================================================================================

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

                                   -----------

                                    FORM 10-K

|X|   Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
      Act of 1934

                  For the fiscal year ended September 30, 2002

                                       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 0-28450

                                  Netopia, Inc.
             (Exact name of registrant as specified in its charter)

            Delaware                                            94-3033136
(State or other jurisdiction of                              (I.R.S. Employer
 incorporation or organization)                           Identification Number)

                            2470 Mariner Square Loop
                            Alameda, California 94501
          (Address of principal executive offices, including Zip Code)

                                   -----------

                                 (510) 814-5100
              (Registrant's telephone number, including area code)

                                   -----------

Indicate by check |X| whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                               Yes |X|      No |_|

Indicate by check |X| if disclosure of delinquent filers pursuant to Item 405 of
regulation S-K is not contained herein, and will not be contained, to the best
of the Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in this Form 10-K or any amendment to this Form 10-K.
|X|

As of December 13, 2002 there were 18,906,973 shares of the Registrant's common
stock outstanding. The aggregate market value of the common stock held by
non-affiliates of the registrant, based on the closing price of the common stock
as reported on The Nasdaq National Market on December 13, 2002 was approximately
$24,701,662.

                       DOCUMENTS INCORPORATED BY REFERENCE

The Registrant's definitive Proxy Statement for its Annual Stockholders Meeting
to be held on January 28, 2003 is incorporated by reference in Part III of this
Form 10-K.

================================================================================
<PAGE>

NETOPIA, INC.
FORM 10-K

<TABLE>
<CAPTION>
Table of Contents                                                                                         Page
<S>       <C>                                                                                               <C>
PART I.

Item 1.   Description of Business............................................................................2

Item 2.   Properties........................................................................................11

Item 3.   Legal Proceedings.................................................................................11

Item 4.   Submission of Matters to a Vote of Security Holders...............................................12

Item 4A.  Executive Officers of the Registrant..............................................................12

PART II.

Item 5.   Market for Netopia's Common Stock and Related Stockholder Matters.................................13

Item 6.   Selected Financial Data...........................................................................15

Item 7.   Management's Discussion and Analysis of Financial Condition and Results of Operations.............18

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk........................................43

Item 8.   Financial Statements and Supplementary Data.......................................................44

Item 9.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..............74

PART III.

Item 10.  Directors and Executive Officers of the Registrant................................................74

Item 11.  Executive Compensation............................................................................74

Item 12.  Security Ownership of Certain Beneficial Owners and Management....................................74

Item 13.  Certain Relationships and Related Transactions....................................................74

Item 14.  Controls and Procedures...........................................................................74

PART IV.

Item 15.  Exhibits, Financial Schedules and Reports on Form 8-K.............................................75

Index to Exhibits...........................................................................................75

Signatures..................................................................................................77

Certifications..............................................................................................78
</TABLE>


                                                                          Page 1
<PAGE>

PART I.

ITEM 1. DESCRIPTION OF BUSINESS

Some of the information in this Form 10-K contains forward-looking statements
that involve substantial risks and uncertainties. You can identify these
statements by forward-looking words such as "may," "will," "should," "expect,"
"anticipate," "potential," "believe," "estimate," "intends" and "continue" or
similar words. You should read statements that contain these words carefully
because they: (i) discuss our expectations about our future performance; (ii)
contain projections of our future operating results or of our future financial
condition; or (iii) state other "forward-looking" information. There will be
events in the future that we are not able to predict or over which we have no
control, which may adversely affect our future results of operations, financial
condition or stock price. The risk factors described in this Form 10-K, as well
as any cautionary language in this Form 10-K, provide examples of risks,
uncertainties and events that may cause our actual results to differ materially
from the expectations we described in our forward-looking statements. You should
be aware that the occurrence of any of the risks, uncertainties, or events
described in this Form 10-K could seriously harm our business and that, upon the
occurrence of any of these events, the trading price of our common stock could
decline.

Company Background

We develop, market and support broadband equipment, software and services that
enable our carrier and broadband service provider customers to simplify and
enhance the delivery of broadband services to their residential and
enterprise-class customers. Our product and service offerings enable carriers
and broadband service providers to (i) improve their profitability with feature
rich routers and gateways, and software that "manages to the edge" of the
network to reduce costs, and (ii) provide value added services to enhance
revenue generation. These bundled service offerings often include digital
subscriber line (DSL) or broadband cable equipment bundled with backup, bonding,
virtual private networking (VPN), firewall protection, parental controls, Web
content filtering, integrated voice and data, and eSite and eStore hosting.

