**UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549**

**FORM 10-Q**

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

**For the quarterly period ended September 30, 2000**

**OR**

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

**For the transition period from ________to _________**

**Commission file number 0-22369**

**RAMP NETWORKS, INC.**
(Exact name of Registrant as specified in its charter)



|**Delaware**                                                   | **77-0366874**                         
|-------------------------------------------------------------- | ---------------------------------------
|(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification Number)

**3100 De La Cruz BoulevardSanta Clara, CA 95054**(Address of principal executive offices)

**(408) 988-5353**(Registrant's telephone number, including area code)







Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [  ]



As of October 31, 2000, there were 21,701,739 shares of the
Registrant's Common Stock outstanding.







**Ramp Networks, Inc.
      QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 2000
                                TABLE OF CONTENTS**



|**PART I.   FINANCIAL INFORMATION**                                                                                            | **Page No.**
|------------------------------------------------------------------------------------------------------------------------------ | ------------
|                                                                                                                               |             
|Item 1.   Interim Condensed Consolidated Financial Statements
                  (unaudited):                                   |             
|                                                                                                                               |             
|Condensed Consolidated Balance Sheets at September 30, 2000 and
     December 31, 1999                                         | **          
|                                                                                                                               |             
|Condensed Consolidated Statements of Operations for the
          
    three and nine months ended September 30, 2000 and 1999 | **          
|                                                                                                                               |             
|Condensed Consolidated Statements of Cash Flows for the
          
    nine months ended September 30, 2000 and 1999           | **          
|                                                                                                                               |             
|Notes to Financial Statements                                                                                                  | **          
|                                                                                                                               |             
|Item 2.   Management's Discussion and Analysis of Financial
                      Condition and Results of Operations          | **          
|                                                                                                                               |             
|Item 3.   Quantitative and Qualitative Disclosures About Market Risk                                                           | **          
|                                                                                                                               |             
|**PART II.  OTHER INFORMATION**                                                                                                |             
|                                                                                                                               |             
|Item 1.   Legal Proceedings                                                                                                    | **          
|                                                                                                                               |             
|Item 2.   Changes in Securities and Use of Proceeds                                                                            | **          
|                                                                                                                               |             
|Item 3.   Defaults Upon Senior Securities                                                                                      | **          
|                                                                                                                               |             
|Item 4.   Submission of Matters to a Vote of Security Holders                                                                  | **          
|                                                                                                                               |             
|Item 5.   Other Information                                                                                                    | **          
|                                                                                                                               |             
|Item 6.   Exhibits and Reports on Form 8-K                                                                                     | **          
|                                                                                                                               |             
|**Signature**                                                                                                                  | **          

---

**PART I. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**Item 1.  Financial Statements**

---

**Ramp Networks, Inc.****Condensed Consolidated Balance Sheets
                      (In thousands, except per share amounts)**

`September 30, December 31,
                                                         2000          1999
                                                     (Unaudited)
                                                     ------------  ------------

                          ASSETS
Current Assets:
  Cash and cash equivalents........................       $7,807       $12,530
  Marketable securities............................        7,494        27,590
  Accounts receivable, net.........................        5,076         4,523
  Inventory, net...................................        8,981         2,273
  Prepaid expenses and other current assets........        1,106           900
                                                     ------------  ------------
   Total current assets............................       30,464        47,816
Property and equipment, net........................        3,162         1,724
Other assets.......................................          458           375
                                                     ------------  ------------
   Total assets....................................      $34,084       $49,915
                                                     ============  ============

     LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
  Current portion of capital lease obligations.....         $120          $101
  Current portion of long-term debt................        2,395         2,233
  Accounts payable.................................        5,433         2,634
  Accrued liabilities..............................        6,458         3,440
  Deferred revenue.................................        5,062          --
                                                     ------------  ------------
   Total current liabilities.......................       19,468         8,408
Capital lease obligations, less
 current portion...................................           84           178
Long-term debt, less current portion...............        1,628         3,449
                                                     ------------  ------------
   Total liabilities...............................       21,180        12,035
                                                     ------------  ------------

Stockholders' equity:
  Preferred stock - 5,000 authorized, $.001
    par value, no shares issued at September
    30, 2000 and December 31, 1999.................           --            --
  Common stock - 100,000 authorized, $.001
    par value, issued and outstanding -
    21,702 and 21,097 at September 30, 2000 and
    December 31, 1999, respectively ...............           22            21
  Additional paid-in capital.......................       88,621        86,689
  Deferred stock compensation......................       (1,368)       (1,723)
  Accumulated deficit..............................      (74,371)      (47,107)
                                                     ------------  ------------
   Total stockholders' equity......................       12,904        37,880
                                                     ------------  ------------
   Total liabilities and stockholders' equity......      $34,084       $49,915
                                                     ============  ============`

See accompanying notes to condensed consolidated financial statements.

---

**Ramp Networks, Inc.****Condensed Consolidated Statements of Operations
                 (Amounts in thousands, except per share data)
                                (unaudited)**

`Three Months Ended   Nine Months Ended
                                             September 30,       September 30,
                                         ------------------- -------------------
                                            2000      1999      2000      1999
                                                             Restated,
                                                             See Note 2
                                         --------- --------- --------- ---------
Revenue................................    $2,971    $5,002   $11,478   $13,418
Cost of revenue........................     6,258     2,950    12,280     8,333
                                         --------- --------- --------- ---------
Gross margin...........................    (3,287)    2,052      (802)    5,085
                                         --------- --------- --------- ---------

Operating expenses:
  Research and development
    (excluding amortization of
    deferred stock compensation of
    $34 and $63 for the three months
    ended September 30, 2000 and 1999,
    respectively, and $169 and $291
    for the nine months ended September
    30, 2000 and 1999, respectively....     1,964     1,225     5,716     3,568
  Sales and marketing
    (excluding amortization of
    deferred stock compensation of
    $21 and $50 for the three months
    ended September 30, 2000 and 1999,
    respectively, and $105 and $236
    for the nine months ended September
    30, 2000 and 1999, respectively....     5,785     2,605    15,297     6,877
  General and administrative
    (excluding amortization of
    deferred stock compensation of
    $17 and $28 for the three months
    ended September 30, 2000 and 1999,
    respectively, and $81 and $131
    for the nine months ended September
    30, 2000 and 1999, respectively....     1,272       803     3,676     1,983
  Legal and severance cost.............        --     1,169        --     1,169
  Amortization of deferred
     compensation......................        72       141       355       658
  Restructuring charge.................       541        --       541        --
                                         --------- --------- --------- ---------
Total operating expenses...............     9,634     5,943    25,585    14,255
                                         --------- --------- --------- ---------
Loss from operations...................   (12,921)   (3,891)  (26,387)   (9,170)
Interest expense.......................      (187)     (255)     (644)     (485)
Other income (expense).................       179       526     1,074       585
                                         --------- --------- --------- ---------
Loss before cumulative effect of
  change in accounting policy..........   (12,929)   (3,620)  (25,957)   (9,070)

Cumulative effect of change in
  accounting policy....................        --        --    (1,307)       --
                                         --------- --------- --------- ---------
Net loss...............................  ($12,929)  ($3,620) ($27,264)  ($9,070)
                                         ========= ========= ========= =========

Basic and diluted loss per common
  share before cumulative effect
  of change in accounting policy........   ($0.60)   ($0.17)   ($1.21)   ($0.89)
                                         ========= ========= ========= =========
Basic and diluted net loss per
  common share..........................   ($0.60)   ($0.17)   ($1.27)   ($0.89)
                                         ========= ========= ========= =========
Shares used in computing basic and
  diluted net loss per common share.....   21,664    20,910    21,435    10,210
                                         ========= ========= ========= =========`

See accompanying notes to condensed consolidated financial statements.

---

**Ramp Networks, Inc.****Condensed Consolidated Statements of Cash Flows****(Amounts in thousands)
                               (Unaudited)**

`Nine Months Ended
                                                               September 30,
                                                          ----------------------
                                                              2000        1999
                                                          Restated,
                                                          See Note 2
                                                          ----------  ----------
Operating activities:
  Net loss.............................................    ($27,264)    ($9,070)
  Adjustments to reconcile net loss to net cash
   used in operating activities:
    Depreciation.......................................         897         480
    Gain on disposal of fixed assets...................         --          (15)
    Noncash compensation expense.......................         435         856
    Noncash technology acquisition.....................         --          573
    Changes in operating assets and liabilities:
      Accounts receivable..............................        (553)     (2,749)
      Inventory........................................      (6,708)     (1,023)
      Prepaid expenses and other assets................        (289)       (535)
      Accounts payable.................................       2,799        (138)
      Accrued liabilities..............................       3,676       1,160
      Deferred revenues................................       5,062         --
                                                          ----------  ----------
        Net cash used in operating activities..........     (21,945)    (10,461)
                                                          ----------  ----------
Investing activities:
  Purchase of property and equipment...................      (2,335)       (549)
  Proceeds from sale of assets.........................         --           47
  Maturities of short term investments.................      44,861         --
  Purchases of short term investments..................     (24,765)    (27,264)
                                                          ----------  ----------
        Net cash provided (used) by investing
          activities...................................      17,761     (27,766)
                                                          ----------  ----------
Financing activities:
  Principal payments on capital lease obligations......         (75)        (92)
  Borrowings under long term debt agreements...........         --        6,305
  Repayments of long term debt.........................      (1,659)       (610)
  Net proceeds from issuance of common stock...........       1,195      44,811
                                                          ----------  ----------
        Net cash (used) provided by financing
          activities...................................        (539)     50,414
                                                          ----------  ----------
Net (decrease) increase in cash and cash equivalents...      (4,723)     12,187
Cash and cash equivalents, beginning of period.........      12,530       3,764
                                                          ----------  ----------
Cash and cash equivalents, end of period...............      $7,807     $15,951
                                                          ==========  ==========`

See accompanying notes to condensed consolidated financial statements.

---

**Ramp Networks, Inc.

            NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

1. Nature of Operations

Ramp Networks, Inc. ("Ramp"), formerly Trancell Systems, Inc., a
California corporation, was incorporated on February 17, 1994, and re-incorporated in Delaware
in June 1999. Ramp develops, designs, manufactures and
markets multi-user Internet access devices designed for small business and home
use. Ramp sells its products through distributors and value added resellers and
to original equipment manufacturers located in the United States and abroad.

2. Summary of Significant Accounting Policies:

Basis of Presentation

The condensed consolidated financial statements have been
prepared by Ramp, pursuant to the rules and regulations of the Securities and
Exchange Commission and include the accounts of Ramp Networks, Inc., and its
wholly-owned subsidiary (collectively the "Company"). Certain information and
footnote disclosures, normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States,
have been condensed or omitted pursuant to such rules and regulations. In the
opinion of the Company, the unaudited financial statements reflect all
adjustments, consisting of normal recurring adjustments, and adjustments to
reflect the restatement of amounts for changes in revenue recognition accounting
as noted below which are necessary for a fair presentation of the financial
position at September 30, 2000, and the operating results and cash flows for the
three months and nine months ended September 30, 2000 and 1999.

