                                              ----------   ---------

      Total assets..........................................  $   19,664   $  21,152
                                                              ==========   =========

       LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
  Current portion of capital lease obligations..............  $       29   $     336
  Accounts payable..........................................       4,529       2,035
  Accrued liabilities and other (Includes deferred revenue
    from a related party of $3,710 and $16 at December 31,
    2000 and 1999, respectively)............................       6,517       4,623
                                                              ----------   ---------
      Total current liabilities.............................      11,075       6,994
Convertible debentures (Includes related party convertible
  debenture of $1 and $11,139 at December 31, 2000 and 1999,
  respectively).............................................       5,501      23,827
Capital lease obligations, less current portion.............          --          29
Other long-term liabilities.................................         131         122
                                                              ----------   ---------

      Total liabilities.....................................  $   16,707   $  30,972
                                                              ----------   ---------

Commitments and contingencies (Notes 6,8,9, and 10)

Stockholders' equity (deficit):
  Convertible preferred stock, $.001 par value:
    Authorized: 5,000 shares;
      Issued and outstanding: no shares in 2000 or 1999.....          --          --
  Common stock, $.001 par value:
    Authorized: 100,000 shares;
      Issued and outstanding: 21,935 shares in 2000 and
        11,481 shares in 1999...............................          22          11
  Additional paid-in capital................................     125,899      75,823
  Unrealized gain on available-for-sale securities..........           -         107
  Accumulated deficit.......................................    (122,964)    (85,761)
                                                              ----------   ---------

      Total stockholders' equity (deficit)..................       2,957      (9,820)
                                                              ----------   ---------

      Total liabilities and stockholders' equity
        (deficit)...........................................  $   19,664   $  21,152
                                                              ==========   =========
</Table>

   The accompanying notes are an integral part of these financial statements.

                                       29
<Page>
                             HYBRID NETWORKS, INC.
                            STATEMENTS OF OPERATIONS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)

<Table>
<Caption>
                                                                  YEARS ENDED DECEMBER 31,
                                                              ---------------------------------
                                                                2000        1999        1998
                                                              ---------   ---------   ---------
<S>                                                           <C>         <C>         <C>
Net sales
  Products (Includes related party sales of $8,911, $99, and
    $0 for the years ended December 31, 2000, 1999, and
    1998, respectively).....................................  $  21,711   $  12,499   $  12,039
  Services and software (Includes related party sales of
    $263, $28, and $0 for the years ended December 31, 2000,
    1999, and 1998, respectively)...........................      1,084         517         379
                                                              ---------   ---------   ---------
Total net sales.............................................     22,795      13,016      12,418
Cost of sales
  Products (Includes related party cost of sales of $10,876,
    $58, and $0 for the years ended December 31, 2000, 1999,
    and 1998, respectively).................................     22,318      12,718      12,986
  Services and software.....................................        821         623       1,060
                                                              ---------   ---------   ---------
Total cost of sales.........................................     23,139      13,341      14,046
                                                              ---------   ---------   ---------

Gross loss..................................................       (344)       (325)     (1,628)
                                                              ---------   ---------   ---------

Operating expenses:
  Research and development..................................      6,715       4,191       7,771
  Sales and marketing (Includes expense of $13,671, $0, and
    $0 to record the fair value of warrants issued to a
    related party during the years ended December 31, 2000,
    1999, and 1998, respectively)...........................     16,491       1,740       3,642
  General and administrative................................     11,625       7,660       8,933
  Asset impairment charge...................................         --          --       1,250
  Write off of technology license...........................         --          --       1,283
                                                              ---------   ---------   ---------

    Total operating expenses................................     34,831      13,591      22,879
                                                              ---------   ---------   ---------

      Loss from operations..................................    (35,175)    (13,916)    (24,507)
Interest income and other expense (Includes expense for
  inducement to convert related party convertible debenture
  of $711, $0, and $0 for the years ended December 31, 2000,
  1999, and 1998, respectively).............................       (717)        171         779
Interest expense (Includes related party interest expense of
  $316, $4,632, and $0 for the years ended December 31,
  2000, 1999, and 1998, respectively).......................     (1,311)     (8,447)       (897)
                                                              ---------   ---------   ---------
      Net loss..............................................  $ (37,203)  $ (22,192)  $ (24,625)
                                                              =========   =========   =========

Basic and diluted loss per share............................  $   (2.03)  $   (2.08)  $   (2.37)
                                                              =========   =========   =========

Shares used in basic and diluted per share calculation......     18,309      10,678      10,410
                                                              =========   =========   =========
</Table>

   The accompanying notes are an integral part of these financial statements.

                                       30
<Page>
                             HYBRID NETWORKS, INC.
                  STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
                                 (IN THOUSANDS)
<Table>
<Caption>
                                      PREFERRED STOCK          COMMON STOCK       ADDITIONAL
                                  -----------------------   -------------------    PAID-IN     COMPREHENSIVE    ACCUMULATED
                                   SHARES       AMOUNT       SHARES     AMOUNT     CAPITAL     INCOME (LOSS)      DEFICIT
                                  ---------   -----------   --------   --------   ----------   --------------   ------------
<S>                               <C>         <C>           <C>        <C>        <C>          <C>              <C>
Balances, January 1, 1998.......        --    $       --     10,345      $10       $ 66,145        $  92         $ (38,944)
  Exercise of common stock
    options.....................        --            --        127       --             87           --                --
  Grant of stock bonus awards...        --            --          1                       5           --                --
  Charge due to acceleration of
    options.....................        --            --         --       --             24           --                --
  Reclassification for gains
    included in net loss........        --            --         --       --             --          (92)               --
  Net loss......................        --            --         --       --             --           --           (24,625)
  Comprehensive loss............        --            --         --       --             --           --                --
                                  ---------   -----------    ------      ---       --------        -----         ---------
Balances, December 31, 1998.....        --            --     10,473       10         66,261           --           (63,569)

  Exercise of common stock
    options.....................        --            --        251       --            345           --                --
  Stock issued for services.....        --            --          7       --             56           --                --
  Sales discount recognized on
    issuance of warrants to
    customers...................        --            --         --       --            407           --                --
  Compensation recognized on
    issuance of stock options...        --            --         --       --            975           --                --
  Class action settlement stock
    issued......................        --            --        750        1            385           --                --
  Discount related to beneficial
    conversion of notes.........        --            --         --       --          7,394           --                --
  Unrealized gain on
    investments.................        --            --         --       --                         107                --
  Net loss......................        --            --         --       --                                       (22,192)
  Comprehensive loss............        --            --         --       --             --           --                --
                                  ---------   -----------    ------      ---       --------        -----         ---------
Balances, December 31, 1999.....        --            --     11,481       11         75,823          107           (85,761)

  Exercise of common stock
    options.....................        --            --      1,181        1          1,348           --                --
  Exercise of warrants..........        --            --         71        1                          --                --
  Convertible debt conversion...        --            --      6,691        7         19,930           --                --
  Stock Bonus...................        --            --          3       --             27           --                --
  Sales discount recognized on
    issuance of warrants to
    customer....................        --            --         --       --         20,800           --                --
  Compensation recognized on
    issuance of stock options...        --            --         --       --          4,596           --                --
  Class action and other lawsuit
    settlement stock issued.....        --            --      2,508        2          3,301           --                --
  Discount related to beneficial
    conversion of notes.........        --            --         --       --             74           --                --
  Unrealized gain on
    investments.................        --            --         --       --             --         (107)               --
  Net loss......................        --            --         --       --             --           --           (37,203)
  Comprehensive loss............        --            --         --       --             --           --                --
                                  ---------   -----------    ------      ---       --------        -----         ---------
Balances, December 31, 2000.....        --    $       --     21,935      $22       $125,899        $  --         $(122,964)
                                  ---------   -----------    ------      ---       --------        -----         ---------

<Caption>

                                             COMPREHENSIVE
                                   TOTAL          LOSS
                                  --------   --------------
<S>                               <C>        <C>
Balances, January 1, 1998.......  $ 27,303
  Exercise of common stock
    options.....................        87
  Grant of stock bonus awards...         5
  Charge due to acceleration of
    options.....................        24
  Reclassification for gains
    included in net loss........       (92)     $    (92)
  Net loss......................   (24,625)      (24,625)
                                                --------
  Comprehensive loss............        --      $(24,717)
                                  --------      --------
Balances, December 31, 1998.....     2,702
  Exercise of common stock
    options.....................       345
  Stock issued for services.....        56
  Sales discount recognized on
    issuance of warrants to
    customers...................       407
  Compensation recognized on
    issuance of stock options...       975
  Class action settlement stock
    issued......................       386
  Discount related to beneficial
    conversion of notes.........     7,394
  Unrealized gain on
    investments.................       107      $    107
  Net loss......................   (22,192)      (22,192)
                                                --------
  Comprehensive loss............        --      $(22,085)
                                  --------      --------
Balances, December 31, 1999.....    (9,820)
  Exercise of common stock
    options.....................     1,349
  Exercise of warrants..........         1
  Convertible debt conversion...    19,937
  Stock Bonus...................        27
  Sales discount recognized on
    issuance of warrants to
    customer....................    20,800
  Compensation recognized on
    issuance of stock options...     4,596
  Class action and other lawsuit
    settlement stock issued.....     3,303
  Discount related to beneficial
    conversion of notes.........        74
  Unrealized gain on
    investments.................      (107)     $   (107)
  Net loss......................   (37,203)      (37,203)
                                                --------
  Comprehensive loss............        --      $(37,310)
                                  --------      --------
Balances, December 31, 2000.....  $  2,957
                                  --------
</Table>

   The accompanying notes are an integral part of these financial statements.