We were incorporated in California in 1986 as Farallon Computing, Inc. In 1996
we were reincorporated in Delaware as Farallon Communications, Inc. In November
1997, we changed our name from Farallon Communications, Inc. to Netopia, Inc. We
initially focused on the development of networking products for AppleTalk local
area networks (LANs). In 1993, we revised our business strategy to concentrate
on the Internet and Intranet markets thru the utilization of our transmission
control protocol/Internet protocol (TCP/IP) and routing expertise. In 1998, we
introduced our family of DSL broadband Internet equipment and in 2002; we
expanded and enhanced our broadband product and service offerings, primarily as
a result of the technology acquired in connection with our acquisitions of
Cayman Systems, Inc. (Cayman) and DoBox, Inc. (DoBox). In 2002, we also
introduced our netOctopus suite of server software products that enable remote
support and centralized management of installed broadband gateways, allowing
carriers and broadband service providers to "manage to the edge" of their
network. Our principal offices are located at 2470 Mariner Square Loop, Alameda,
California 94501 and our telephone number is (510) 814-5100. Effective January
1, 2003, our principal offices will be located at Marketplace Tower, 6001
Shellmound Street, 4th Floor, Emeryville, California 94608, and our telephone
number will be (510) 420-7400.


                                                                          Page 2
<PAGE>

Products and Services

Broadband Equipment. We have developed a comprehensive line of broadband
Internet gateways, which allow the transport of high-speed data over the local,
copper loop and enable telecommunications carriers to provide cost-effective and
high-speed services over existing copper infrastructure. Our products support
many types of high-speed wide area network (WAN) interfaces, including
connectivity for asynchronous DSL (ADSL), Symmetric High bit-rate Digital
Subscriber Loop (SHDSL), symmetric DSL (SDSL), integrated services digital
network DSL (IDSL), Ethernet, Cable, T1, Fractional T1, 56K digital dataphone
service (DDS), Dual Analog, integrated services digital network (ISDN), and
wireless networks. Our broadband Internet gateway family includes routers and
modems for data services and integrated access devices (IADs) for combined
voice and data services, all of which are designed to deliver high performance,
excellent reliability and scalability, all the while maintaining affordability
for the customer. We believe a key to our success is comprehensive
interoperability with leading central office equipment and a common firmware
platform across all WAN connections. The substantial majority of our revenues
are derived from sales of our broadband Internet gateways, in particular our DSL
routers and modems. During each of fiscal years 2002, 2001 and 2000, revenue
from the sale of our broadband Internet gateways have accounted for more than
70% of our total revenues. When reading our statement of operations, revenues
and cost of revenues related to the sale of our broadband Internet equipment are
classified as "Internet equipment."

Digital subscriber line technology uses complex modulation methods to enable
high-speed services over copper phone lines. DSL technology allows the
simultaneous transmission of data at speeds from 1 Megabit per second (Mbps) to
8Mbps, or 17 times to 140 times faster than standard 56 Kilobits per second
(Kbps) modem service, while also providing standard analog telephone service
over a single pair of copper wires at distances of up to 18,000 feet. With DSL
technology, a user can talk and have high-speed data transmissions at the same
time over a regular phone line. DSL products enable telecommunication carriers
to provide interactive multimedia services over copper wire while simultaneously
carrying traditional telephone services, thus mitigating the need for the
telecommunication carriers to install second lines to support these services.
Our products support many DSL WAN interfaces such as: ADSL which refers to DSL
technology that provides bi-directional transmission capacity at varying speeds;
and SDSL, SHDSL and IDSL, each of which refers to DSL technology that provides
bi-direction transmission capacity at the same speeds.

The DSL connection or link is comprised of a DSL Access Multiplexer (DSLAM) and
a DSL router. The DSLAM is a piece of equipment that typically resides in the
telephone companies' central offices and aggregates, or multiplexes, multiple
DSL access lines into a telecommunication carriers high-speed line back to its
core or central network. The DSL router is a piece of equipment, which resides
at the user's location and is typically referred to as customer premise
equipment (CPE). The CPE is generally a small device enabling DSL services at
the user's premises that sits on a desktop next to a personal computer (PC). As
telecommunication carriers deploy DSL based services, the need for DSL line
concentration at the central offices and the need for CPE at the users location
increases.