The condensed consolidated balance sheet at December 31, 1999
is from audited financial statements as of that date. These financial statements
and notes should be read in conjunction with the Company's audited consolidated
financial statements and notes thereto, included in the Company's Form 10-K
filed with the Securities and Exchange Commission.

The results of operations for the three months and nine
months ended September 30, 2000 are not necessarily indicative of the results
that may be expected for future quarters or the year ending December 31,
2000.

Since inception, we have experienced negative cash flow from operations and
we expect to continue to experience negative cash flow from operations for the
foreseeable future. Therefore, we have relied primarily on issuances of equity
securities to fund our operations to date. We currently anticipate that our
existing cash balances and available lines will not be sufficient to meet our
anticipated needs for working capital and capital expenditures through the next
12 months and we will need to raise additional funds prior to the expiration of
such period. We cannot be certain that additional financing, through the
issuance of equity securities or otherwise, will be available to us on favorable
terms, or at all. If adequate funds are not available, or are not available on
acceptable terms, we may not be able to take advantage of market opportunities,
develop new products or otherwise respond to competitive pressures which could
adversely affect our ability to achieve and sustain positive cash flow and
profitability in the future. The Company is currently in the process of
exploring alternative financing sources to fund future operations. The
uncertainty about our ability to raise additional funds causes substantial doubt
about our ability to continue as a going concern. The accompanying financial
statements are prepared on the basis that the Company will continue as a going
concern and do not reflect any adjustments that might be needed to reflect the
ultimate realization of asset values should this not be the case.

Revenue Recognition, Cumulative Effect of Change in Accounting and
Restatement

Ramp's revenue consists principally of amounts earned from the sale of
manufactured products. Historically, revenue has been recognized by the Company
upon transfer of title and risks of ownership, which generally occurred upon
product shipment. Certain agreements with distributors and retailers provide for
rights of return, co-op advertising, price protection, and stock rotation
rights. Under the guidelines and requirements of Statement of Financial
Accounting Standards ("SFAS") No. 48, "Revenue Recognition When Right of Return
Exists", the Company concluded that it had sufficient history and experience to
quantify reserves required for these provisions. Accordingly, Ramp provided an
allowance for returns and price adjustments and provided a warranty reserve at
the point of revenue recognition. These reserves have been adjusted periodically
based upon historical experience and anticipated future returns, price
adjustments, and warranty costs.

In the first quarter of 2000, the Company launched a new sales and marketing
campaign that involved sales of new technology and products to both existing and
a variety of new types of customers, including new customers serving the
relatively new Digital Subscriber Loop (DSL) market. The DSL market experienced
significant fluctuations in supply and demand in 2000. As a result, current
customers and potential customers experienced delays in the provisioning of this
marketplace which delayed demand for the Company's products. During 2000, the
Company has experienced changing business conditions and demand for product from
its distributors. Specifically, the Company experienced lower demand for both
new and existing products and a trend of increasing past due accounts receivable
from its current distributors as well as from some of the Company's new
customers. The Company has now decided that this increase in past due accounts
receivable from distributors was a result of the distributors not paying the
Company until product was ultimately "sold through" to the customer.
Additionally, certain new customers returned a significant portion of previously
sold product in amounts greater than had been estimated by the Company. In 2000,
the Company continued to apply revenue recognition accounting policies in
accordance with past practices. Revenue recognition was based on historical
experience with long-term customer payment patterns and returns and conventional
industry practices. In the third quarter of 2000, the Company reassessed its
receivable collection history and product returns history with its major
distributors as well as new customers, based upon the current market demand for
the Company's products. As a result of this reassessment, the Company determined
that the negative trends in product sales demand and delayed collection of
receivable amounts was not a temporary trend. These significant changes in
circumstances have necessitated a change in accounting policies for its current
sales activity. The Company has decided to restate earlier quarters so that the
accounting for revenue is consistent for all interim periods in 2000.

The Company determined that given the current market, a more preferable
method of revenue recognition would be to defer the recognition of revenue.
Under this new method, the Company will now record revenue on product shipped to
distributors when the product is ultimately "sold through" to the customer.
Additionally, the Company will now defer revenues for all other customers where
collection and returns history is not proven until such activity reflects the
"sell through" of products by Value Added Resellers ("VAR") and Managed Service
Providers ("MSP").

The Company has changed its revenue recognition policy retroactive to January
1, 2000. The result of the change in the revenue recognition policy was an
increase in net loss of $1.3 million and an increase in deferred revenues. This
amount represents the net amount of gross margin on shipments previously
recorded for product shipped to the distributors, but not "sold through" to
customers, as of January 1, 2000. This amount is included as a cumulative effect
of change in accounting policy in the accompanying financial statements for the
nine months ended September 30, 2000. Additionally, the Company has restated
amounts previously recorded in its Forms 10-Q for the quarterly periods ended
March 31, 2000 and June 30, 2000 to reflect the changes in the revised revenue
recognition policy and to properly account for certain third quarter 2000
returns of product that had previously been recognized as revenue under the
prior revenue recognition policy.

The impact on the Company's Statements of Operations and Balance Sheets
for the change in the Company's revenue recognition policy and the restatement
of certain third quarter returns is summarized as follows (in thousands except
per share amounts):

`Three Months Ended      Three Months Ended      Six Months Ended
                                            March 31, 2000          June 30, 2000           June 30, 2000
                                       ----------------------- ----------------------- ----------------------
                                       As Reported As Amended  As Reported As Amended  As Reported As Amended
                                       ----------- ----------- ----------- ----------- ----------- ----------
Statement of Operations:
  Revenue.............................     $5,583      $3,531      $5,765      $4,976     $11,348     $8,507
  Cumulative accounting change........        --       (1,307)        --          --          --      (1,307)
  Net loss............................     (5,530)     (7,501)     (7,068)     (6,834)    (12,598)   (14,335)
  Net loss per share..................     ($0.26)     ($0.35)     ($0.33)     ($0.32)     ($0.59)    ($0.67)

Balance Sheet:
  Accounts receivable, net............     $6,100      $6,372      $9,037     $10,232      $9,037    $10,232
  Inventory...........................      3,396       6,367       3,937       7,179       3,937      7,179
  Deferred revenue....................        --        5,214       1,350       7,524       1,350      7,524`

The restatement of items related to revenues is summarized into the following
categories for the periods presented (in thousands):

`Three       Three        Six
                                         Months      Months      Months
                                          Ended       Ended       Ended
                                        March 31,   June 30,    June 30,
                                          2000        2000        2000
                                       ----------- ----------- -----------
Revenues, as reported.................     $5,583      $5,765     $11,348

Summary of Adjustments:
(1) Adjustments to reflect the change
    to a preferable revenue
    recognition policy
    related to distributors...........     (1,092)        938        (154)

(2) Revision of revenue recognition
    policy related to new customers...       (960)     (1,727)     (2,687)
                                       ----------- ----------- -----------
Revenues, as restated.................     $3,531      $4,976      $8,507
                                       =========== =========== ===========`

1. These adjustments represent the impact of the Company revising its revenue
recognition policy. Previously the Company had reported revenue upon transfer of
title and risk of ownership, which generally occurred upon product shipment.
Provisions were also made for estimated normal returns. The adjustment
represents the net effect of changing the revenue recognition method to a
preferable method of recording revenue after the distributor has "sold through"
the product to the ultimate end user. The Company believes this method more
accurately reflects revenue due to the changes in market conditions and actual
payment patterns of distribution customers using the criteria set forth under
the SAB No. 101 interpretations and the requirements of SFAS No. 48.
2. These adjustments represent the net impact of the Company revising its
revenue recognition policy related to new customers. Previously the Company had
reported revenue upon transfer of title and risk of ownership, which generally
occurred upon product shipment. In the third quarter of 2000, the Company
experienced negative trends of collections for one of its newer customers and
determined that its past collection history with other customers was not a
sufficiently reliable indicator of future collections on current shipments to new customers.
In addition, during the third quarter, another customer returned product it
had purchased in the first quarter in amounts significantly greater than the Company
had provided for at the time of sale.
As collectibility could not be reasonably assured, the Company has revised its
revenue recognition policy for new customers to defer revenue until amounts are
collected and a customer specific collection history has been established.

At September 30, 2000 the Company has recorded Deferred Revenue of $5.1 million.
The deferred revenue represents shipments of product to customers where title has passed
and the Company has invoiced the customer.  However, to
the extent that product is returned to the Company or credits are
approved, this deferred revenue will not result in revenue to the Company. As
stated, this deferred revenue will result in revenue when sold through by the
distributors or to the extent VAR's and MSP's pay on their account based on
sales to their customers.

The SEC has issued SAB No. 101, "Revenue Recognition in Financial
Statements." SAB No. 101 and related interpretations summarize the SEC's view in
applying generally accepted accounting principles to selected revenue
recognition issues. The Company believes that its revised accounting policy
complies with the provisions of SAB No. 101.

Use of Estimates in Preparation of Condensed Consolidated Financial
Statements

The preparation of condensed consolidated financial statements in
conformity with accounting principles generally accepted in the United States
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 reported amounts of
revenues and expenses during the reporting period. Actual results may differ
from those estimates.

Comprehensive Loss

In June 1997, the Financial Accounting Standards Board issued SFAS No.
130, "Reporting Comprehensive Income," which Ramp adopted beginning on January
1, 1998. SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. The objective of SFAS No. 130 is to report a measure of
all changes in equity of an enterprise that result from transactions and other
economic events of the period other than transactions with shareholders
("comprehensive loss"). Comprehensive loss is the total of net loss and all
other non-owner changes in equity. For the three and nine month periods ended
September 30, 2000 and 1999, the Company's comprehensive loss was equal to its
net loss.

Net Loss Per Common Share

Basic net loss per common share is computed using the weighted average
number of shares of common stock outstanding. The Company issued 3,853,000
shares of common stock and converted all of its outstanding redeemable
convertible preferred stock to common stock on June 22, 1999, the date of the
Company's initial public offering. Additionally, in July 1999, the underwriters
of the initial public offering exercised their over-allotment option to purchase
600,000 shares of the Company's common stock.

Basic and diluted net loss per common share are the same in the accompanying
condensed consolidated statements of operations since potential common shares
from conversion of preferred stock and warrants, prior to their conversion to
common stock, stock options and shares subject to repurchase are anti-dilutive
for computing diluted net loss per common share. The Company evaluated the
requirements of the Securities and Exchange Commission (SAB) No. 98 and
concluded that there are no nominal issuances of common stock or potential
common stock which would be required to be shown as outstanding for all periods
as outlined in SAB No. 98.

Segment and Significant Customer Reporting

During 1998, Ramp adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information." SFAS No. 131 requires a new basis of
determining reportable business segments, i.e., the management approach. This
approach requires that business segment information used by management to assess
performance and manage company resources be the source for information
disclosure.