                                       31
<Page>
                             HYBRID NETWORKS, INC.
                            STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<Table>
<Caption>
                                                                 YEARS ENDED DECEMBER 31,
                                                              ------------------------------
                                                                2000       1999       1998
                                                              --------   --------   --------
<S>                                                           <C>        <C>        <C>
Cash flows from operating activities:
  Net loss..................................................  $(37,203)  $(22,192)  $(24,625)
  Adjustments to reconcile net loss to net cash used in
    operating activities:
    Depreciation and amortization...........................     1,139      1,323      1,883
    Amortization of discount related to beneficial
     conversion feature (Includes related party amounts of
     $4,494 for the year ended December 31, 1999)...........        --      7,394         --
    Issuance of stock for settlement of litigation..........     2,000         --         --
    Asset impairment charge.................................        --         --      1,250
    Provision for doubtful accounts.........................        --         --        200
    Provision for excess and obsolete inventory.............      (862)       529      1,691
    Compensation recognized upon issuance of stock and stock
     options................................................     4,596      1,031         --
    Common stock issued to induce conversion of debenture
     (Includes stock issued to a related party of $711 for
     the year ended December 31, 2000)......................     1,170         --         --
    Beneficial conversion of convertible debentures
     (Includes related party amount of $90 for the year
     ended December 31, 2000)...............................       149         --         --
    Sales discounts recognized on issuance of warrants to
     customers (Includes discounts for a related party and
     marketing expense of $20,800 and $0 for the year ended
     December 31, 2000 and 1999, respectively)..............    20,800        407         --
    Stock bonus.............................................        27         --          5
    Charge for accelerated vesting of options...............        --         --         24
    Interest added to principal of convertible debentures
     (Includes interest for a related party of $226 and $138
     for the year ended December 31, 2000 and 1999,
     respectively)..........................................       368        226         --
    Gain on available for sale of securities................      (107)       107         --
    Write off technology license............................        --         --      1,283
    Change in assets and liabilities........................        --
      Restricted cash.......................................        --        515       (515)
      Accounts receivable...................................    (6,561)       295       (505)
      Inventories...........................................    (2,686)       940       (645)
      Prepaid expenses and other current assets.............      (270)       630       (502)
      Accounts payable......................................     2,494        (28)      (222)
      Other long term liabilities...........................         8         68         --
      Accrued liabilities and other.........................     3,196        738      1,376
                                                              --------   --------   --------
      Net cash used in operating activities.................   (11,742)    (8,017)   (19,302)
                                                              --------   --------   --------
  Cash flows from investing activities:
    Purchase of property and equipment......................      (788)       (21)    (3,907)
    Disposal of property and equipment......................        --         --         74
    Change in other assets..................................        --         --        (74)
    Purchase of short-term investments......................        --         --    (11,772)
    Proceeds from disposal of short-term investments........        --         --     12,665
                                                              --------   --------   --------
    Net cash used in investing activities...................      (788)       (21)    (3,014)
                                                              --------   --------   --------
  Cash flows from financing activities:
    Repayment of capital lease obligations..................      (335)      (465)      (478)
    Net proceeds from issuance of common stock..............     1,349        345         87
    Proceeds from issuance of convertible debentures and
     related common stock warrants (Includes related party
     amount of $11,139 for the year ended December 31,
     1999)..................................................        --     18,101         --
                                                              --------   --------   --------
  Net cash provided by (used in) financing activities.......     1,014     17,981       (391)
                                                              --------   --------   --------
  Increase (Decrease) in cash and cash equivalents..........   (11,516)     9,943    (22,707)
  Cash and cash equivalents, beginning of period............    13,394      3,451     26,158
                                                              --------   --------   --------
  Cash and cash equivalents, end of period..................  $  1,878   $ 13,394   $  3,451
                                                              ========   ========   ========
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES:
  Common stock issued to settle class action liability......  $  1,303   $    386   $     --
  Property and equipment acquired under capital leases......        --         --        280
  Common stock issued in conversion of convertible debt.....    18,694         --         --

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
  Interest paid.............................................       855        710        802
</Table>

   The accompanying notes are an integral part of these financial statements.

                                       32
<Page>
                              HYBRID NETWORKS, INC
                         NOTES TO FINANCIAL STATEMENTS

1.  FORMATION AND BUSINESS OF THE COMPANY

    The Company, which was incorporated in Delaware on June 6, 1990, is a
broadband access equipment company that designs, develops, manufactures and
markets wireless and cable systems that provide high-speed access to the
Internet and corporate intranets for both businesses and consumers. The
Company's products remove the bottleneck over the local connection to the end
user which causes slow response time for those accessing bandwidth intensive
information.

2.  BASIS OF PRESENTATION

    The Company was organized in 1990 and has had operating losses since then.
The Company's accumulated deficit was $122,964,000 as of December 31, 2000, and
$85,761,000 as of December 31, 1999. Although the Company has raised large sums
of capital in the past, including over $35 million in net proceeds from its
initial public offering in November 1997, and over $18 million from the issuance
and sale of convertible debentures in September 1999, and in February 2001, the
Company entered an agreement with a fund of the Palladin Group that provided the
Company with an initial $7.5 million in cash, and may provide the Company up to
an additional $7.5 million in the future, the Company is losing money at a rate
that will require it to raise additional capital in the future.

    The Company may seek additional financing during 2001 through debt, equity
or equipment lease financing or through a combination of financing vehicles
(including the possible exercise of warrants issued to Sprint Corporation
("Sprint") as discussed in Note 6). The Company's ability to continue as a going
concern is dependent on obtaining additional financing to fund its current
operations and, ultimately, generating sufficient revenues to obtain profitable
operations. There is no assurance that the Company will be successful in these
efforts.

    At December 31, 2000, the Company's liquidity consisted of cash and cash
equivalents of $1,878,000 and working capital of $6,324,000. The Company's
indebtedness consisted of $5.5 million in convertible debentures The Company
believes that its cash balance, plus anticipated revenues from operations, and
non-operating cash receipts will be sufficient to meet the Company's working
capital and expenditure needs through the year 2001.

3.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES

    The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

    The Company's financial statements are based upon a number of significant
estimates, including the estimated useful lives selected for property and
equipment, accrued liabilities related to product warranties and litigation, and
valuation allowances for accounts receivable, inventory and property and
equipment. Due to uncertainties inherent in the estimation process, it is at
least reasonably possible that these estimates will be further revised in the
near term and such revisions could be material.

FAIR VALUE OF FINANCIAL INSTRUMENTS

    The estimated fair values for financial instruments under SFAS No. 107
"Disclosures About Fair Value of Financial Instruments," are determined at
discrete points in time based on relevant market

                                       33
<Page>
information. These estimates involve uncertainties and cannot be determined with
precision. The fair value of available-for-sale securities is based on market
prices for the securities and is equivalent to its carrying value. The fair
values of capital leases and convertible debentures are based upon borrowing
rates that are available to the Company for obligations with similar terms,
collateral, and maturity. At December 31, 2000, the estimated fair value of
these liabilities approximate their carrying values.

BUSINESS RISKS AND CREDIT CONCENTRATION

    The Company sells its products primarily to broadband wireless system
operators principally in North America. The Company performs ongoing credit
evaluations of its customers and does not require collateral. The Company also
maintains allowances for potential losses on collectability of accounts
receivable, as needed, and such losses have been within management's
expectations.

    The Company operates in the intensely competitive and rapidly changing
communications industry which has been characterized by rapid technological
change, evolving industry standards, and federal, state and local regulation
which may impede the Company's penetration of certain markets.

    The Company currently operates in one industry segment with one product
line. The Company's future success depends upon its ability to develop,
introduce, and market new products, its ability to obtain components from key
suppliers, obtaining sufficient manufacturing capacity, and the success of the
broadband access business. The Company may experience future fluctuations in
operating results and declines in selling prices.

    Credit risk represents the accounting loss that would be recognized at the
reporting date if counter parties failed completely to perform as contracted.
Concentrations of credit risk (whether on or off balance sheet) that arise from
financial instruments exist for groups of customers or groups of counter parties
when they have similar economic characteristics that would cause their ability
to meet contractual obligations to be similarly effected by changes in economic
or other conditions. In accordance with SFAS No. 105, "Disclosure of Information
about Financial Instruments with Off-Balance-Sheet Risk and Financial
Instruments with Concentrations of Credit Risk," financial instruments that
subject the Company to credit risk consist of cash balances maintained in excess
of federal depository insurance limits, investments in commercial paper (which
are classified as cash equivalents), and accounts receivable, which have no
collateral or security.

    The Company derived 77% of its revenue in 2000 from two customers and this
concentration represents a risk to the Company. If there were significant
reductions in sales to these customers and should the Company be unable to
replace this business with sales to alternative customers, there would be a
negative impact on the Company.

    In accordance with SFAS No. 105, disclosure is required of significant
concentrations of credit risk from one or more counterparties for all financial
instruments. The Company had accounts receivable from two customers at December
31, 2000 that together represented 98% of total accounts receivable. The
inability to collect receivables from either one of these customers would have a
significant negative impact on the Company.

CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

    Cash equivalents consist of highly liquid investment instruments with a
maturity at the time of purchase of three months or less. Instruments with a
maturity at the time of purchase of greater than three months but less than one
year from the date of purchase are included in short-term investments.

INVENTORIES

    Inventories are stated at the lower of cost (first-in, first-out basis) or
market.

                                       34
<Page>
PROPERTY AND EQUIPMENT

    Property and equipment are recorded at cost. Depreciation is computed on a
straight-line basis over the estimated useful lives of two to five years.
Leasehold improvements are amortized over the lesser of their estimated useful
lives or the lease term. The cost of normal maintenance and repairs is charged
to operations as incurred. Material expenditures, which increase the life of an
asset are capitalized and depreciated over the estimated remaining useful life
of the asset. The cost of fixed assets sold, or otherwise disposed of, and the
related accumulated depreciation or amortization is removed from the accounts,
and any gains or losses are reflected in current operations.

INTANGIBLES AND OTHER ASSETS

    At December 31, 2000 and 1999, intangibles and other assets included
deferred financing costs relating to fees incurred in connection with the
issuance of a senior convertible debenture in April 1997. The deferred financing
costs are amortized over the five-year life of the debenture (see Note 6). Total
accumulated amortization of deferred financing costs as of December 31, 2000 and
1999 was $320,000 and $213,000, respectively. At December 31, 1997, intangibles
also included the value assigned to the purchase of certain technologies
relating to a technology support and development agreement signed in November
1997. In connection with entering into the technology support and development
agreement, the Company issued a five-year warrant to purchase 458,295 shares of
common stock at an exercise price of $10.91 per share. The amount attributed to
the value of the warrants was $2,200,000. The Company periodically assesses the
recoverability of intangible assets by determining whether the amortization of
the asset balance over the remaining life can be recovered through undiscounted
future operating cash flows. The amount of impairment, if any, is measured based
on projected discounted future operating cash flows and is recognized as a write
down of the asset to a net realizable value. The unamortized value of the
technologies of approximately $1,283,000 was charged to expense in the second
quarter of 1998 as it was determined to be of no further value to the Company.

REVENUE RECOGNITION

    We normally ship our products based upon a bona fide purchase order and
volume purchase agreement. We recognize revenue at the time a transaction is
shipped and collection of the resulting account receivable is probable.
Shipments on customer orders with acceptance criteria, installation criteria or
rights of return are recognized as revenue only when the criteria are satisfied.
Revenue related to shipments to distributors is normally recognized upon receipt
of payment for such transactions. As of December 31, 2000, the total amount of
shipments not recognized as revenue due to acceptance or testing criteria or
because they were sold to a distributor was $5.6 million, of which $4.9 million
was in connection with shipments to Sprint. Sprint's purchases of head end
equipment are generally subject to testing and acceptance procedures and the
Company anticipates that it will continue to defer recognition of revenue for
those shipments until those procedures have been satisfied and the products have
been accepted by Sprint. In 2000, the Company recognized $16.1 million as gross
revenue from sales to Sprint.

    The CMG-2000 includes installed software that manages the data flowing to
and from the users of the system and the outside world. Prior to 2000, we
generally sold this product with a three-year technical support contract for
which we did not charge separately. Beginning in 2000, we began offering a
separate one-year technical support contract. As required by Statements of
Position 97-2 "Software Revenue Recognition", revenues from the CMG-2000 are
recognized upon customer acceptance and the revenues from the support contract
are recognized over the term of the contract on a straight-line basis based on
vendor-specific objective evidence of fair value

                                       35
<Page>
PRODUCT DEVELOPMENT COSTS

    Costs related to research, design and development of products are charged to
research and development expenses as incurred. Software development costs are
included in research and development and are expensed as incurred. Statement of
Financial Accounting Standards No. 86 (SFAS 86) requires the capitalization of
certain software development costs from when technological feasibility is
established, which the Company defines as completion of a working model and when
the software is available for sale to the Company's customers. The capitalized
cost is then amortized on a straight-line basis over the estimated product life,
or on the ratio of current revenues to total projected product revenues,
whichever is greater. To date, the period between achieving technological
feasibility and the general availability of such software has been short and
software development costs qualifying for capitalization have been
insignificant. Accordingly, the Company has not capitalized any software
development costs.

STOCK-BASED COMPENSATION

    The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for its employee stock options. In accordance with
Statement of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for
Stock-Based Compensation," the Company will disclose the impact of adopting the
fair value accounting of employee stock options. Transactions in equity
instruments with non-employees for goods or services have been accounted for
using the fair value method prescribed by SFAS 123.

INCOME TAXES

    The Company accounts for income taxes under the liability method, which
requires recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax assets and
liabilities are determined based on the difference between the financial
statements and tax bases of assets and liabilities using enacted tax rates in
effect for the year in which the difference are expected to reverse.

COMPUTATION OF BASIC AND DILUTED LOSS PER SHARE

    Basic earnings per share excludes dilution and is computed by dividing
income available to common stockholders by the weighted average number of shares
of common stock outstanding for the period. Diluted earnings per share reflects
the potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock or resulted in
the issuance of common stock that then shared in the earnings of the entity. All
such securities or other contracts were anti-dilutive for all periods presented
and, therefore, excluded from the computation of loss per share.

COMPREHENSIVE INCOME (LOSS)

    Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130 (SFAS 130), "Reporting Comprehensive Income."
SFAS 130 requires that all items recognized under accounting standards as
comprehensive income be reported in an annual financial statement that is
displayed with the same prominence as other annual financial statements.
Comprehensive income (loss) includes all changes in equity (net assets) during a
period from non-owner sources. Examples of items to be included in comprehensive
income, which are excluded from net income (loss), include foreign currency
translation adjustments and unrealized gain/loss on available-for-sale
securities. The Company has presented comprehensive income (loss) for each
period presented within the Statement of Stockholder's Equity (Deficit).

                                       36
<Page>
NEW ACCOUNTING PRONOUNCEMENTS

    In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS 133). The new standard requires companies to
record derivatives on the balance sheet as assets or liabilities, measured at
fair value. Under SFAS 133, gains or losses resulting from changes in the values
of derivatives are to be reported in the statement of operations or as a
deferred item, depending on the use of the derivatives and whether they qualify
for hedge accounting. The key criterion for hedge accounting is that the
derivative must be highly effective in achieving offsetting changes in fair
value or cash flows of the hedged items during the term of the hedge. This
statement was amended by SFAS 137, issued in June 1999, such that it is
effective for the Company's financial statements for the year ended
December 31, 2001. The Company currently transacts substantially all of its
revenues and costs in U.S. dollars and to date has not entered into any material
amounts of derivative instruments. Accordingly, management does not currently
expect adoption of this new standard to have a significant impact on the
Company.

RECLASSIFICATION

    Certain reclassifications have been made to the 1999 and 1998 financial
statements in order to conform to the 2000 presentation. Such reclassifications
had no effect on the previously reported net loss.

4.  INVENTORIES

    Inventories are comprised of the following (in thousands):

<Table>
<Caption>
                                                                2000       1999
                                                              --------   --------
<S>                                                           <C>        <C>
Raw materials...............................................   $2,633     $2,251
Work in progress............................................    1,144        190
Finished goods..............................................    3,526      1,314
                                                               ------     ------
                                                               $7,303     $3,755
                                                               ======     ======
</Table>

    At December 31, 2000 and 1999, finished goods inventory included $2,730,000
and $0, respectively, of equipment that had been shipped to customers but for
such shipments the related revenue was deferred pending final customer
acceptance.

    The allowance for excess and obsolete inventory was $1,980,219 and
$2,842,000 at December 31, 2000 and 1999, respectively. The provision for excess
and obsolete inventory included in cost of sales was $235,000, $529,000, and
$1,691,000 for the years ended December 31, 2000, 1999, and 1998, respectively.

                                       37
<Page>
5.  PROPERTY AND EQUIPMENT

    Property and equipment consist of the following (in thousands):

<Table>
<Caption>
                                                              DECEMBER 31,
                                                           -------------------
                                                             2000       1999
                                                           --------   --------
<S>                                                        <C>        <C>
Machinery and equipment..................................  $  3,828   $  3,059
Office furniture and fixtures............................       747        747
Leasehold improvements...................................     1,922      1,914
                                                           --------   --------
                                                              6,497      5,720
Less accumulated depreciation and amortization...........    (4,497)    (3,476)
                                                           --------   --------
                                                           $  2,000   $  2,244
                                                           ========   ========
</Table>

    Furniture and equipment purchased under capital leases included in the above
table total $681,000 and $1,687,000 less accumulated amortization of $391,000
and $1,422,000 as of December 31, 2000 and 1999, respectively.

    Depreciation and amortization expense related to property and equipment was
$1,139,000, $1,215,000, and $1,233,000 for the years ended December 31, 2000,
1999, and 1998, respectively.

    Due to the under utilization of the Company's San Jose headquarters, the
1998 financial statements include a fourth quarter charge of $1,250,000
reflecting the impairment of leasehold improvements and office furniture and
fixtures.

6.  CONVERTIBLE DEBENTURES

    In 1997, the Company issued a senior convertible secured debenture in the
amount of $5,500,000, bearing interest at 12% per annum, payable quarterly, and
maturing on April 30, 2002. An arrangement fee of $500,000 was paid by the
Company. If the Company issues any shares (with certain exceptions for employee
stock options and the like) for consideration less than the current conversion
price, any such issuance would be subject to certain "weighted average"
antidilution provisions.

    The debenture is collateralized by substantially all of the Company's
assets. The Company is prohibited from making plant or fixed capital
expenditures in excess of $5,500,000 and $11,000,000 during the 12 months ending
March 31, 2000 and 2001, respectively. Additionally, the Company is prohibited
from, among other things, declaring dividends, retiring any subordinated debt
other than in accordance with the debenture's terms, or distributing its assets
to any stockholder as long as the debenture remains outstanding.

    The Company's capital expenditures exceeded the maximum capital expenditures
allowed for the 12 months ending March 31, 1999. The holder has waived this
condition for the 12 month period ending March 31, 1999.

ISSUANCES OF SECURITIES TO SPRINT CORPORATION AND TO OTHER INVESTORS

    In September 1999, the Company issued to Sprint Corporation ("Sprint") a
convertible debenture in the face amount of $11 million due in 2009 and bearing
interest at 4% per annum, compounded monthly (accrued interest is automatically
added to principal quarterly)(the "Sprint Debenture"). The Sprint Debenture was
convertible at any time after December 31, 1999, at Sprint's option, into
3,907,775 shares of the Company's common stock at a conversion price of $2.85
per share (including accrued interest) (subject to adjustment). At any time on
or after December 31, 2000, the Company could require the conversion of the
Sprint Debenture. Concurrently with the issuance of the foregoing securities to
Sprint, the Company issued to certain other investors for $7.1 million
convertible debentures in the face amount of $7.1 million due in 2009 and
bearing interest at 4% per annum,

                                       38
<Page>
compounded monthly (accrued interest is automatically added to principal
quarterly). These debentures had substantially the same terms as the Sprint
Debenture. Like the Sprint Debenture, these debentures were exercisable by the
holders at any time after December 31, 1999, at their option, into 2,522,291
shares of the Company's common stock (subject to adjustment and including
accrued interest). At any time on or after December 31, 2000, the Company could
require the conversion of the debentures. The conversion price was $2.85. The
investors that purchased the debentures were (i) partnerships associated with a
firm of which a director of the Company is an executive partner; (ii) a
partnership managed by a firm of which a former director (who was a director at
the time of the investment) is a general partner; and (iii) an individual who is
a director of the Company. During the quarter ended June 30, 2000, at the
request of the Company, the holders agreed to convert the entire principal
amounting to a face value of $18.1 million plus accrued interest through
June 30, 2000, of $594,000, into 6,559,310 shares of common stock. Upon the
conversion, we paid a premium as an inducement to the holders' equivalent to the
interest that would have been added to the principal of the debentures for the
third and fourth quarters of 2000, amounting to $375,750. The premium was paid
in the form of additional shares of common stock calculated at the conversion
price of $2.85 per share and was equivalent to 131,842 shares of common stock.
The fair value of the stock was $8.87 per share at the time the premium was paid
creating a beneficial conversion element valued at $1,170,000, which was
recorded to interest expense at June 30, 2000.