On this basis, Ramp is organized and operates as one business segment, the
design, development, manufacture, and marketing of multi-user Internet access
devices designed for small business and home use. The Company's long-lived
assets are primarily located in the United States. Revenue by region as a
percentage of total revenue is as follows:

`Three Months Ended       Nine Months Ended
                                                   September 30,           September 30,
                                            ----------------------- -----------------------
                                                2000        1999        2000        1999
                                                                     Restated,
                                                                    See Note 2
                                            ----------- ----------- ----------- -----------
   North America.........................           92%         85%         73%         84%
   Pacific Rim...........................            2%         15%         19%         11%
   Europe................................            6%          0%          8%          5%
                                            ----------- ----------- ----------- -----------
      Total revenue......................          100%        100%        100%        100%
                                            =========== =========== =========== ===========`

The Company's customers representing 10% or more of total revenues were as
follows:

`Three Months Ended       Nine Months Ended
                                                   September 30,           September 30,
                                            ----------------------- -----------------------
                                                2000        1999        2000        1999
                                                                     Restated,
                                                                    See Note 2
                                            ----------- ----------- ----------- -----------
   Customer A............................           38%         17%         31%         26%
   Customer B............................           16%          9%         19%         15%
   Customer C............................            0%          0%         15%          0%`

Accounts receivable as of September 30, 2000 from the major customers
highlighted above were $3.0 million.

Accounting For Derivative Instruments and Hedging Activities

In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," which
requires companies to record derivative financial instruments on the balance
sheet as assets or liabilities, measured at fair value. Gains or losses
resulting from changes in the values of those derivatives would be accounted for
depending on the use of the derivative and whether it qualifies for hedge
accounting. The key criterion for hedge accounting is that the hedging
relationship must be highly effective in achieving offsetting changes in fair
value or cash flows. SFAS No. 133 is effective for all fiscal quarters of all
fiscal years beginning after June 15, 2000. Management does not believe this
Statement will have a material impact on the financial condition or results of
the operations, as the Company does not currently hold any derivative
instruments and does not engage in hedging activities.

Accounting for Certain Transactions Involving Stock Compensation

In March 2000, the FASB issued Financial Standards Board Interpretation
(FIN) No. 44, "Accounting for Certain Transactions Involving Stock Compensation
- an Interpretation of APB Opinion No. 25." FIN 44 addresses the application of
APB No. 25 to clarify, among other issues, (i) the definition of employee for
purposes of applying APB No. 25, (ii) the criteria for determining whether a
plan qualifies as a noncompensatory plan, (iii) the accounting consequences of
various modifications to the terms of a previously fixed stock option or award,
and (iv) the accounting for an exchange of stock compensation awards in a
business combination. FIN 44 was effective July 1, 2000. The Company has adopted
FIN 44 and adoption did not have a material effect on its financial position or
results of operations.

Reclassifications

Certain prior year amounts have been reclassified to conform to the
current year presentation.



3. Inventory

Inventories, net of reserves, consisted of the following (in
thousands):

`September 30, December 31,
                                               2000         1999
                                            ----------- -----------
   Raw materials...........................       $588        $699
   Finished goods, including $2.7
     million of inventory related to
     deferred revenue as of
     September 30, 2000....................      8,393       1,574
                                            ----------- -----------
         Total inventory...................     $8,981      $2,273
                                            =========== ===========`

During the three month period ended September 30, 2000, the
Company recorded inventory provisions of $1.5 million. These charges were the
result of the Company assessing its current inventory levels and determining
that such amounts could not be fully realized. These charges are included in
cost of sales in the accompanying financial statements. Additionally, the
Company has accrued and expensed $ 2.2 million as of September 30, 2000, as a
best estimate of the provisions for losses due to cancellation of future
commitments to contract manufacturers of inventory orders that are no longer
required. This amount is included in cost of sales and accrued liabilities in
the accompanying financial statements.



4. Restructuring Charge

Results of Operations for the three and nine months ended September 30,
2000 include $0.5 million in restructuring charges resulting from the 35
employee decrease, a 21% reduction, in workforce implemented by the Company in
September 2000. The reduction in workforce was comprised of sales and support
staff. Additionally, the Company closed certain field offices and disposed
certain assets that were no longer useful. Substantially all of the
restructuring costs have been paid out as of November 14, 2000. These amounts
are reflected as part of the accrued liabilities balance as of September 30,
2000. Details of the cost of restructuring are summarized as follows (in
thousands):

`Severance and outplacement cost-cash....................      $347
Write-down of fixed assets-non-cash.....................       130
Cost associated with closure of field offices-cash......        64
                                                        -----------
   Total restructuring charges..........................      $541
                                                        ===========`

5. Contingencies

Legal Claims

Todd Simon, individually and on behalf of all others similarly situated
v. Ramp Networks, Inc. and Mahesh Veerina, Case No. CV-00-3645 JCS, United
States District Court for the Northern District of California, filed on October
3, 2000; Jacob Elefant, individually and on behalf of all others similarly
situated v. Ramp Networks, Inc. and Mahesh Veerina, Case No. C00-210043 PVT,
United States District Court for the Northern District of California, filed on
October 6, 2000; and Doron Shauly, on behalf of himself and all others similarly
situated v Ramp Networks, Inc. and Mahesh Veerina, Case No. C00-021086 EAI,
United States District Court for the Northern District of California, filed on
October 23, 2000 are punitive class actions filed on behalf of purchasers of the
Company's common stock between November 15, 1999 and September 29, 2000. Each of
the complaints asserts that the defendants fraudulently recognized revenues
through purported "channel stuffing," and disseminated materially false and
misleading statements regarding the demand for, and market acceptance of, the
Company's products, the strength of its technologies, its competitiveness and
trends in its business. The complaints allege claims for relief under Section
10(b) of the Exchange Act of 1934 and Rule 10b-5 thereunder, as well as Section
20 of the Exchange Act, seeking unspecified compensatory damages, attorneys'
fees and costs. It is possible that additional complaints have been or will be
filed alleging similar claims. The Company intends to vigorously defend the
suits and any other similar suits subsequently filed.

Additionally, from time to time the Company is involved in certain other
legal proceedings in the ordinary course of business. None of such proceedings
are expected to have a material adverse impact on the Company's business,
results of operations or financial condition.

ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations

Certain statements in this "Management's Discussion and Analysis of
Financial Condition and Results of Operations" are forward-looking statements
that involve risks and uncertainties. Words such as "anticipates", "expects",
"intends", "plans", "believes", "seeks", "estimates", and similar expressions
identify such forward-looking statements. The forward-looking statements
contained herein are based on current expectations and entail various risks and
uncertainties that could cause actual results to differ materially from those
expressed in such forward-looking statements. Factors that might cause such a
difference include, among other things, those set forth under "Overview",
"Liquidity and Capital Resources" and "Risk Factors" included in this section
and those appearing elsewhere in this Form 10-Q. Readers are cautioned not to
place undue reliance on these forward-looking statements, which reflect
management's analysis only as of the date hereof. The Company assumes no
obligation to update these forward-looking statements to reflect actual results
or changes in factors or assumptions affecting forward-looking
statements.

OVERVIEW

Ramp Networks is a leading provider of easy-to-use, reliable and
affordable shared Internet access solutions for the small office market, which
includes small businesses, remote and branch offices of large corporations, and
home offices. Our WebRamp product family allows multiple users in a small office
to share the same Internet connection simultaneously while optimizing each
user's access speed. Our WebRamp product family is a flexible and scalable
platform that provides software-based routing and bridging functionality to
deliver Internet-enabled applications and services. Our products support
existing analog phone lines, as well as ISDN and security/VPN and increasingly
support access technologies such as DSL and cable modems. Our Connection
Optimized Link Technology enables multiple users to access the Internet
simultaneously through regular phone lines and analog modems at up to three
times the access speed of a single analog connection.

We were incorporated in California in February 1994 and reincorporated in
Delaware in June 1999. Our wholly-owned subsidiary, Ramp Networks Private
Limited, is incorporated in India and performs research and development for us.
From our inception in February 1994 through early 1995, we were focused on
developing products for the asynchronous transfer mode market. We subsequently
licensed this technology to a related party and focused on the small office
market for shared Internet access solutions. From early 1995 through May 1996,
our operating activities were related primarily to developing, prototyping and
testing our first WebRamp product, staffing our administrative, sales and
marketing and operations organizations and establishing relationships with
VAR's, Internet Service Providers ("ISP") and mail order catalogs for the
distribution of our products. In June 1996, we commenced shipments of our first
ISDN-based WebRamp product. The quarter ended March 31, 2000 was the first
quarter that the Company shipped volume production units of all its DSL
products, namely; ADSL - WebRamp 600I , SDSL WebRamp 500I and WebRamp 510I, and
IDSL - WebRamp 450i.

Our revenue is derived primarily from the sale of our WebRamp family of
products. We market and sell our products via a two-tier distribution system
primarily to distributors, such as Ingram Micro and Tech Data (in North
America), who then resell our products to VAR's, selected retail outlets, mail
order catalogs and ISP's. These VAR's then sell our products to end-users.
Additionally, we also sell our products to Original Equipment Manufacturers
("OEM") and with the advent of our DSL portfolio sell to VAR's, MSP's and ISP's
that work directly with DSL service providers or carriers.

The level of sales to any customer may vary from quarter to quarter. However,
we expect that sales to Ingram Micro and Tech Data will continue to represent a
significant portion of our revenue. Revenue from the Company's customers
representing 10% or more of total revenues are summarized in Item 1, Notes to
Condensed Consolidated Financial Statements, under "Segment and Significant
Customer Reporting".

Revenue Recognition, Cumulative Effect of Change in Accounting and
Restatement

Ramp's revenue consists principally of amounts earned from the sale of
manufactured products. Historically, revenue has been recognized by the Company
upon transfer of title and risks of ownership, which generally occurred upon
product shipment. Certain agreements with distributors and retailers provide for
rights of return, co-op advertising, price protection, and stock rotation
rights. Under the guidelines and requirements of Statement of Financial
Accounting Standards ("SFAS") No. 48, "Revenue Recognition When Right of Return
Exists", the Company concluded that it had sufficient history and experience to
quantify reserves required for these provisions. Accordingly, Ramp provided an
allowance for returns and price adjustments and provided a warranty reserve at
the point of revenue recognition. These reserves have been adjusted periodically
based upon historical experience and anticipated future returns, price
adjustments, and warranty costs.