    In September 1999, at the time of Sprint's purchase of our debentures, we
issued to Sprint, warrants to purchase up to $8.4 million of additional
convertible debentures (subject to the shipment of up to $10 million of products
and services pursuant to purchase orders) which debentures will be convertible
into up to 2,946,622 shares of our common stock on the same terms and conditions
as the convertible debentures referred to above. Ten percent of the warrants
became exercisable on the shipment dates when aggregate shipments of products
and services pursuant to purchase orders submitted by Sprint to the Company were
at least $1 million. With each additional $1 million of shipments, Sprint was
entitled to exercise an additional 10% of the warrants until the aggregate
shipments were $10,000,000. In accordance with the Statement of Financial
Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-Based
Compensation," transactions in equity instruments with non-employees for goods
or services are accounted for using the fair value method prescribed by SFAS
123. SFAS 123 requires that in each period in which the warrants are earned, a
non-cash charge will be recorded. The amount of such shipments during the year
ended December 31, 2000 reached the $10,000,000 maximum and, based on the
warrants' conversion ratio, this amount gave Sprint the right to receive
2,946,622 shares of the Company's common stock under the warrants, if exercised
in full. In accordance with the provisions of SFAS 123, the fair value of each
warrant was estimated using the following assumptions: dividend yield of 0%,
volatility ranging between 107.2% to 127.0%, risk-free interest rates at the
date of grant ranging from 6.07% to 6.41%, and an expected term of five years.
The final value of this purchase right, using the Black-Scholes valuation model,
was $20,800,000. Of this amount, $7,129,000 was recorded as a direct sales
discount to offset recognized sales to Sprint. The balance of $13,671,000 was
recorded as an operating expense of the Sales and Marketing department.

    Assuming as of December 31, 2000, that Sprint would exercise all of its
purchase warrants, it would own 7,013,068 shares of our common stock,
representing approximately 28.2% of the 24,881,570 shares of our common stock
that would then be outstanding (assuming no other security holders exercised
their options, warrants or conversion privileges). On a fully diluted basis,
assuming that as of December 31, 2000, all other security holders exercised
their options, warrants and conversion privileges as well as Sprint, Sprint
would own approximately 21.6% of the 32,431,063 fully diluted shares of our
common stock that would then be outstanding. In addition, under the terms of our
agreements with Sprint, Sprint has substantial rights with respect to our
corporate governance. Two of our directors are Sprint designees, and we cannot
issue any securities (with limited exceptions) or, in most cases, take any
material corporate action without Sprint's approval. Sprint has other rights and

                                       39
<Page>
privileges as well, including pre-emptive rights and a right of first refusal in
the case of any proposed change of control transaction, which right of first
refusal is assignable by Sprint to any third party.

    The Company also issued to Sprint in September 1999 a $1,000 debenture due
in 2009 which is convertible by Sprint at any time into a newly created
Series J preferred stock of the Company. Under the purchase agreement for the
debentures and under the terms of the Series J preferred stock, Sprint has the
right to elect two directors to the Company's board of directors and Sprint's
approval will be required for many types of decisions involving corporate
governance (including veto rights over most material actions the Company might
take, see Note 10 below). In addition, Sprint has certain rights of first
refusal and preemptive rights in respect of certain issuance's of securities by
the Company and other rights, including a right of first refusal with respect to
any change of control agreement (as defined), which right of first refusal it
can assign to third parties.

7. ACCRUED LIABILITIES AND OTHER

    Accrued liabilities and other consists of the following (in thousands):

<Table>
<Caption>
                                                                2000       1999
                                                              --------   --------
<S>                                                           <C>        <C>
Accrued payroll and related accruals........................   $  813        173
Accrued class action settlement and related legal
  expenses..................................................      775      2,946
Deferred revenue and customer deposits......................    3,916        797
Other liabilities...........................................    1,013        707
                                                               ------     ------
                                                               $6,517     $4,623
                                                               ======     ======
</Table>

LOSS CONTINGENCIES

    As required by SFAS No. 5 "Accounting for Contingencies", the Company
records liabilities for loss contingencies, including those arising from claims,
assessments, litigation, fines and penalties, and other sources when it is
probable that a liability has been incurred and the amount of the liability can
be reasonably estimated. At December 31, 2000, the Company has accrued $775,000
for loss contingencies arising from pending litigation, which, in the opinion of
management, are probable and reasonably estimable. This accrual includes an
estimate of future legal costs based on opinions of legal counsel and our
experience in related cases. (See Note 9) The amounts accrued for pending
litigation were $775,000, $2,946,000 and $399,000 at December 31, 2000, 1999 and
1998, respectively. The total amounts charged to operations in connection with
litigation expenses were $2,688,000, $3,312,000, and $4,422,000 for the years
ended December 31, 2000, 1999, and 1998, respectively.

                                       40
<Page>
8. COMMITMENTS

LEASE OBLIGATIONS

    The Company entered into certain non-cancelable operating and capital lease
commitments, which expire at various dates through April 2004. Capital leases
bear interest at rates ranging from 7.6% to 10.1%. Future minimum lease payments
under all non-cancelable leases are as follows (in thousands):

<Table>
<Caption>
                                                             CAPITAL    OPERATING
                                                              LEASES     LEASES
                                                             --------   ---------
<S>                                                          <C>        <C>
2001.......................................................    $30       $  899
2002.......................................................                 950
2003.......................................................                 976
2004.......................................................                 406
                                                               ---       ------
Total......................................................     30       $3,231
                                                                         ======
Less amount representing interest..........................     (1)
                                                               ---
                                                                29
Less current portion.......................................    (29)
                                                               ===
                                                               $--
                                                               ===
</Table>

Rent expense for 2000, 1999 and 1998 was approximately $926,000, $1,064,000, and
$955,000, respectively.

    The Company's only long-term operating lease is for approximately 55,000
square feet of office, research and development, and manufacturing space in San
Jose, CA. This sublease expires in April 2004.

EMPLOYMENT AGREEMENTS

    The Company has entered into employment agreements with two officers and
retention agreements with two others. The agreements provide for aggregate
annual salaries of $1,240,000 until the employee voluntarily terminates or
renegotiates the agreement. The agreements may be canceled at any time for
cause. If the Company terminates the agreements for reasons other than cause,
aggregate severance due under the agreements would be $1,240,000.

9. CONTINGENCIES

CLASS ACTION LITIGATION

    In June 1998, five class action lawsuits were filed in San Mateo County
Superior Court, California against the Company, two of its directors, four
former directors and two former officers. The lawsuits were brought on behalf of
purchasers of the Company's common stock during the class period commencing
November 12, 1997 (the date of the Company's initial public offering) and ending
June 1, 1998. In July 1998, a sixth class action lawsuit was filed in the same
court against the same defendants, although the class period was extended to
June 18, 1998. All six lawsuits (the State Actions) also named as defendants the
underwriters in the Company's initial public offering, but the underwriters have
since been dismissed from the cases.

    The complaints in the State Actions claimed that the Company and the other
defendants violated the anti-fraud provisions of the California securities laws,
alleging that the financial statements used in connection with the Company's
initial public offering and the financial statements issued subsequently during
the class period, as well as related statements made on behalf of the Company
during the initial public offering and subsequently regarding the Company's past
and prospective financial condition and

                                       41
<Page>
results of operations, were false and misleading. The complaints also alleged
that the Company and the other defendants made these misrepresentations in order
to inflate the price of the Company's common stock for the initial public
offering and during the class period. The Company and the other defendants
denied the charges of wrongdoing.

    In July and August 1998, two class action lawsuits were filed in the U.S.
District Court for the Northern District of California (the Federal Actions).
Both of the Federal Actions were brought against the same defendants as the
State Actions, except that the second Federal Action also named as a defendant
Price Waterhouse Coopers, LLP (PWC), the Company's former independent
accountants. (The underwriters in the Company's initial public offering were
named as defendants in the first Federal Action lawsuit but were subsequently
dismissed.) The class period for the first Federal Action is from November 12,
1997 to June 1, 1998, and the class period in the second Federal Action extends
to June 17, 1998. The complaints in both Federal Actions claimed that the
Company and the other defendants violated the anti-fraud provisions of the
federal securities laws, on the basis of allegations that are similar to those
made by the plaintiffs in the state class action lawsuits. The Company and the
other defendants denied these charges of wrongdoing.

    The Company and the other parties (other than PWC) to the State Actions and
the Federal Actions reached an agreement to settle the lawsuits in March 1999,
which agreement was approved by the U.S. District Court for the Northern
District of California in June 1999. In November 1999, the settlement of State
Actions and the Federal Actions became final. The time to appeal from the
court's approval of the settlement has expired. Under the settlement, (i) the
Company's insurers paid $8.8 million on the behalf of the Company and the
officer and director defendants, and (ii) the Company issued 3,045,000 shares of
common stock to the plaintiffs and their counsel (750,000 shares were issued in
November 1999, and 2,295,000 shares were issued in February 2000), representing
21.9% of the shares of the Company's common stock that were outstanding at the
end of February 2000. As a result of the settlement and a related agreement
between the Company and its insurers, the Company has paid, and will not be
reimbursed by its insurers for, $1.2 million in attorneys fees and other
litigation expenses that would otherwise be covered by its insurance, and the
Company does not have insurance coverage for the attorneys fees and expenses
relating to the settlement that it incurs in the future.

SEC INVESTIGATION

    In October 1998, the Securities and Exchange Commission began a formal
investigation of the Company and certain individuals with respect to the
Company's 1997 financial statements and public disclosures. The Company produced
documents in response to the Securities and Exchange Commission's subpoena and
cooperated with the investigation. A number of current and former officers and
employees and outside directors testified before the Securities and Exchange
Commission's staff.

    In November 1999, the SEC staff attorneys informed the Company in writing
that the staff intended to file a civil injunctive action and seek civil
monetary penalties against the Company for alleged violations of the federal
securities laws.

    On June 29, 2000, the SEC filed in the United States District Court for the
Northern District of California a complaint against the Company and three former
employees. On the same day, the court approved the Company's settlement with the
SEC and entered judgment against the Company. The court's order enjoins the
Company from violating the books and records and related provisions of the
federal securities laws but does not include any monetary penalties or an
injunction against the violation of the antifraud provisions of the securities
laws. At December 31, 2000, the Company has accrued $775,000 in legal fees in
connection with this settlement and related continuing matters

                                       42
<Page>
    The Company does not believe, based on current information, that the order
will have a material adverse impact on the Company's business or financial
condition.

PACIFIC MONOLITHICS LAWSUIT

    In March 1999, Pacific Monolithics, Inc. (which had filed a voluntary
petition under Chapter 11 of the U.S. Bankruptcy Code and is suing as
debtor-in-possession) filed a lawsuit in Santa Clara County Superior Court,
California against the Company, two of its directors, four former directors (one
of whom was subsequently dismissed), a former officer and PWC. The lawsuit
concerns an agreement that the Company entered into in March 1998 to acquire
Pacific Monolithics through a merger, which acquisition was never consummated.
The complaint alleged that the Company induced Pacific Monolithics to enter into
the agreement by providing it with financial statements, and by making other
representations concerning the Company's financial condition and results of
operations, which were false and misleading, and further alleged that the
Company wrongfully failed to consummate the acquisition. The complaint claimed
the defendants committed breach of contract and breach of implied covenant of
good faith and fair dealing, as well as fraud and negligent misrepresentation.
The complaint sought compensatory and punitive damages according to proof, plus
attorneys' fees and costs. In July 1999, the court granted the Company's motion
to compel arbitration and to stay the lawsuit pending the outcome of the
arbitration.

    In October 1999, the plaintiff filed a demand for arbitration against the
Company and the individual defendants with the San Francisco office of the
American Arbitration Association. In the demand, the plaintiff alleged claims
for breach of contract, breach of implied covenant of good faith and fair
dealing, fraud and negligent misrepresentation arising out of the proposed
merger between the two companies. The demand sought unspecified compensatory and
punitive damages, pre-judgment interest and attorneys' fees and costs. In
November 1999, the Company and the individual defendants answered the demand by
denying the claims and seeking an award of attorneys' fees and costs pursuant to
the agreement for the proposed merger. The arbitration hearing was scheduled to
be held in September 2000.

    On July 7, 2000, the Parties participated in a mediation of the dispute in
San Jose, California before the Honorable (Ret.) Peter Stone of JAMS. The
mediation resulted in a Stipulation for Settlement of the litigation. The
Parties formalized the terms of settlement by entering a Settlement Agreement &
Mutual General Release and Covenant Not to Sue (the "Agreement") dated August
21, 2000. The Company's former auditors also joined in the Agreement.

    Pursuant to the terms of the Agreement, in full settlement and compromise of
all of Pacific Monolithics' claims against the Company and its current and
former officers and directors, and in exchange for Pacific Monolithics full
release thereof, the Company agreed to deliver to Pacific Monolithics the total
sum of 213,333 shares of the Company's common stock, valued at $2,000,000 as of
July 7, 2000.

    The Company delivered 213,333 shares of its common stock to Pacific
Monolithics on September 14, 2000. On September 19, 2000, the Company filed, and
the Santa Clara Superior Court entered, a Request for Dismissal with Prejudice
of the lawsuit.

10. STOCKHOLDERS' EQUITY

PREFERRED STOCK

    The Board of Directors has authorized the issuance of up to 5,000,000 shares
of undesignated preferred stock and the Board has the authority to issue the
undesignated preferred stock in one or more series and to fix the rights,
preferences, privileges and restrictions thereof. In September 1999,

                                       43
<Page>
the Board authorized a Series J preferred stock with special voting rights;
including the right to elect two members of the Board and veto rights over the
following:

    - adopting an Annual Business Plan (as defined) or taking any actions that
      materially deviate from such plan;

    - making any capital expenditures in excess of $2 million in the aggregate
      in any fiscal year, except to the extent contemplated in the Annual
      Business Plan;

    - making any acquisition or disposition of any interests in any other person
      or business enterprise or any assets, in a single transaction or a series
      of related transactions, in which the fair market value of the
      consideration paid or received by the Company exceeds $1 million;

    - organizing, forming or participating in any joint venture or similar
      entity involving the sharing of profits in which the assets or services to
      be contributed or provided by the Company to such joint venture or other
      entity have a fair market value in excess of $1 million;

    - forming a subsidiary;

    - issuing any common stock, preferred stock or other capital stock or any
      stock or securities (including options and warrants) convertible into or
      exercisable or exchangeable for common stock, preferred stock or other
      capital stock or amending the terms of any such stock or securities or any
      agreements relating thereto (other than employee stock options approved by
      the Board of Directors of the Company and common stock issued upon
      exercise thereof) or effecting any stock split or reverse stock split or
      combination;

    - entering into any transaction between the Company, on the one hand, and
      any affiliate or associate of the Company (as defined), on the other,
      other than the payment of compensation and other benefits to employees and
      directors in the ordinary course of business;

    - declaring or paying any dividend or other distribution with respect to the
      capital stock of the Company;

    - incurring any indebtedness for borrowed money or capital lease obligations
      that are not expressly contemplated in the then-current Annual Business
      Plan in excess of $250,000 in the aggregate during any fiscal year;

    - amending the Company's Certificate of Incorporation or Bylaws or creating
      or amending any stockholders' rights plan;

    - declaring bankruptcy; or

    - liquidating or dissolving the Company.

    None of the Series J preferred stock was outstanding at December 31, 2000.

INITIAL PUBLIC OFFERING AND CONVERSION OF PREFERRED STOCK

    In November 1997, the Company filed a registration statement with the
Securities and Exchange Commission permitting the Company to sell shares of its
common stock to the public. The offering was completed on November 12, 1997. In
connection with the initial public offering, all outstanding shares of preferred
stock were converted into shares of common stock.

WARRANTS

    The Company has historically issued warrants in connection with its various
rounds of financing, equipment lease lines, and transfers of technology.
Warrants have been valued using the Black-Scholes Option Pricing Model.

                                       44
<Page>
    In connection with the issuance of Series G preferred stock in July 1996,
and the 1996 equipment lease line, the Company issued warrants to purchase
58,021 and 5,802 shares of common stock, respectively, at $10.34 per share.
During 2000, a warrant to purchase 58,021 shares was exercised for a net
exercise of 22,039 shares of common stock. The remaining warrants are
exercisable at any time and expire in August 2006.

    In connection with the issuance of convertible promissory notes in June
1996, which were later converted into Series G preferred stock, the Company
issued warrants to purchase 167,037 shares of common stock at $4.73 per share.
In connection with the issuance of Series D preferred stock May 1995, the
Company issued warrants, at $.001 per warrant, to purchase 592,593 shares of
common stock at $4.73 per share. In December 1997, a warrant to purchase 132,225
shares was exercised for a net exercise of 99,850 shares of common stock. During
2000, a warrant to purchase 53,213 shares was exercised for a net exercise of
39,682 shares of common stock. The remaining warrants are exercisable at any
time and expire in June 2001.

    During 1996, the Company issued warrants, at $.001 per warrant, to purchase
76,245 shares of common stock at $4.73 per share. In connection with technology
transferred and the 1995 equipment lease line, the Company issued warrants to
purchase 169,259 and 8,466 shares of common stock, respectively, at $4.73 per
share. During 1996, a warrant to purchase 169,259 shares was exercised for a net
exercise of 91,921 shares of common stock. During 2000, a warrant to purchase
6,005 shares was exercised for a net exercise of 4,905 shares of common stock.
The remaining warrants are exercisable at any time and 70,240 expire in June
2001 and 8,466 expire August of 2005.

    In September 1997, the Company issued warrants to purchase 252,381 shares of
common stock in connection with the convertible subordinated notes payable, at
an exercise price of $10.91. In October 1997, the Company issued warrants to
purchase 2,659 shares of common stock in connection with obtaining a bank credit
facility at an exercise price of $10.91. In November 1997, warrants to purchase
151,267 shares of common stock were exercised for a net exercise of 76,096
shares of common stock. During 2000, a warrant to purchase 18,599 shares was
exercised for a net exercise of 4,818 shares of common stock. These warrants are
exercisable at any time and 82,515 expire in September 2002 and 2,659 expire in
October 2002.

    In November 1997, the Company issued a five year warrant to purchase 458,295
shares of common stock at an exercise price of $10.91 per share, in connection
with a technology support and development arrangement.

    In June 1999, the Company issued a five year warrant to purchase 210,000
shares of common stock at an exercise price of $0.50 per share to two customers
in accordance with their volume purchase agreements. The fair value of the
warrants of $407,000 was recorded as a discount on sales.

    In September 1999, the Company issued to Sprint Corporation warrants to
purchase $8.4 million of convertible debentures, as described in Note 6 of the
Notes to Financial Statements. These debentures are convertible to 2,946,622
shares of common stock at an exercise price of $2.85 per share. The fair value
of these warrants amounted to $20,800,000. Of this amount, $7,129,000 was
recorded as a direct sales discount and the balance of $13,671,000 was recorded
as an operating expense of the Sales and Marketing department. Substantially all
of the warrants are subject to net exercise provisions. The Company has reserved
shares for the exercise of all the warrants.

                                       45
<Page>
    A summary of outstanding warrants as of December 31, 2000 follows:

<Table>
<Caption>
            NUMBER                        EXERCISE                     EXPIRATION
            OUTSTANDING                    PRICE                          DATE
            -----------                   --------                   --------------
<S>         <C>                           <C>                        <C>              <C>
               644,411                    $  4.73                      June 2001
               458,295                      10.91                    November 2002
                82,515                      10.91                    September 2002
                 2,659                      10.91                     October 2002
             2,946,622                       2.85                    September 2004
               210,000                       0.50                      June 2005
                 8,466                       4.73                     August 2005
                 5,802                      10.34                     August 2006
             ---------
             4,358,770
             =========
</Table>

STOCK OPTION PLANS

    In January 1999, the Company adopted a 1999 Officer Stock Option Plan and
reserved 1,000,000 shares for issuance to officers of the Company or of a parent
or subsidiary of the Company. In May 1999, the Company adopted a 1999 Stock
Option Plan and, as amended in August 1999 and October 1999, reserved 4,000,000
shares for issuance to employees (including officers and directors who are also
employees) or consultants of the Company or of a parent or subsidiary of the
Company who meet the suitability standards set forth by this plan. The 1999
Officer Stock Option Plan and the 1999 Stock Option Plan will terminate ten
years from the effective date or, if earlier, the date of stockholder approval
of termination.