In the first quarter of 2000, the Company launched a new sales and marketing
campaign that involved sales of new technology and products to both existing and
a variety of new types of customers, including new customers serving the
relatively new Digital Subscriber Loop (DSL) market. The DSL market experienced
significant fluctuations in supply and demand in 2000. As a result, current
customers and potential customers experienced delays in the provisioning in this
marketplace which delayed demand for the Company's products. During 2000, the
Company has experienced changing business conditions and demand for product from
its distributors. Specifically, the Company experienced lower demand for both
new and existing products and a trend of increasing past due accounts receivable
from its current distributors as well as from some of the Company's new
customers. The Company has now decided that this increase in past due accounts
receivable from distributors was a result of the distributors not paying the
Company until product was ultimately "sold through" to the customer.
Additionally, certain new customers returned a significant portion of previously
sold product in amounts greater than had been estimated by the Company. In 2000,
the Company continued to apply revenue recognition accounting policies in
accordance with past practices. Revenue recognition was based on historical
experience with long-term customer payment patterns and returns and conventional
industry practices. In the third quarter of 2000, the Company reassessed its
receivable collection history and product returns history with its major
distributors as well as new customers, based upon the current market demand for
the Company's products. As a result of this reassessment, the Company determined
that the negative trends in product sales demand and slower collection of
receivable amounts was not a temporary trend. These significant changes in
circumstances have necessitated a change in accounting policies for its current
sales activity. The Company has decided to restate earlier quarters so that the
accounting for revenue is consistent for all interim periods in 2000.

The Company determined that in light of the current market conditions , a
more preferable method of revenue recognition would be to defer the recognition
of revenue. Under this new method, the Company will now record revenue on
product shipped to distributors when the product is ultimately "sold through" to
the customer. Additionally, the Company will now defer revenues for all other
customers where collection and returns history is not proven until such activity
reflects the "sell through" of products to VAR's and MSP's.

The Company has changed its revenue recognition policy retroactive to January
1, 2000. The result of the change in the revenue recognition policy was an
increase in net loss of $1.3 million and an increase in deferred revenues. This
amount represents the net amount of gross margin on shipments previously
recorded for product shipped to the distributors, but not "sold through" to
customers, as of January 1, 2000. This amount is included as a cumulative effect
of change in accounting policy in the accompanying financial statements for the
nine months ended September 30, 2000. Additionally, the Company has restated
amounts previously recorded in its Forms 10-Q for the quarterly periods ended
March 31, 2000 and June 30, 2000 to reflect the changes in the revised revenue
recognition policy and to properly account for certain third quarter returns of
product that had previously been recognized as revenue under the prior revenue
recognition policy.

The impact on the Company's Statements of Operations and Balance Sheets for
the change in the Company's revenue recognition policy and the restatement of
certain third quarter returns is summarized as follows (in thousands except per
share amounts):

`Three Months Ended      Three Months Ended      Six Months Ended
                                            March 31, 2000          June 30, 2000           June 30, 2000
                                       ----------------------- ----------------------- ----------------------
                                       As Reported As Amended  As Reported As Amended  As Reported As Amended
                                       ----------- ----------- ----------- ----------- ----------- ----------
Statement of Operations:
  Revenue.............................     $5,583      $3,531      $5,765      $4,976     $11,348     $8,507
  Cumulative accounting change........        --       (1,307)        --          --          --      (1,307)
  Net loss............................     (5,530)     (7,501)     (7,068)     (6,834)    (12,598)   (14,335)
  Net loss per share..................     ($0.26)     ($0.35)     ($0.33)     ($0.32)     ($0.59)    ($0.67)

Balance Sheet:
  Accounts receivable, net............     $6,100      $6,372      $9,037     $10,232      $9,037    $10,232
  Inventory...........................      3,396       6,367       3,937       7,179       3,937      7,179
  Deferred revenue....................        --        5,214       1,350       7,524       1,350      7,524`

The Company's international sales currently are U.S. dollar-denominated. As a
result, an increase in the value of the U.S. dollar relative to foreign
currencies, particularly in China, could make our products less competitive in
international markets. In the future, we may elect to invoice some of our
international customers in local currency. Doing so will expose us to losses due
to fluctuations in exchange rates between the U.S. dollar and the particular
local currency. We may choose to limit any currency exposure through the
purchase of forward foreign exchange contracts or other hedging strategies, but
such strategies may not be successful in avoiding exchange-related losses. See
"Risk Factors . If We Are Not Successful in Expanding Our Business in
International Markets, Our Growth Will Suffer". Revenue by geographical region
as a percentage of the Company's total revenue is summarized in Item 1 Notes to
Condensed Consolidated Financial Statements, under "Segment and Significant
Customer Reporting".

We generally expect to experience price pressure due to the impact of
competition. Average selling prices have varied considerably in the past based
on such price pressure and also on the mix of the various products shipped by
the Company. Additionally, OEM unit pricing is generally significantly lower
than distribution pricing. Pricing in the OEM market depends on the specific
features and functional content of the products sold, the degree of integration
with the OEM's products, purchase volumes and the level of sales and service
support.

The Company uses "turn-key" suppliers for the purchase, assembly and
packaging of all products sold that require hardware components. From time to
time the Company has made strategic purchases of material components from
vendors to ensure supply of critical components for its products. Significant
portions of the critical components used in the Company's products are multi-
source to ensure adequate supply to our turn-key vendors. Key components such as
processors and certain types of memory, including "flash" memory, are and have
been a consistent variable in the marketplace for both supply and price. As
such, the Company continually manages such supply with vendors to meet the
requirements of its own demand for finished products.

Our gross margins are affected by fluctuations in manufacturing volumes and
component costs, and the mix of products sold. During the three months ended
September 30, 2000, gross margin as a percentage of revenue declined as compared
to the three months ended September 30, 1999. During the three months ended
September 30, 2000, the Company's revenue included higher unit volumes of its
Broadband products. These products have higher unit costs because volume
production levels have not been achieved with the Company's vendors that supply
such products. Our gross margins vary by the mix of Broadband products.
Continued market pressure on all CPE vendors indicates that margins may continue
to decline until such time as the Company's new line of Broadband Security
products are shipped in volume. Predicting the future mix of products or volumes
shipped is difficult and as such we cannot assure you that we will maintain or
increase our gross margins as a percentage of revenues. In the short term we
expect gross margins to continue to decline (from the third quarter 2000
percentage excluding the one-time charges and write-offs) as we focus our
efforts on inventory reduction that will include certain price reductions on
excess inventories.

Research and development expenses consist primarily of salaries and related
personnel expenses, fees paid to consultants and outside service providers, and
prototyping expenses related to the design, development and testing of our
products. Sales and marketing expenses consist primarily of salaries,
commissions and related expenses for personnel engaged in marketing, sales and
support functions, as well as costs associated with promotional and other sales
activities. General and administrative expenses consist primarily of salaries
and related expenses for executive, finance and human resources personnel,
professional fees, and other corporate expenses. We expect expenses relating to
research and development, sales and marketing, general and administrative and
operations to increase in absolute dollars. Sales and marketing expenses are
expected to decrease in the fourth quarter of 2000 as a result of the reduction
in force implemented in September. We expect sales and marketing expenses to
increase in absolute dollars beginning in 2001 as we expand our marketing
efforts focused on the broadband security business. The percentage of revenue
that each of these categories represents will vary depending on the rate of our
revenue growth and investments that may be required to support the development
of new products and our penetration of new markets.

Since our inception, we have incurred significant losses and, as of September
30, 2000, we had an accumulated deficit of $74.4 million. These losses have
resulted primarily from our activities to develop our products, establish brand
recognition and to develop our distribution channels.

As of December 31, 1999, we had net operating loss carry-forwards of $41
million for federal purposes and $16 million for state purposes. The federal and
state net operating loss carry-forwards expire on various dates through 2019. We
have provided a full valuation allowance against our deferred tax assets,
consisting primarily of net operating loss carry-forwards, because of the
uncertainty regarding their realization. Further, these net operating loss
carry-forwards could be subject to limitations due to changes in our ownership
resulting from equity financing.

Results of Operations

The following table sets forth certain financial data for the periods
indicated as a percentage of revenue.

`Three Months Ended   Nine Months Ended
                                             September 30,       September 30,
                                         ------------------- -------------------
                                            2000      1999      2000      1999
                                                             Restated,
                                                             See Note 2
                                         --------- --------- --------- ---------
Revenue................................     100.0 %   100.0 %   100.0 %   100.0 %
Cost of revenue........................     210.6      59.0     107.0      62.1
                                         --------- --------- --------- ---------
Gross margin...........................    (110.6)     41.0      (7.0)     37.9
                                         --------- --------- --------- ---------

Operating expenses:
  Research and development.............      66.1      24.5      49.8      26.6
  Sales and marketing..................     194.7      52.1     133.3      51.3
  General and administrative...........      42.8      16.1      32.0      14.8
  Legal and severance cost.............       0.0      23.4       0.0       8.7
  Amortization of deferred
     compensation......................       2.4       2.8       3.1       4.9
  Restructuring charge.................      18.2       0.0       4.7       0.0
                                         --------- --------- --------- ---------
Total operating expenses...............     324.3     118.8     222.9     106.2
                                         --------- --------- --------- ---------
Loss from operations...................    (434.9)    (77.8)   (229.9)    (68.3)
Interest expense.......................      (6.3)     (5.1)     (5.6)     (3.6)
Other income (expense).................       6.0      10.5       9.4       4.4
Cumulative effect of change in
  accounting policy....................       0.0       0.0     (11.4)      0.0
                                         --------- --------- --------- ---------
Net loss ..............................    (435.2)%   (72.4)%  (237.5)%   (67.6)%
                                         ========= ========= ========= =========`

Three Months Ended September 30, 2000 and 1999

Revenue. Revenue decreased 41% to $3.0 million in the
three months ended September 30, 2000 from $5.0 million in the three months
ended September 30, 1999. The decrease reflects lower demand in the U.S. and Asia for the Company's
dial products.

Gross margin. The Company's total gross margin
decreased from $2.1 million, or 41% of revenue, for the three months ended
September 30, 1999 to $(3.3) million, or (111)% of revenue, for the three months
ended September 30, 2000. The negative gross margin in 2000 includes inventory
provisions of $3.8 million for costs and reserves associated with inventory that
the Company believes, based on its current best estimates, will be sold or
disposed of with lower gross margins. Excluding these one-time charges, gross
margin would be 17% of revenue reflecting;

1. lower margins on DSL products
2. lower volumes and thereby higher unit costs per unit for
overhead and manufacturing support costs, and
3. declining analog product selling prices due to
competitive pressures and softening of demand in North America as customers
accelerate the transition to broadband technology

Research and development expenses. Research and
development expenses increased from $1.2 million, or 25% of revenue, for the
three months ended September 30, 1999 to $2.0 million, or 66% of revenue, for
the three months ended September 30, 2000. This increase reflects significant
activity on engineering projects associated with the introduction of the
Company's new Broadband products as well as efforts focused on integration of
"Internet security" and "voice-over-DSL" technologies.

Sales and marketing expenses. Sales and marketing
expenses increased from $2.6 million, or 52% of revenue, for the three months
ended September 30, 1999 to $5.8 million, or 195% of revenue, for the three
months ended September 30, 2000. Sales and marketing expenses for the three
months ended September 30, 2000 includes one-time charges of $0.8 million
associated with
the cancellation or expiration of contracts which will result in the elimination
or minimization of future liabilities to the Company.
The remaining
increase of $2.4 million of expense for the three months ended September 30,
2000 was due to significant expenditures which were incurred to support the
enterprise business that as a result of the Company's restructuring will be
reduced significantly.