    In September 1997, the Company adopted the 1997 Equity Incentive Plan and
reserved a total of 1,750,000 shares for issuance to employees, officers,
directors, consultants, independent contractors, and advisors. The number of
shares outstanding will increase automatically by 5% of the outstanding shares
each year unless waived by the Board of Directors. In 1999, the Company
increased the number of shares reserved for issuance under the 1997 Equity
Incentive Plan by 523,501 shares. The 1997 Equity Incentive Plan expires in
September 2007. Also in September 1997, the Company adopted the 1997 Directors'
Stock Option Plan under which 100,000 shares of common stock have been reserved
for issuance. The Directors' Plan provides for the grant of non statutory stock
options to non-employee directors of the Company and expires in September 2007.

    In December 1996, the Company adopted the 1996 Equity Incentive Plan and
reserved 185,185 shares of common stock for issuance to employees, officers,
directors, consultants, independent contractors and advisors. In June 1997, the
Company increased the number of shares reserved for issuance under the 1996
Equity Incentive Plan by 222,222. The 1996 Equity Incentive Plan expires in
December 2006.

    In December 1995, the Company adopted the Executive Officer Incentive Plan
and reserved 370,370 shares of common stock for issuance to the Company's chief
executive officer and other senior executive officers. In 1996 and 1997, the
Company increased the number of shares reserved under this plan by 129,630 and
62,963, respectively. In the event of a merger, consolidation, liquidation or
similar change of control transaction as a result of which the participants'
responsibilities and position with the Company are materially diminished,
options granted under this plan become fully exercisable and remain so for one
year thereafter. This plan will expire in December 2005.

                                       46
<Page>
    In October 1993, the Company adopted the 1993 Equity Incentive Plan, and
reserved 185,185 shares of common stock for issuance to employees, officers,
directors, consultants and advisors. In 1995, 1996 and 1997, the Company
increased the number of shares reserved for issuance under the 1993 Equity
Incentive Plan by 351,851, 425,925 and 66,340 shares, respectively. The 1993
Equity Incentive Plan expires in October 2003.

    Under all of the plans, the exercise price of incentive stock options may
not be less than the fair market value of the shares on the date of grant (not
less than 110% of fair market value if the option is granted to a 10%
stockholder). Under all of the plans other than the 1999 Stock Option Plan,
nonqualified stock options may not be granted at less than 85% of fair market
value on the date of grant. Options and stock awards generally vest 12.5% six
months from date of grant and 2.0833% per month thereafter; although certain
options vest over a shorter period of time, and the vesting of certain options
accelerates in certain circumstances. Stock options generally expire three
months after termination of employment and five years from date of grant,
subject to exceptions in certain cases.

Activity under the plans is set forth below (in thousands, except per share
data):

<Table>
<Caption>
                                                                                              WEIGHTED
                                                                                 VALUE OF     AVERAGE
                                                       SHARES       OPTIONS       OPTIONS     EXERCISE
                                                      AVAILABLE   OUTSTANDING   OUTSTANDING    PRICE
                                                      ---------   -----------   -----------   --------
<S>                                                   <C>         <C>           <C>           <C>
Balances, January 1, 1998...........................    2,024         1,926       $  5,885       3.06
  Options granted...................................   (1,445)        1,445          4,527       3.13
  Stock bonus award.................................       (1)           --             --         --
  Options canceled..................................      511          (509)        (1,871)      3.66
  Options exercised.................................                   (127)           (87)      0.70
                                                       ------       -------       --------
Balances, December 31, 1998.........................    1,089         2,735          8,454       3.09
                                                       ------       -------       --------
  Additional shares reserved........................    5,524
  Options granted...................................   (4,075)        4,075          9,015       2.21
  Options canceled..................................    1,664        (1,664)        (4,388)      2.64
  Options exercised.................................                   (251)          (357)      1.42
                                                       ------       -------       --------
Balances, December 31, 1999.........................    4,202         4,895         12,724     $ 2.60
                                                       ------       -------       --------
  Additional shares reserved
  Options granted...................................   (2,442)        2,442         30,319      12.42
  Options canceled..................................    1,086        (1,085)        (6,365)      5.86
  Options exercised.................................                 (1,181)       (11,842)     10.04
                                                       ------       -------       --------
Balances, December 31, 2000.........................    2,846         5,071       $ 24,836     $ 4.90
                                                       ======       =======       ========
</Table>

    For the years ended December 31, 2000, 1999, and 1998, the weighted average
fair value of options granted was $12.25, $2.04, and $2.34 per share,
respectively.

                                       47
<Page>
    As of December 31, 2000, the stock options outstanding were as follows (in
thousands, except per share data):

<Table>
<Caption>
                                                            WEIGHTED
                                                            AVERAGE      WEIGHTED                 WEIGHTED
                                                           REMAINING     AVERAGE                  AVERAGE
                                              NUMBER      CONTRACTUAL    EXERCISE     NUMBER      EXERCISE
RANGE OF EXERCISE PRICES                    OUTSTANDING   LIFE (YEARS)    PRICE     EXERCISABLE    PRICE
------------------------                    -----------   ------------   --------   -----------   --------
<S>                                         <C>           <C>            <C>        <C>           <C>
$0.50 to $0.54............................     1,037           5.74       $ 0.50         611       $ 0.50
$1.08 to $2.19............................       397           3.02         2.14         175         2.08
$3.63 to $5.13............................     1,111           3.75         3.74         371         3.86
$5.31 to $8.78............................       653           5.29         7.35         195         8.31
$9.00 to $11.25...........................       528           4.51         9.99          20        10.61
$12.19 to 19.75...........................     1,345           4.17        16.60         281        17.03
                                               -----                                   -----
                                               5,071           4.49       $ 7.48       1,653       $ 5.27
                                               =====                                   =====
</Table>

    As of December 31, 1999 and 1998, options to purchase 1,658,000 and 917,000
shares were exercisable at an average weighted exercise price of $1.87 and $2.56
per share, respectively.

    The Company has elected to continue to follow the provisions of APB 25,
"Accounting for Stock Issued to Employees," for financial reporting purposes and
has adopted the disclosure-only provisions of SFAS 123. Compensation cost has
been recognized for the Company's stock option plans under APB 25 where options
were granted to employees at an exercise price, which is below market value at
the date of grant. Had compensation cost for the Company's stock option plans
been determined based on the fair value at the grant date for awards in years
ended 2000, 1999, and 1998 consistent with the provisions of SFAS 123, the
Company's net loss and net loss per share for 2000, 1999, and 1998 would have
been increased to the pro forma amounts indicated below (in thousands, except
per share amounts):

<Table>
<Caption>
                                                                 YEARS ENDED DECEMBER 31,
                                                              ------------------------------
                                                                2000       1999       1998
                                                              --------   --------   --------
<S>                                                           <C>        <C>        <C>
Net loss as reported........................................  $(37,203)  $(22,192)  $(24,625)
                                                              ========   ========   ========
Net loss--pro forma.........................................  $(42,857)  $(23,061)  $(25,109)
                                                              ========   ========   ========
Net loss per share--as reported.............................  $  (2.03)  $  (2.08)  $  (2.37)
                                                              ========   ========   ========
Net loss per share--pro forma...............................  $  (2.34)  $  (2.16)  $  (2.41)
                                                              ========   ========   ========
</Table>

    The above pro forma disclosures are not necessarily representative of the
effects on reported net income or loss for future years.

    In accordance with the provisions of SFAS 123, the fair value of each option
is estimated using the following weighted average assumptions for grants during
2000, 1999, and 1998: dividend yield of 0%, volatility of 0% for options issued
prior to the Company's Initial Public Offering, 113% in 1998, 117% in 1999, and
124.7% in 2000, risk-free interest rates at the date of grant, and an expected
term of four years.

EMPLOYEE STOCK PURCHASE PLAN

    In September 1997, the Company's Board of Directors approved an Employee
Stock Purchase Plan. Under this plan, employees of the Company can purchase
common stock through payroll deductions. A total of 225,000 shares have been
reserved for issuance under this plan. As of December 31, 2000, no shares had
been purchased and all employees have withdrawn from the plan.

                                       48
<Page>
11. INCOME TAXES

    Provision for income taxes for each of the years ended December 31, 2000,
1999, and 1998 was $0.

    Total income tax benefit differed from the amounts computed by applying the
U.S. federal statutory tax rates to pre-tax income as follows:

<Table>
<Caption>
                                                                          FOR THE YEARS ENDED
                                                                  ------------------------------------
                                                                    2000          1999          1998
                                                                  --------      --------      --------
<S>                                                               <C>           <C>           <C>
Total benefit computed by applying the U.S. statutory
  rate......................................................       (34.00)%      (34.00)%      (34.00)%
  Permanent differences.....................................         1.08%        11.40%         0.10%
  Change in valuation allowance.............................        32.92%        22.60%        33.90%
                                                                   ------        ------        ------
                                                                        0%            0%            0%
                                                                   ======        ======        ======
</Table>

    Temporary differences which gave rise to significant portions of deferred
tax assets are as follows (in thousands):

<Table>
<Caption>
                                                             DECEMBER 31,
                                                          -------------------
                                                            2000       1999
                                                          --------   --------
<S>                                                       <C>        <C>
Current deferred assets:
  Allowance for doubtful accounts.......................  $     80   $     80
  Inventory reserves....................................       789      1,132
  UNICAP................................................       666        644
  Unearned revenue......................................     1,552        302
  Accrued liabilities...................................     1,022      1,443
  Book compensation for stock options...................     9,977        417
                                                          --------   --------
  Total current deferred assets.........................    14,086      4,018
  Valuation allowance...................................   (14,086)    (4,018)
                                                          --------   --------
                                                          $     --   $     --
                                                          ========   ========
Long-term deferred assets:
  Net operating loss carryforwards......................  $ 21,006   $ 16,946
  Capitalized research expenditures.....................     7,775      7,146
  Tax credit carryforwards..............................     2,884      2,524
  Depreciation and amortization.........................       843        679
                                                          --------   --------
  Total long-term deferred assets.......................    32,508     27,295
  Valuation allowance...................................   (32,508)   (27,295)
                                                          --------   --------
                                                          $     --   $     --
                                                          ========   ========
</Table>

    In accordance with generally accepted accounting principles, a valuation
allowance must be established for a deferred tax asset if it is uncertain that a
tax benefit may be realized from the asset in the future. Management believes
that, based on a number of factors, the available objective evidence creates
sufficient uncertainty regarding the realizability of the deferred tax assets
such that a full valuation allowance has been recorded. These factors include
the Company's history of losses, recent increases in expense levels, the fact
that the market in which the Company competes is intensely competitive and
characterized by rapidly changing technology, the lack of carryback capacity to
realize deferred tax assets, and the uncertainty regarding market acceptance of
the Company's products. The Company will continue to assess the realizability of
the deferred tax assets in future periods. The valuation allowance increased by
$15,281,000 and $3,721,000 in 2000 and 1999, respectively. The Company had
federal and state net operating loss carry forwards of approximately $56,046,000
and $22,060,000, respectively, as of December 31, 2000 available to offset
future regular and alternative

                                       49
<Page>
minimum taxable income. The Company's net operating loss carry forwards expire
in 2001 through 2020 if not utilized.

    In addition, at December 31, 2000, the Company had the following available
credits to offset future tax liabilities:

<Table>
<Caption>
                                                          TAX       EXPIRATION
                                                       REPORTING      DATES
                                                       ----------   ----------
<S>                                                    <C>          <C>
Federal research and development credit..............  $1,729,000   2007-2015
State research and development credit................   1,016,000   None
State manufacturing investment credit................     140,000   2002-2008
</Table>

    The Company's net operating loss and tax credit carry forwards may be
subject to limitation in the event of ownership changes, as defined by tax laws.

12. EMPLOYEE BENEFIT PLAN

    The Company adopted a defined contribution retirement plan (the "Plan"),
which qualifies under Section 401(k) of the Internal Revenue Code of 1986. The
Plan covers essentially all employees. Eligible employees may make voluntary
contributions to the Plan up to 15% of their annual compensation and the
employer is allowed to make discretionary contributions. In 2000, 1999, 1998,
the Company made no employer contributions.

13. RELATED PARTY TRANSACTIONS

    The Company had net sales to stockholders of $482,000 for the year ended
December 31, 1998.

    See also Notes 6, 10, and 14 for transactions with Sprint.

14. BUSINESS SEGMENT AND MAJOR CUSTOMERS

    The Company operates in a single industry segment and primarily sells its
products to customers in the U.S. and Canada. Sales by product category during
2000 consist of 6% to cable customers and 94% to wireless customers. In 1999,
52% of sales were to cable customers and 48% to wireless customers. In 1998, 57%
of sales were to cable customers and 43% to wireless customers. Sales to
international customers represented 24%, 5%, and 0% of revenues in 2000, 1999,
and 1998, respectively. International sales in any one geographic area other
than Canada were insignificant.

    Individual customers that comprise 10% or more of the Company's gross sales
are as follows:

<Table>
<Caption>
                                                                 YEARS ENDED DECEMBER 31,
                                                              ------------------------------
                                                                2000       1999       1998
                                                              --------   --------   --------
<S>                                                           <C>        <C>        <C>
Sprint Corporation..........................................     54%        28%        --
RCN Corporation.............................................     --         31%        25%
Look Communications Inc.....................................     23%        --         --
Knology Holdings, Inc.......................................     --         --         13%
</Table>

    At December 31, 2000 and 1999, these customers accounted for $7,530,000 and
$423,000, respectively, and 98% and 32%, respectively, of total accounts
receivable.

15. SUBSEQUENT EVENTS

    Pursuant to a Securities Purchase Agreement dated February 16, 2001 between
the Halifax Fund, a fund managed by The Palladin Group, the Company issued and
sold to Halifax on February 16, 2001 certain securities. The securities included
(i) a $7.5 million principal amount 6% Convertible Debenture

                                       50
<Page>
due 2003, which will be convertible into shares of the Company's common stock;
(ii) a common stock Purchase Warrant to purchase 833,333 shares of common stock
at $9.00 per share (subject to adjustment) which is exercisable at the election
of Halifax, or at the election of the Company at a price which is the lower of
(a) $9.00 or (b) 94% of the daily volume weighted average price; and (iii) an
Adjustment Warrant. The Adjustment Warrant will be exercisable beginning on the
18th day following the date (referred to in this discussion as the Effective
Date) that there is declared effective by the Securities and Exchange Commission
the registration statement that the Company is required to file with respect to
the resale of the shares of common stock underlying the debentures and warrants.
The Adjustment Warrant will only be exercisable, however, if the volume weighted
average sale price for our common stock is not more than $7.2694. The aggregate
number of shares issuable pursuant to the exercise of the Adjustment Warrant
will be determined by dividing $8,625,000 by the Adjustment Price, as defined
below, and then subtracting the sum of the number of shares of common stock
previously issuable pursuant to the conversion of the debenture and the number
issued upon any previous exercise of the Adjustment Warrant. The Adjustment
Price is the average of the 15 lowest daily volume weighted average sale prices
of the Company's common stock as reported on Nasdaq, not including the three
lowest days, during the 65 trading day period following the Effective Date. The
adjustment price will not be below $3.50. The adjustment warrant terminates
three months after the end of the 65 trading day adjustment period. In
consideration for such securities, Halifax paid an initial purchase price of
$7,500,000. The Company granted to Halifax in the purchase agreement certain
rights of first refusal, preemptive rights and other rights. Pursuant to the
purchase agreement, Halifax and the Company also entered into a Registration
Rights Agreement dated as of February 16, 2001.

                                       51
<Page>
SUPPLEMENTARY FINANCIAL DATA:

                             HYBRID NETWORKS, INC.

                       SELECTED QUARTERLY FINANCIAL DATA

                (UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA)

<Table>
<Caption>
                                   THREE MONTHS ENDED                           THREE MONTHS ENDED
                       ------------------------------------------   ------------------------------------------
                       MAR. 31,   JUNE 30,   SEPT. 30,   DEC. 31,   MAR. 31,   JUNE 30,   SEPT. 30,   DEC. 31,
                         2000       2000       2000        2000       1999       1999       1999        1999
                       --------   --------   ---------   --------   --------   --------   ---------   --------
<S>                    <C>        <C>        <C>         <C>        <C>        <C>        <C>         <C>
Net sales............  $ 1,677    $  2,747   $  5,475    $ 12,896   $ 4,123    $ 3,004     $ 3,319    $ 2,570
                       -------    --------   --------    --------   -------    -------     -------    -------
Gross profit
  (loss).............     (189)     (1,558)       992         411      (141)    (1,345)        259        902
                       -------    --------   --------    --------   -------    -------     -------    -------
Income (loss) from
  continuing
  operations.........  $(7,711)   $ (8,994)  $(12,823)   $ (5,647)  $(3,050)   $(4,282)    $(2,663)   $(3,921)
                       -------    --------   --------    --------   -------    -------     -------    -------
  Net (loss).........  $(7,963)   $(10,667)  $(12,939)   $ (5,634)  $(3,253)   $(4,489)    $(4,663)   $(9,787)
                       =======    ========   ========    ========   =======    =======     =======    =======
Earnings per share:
Basic:...............  $ (0.57)   $  (0.73)  $  (0.61)   $  (0.26)  $ (0.31)   $ (0.43)    $ (0.44)   $ (0.88)
                       -------    --------   --------    --------   -------    -------     -------    -------
  Net (loss).........  $ (0.57)   $  (0.73)  $  (0.61)   $  (0.26)  $ (0.31)   $ (0.43)    $ (0.44)   $ (0.88)
                       =======    ========   ========    ========   =======    =======     =======    =======
Diluted:.............  $ (0.57)   $  (0.73)  $  (0.61)   $  (0.26)  $ (0.31)   $ (0.43)    $ (0.44)   $ (0.88)
                       -------    --------   --------    --------   -------    -------     -------    -------
  Net (loss).........  $ (0.57)   $  (0.73)  $  (0.61)   $  (0.26)  $ (0.31)   $ (0.43)    $ (0.44)   $ (0.88)
                       =======    ========   ========    ========   =======    =======     =======    =======
</Table>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

    NONE

                                       52
<Page>
                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.

    The information required by Item 10 regarding our directors is incorporated
by reference to the information under "Proposal No. 1--Election of Directors" in
our definitive proxy statement for the annual stockholders' meeting in 2001
which we filed with the Securities and Exchange Commission on April 12, 2001.

ITEM 11. EXECUTIVE COMPENSATION

    The information required by Item 11 of Form 10-K is incorporated by
reference to the section "Executive Compensation" in our definitive proxy
statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

    The information regarding this item is incorporated by reference to the
section "Security Ownership of Certain Beneficial Owners and Management" in our
definitive proxy statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

    Information regarding to this item is incorporated by reference to the
section "Certain Relationships and Related Transactions" in our definitive proxy
statement.