General and administrative expenses. General and
administrative expenses increased from $0.8 million, or 16% of revenue, for the
three months ended September 30, 1999 to $1.3 million, or 43% of revenue, for
the three months ended September 30, 2000. The increase in general and
administrative expenses is due primarily to increases in personnel and
professional consulting costs. General and administrative expenses are expected
to decrease in the fourth quarter of 2000 due to the reduction in force the
Company implemented in September.

Legal and severance cost. For the three months ended
September 30, 1999, the Company recorded a charge of $1.2 million for legal and
severance costs. The charge includes a settlement of a legal dispute with two
prior employees and a settlement of a patent dispute with a prior employee.

Amortization of deferred stock compensation.
Amortization of deferred stock compensation was $0.1 million for each of the
three months ended September 30, 2000 and 1999, respectively. This amortization
is associated with recorded deferred compensation of $2.5 million related to
stock options granted in the year ended December 31, 1998 and during the three
months ended March 31, 1999 at less than their deemed fair market value. The
Company amortizes the deferred compensation over the vesting periods of the
applicable options. During the period, the deferred stock compensation was
adjusted to eliminate, on a prospective basis, employees who have terminated
from the Company and to which such stock options have been cancelled.

Restructuring charge. Results of Operations for the three months
ended September 30, 2000 include $0.5 million of restructuring charges resulting
from the 21% reduction in force implemented by the Company in September 2000.
Substantially all of the restructuring costs have been paid out as of November
14, 2000. Details of the cost of restructuring are summarized in Note 4 to the
financial statements.

Nine Months Ended September 30, 2000 (As restated, See
Note 2 to the financial statements ) and 1999

Revenue. Revenue decreased 14% to $11.5 million, as
restated for the nine months ended September 30, 2000 from $13.4 million for the
nine months ended September 30, 1999. The decrease reflects lower demand in the U.S. and Asia for the
Company's dial products.

Gross margin. The Company's total gross margin
decreased from $5.1 million, or 38% of revenue, for the nine months ended
September 30, 1999 to $(0.8) million, or (7)% of revenue, for the nine months
ended September 30, 2000. The negative gross margin in 2000 includes one-time
charges and write-offs of $3.8 million for costs and reserves associated with
inventory that the Company believes, based on its current best estimates, will
be sold or disposed of with lower gross margins. Excluding these one-time
charges, gross margin would be 26% reflecting;

1. lower margins on DSL products
2. lower volumes and thereby higher unit costs per unit for
overhead and manufacturing support costs, and
3. declining analog product selling prices due to
competitive pressures and softening of demand in North America as customers
accelerate the transition to broadband technology.

Research and development expenses. Research and
development expenses increased from $3.6 million, or 27% of revenue, for the
nine months ended September 30, 1999 to $5.7 million, or 50% of revenue, for the
nine months ended September 30, 2000. This increase reflects significant
activity on engineering projects associated with the introduction of the
Company's new Broadband products as well as efforts focused on integration of
"Internet security" and "voice-over-DSL" technologies.

Sales and marketing expenses. Sales and marketing
expenses increased from $6.9 million, or 51% of revenue, for the nine months
ended September 30, 1999 to $15.3 million, or 133% of revenue, for the nine
months ended September 30, 2000. Sales and marketing expenses for the nine
months ended September 30, 2000 includes one-time charges of $0.8 million
associated with
the cancellation or expiration of contracts which will result in the elimination
or minimization of future liabilities to the Company.


The remaining $7.6 million increase is due to for the nine months ended September
30, 2000was due to significant expenditures which were incurred to support the
enterprise business that as a result of the Company's restructuring will be
reduced significantly.

General and administrative expenses. General and
administrative expenses increased from $2.0 million, or 15% of revenue, for the
nine months ended September 30, 1999 to $3.7 million, or 32% of revenue, for the
nine months ended September 30, 2000. The increase in general and administrative
expenses is due primarily to increases in personnel and professional consulting
costs. General and administrative expense are expected to decrease in the fourth
quarter of 2000 due to the reduction in force the Company implemented in
September.

Legal and severance cost. For the nine months ended
September 30, 1999, the Company recorded a charge of $1.2 million for legal and
severance costs. The charge includes a settlement of a legal dispute with two
prior employees and a settlement of a patent dispute with a prior employee.

Amortization of deferred stock compensation.
Amortization of deferred stock compensation was $0.7 million for the nine months
ended September 30, 1999 as compared to $0.4 million for the nine months ended
September 30, 2000 . This amortization is associated with recorded deferred
compensation of $2.5 million related to stock options granted in the year ended
December 31, 1998 and during the nine months ended March 31, 1999 at less than
their deemed fair market value. The Company amortizes the deferred compensation
over the vesting periods of the applicable options. During the period, the
deferred stock compensation was adjusted to eliminate, on a prospective basis,
employees who have terminated from the Company and to which such stock options
have been cancelled.

Restructuring charge. Results of Operations for the
nine months ended September 30, 2000 include $.5 million of restructuring
charges resulting from the 21% reduction in force implemented by the Company in
September 2000. Substantially all of the restructuring costs have been paid out
as of November 14, 2000. Details of the cost of restructuring are summarized in
Note 4 to the financial statements.

Cumulative change in accounting policy. The Results of
Operations for the nine months ended September 30, 2000 include a $1.3 million
increase in net loss as a result of a cumulative change in accounting policy.
See note 2.

LIQUIDITY AND CAPITAL RESOURCES

Our principal sources of liquidity as of September 30, 2000 consisted of
$15.3 million in cash equivalents and marketable securities, a $1.0 million
fixed asset lease line, a working capital credit facility with a borrowing limit
of up to the lower of $5.0 million or 100% of eligible accounts receivable and
50% of inventory and a $3.0 million bridge loan facility. As of September 30,
2000, the Company had outstanding obligations of $0.2 million and $4.0 million
under the fixed asset lease line and the bridge loan and working capital
facilities, respectively. Borrowings under the fixed asset lease line bear
interest at 7.5%, are payable ratably over a 36 month term, are subject to a 15%
termination payment and are secured by the fixed assets that are leased under
the line. Borrowings under the working capital credit facility bear interest at
8.4%, are payable ratably over a 36 month term, are subject to a termination
payment of 12.5% and are secured by our receivables and inventory. Borrowings
under the bridge loan facility bear interest at 14.6% and are payable ratably
over a 36 month term. Certain of these debt agreements contain provisions that
limit the payment of cash dividends.

Since inception, we have financed our operations primarily through the sale
of stock, capital equipment lease lines and working capital lines of credit.

Net cash used in operating activities was $21.9 million and $10.5 million in
the nine months ended September 30, 2000 and 1999, respectively. The cash
utilized in both periods was attributable primarily to net losses and working
capital required to fund the Company's growth in operations, including inventory
and accounts receivable and deferred revenue.

Net cash provided by investing activities was $17.8 million for the nine
months ended September 30, 2000, consisting primarily of $20.1 million in
maturities of marketable securities net of purchases of new marketable
securities. Additionally, the cash provided by investing activities for the nine
months ended September 30, 2000 included the purchase of $2.3 million in
property and equipment. Net cash used in investing activities for the nine
months ended September 30, 1999 was $27.8 million and included $27.2 million for
purchases of short term maturities as well as $0.5 million used in the purchase
of property and equipment.

Net cash used in financing activities was $0.5 million for the nine months
ended September 30, 2000 reflecting $1.7 million in the scheduled pay down of
the Company's debt offset by $1.2 million in cash generated from the issuance of
common stock associated with the exercise of employee stock options and shares
of common stock purchased by employees under the Company's stock purchase plan.
Net cash provided by financing activities for the nine months ended September
30, 1999 was $50.4 million of which $44.8 million was provided by the issuance
of common stock and $6.3 million from borrowings under the Company's debt
agreements.

We currently anticipate that our existing cash balances and available lines
will not be sufficient to meet our anticipated needs for working capital and
capital expenditures through the next 12 months and we will need to raise
additional funds prior to the expiration of such period. The Company is
currently in the process of exploring alternative financing sources to fund
future operations. The uncertainty about our ability to raise additional funds
causes substantial doubt about our ability to continue as a going concern. The
financial statements are prepared on the basis that the Company will continue as
a going concern and do not reflect any adjustment that might be needed to
reflect the ultimate realization of asset values. See "Risk Factors - We expect
to Continue to Experience Negative Cash Flow From Operations and May Be Unable
to Meet Our Future Capital Requirements Through the Issuance of Additional
Securities".



ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK

Our interest income is sensitive to changes in the general level of U.S.
interest rates, particularly since the majority of our investments are in short-
term instruments. Due to the nature of our short-term investments, we have
concluded that there is no material interest rate risk exposure and no
quantitative tabular disclosures are required.



Risk Factors

We Have a Limited Operating History and Consequently Our Future Prospects are
Difficult to Evaluate

We were incorporated in February 1994 and began shipping our products
commercially in April 1996. We have shipped products in volume since the second
quarter of 1997. We have limited operating history and the uncertain nature of
the rapidly changing markets in which we serve, makes the prediction of future
results of operations difficult or impossible. Furthermore, our prospects must
be evaluated in light of the risks, uncertainties, and difficulties frequently
encountered by companies in the early stage of development. We may not be
successful in addressing these risks and our business strategy may not be
successful.

We Have a History of Losses, We Expect Future Losses and We Cannot Assure
You That We Will Achieve or Maintain Profitability

We have incurred losses since we commenced operations in February 1994.
We incurred net losses of $6.3 million in 1996, $11.5 million in 1997, $13.4
million in 1998 and $13.2 million in 1999. As of September 30, 2000, we had an
accumulated deficit of $74.4 million. We have not achieved profitability and our
revenue has not grown in recent quarters. As such, we cannot be certain that we
will realize sufficient revenue to achieve profitability. Even if we do achieve
profitability, we cannot assure you that we can sustain or increase
profitability on a quarterly or annual basis in the future. We may not generate
a sufficient level of revenue to offset these expenditures or be able to adjust
spending in a timely manner to respond to any unanticipated decline in revenue.
If revenue does not grow, if gross margins do not improve or if operating
expenditures exceed our expectations or cannot be adjusted accordingly, we may
continue to experience significant losses on a quarterly and annual basis.

We Expect to Continue to Experience Negative Cash Flow From Operations and
May Be Unable to Meet Our Future Capital Requirements Through the Issuance of
Additional Securities

Since inception, we have experienced negative cash flow from operations
and we expect to continue to experience negative cash flow from operations for
the foreseeable future. Therefore, we have relied primarily on issuances of
equity securities to fund our operations to date. We currently anticipate that
our existing cash balances and available lines will not be sufficient to meet
our anticipated needs for working capital and capital expenditures through the
next 12 months and we will need to raise additional funds prior to the
expiration of such period. We cannot be certain that additional financing,
through the issuance of equity securities or otherwise, will be available to us
on favorable terms, or at all. If adequate funds are not available, or are not
available on acceptable terms, we may not be able to take advantage of market
opportunities, develop new products or otherwise respond to competitive
pressures which could adversely affect our ability to achieve and sustain
positive cash flow and profitability in the future. Furthermore, without new
funds, the Company may not be able to continue as a going concern.



Our Financial Results from Period to Period May Fluctuate as a Result of
Several Factors, Any of Which Could Adversely Affect Our Stock Price

We believe that period-to-period comparisons of our operating results are
not a good indication of our future performance. In past periods our operating
results have been below the expectations of public market analysts and investors
and the price of our common stock has fallen. It is possible that this may also
occur in future periods. Our revenue and operating results may vary
significantly from period to period due to a number of factors, many of which
are not in our control. These factors include:

> continued market acceptance of our products;fluctuations in demand for our products and services;variations in the timing of orders and shipments of our products;the timing of new product and service introductions by us or our
> competitors;the mix of products sold and the mix of distribution channels through which
> they are sold;our ability to obtain sufficient supplies of sole or limited source
> components for our products;unfavorable changes in the prices of the components we purchase;our ability to achieve required cost reductions;our ability to attain and maintain production volumes and quality levels
> for our products; andour ability to integrate new technologies we develop or acquire into our
> products.

The amount and timing of our operating expenses generally will vary from
quarter to quarter depending on the level of actual and anticipated business
activities. Research and development expenses will vary as we develop new
products. Sales and marketing expense fluctuations in past periods have been due
primarily to the level of sales and marketing expenses associated with new
product introductions. General and administrative expense fluctuations in past
periods have been due primarily to increases in personnel expense as we hire new
employees and build the Company infrastructure. In the past, we have experienced
fluctuations in operating results. We have experienced sharply increased revenue
in periods that involved new product introductions and significant sales to
OEMs, with equally sharp decreases in revenue in subsequent periods as
distributors and OEMs complete their inventory build-up process. Furthermore, we
have a limited backlog of orders, and revenue for any future quarter is
difficult to predict. Supply, manufacturing or testing constraints could result
in delays in the delivery of our products. Any delay in the product deployment
schedule of one or more of our new products would likely adversely affect our
operating results for a particular period.

We have experienced declining gross margins and cannot assure you that we
will be able to sustain or improve our gross margins in the future, or that we
will be able to offset future price declines with cost reductions. As a result,
we may experience substantial period-to-period fluctuations in future operating
results and further declines in gross margins. A variety of factors affect our
gross margins, including the following:

> the type of distribution channel through which we sell our products;the volume of products manufactured;our product sales mix;the average selling prices of our products; andthe effectiveness of our cost reduction efforts.

We also anticipate that orders for our products may vary significantly from
period to period. As a result, operating expenditures and inventory levels in
any given period could be disproportionately high. In some circumstances,
customers may delay purchasing our current products in favor of next-generation
products, which could affect our operating results in any given period.



We May Experience Significant Variability in Our Quarterly Revenue Due to
Our Reliance on Indirect Sales Channels and the Variability of Our Sales Cycles

The timing of our revenue is difficult to predict because of our reliance
on indirect sales channels and the length and variability of our sales cycle.
The length of our sales cycle may vary substantially from customer to customer
depending upon the size of the order and the distribution channel through which
our products are sold. Sales from our distributors to our VARs typically take
one month to complete. Sales to our larger end-user accounts, who buy larger
quantities of our products for distribution to their multiple offices, typically
take two to three months to complete and it typically takes nine months or more
to establish volume sales contracts with our OEMs. Furthermore, the purchase of
our products by end-users often represents a significant and strategic decision
regarding their communications infrastructures and typically involves
significant internal procedures associated with the evaluation, testing,
implementation and acceptance of new technologies. This evaluation process
frequently results in a lengthy sales process which is often subject to
significant delays as a result of our customers' budgetary constraints and
internal acceptance reviews. If orders forecasted for a specific customer in a
particular quarter do not occur in that quarter, our operating results for that
quarter could be adversely affected.

If a Distributor, OEM or Reseller Cancels or Delays a Large Purchase, Our
Revenue May Decline and the Price of Our Stock May Fall

To date, a limited number of customers have accounted for a significant
portion of our revenue. If any of our major customers stops or delays its
purchase of our products or "sell through" to the ultimate consumer, our revenue
and profitability would be adversely affected. We anticipate that sales of our
products to relatively few customers will continue to account for a significant
portion of our revenue. In the nine month period ended September 30, 2000,
customers totaling 10% or more of revenue accounted for 65% of our revenue. We
cannot assure you that our current customers will continue to place orders with
us, that orders by existing customers will continue at the levels of previous
periods or that we will be able to obtain orders from new customers.

Because our expense levels are based on our expectations as to future revenue
and to a large extent are fixed in the short term, a substantial reduction or
delay in sales of our products, unexpected returns from resellers or the loss of
any significant distributor, reseller or OEM could adversely affect our
operating results and financial condition. Although our financial performance
depends on large orders from a few key distributors, resellers and OEMs, we do
not have binding commitments from any of them. For example:

> our distributors, resellers and OEMs can stop purchasing or marketing our
> products at any time;our reseller agreements generally are not exclusive and are for one year
> terms, with no obligation of the resellers to renew their agreements with us;our reseller agreements provide for discounts based on expected or actual
> volumes of products purchased or resold in a given period;our reseller and OEM agreements generally do not require minimum purchases;
> andour customers may, under certain circumstances, return products to us.

If We Fail to Enhance Our Existing Products or Develop and Introduce New
Products and Features in a Timely Manner to Meet Changing Customer Requirements
and Emerging Industry Standards, Our Ability to Grow Our Business Will
Suffer

The market for shared Internet access solutions is characterized by
rapidly changing technologies and short product life cycles. Our future success
will depend in large part upon our ability to:

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

We will not be competitive unless we continually introduce new products and
product enhancements that meet these emerging standards. In the future, we may
not be able to effectively address the compatibility and interoperability issues
that arise as a result of technological changes and evolving industry standards.

The technical innovations required for us to remain competitive are
inherently complex, require long development cycles and are dependent in some
cases on sole source suppliers. We will be required to continue to invest in
research and development in order to attempt to maintain and enhance our
existing technologies and products, but we may not have the funds available to
do so. Even if we have sufficient funds, these investments may not serve the
needs of customers or be compatible with changing technological requirements or
standards. Most development expenses must be incurred before the technical
feasibility or commercial viability of new or enhanced products can be
ascertained. Revenue from future products or product enhancements may not be
sufficient to recover the associated development costs.

If We Fail To Develop and Expand Our Indirect Distribution Channels, Our
Business Could Suffer

Our product distribution strategy focuses primarily on continuing to
develop and expand our indirect distribution channels through distributors,
resellers and OEMs, as well as focusing our field sales organization in the
broadband security market. If we fail to develop and cultivate relationships
with significant resellers, or if these resellers are not successful in their
sales efforts, our product sales may decrease and our operating results may
suffer. Many of our resellers also sell products that compete with our products.
In addition, our operating results will likely fluctuate significantly depending
on the timing and amount of orders from our resellers. We cannot assure you that
our resellers will market our products effectively or continue to devote the
resources necessary to provide us with effective sales, marketing and technical
support.

In order to support and develop leads for our indirect distribution channels,
we plan to focus our efforts on target accounts with a specialized team of sales
and support staff. We cannot assure you that this will be successfully
completed, that the cost of this team will not exceed the revenue generated or
that our expanded sales and support staff will be able to compete successfully
against the significantly more extensive and well-funded sales and marketing
operations of many of our current or potential competitors. Our inability to
effectively establish our distribution channels or manage the sales and support
staff would adversely affect our ability to grow and increase revenue.

Average Selling Prices of Our Products May Decrease, Which May Affect Our
Gross Margins

The average selling prices for our products may be lower than expected as
a result of competitive pricing pressures, promotional programs and customers
who negotiate price reductions in exchange for longer term purchase commitments.
The pricing of products sold to our OEMs depends on the specific features and
functions of the product, the degree of integration with the OEM's products,
purchase volumes and the level of sales and service support. Generally, the
market has reflected pricing pressures for both ISDN and analog based products
and we expect such price pressures from competition to continue in the future.
Additionally, we are experiencing aggressive pricing in the market for
Broadband-based products and with the higher cost per unit to manufacture than
the ISDN and analog products, we may experience gross margin percentage
reductions as we continue to move our portfolio of products to a higher mix of
Broadband-based products and attempt to reduce our inventory levels. As such, we
cannot assure you that we will be successful in developing and introducing on a
timely basis new products with enhanced features that can be sold at higher
gross margins.

If We Are Unable to Lower the Cost of Our Products, Purchasers May Buy
From Our Competitors and Our Financial Results Would Suffer

Certain of our competitors currently offer Internet access products at
prices lower than ours. Market acceptance of our products will depend in part on
reductions in the unit cost of our products. Our cost reduction efforts may not
allow us to keep pace with competitive pricing pressures or lead to improved
gross margins. Many of our competitors are larger and manufacture products in
significantly greater quantities than we intend to for the foreseeable future.
Consequently, these competitors have more leverage in obtaining favorable
pricing from suppliers and manufacturers. In order to remain competitive, we
must reduce the cost of manufacturing our products through design and
engineering changes. We may not be successful in redesigning our products. Even
if we are successful, our redesign may be delayed or may contain significant
errors and product defects. In addition, any redesign may not result in
sufficient cost reductions to allow us to significantly reduce the list price of
our products or improve our gross margins. Reductions in our manufacturing costs
will require us to use more highly integrated components in future products and
may require us to enter into high volume or long-term purchase or manufacturing
agreements. Volume purchase or manufacturing agreements may not be available on
acceptable terms. We could incur expenses without related revenue if we enter
into a high volume or long-term purchase or manufacturing agreement and then
decide that we cannot use the products or services offered by such agreement.

Our Market Continues to Develop and Our Products May Not Achieve
Widespread Market Acceptance

Our success will depend upon the widespread commercial acceptance of
shared Internet access products by small offices. Small offices are deploying
shared Internet access products, and the market for these products is continuing
to develop. If the single Internet access devices, such as analog modems or
ISDN, DSL and cable modems, currently utilized by many small offices are deemed
sufficient even though they do not enable shared access, then the market
acceptance of our products may be slower than expected. Potential users of our
products may have concerns regarding the security, reliability, cost, and ease
of use and capability of our products. We cannot accurately predict the future
growth rate or the ultimate size of the small office market for shared Internet
access solutions.

We Depend on Contract Manufacturers for Substantially All of Our
Manufacturing Requirements and We May Be Unable to Successfully Expand Our
Manufacturing Operations as We Grow

We have developed a highly out-sourced contract manufacturing capability
for the production of our products. Therefore, we rely on third party contract
manufacturers to procure components, assemble, test and package our products.
Our primary turn-key manufacturing partners are Micron Custom Manufacturing
Services, Inc., Delta Networks, Inc., Discopy Labs Corporation and SMT
Unlimited, Inc. Any interruption in the operations of one or more of these
contract manufacturers or delays in their shipment of products would adversely
affect our ability to meet scheduled product deliveries to our customers.