                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

<Table>
<Caption>
                                                                          PAGE NO.
                                                                          --------
<S>  <C>    <C>                                                           <C>
(a)         Documents filed as part of this Report:
        1.  FINANCIAL STATEMENTS. See the Index to Financial Statements
            at Item 8 of this Report....................................     26
        2.  FINANCIAL STATEMENT SCHEDULES.
            Schedules not listed below have been omitted because they
            are not applicable or are not required or the information
            required to be set forth in those schedules is included in
            the financial statements or related notes.
            Schedule II--Valuation and qualifying accounts..............     53
        3.  EXHIBITS. The following exhibits are filed as part of, or
            incorporated by reference into, this report on Form 10-K:
</Table>

<Table>
<Caption>
                                                                               INCORPORATED BY
                                                                                  REFERENCE
                                                                           -----------------------   EXHIBIT     FILED
EXHIBIT NO.  EXHIBIT                                              FORM     FILE NO.    FILING DATE     NO.      HEREWITH
-----------  -------                                            --------   ---------   -----------   --------   --------
<C>          <S>                                                <C>        <C>         <C>           <C>        <C>
   3.01      Registrant's Amended and Restated Certificate of
               Incorporation..................................     S-1     333-36001    11-11-97       3.03
   3.02      Certificate of Designations of Series J
               Non-Convertible Preferred Stock of the
               Registrant.....................................     8-K     000-23289    09-24-99        3.1
   3.03      Registrant's Amended and Restated Bylaws, as
               amended on March 22, 2001......................    10-K     000-23289    03-30-01       3.03
   10.01     Amended and Restated Investors Rights Agreement
               dated as of September 18, 1997 between
               Registrant and certain investors, as amended
               October 13, 1997 and as amended November 6,
               1997...........................................     S-1     333-36001    11-11-97      10.01
   10.02     Registrant's 1993 Equity Incentive Plan.(2)......     S-1     333-36001    11-11-97      10.02
   10.03     Registrant's 1996 Equity Incentive Plan.(2)......     S-1     333-36001    11-11-97      10.03
   10.04     Registrant's Executive Officer Incentive
               Plan.(2).......................................     S-1     333-36001    11-11-97      10.04
</Table>

                                       53
<Page>

<Table>
<Caption>
                                                                               INCORPORATED BY
                                                                                  REFERENCE
                                                                           -----------------------   EXHIBIT     FILED
EXHIBIT NO.  EXHIBIT                                              FORM     FILE NO.    FILING DATE     NO.      HEREWITH
-----------  -------                                            --------   ---------   -----------   --------   --------
<C>          <S>                                                <C>        <C>         <C>           <C>        <C>
   10.05     Registrant's 1997 Equity Incentive Plan.(2)......     S-1     333-36001    11-11-97      10.05
   10.06     Registrant's 1997 Directors Stock Option
               Plan.(2).......................................     S-1     333-36001    11-11-97      10.06
   10.07     Registrant's 1997 Employee Stock Purchase
               Plan.(2).......................................     S-1     333-36001    11-11-97      10.07
   10.08     Registrant's 1999 Stock Option Plan.(2)..........    10-K     000-23289    03-24-00      10.08
   10.09     Registrant's 1999 Officer Stock Option
               Plan.(2).......................................    10-K     000-23289    03-24-00      10.09
   10.10     Form of Indemnity Agreement entered into by
               Registrant with each of its directors and
               officers.(2)...................................     S-1     333-36001    11-11-97      10.08
   10.11     Employment Letter from the Registrant to Michael
               D. Greenbaum dated January 12, 2000............    10-Q     000-23289    05-11-00       10.1
   10.12     Senior Secured Convertible $5.5 Million Debenture
               Purchase Agreement between Registrant and
               London Pacific Life & Annuity Company dated
               April 30, 1997 and related Senior Secured
               Convertible $5.5 Million Debenture Due 2002 and
               Security Agreement and Senior Secured
               Convertible $5.5 Million Debenture Due 2002....     S-1     333-36001    11-11-97      10.12
   10.15     Collaboration Agreement among Registrant, Sharp
               Corporation and and Itochu Corporation dated
               November 25, 1996 and Addendum No. 1 thereto
               dated November 25, 1996........................     S-1     333-36001    11-11-97      10.15
   10.16     Sales and Purchase Agreement between Registrant
               and Itochu Corporation dated January 10,
               1997.(1).......................................     S-1     333-36001    11-11-97      10.16
   10.17     Stipulation of settlement, dated March 3, 1999
               among the Registrant and lead counsel for the
               plaintiffs in class action litigation against
               the Registrant.................................    10-K     000-23289    03-24-00      10.17
   10.24     Sublease between the Registrant and Viking
               Freight, Inc. dated February 9, 1998...........     S-4     333-52083    05-07-98      10.24
   10.26     Employment Letter from the Registrant to Judson
               Goldsmith dated November 12, 1998.(2)..........    10-K     000-23289    06-14-99      10.26
   10.27     Product Purchase Agreement between the Registrant
               and RCN Operating Services, Inc. dated June 30,
               1997...........................................    10-K     000-23289    06-14-99      10.27
   10.28     Securities Purchase Agreement between Sprint
               Corporation and the Registrant dated August 30,
               1999...........................................     8-K     000-23289    09-24-99       10.1
   10.29     Warrant Agreement between Sprint Corporation and
               the Registrant dated as of September 9, 1999.
               Amendment to Warrant Agreement between Sprint
               Corporation and the Registrant dated as of
               April 21, 2000.................................     8-K     000-23289    09-24-99       10.2
   10.30     Amendment to Warrant Agreement between Sprint
               Corporation and the Registrant dated as of
               April 21, 2000.................................    10-K     000-23289    03-30-01      10.30
   10.31     1999 Amended and Restated Investor Rights
               Agreement dated as of September 9, 1999........     8-K     000-23289    09-24-99       10.3
   10.32     Amendment to 1999 Amended and Restated Investor
               Rights Agreement...............................    10-K     000-23289    03-30-01      10.32
   10.33     Form of 4% Convertible Class A Debenture due
               2009...........................................     8-K     000-23289    09-24-99       10.4
   10.34     Form of 4% Convertible Class B debenture due
               2009...........................................     8-K     000-23289    09-24-99       10.5
   10.35     Securities Purchase Agreement among the
               Registrant and certain investors dated as of
               August 30, 1999................................     8-K     000-23289    09-24-99       10.6
   10.36     Form of 4% Convertible Debenture due 2009........     8-K     000-23289    09-24-99       10.7
   10.37     Purchase of Equipment and Services Agreement
               between Sprint/United Management Company and
               the Registrant dated May 1, 2000...............     8-K     000-23289    05-10-00       10.8
</Table>

                                       54
<Page>

<Table>
<Caption>
                                                                               INCORPORATED BY
                                                                                  REFERENCE
                                                                           -----------------------   EXHIBIT     FILED
EXHIBIT NO.  EXHIBIT                                              FORM     FILE NO.    FILING DATE     NO.      HEREWITH
-----------  -------                                            --------   ---------   -----------   --------   --------
<C>          <S>                                                <C>        <C>         <C>           <C>        <C>
   10.38     Amendment #1 to Purchase of Equipment and
               Services Agreement between Sprint/United
               Management Company and the Registrant effective
               as of December 22, 2000........................    10-K     000-23289    03-30-01      10.38
   10.39     Amendment #2 to Purchase of Equipment and
               Services Agreement between Sprint/United
               Management Company and the Registrant effective
               as of December 22, 2000........................    10-K     000-23289    03-30-01      10.39
   23.01     Consent of Independent Auditors..................                                                      X
</Table>

------------------------------

    (1) Confidential treatment has been granted with respect to certain portions
       of this agreement. Such portions have been omitted from the filing and
       have been filed separately with the SEC.

    (2) Represents a management agreement or compensatory plan.

(b) Reports on Form 8-K.

    We have filed the following current reports on Form 8-K since September 30,
2000:

1.  On November 15, 2000, we filed a current report on Form 8-K that we expect
    to record a non-cash charge of approximately $1,275,000 in the fourth
    quarter of 2000 related to the resignation of its former CFO, Thara Edson.

2.  On February 22, 2001, we filed a current report on Form 8-K to report the
    consummation of our financing agreement with The Halifax Fund, a fund
    managed by The Palladin Group. The only exhibits filed with the report were
    the Securities Purchase Agreement, a form of the 6% Convertible Debenture, a
    form of the Common Stock Purchase Warrant, a form of the Adjustment Warrant,
    and the Registration Rights Agreement.

(c) Exhibits. See (a)(3) above.

(d) Financial Statement Schedules. See (a)(2) above.

                                       55
<Page>
                                   SIGNATURES

    Pursuant to the requirements of 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.


<Table>
<S>                                                    <C>  <C>
Date: September 21, 2001                               HYBRID NETWORKS, INC.

                                                       By:           /s/ MICHAEL D. GREENBAUM
                                                            -----------------------------------------
                                                                       Michael D. Greenbaum
                                                                     CHIEF EXECUTIVE OFFICER
</Table>


                                       56
<Page>
                          INDEPENDENT AUDITOR'S REPORT

The Stockholders and Board of Directors
Hybrid Networks, Inc.
San Jose, California

    Our report on the financial statements of Hybrid Networks, Inc. is included
on page 25 of this Form 10-K. In connection with our audits of such financial
statements, we have also audited the related financial statement schedule listed
in Item 14 (a) (2) of this Form 10-K.

    In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.

/s/ HEIN + ASSOCIATES LLP

Hein + Associates LLP
Certified Public Accountants
Orange, California
February 16, 2001

                                       57
<Page>
                             HYBRID NETWORKS, INC.
                 SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
                                 (IN THOUSANDS)

ALLOWANCE FOR DOUBTFUL ACCOUNTS

<Table>
<Caption>
                                                         ADDITIONS     ADDITIONS
                                           BALANCE AT     CHARGED       CHARGED                  BALANCE
                                           BEGINNING    TO COSTS AND   TO OTHER                  AT END
FOR THE YEAR ENDED:                        OF PERIOD      EXPENSES     ACCOUNTS    DEDUCTIONS   OF PERIOD
-------------------                        ----------   ------------   ---------   ----------   ---------
<S>                                        <C>          <C>            <C>         <C>          <C>
December 31, 2000........................    $  200        $  --         $ --       $    --      $  200
December 31, 1999........................       200           --           --            --         200
December 31, 1998........................        --          200           --            --         200
</Table>

INVENTORY RESERVES

<Table>
<Caption>
                                                         ADDITIONS     ADDITIONS
                                           BALANCE AT     CHARGED       CHARGED                  BALANCE
                                           BEGINNING    TO COSTS AND   TO OTHER                  AT END
FOR THE YEAR ENDED:                        OF PERIOD      EXPENSES     ACCOUNTS    DEDUCTIONS   OF PERIOD
-------------------                        ----------   ------------   ---------   ----------   ---------
<S>                                        <C>          <C>            <C>         <C>          <C>
December 31, 2000........................    $2,842        $  235        $ --       $(1,097)     $1,980
December 31, 1999........................     3,135           529          --          (822)      2,842
December 31, 1998........................     3,015         1,691          --        (1,571)      3,135
</Table>

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