We intend to regularly introduce new products and product enhancements that
will require that we rapidly achieve volume production by coordinating our
efforts with those of our suppliers and contract manufacturers. The inability of
our contract manufacturers to provide us with adequate supplies of high quality
products or the loss of any of our contract manufacturers would cause a delay in
our ability to fulfill orders while we obtain a replacement manufacturer. In
addition, our inability to accurately forecast the actual demand for our
products could result in supply, manufacturing or testing capacity constraints.
These constraints could result in delays in the delivery of our products or the
loss of existing or potential customers.

Although we perform random spot testing on manufactured products, we rely on
our contract manufacturers for assembly and primary testing of our products. Any
product shortages or quality assurance problems could increase the costs of
manufacturing, assembling or testing our products.

We Purchase Several Key Components of Our Products from Sole or Limited
Sources and Could Lose Sales If These Sources Fail to Satisfy Our Supply
Requirements

We currently purchase several key components used in the manufacture of
our products from sole or limited sources and are dependent upon supply from
these sources to meet our needs. We are likely to encounter shortages and delays
in obtaining components in the future which could adversely affect our ability
to meet customer orders. Our principal sole sourced components include
microprocessors, line interface integrated circuits, modem integrated circuits,
DRAMs, transformers, selected other integrated circuits, and plastic tooled
enclosures.

We use a rolling six-month forecast based on anticipated product orders to
determine our material requirements. Lead times for materials and components we
order vary significantly, and depend on factors such as specific supplier,
contract terms and demand for a component at a given time. Our components that
have long lead times include power converters, ISDN integrated circuits, DSL
integrated circuits, flash memories, DRAMs and SRAMs. If orders do not match
forecasts, we may have excess or inadequate inventory of certain materials and
components, which could harm our business.

Although we enter, either directly or through our contract manufacturers,
into purchase orders with our suppliers for components based on our forecasts,
we do not have any guaranteed supply arrangements with these suppliers. Any
extended interruption in the supply of any of the key components currently
obtained from a sole or limited source could affect our ability to meet
scheduled product deliveries to customers. We cannot assure you that, as our
demand for these components increases, we will be able to obtain these
components in a timely manner in the future. In addition, financial or other
difficulties facing our suppliers or significant worldwide demand for the
components they provide could adversely affect the availability of these
components. If we are unable to obtain, either directly or through our contract
manufacturers, a sufficient supply of components from our current sources, we
could experience difficulties in obtaining alternative sources or in altering
product designs to use alternative components. Resulting delays or reductions in
product shipments could damage customer relationships. Further, we may also be
subject to increases in component costs.

The Market in Which We Sell Our Products is Intensely Competitive and Our
Business Would Be Adversely Affected If We Lose Market Share or Otherwise Fail
to Successfully Compete in This Market

We compete in a new, rapidly evolving and highly competitive market. We
expect competition to persist and intensify in the future. Our current and
potential competitors offer a variety of competitive products, including shared
Internet access devices such as the products offered by 3Com, thin servers, and
high-end networking equipment such as routers and switches offered by companies
such as Lucent, Cisco, Intel, Efficient and Netopia.

Many of our competitors are substantially larger than we are and have
significantly greater financial, sales and marketing, technical, manufacturing
and other resources and more established distribution channels. These
competitors may be able to respond more rapidly to new or emerging technologies
and changes in customer requirements or devote greater resources to the
development, promotion and sale of their products than we can. Furthermore, some
of our competitors may make strategic acquisitions or establish cooperative
relationships among themselves or with third parties to increase their ability
to rapidly gain market share by addressing the needs of our prospective
customers. These competitors may enter our existing or future markets with
solutions that may be less expensive, provide higher performance or additional
features or be introduced earlier than our solutions. Given the market
opportunity in the shared Internet access market, we also expect that other
companies may enter our market with better products and technologies. If any
technology that is competing with ours is more reliable, faster, and less
expensive or has other advantages over our technology, then the demand for our
products and services would decrease, which would seriously harm our business.

We expect our competitors to continue to improve the performance of their
current products and introduce new products or new technologies as industry
standards and customer requirements evolve that may supplant or provide lower
cost alternatives to our products. Successful new product introductions or
enhancements by our competitors could reduce the sales or market acceptance of
our products and services, perpetuate intense price competition or make our
products obsolete. To be competitive, we must continue to invest significant
resources in research and development, sales and marketing and customer support.
We cannot be sure that we will have sufficient resources to make such
investments or that we will be able to make the technological advances necessary
to be competitive. As a result, we may not be able to compete effectively
against our competitors. Our failure to maintain and enhance our competitive
position within the market may seriously harm our business.

Increased competition is likely to result in price reductions, reduced gross
margins, longer sales cycles and loss of market share, any of which would
seriously harm our business and results of operations. We cannot be certain that
we will be able to compete successfully against current or future competitors or
that competitive pressures will not seriously harm our business.

We Have Experienced Fluctuations in Growth in our Business in Recent
Periods and Our Failure to Effectively Manage This and Future Growth Will
Adversely Affect Our Business

We have both significantly expanded and reduced our operations in recent
periods and anticipate that further significant changes will be required to
address potential growth in our customer base and market opportunities. These
changes have placed and are expected to continue to place, significant strain on
our engineering, managerial, administrative, operational, financial and
marketing resources, and increased demands on our systems and controls. To
exploit the market for our products, we must develop new and enhanced products
while managing anticipated growth in sales by implementing effective planning
and operating processes. To manage the growth of our operations, we will need
to:

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

We cannot assure you that we will be able to effectively manage the expansion
of our operations, that our systems, procedures or controls will be adequate to
support our operations or that the executive management team will be able to
achieve the rapid execution necessary to fully exploit the market opportunity
for our products and services. Any failure to effectively manage our growth
could harm our business.

We Depend on Our Key Personnel Who May Not Continue to Work For Us

Our future success depends in large part upon the continued services of
our key technical, sales and senior management personnel who are not bound by an
employment agreement. The loss of any of our senior management or other key
research, development, sales and marketing personnel, particularly if lost to
competitors, could harm our business. In particular, the services of Mahesh
Veerina, President and Chief Executive Officer, would be difficult to replace.

Even though we implemented a reduction in force in September, 2000, we expect
that we will need to hire additional personnel in all areas in the event
customer demand for our product accelerates. The competition for qualified
personnel in our industry is intense, particularly in the San Francisco Bay Area
where our corporate headquarters are located and in Hyderabad, India where we
conduct a significant portion of our research and development operations. At
times, we have experienced difficulty in hiring and retaining personnel with
appropriate qualifications, particularly in technical areas. Recent stock price
declines may make it more difficult to retain existing personnel. If we do not
succeed in attracting new personnel, or retaining and motivating existing
personnel, our business will be adversely affected.

If We Do Not Provide Adequate Product Support and Training to Our
Resellers Our Sales Could Be Adversely Affected

Our ability to achieve our planned sales growth, retain current and
future customers and expand our network of resellers will depend in part upon
the quality of our customer service and product support operations. We rely
primarily on our resellers to provide the product support and training required
by our customers particularly during the initial deployment and implementation
of our products. We may not have adequate personnel to provide the levels of
support and product training our resellers may require during initial product
deployment or on an ongoing basis to adequately support our customers. We also
provide direct customer service and support to the end-users of our products.
Our inability to provide sufficient support to our customers and resellers could
delay or prevent the successful deployment of our products and could reduce our
overall sales volumes. In addition, our failure to provide adequate support
could adversely impact our reputation and our relationships with customers and
resellers and could prevent us from gaining new customers or expanding our
reseller network.

If Our Products Contain Undetected Defects and Errors We Could Incur
Significant Unexpected Expenses, Experience Product Returns and Lost Sales, and
Be Subject to Product Liability Claims

Our products are complex and may contain undetected defects, errors or
failures, particularly when first introduced or as new enhancements and versions
are released. We cannot assure you that, despite our testing procedures, defects
and errors will not be found in new products or in new versions or enhancements
of existing products after commencement of commercial shipments. Any defects or
errors in our products discovered in the future could result in adverse customer
reactions, negative publicity regarding us and our products, delays in market
acceptance of our products, product returns, lost sales and unexpected expenses.

Sales and support of our products generally involve the risk of product
liability claims. Although our customer license agreements typically contain
provisions designed to limit our exposure to these claims, it is possible that
these limitation of liability provisions may not be effective as a result of
federal, state or local laws or ordinances or unfavorable judicial decisions. A
successful product liability claim brought against us could harm our business.

If We Are Not Successful in Expanding Our Business in International
Markets, Our Growth Will Suffer

As part of our strategy to address the global needs of our customers and
partners, we have committed significant resources to opening international
offices and expanding our international sales and support channels in advance of
revenue. We cannot assure you that our efforts to develop international sales
and support channels will be successful. Moreover, international sales are
subject to a number of risks, including changes in foreign government
regulations and communications standards, export license requirements, tariffs
and taxes, other trade barriers, difficulty in collecting accounts receivable,
difficulty in managing foreign operations, and political and economic
instability. To the extent our customers may be impacted by currency
devaluations or general economic crises, the ability of these customers to
purchase our products could be adversely affected. Payment cycles for
international customers are typically longer than those for customers in the
United States. We cannot assure you that foreign markets for our products will
not develop more slowly than currently anticipated. In addition, if the relative
value of the U.S. dollar in comparison to the currency of our foreign customers
should increase, the resulting effective price increase of our products to these
foreign customers could result in decreased sales.

We anticipate that our foreign sales will generally be invoiced in U.S.
dollars and, accordingly, we do not currently plan to engage in foreign currency
hedging transactions. However, as we expand our international operations, we may
allow payment in foreign currencies and exposure to losses in foreign currency
transactions may increase. We may choose to limit any currency exposure through
the purchase of forward foreign exchange contracts or other hedging strategies.
We cannot assure you that any currency hedging strategy we may adopt would be
successful in avoiding exchange related losses.

If Political, Social or Economic Developments in India Adversely
Affect Our Research and Development Operations in India, Our Ability to
Introduce New and Enhanced Products Would Be Harmed and Our Sales May Suffer

Our wholly-owned subsidiary, Ramp Networks Private Limited, is
incorporated in India and a substantial number of our research and development
personnel are located in India. Consequently, our business may be affected by
changes in exchange rates and controls, interest rates, government of India
policies, including taxation policy, as well as political, social and economic
developments affecting India.

In the past, the government of India has adopted policies that have resulted
in the nationalization of some industries. We cannot assure you that economic
policies adopted by the government of India will not result in the expropriation
of our business activities in India or otherwise impair or prohibit our current
research and development operations in India. Furthermore, there is increasing
competition for experienced engineers in India and we cannot assure you that we
will be successful in attracting and retaining sufficient engineering personnel
to support our research and development operations in India which we expect to
expand in the future.

Our Products Must Comply With Complex Government Regulations Which May
Prevent Us From Sustaining Our Revenue or Achieving Profitability

In the United States, our products must comply with various regulations
and standards defined by the Federal Communications Commission and Underwriters
Laboratories. Internationally, products that we develop may be required to
comply with standards established by telecommunications authorities in various
countries as well as with recommendations of the International
Telecommunications Union. If we fail to obtain timely domestic or foreign
regulatory approvals or certificates, we would not be able to sell our products
where these regulations apply, which may prevent us from sustaining our revenue
or achieving profitability.

If Internet Usage Declines or the Internet Infrastructure Is Not
Adequately Maintained and Expanded, Demand for Our Products May Decline

The Internet has recently begun to develop and is rapidly evolving. As a
result, the commercial market for products designed to enable high-speed access
to the Internet has only recently begun to develop. Our success will depend in
large part on increased use of the Internet and other networks based on Internet
protocol by corporate telecommuters and small offices. Critical issues
concerning the commercial use of the Internet remain unresolved and are likely
to affect the development of the market for our products. These issues include
security, reliability, cost, ease of access, government regulation and quality
of service. The adoption of the Internet for commerce and communications,
particularly by enterprises that have historically relied upon alternative means
of commerce and communications, generally requires the acceptance of a new
method of conducting business and exchanging information. The recent growth in
the use of the Internet has caused frequent periods of performance degradation
that have prompted efforts to upgrade the Internet infrastructure. Any perceived
degradation in the performance of the Internet as a whole could undermine the
benefits of our products. Potentially increased performance and other benefits
provided by our products and the products of others are ultimately limited by,
and are reliant upon, the speed and reliability of the Internet backbone itself.
Consequently, the emergence and growth of the market for our products will
depend on improvements being made to the entire Internet infrastructure to
alleviate overloading and congestion.

If We Are Unable to Adequately Protect Our Intellectual Property
Rights Other Companies May Use our Intellectual Property to Develop Competitive
Products that May Reduce Demand for Our Products

We rely on a combination of patent, copyright, trademark and trade secret
laws and restrictions on disclosure to protect our intellectual property rights.
We cannot assure you that any issued or pending patents will protect our
intellectual property or that they will not be challenged by third parties.
Furthermore, there can be no assurance that others will not independently
develop similar or competing technology or design around any patents that may be
issued.

We also enter into confidentiality or license agreements with our employees,
consultants and corporate partners, and control access to and distribution of
our software, documentation and other proprietary information. In addition, we
provide our products to end-users primarily under "shrink-wrap" license
agreements included in the packaging. These agreements are not negotiated with
or signed by the licensee, and thus these agreements may not be enforceable in
some jurisdictions. Despite our efforts to protect our proprietary rights,
unauthorized parties may attempt to copy or otherwise obtain and use our
products or technology. We cannot assure you that these precautions will prevent
misappropriation or infringement of our intellectual property. Monitoring
unauthorized use of our products is difficult, and we cannot assure you that the
steps we have taken will prevent misappropriation of our technology,
particularly in foreign countries where the laws may not protect our proprietary
rights as fully as in the United States.

Some of our OEM agreements also provide manufacturing rights and access to
our intellectual property and source code upon the occurrence of specified
conditions of default. If we were to default on these agreements, our OEMs could
use our intellectual property and source code to develop and manufacture
competing products, which would adversely affect our performance and ability to
compete.

We May Be Subject to Intellectual Property Infringement Claims That are
Costly to Defend and Could Limit our Ability to Use Certain Technologies in the
Future

Our industry is characterized by the existence of a large number of
patents and frequent claims and related litigation regarding patent and other
intellectual property rights. In particular, leading companies in the data
communications and networking markets have extensive patent portfolios with
respect to modem and networking technology. From time to time, third parties,
including these leading companies, have asserted and may assert exclusive
patent, copyright, trademark and other intellectual property rights to
technologies and related standards that are important to us. We expect that we
may increasingly be subject to infringement claims as the numbers of products
and competitors in the small office market for shared Internet access solutions
grow and the functionality of products overlaps.

We may in the future initiate claims or litigation against third parties for
infringement of our proprietary rights to determine the scope and validity of
our proprietary rights. Any such claims, with or without merit, could be time-consuming,
result in costly litigation and diversion of technical and management
personnel, or require us to develop non-infringing technology or enter into
royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on acceptable terms, if at all. In the event of a
successful claim of infringement and our failure or inability to develop non-infringing
technology or license the proprietary rights on a timely basis, our
business would be harmed.

Any Acquisitions We Make Could Adversely Affect Our Business

As part of our business strategy, we expect to review acquisition
prospects that would complement our existing business or enhance our
technological capabilities. Future acquisitions by us could result in large and
immediate write-offs, the incurrence of debt and contingent liabilities or
amortization expenses related to goodwill and other intangible assets, any of
which could materially and adversely affect our results of operations.
Furthermore, acquisitions entail numerous risks and uncertainties, including:

> difficulties in the assimilation of operations, personnel, technologies,
> products and the information systems of the acquired companies;diversion of management's attention from other business concerns;risks of entering geographic and business markets in which we have no or
> limited prior experience; andpotential loss of key employees of acquired organizations.

Although we do not currently have any agreement with respect to any material
acquisitions, we may make acquisitions of complementary businesses, products or
technologies in the future. We cannot be certain that we would be able to
successfully integrate any businesses, products, technologies or personnel that
might be acquired in the future, and our failure to do so could adversely affect
our business.

Future Issuances of Additional Securities May Adversely Affect Our
Stockholders

In the future, we will be required to raise additional funds through the
issuance of equity, equity-related or debt securities to fund our operations,
take advantage of market opportunities, develop new products, pursue acquisition
opportunities or otherwise respond to competitive pressures. The issuance of
additional securities may be dilutive to our existing stockholders. Furthermore,
securities we may issue in the future could have rights, preferences or
privileges senior to those of our existing stockholders.

Stock Market Volatility and Litigation Risks

The stock market in general, and the technology sector in particular, has
experienced volatility that often has been unrelated to the operating
performance of particular companies. These broad market and industry
fluctuations may adversely affect the trading price of our common stock,
regardless of our actual operating performance. As a result, Ramp's stock price
may be extremely volatile.

It is often the case that when the stock price of a company suffers a rapid
decline, the company is subjected to litigation by stockholders seeking to
recover damages. On September 29, 2000 we announced that our earnings for the
third quarter of 2000 would be substantially below the expectations of the
public market analysts, precipitating a decline in our stock price.
Subsequently, three law firms announced the commencement of class action
lawsuits against us. We are currently assessing the claims as presented. Based
on advice from our counsel, we can make no further comments as to these claims.
Similar lawsuits may be initiated in the future.

PART II.	OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See "Risk factors--We May Be Subject to
Intellectual Property Infringement Claims That are Costly to Defend and Could
Limit our Ability to Use Certain Technologies in the Future".

On October 13th, 1999, the Company and certain former employees of
the Company appeared in the United States District Court Northern District of
California in San Jose and agreed to a settlement of claims made by the former
employees in exchange for cash and shares of common stock of the Company. The
dispute between the parties was associated with the prior acquisition by the
Company of certain technologies and assets in June 1998. The estimated cost
associated with this settlement was included in the Legal and severance cost
charge included in the Statement of Operations for the year ended December 31,
1999. The parties to the dispute signed a settlement agreement on January 10,
2000 and the dispute was formally dismissed on February 7, 2000.

In March 1999, the Company received a letter from NovaWeb Technologies , Inc.
(NovaWeb) alleging that certain of the Company's products may have infringed on
NovaWeb's patents pertaining to intelligent modem bonding technology. On May 21,
1999, NovaWeb filed a complaint in the United States District Court Northern
District of California against the Company alleging infringement of this patent.
In February 2000, the Company and NovaWeb signed a Settlement and Patent License
Agreement whereby the Company will pay NovaWeb a 1% royalty on net sales of
certain of the Company's products commencing February 15, 2000. As
consideration, the Company paid NovaWeb $350,000 as a prepayment for future
royalties. The maximum cumulative royalty payable under this non-exclusive
worldwide license agreement is $1,500,000. In relation to this agreement NovaWeb
has filed a dismissal for all claims.

Todd Simon, individually and on behalf of all others similarly situated v.
Ramp Networks, Inc. and Mahesh Veerina, Case No. CV-00-3645 JCS, United States
District Court for the Northern District of California, filed on October 3,
2000; Jacob Elefant, individually and on behalf of all others similarly situated
v. Ramp Networks, Inc. and Mahesh Veerina, Case No. C00-210043 PVT, United
States District Court for the Northern District of California, filed on October
6, 2000; and Doron Shauly, on behalf of himself and all others similarly
situated v Ramp Networks, Inc. and Mahesh Veerina, Case No. C00-021086 EAI,
United States District Court for the Northern District of California, filed on
October 23, 2000 are punitive class actions filed on behalf of purchasers of the
Company's common stock between November 15, 1999 and September 29, 2000. Each of
the complaints asserts that the defendants fraudulently recognized revenues
through purported "channel stuffing," and disseminated materially false and
misleading statements regarding the demand for, and market acceptance of, the
Company's products, the strength of its technologies, its competitiveness and
trends in its business. The complaints allege claims for relief under Section
10(b) of the Exchange Act of 1934 and Rule 10b-5 thereunder, as well as Section
20 of the Exchange Act, seeking unspecified compensatory damages, attorneys'
fees and costs. It is possible that additional complaints have been or will be
filed alleging similar claims. The Company intends to vigorously defend the
suits and any other similar suits subsequently filed. The Company intends to
vigorously defend the suits and any other similar suits subsequently filed.

Additionally, from time to time the Company is involved in certain other
legal proceedings in the ordinary course of business. None of such proceedings
are expected to have a material adverse impact on the Company's business,
results of operations or financial condition.



ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

None.

Item 3. DEFAULTS UPON SENIOR SECURITIES

None.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF  SECURITYHOLDERS

None.



Item 5. OTHER INFORMATION

None.

Item 6. EXHIBITS AND REPORTS ON FORM 8-K

1. The following exhibits are filed as part of this report:
2. The Company filed a Form 8-K on October 18, 2000 notifying that the
Company's Board of Directors had approved the Company's "2000 Non-statutory
Stock Option Plan" under which 2,500,000 shares of the Company's common stock
would be reserved for issuance.

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**SIGNATURES**

Pursuant to the requirements of the
Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned thereunto duly
authorized.

Date: November 14, 2000



| |                    
| | -------------------
| | Ramp Networks, Inc.

| |             
| | ------------
| | (Registrant)



| |     |                 
| | --- | ----------------
| | By: | /s/  PERRY GRACE

| |                                                                         
| | ------------------------------------------------------------------------
| |                                                                         
| | Perry Grace                                                             
| | Vice President Finance                                                  
| | (Duly Authorized Officer and Principal Financial and Accounting Officer)

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