                                                                          Page 3
<PAGE>

The following table sets forth our broadband equipment product lines and their
applications:

<TABLE>
<CAPTION>
Product Line                 WAN Interface       Description                      Applications
========================================================================================================================
<S>                          <C>                 <C>                              <C>
Cayman 3000 Series Modems    ADSL                ADSL CPE that connects to a      For the single or multi-PC home and
and Gateways                 Ethernet            corresponding ADSL device in     small business: include self install
                                                 the service providers' central   features; LAN interface options of
                                                 office. Our recently released    USB, 4-port 10/100 Ethernet switch,
                                                 "smart" class of                 802.11b wireless or home phone
                                                 self-installable and remotely    networking (HPNA); firewall protection
                                                 manageable and configurable      and security monitoring features; can
                                                 smart modems and gateways.       support line speeds of 8.2Mbps
                                                                                  downstream and 1.0Mbps upstream.
------------------------------------------------------------------------------------------------------------------------
Netopia 4500 Series          ADSL                Business class CPE that          For small and medium size
Broadband Gateways           SHDSL               connects to the service          businesses: LAN interface options
                             T1                  providers' central office.       of 10/BaseT 4-port Ethernet hub or
                                                 Provides robust routing,         10/100BaseT Ethernet port.
                                                 security, and management
                                                 features optimized for the
                                                 business user.
------------------------------------------------------------------------------------------------------------------------
Netopia 4600 Series          SDSL                Business class CPE that          For small, medium and distributed
Broadband Gateways           IDSL                connects to the service          enterprises. LAN interface of 4 or
                             T1                  providers' central office.       8-port 10/100 auto-sensing
                                                 Provides robust routing,         10/100BaseT Ethernet switch;
                                                 security, and management         hardware based VPN acceleration;
                                                 features optimized for           dial-backup; and firewall
                                                 enterprise applications.         protection.
------------------------------------------------------------------------------------------------------------------------
Netopia 4700 Series          ADSL                Business class CPE that          For small and medium size
Integrated Access Devices    SDSL                connects to the service          businesses: LAN interface of
                             SHDSL               providers' central office.       10/100BaseT Ethernet port;
                                                 Provides multiple voice          telephony interface plain old
                                                 connections and high-speed       telephone system (POTS) or ISDN;
                                                 Internet access over a single    built-in firewall and filtering;
                                                 DSL line.                        can support line speeds of 192Kbps
                                                                                  to 8.2Mbps.
------------------------------------------------------------------------------------------------------------------------
Netopia R-Series Broadband   SDSL                Business class CPE that          For small and medium size
Gateways                     IDSL                connects to the service          businesses: LAN interface of 4 or
                             ADSL                providers' central office.       8-port 10BaseT Ethernet hub; VPN
                             Leased line (T1,    Provides robust routing,         features and firewall protection;
                             DDS and Serial)     security, and management         dial-backup.
                             ISDN                features optimized for the
                             Analog              business user. Modular
                                                 architecture allowing for
                                                 cost-effective WAN interface
                                                 hardware upgrades.
------------------------------------------------------------------------------------------------------------------------
</TABLE>

Broadband Services. Our service delivery platform includes the netOctopus suite
of broadband gateway, PC management and customer support software solutions, Web
eCommerce server software and Timbuktu software solutions. netOctopus server
software products enable remote support and centralized management of installed
broadband gateways, allowing carriers and broadband service providers to "manage
to the edge" of their network. netOctopus Desktop Support and eCare software
enable broadband service providers and traditional enterprises to support their
customers by remotely viewing and operating the customer's desktop computer. The
Netopia Web eCommerce server solution provides "no assembly required" Web sites
and online stores, what we refer to as eSites and eStores, with a wide variety
of vertical market content packages to suit many needs, from franchisees to sole
proprietors. Timbuktu software solutions include systems management tools such
as remote control, remote computer configuration and file transfer. During each
of fiscal years 2002, 2001 and 2000, revenue from the sale of our broadband
services have accounted for approximately 24% to 29% of our total revenues. When
reading our statement of operations, revenues and cost of revenues related to
the sale of our broadband services are classified as "Web platform licenses and
services."


                                                                          Page 4
<PAGE>

Product Line                   Description
================================================================================
netOctopus EdgeManager         netOctopus EdgeManager is designed to enable the
                               network operation centers (NOCs) of broadband
                               service providers to proactively manage the
                               broadband gateways installed on their network,
                               thereby reducing help desk call loads and
                               support costs. Using gateway discovery
                               mechanisms, configuration comparisons, automatic
                               delivery of configuration updates directly to
                               the gateway and post updated diagnostics,
                               netOctopus EdgeManager enables the service
                               provider to easily and cost-effectively support
                               its installed gateways, improves the quality of
                               customer support, and increases the level of
                               customer satisfaction.
--------------------------------------------------------------------------------
netOctopus GatewaySupport      netOctopus GatewaySupport enables broadband
                               service providers to reduce the length of their
                               support calls by enabling technical support and
                               customer service agents to diagnose gateway
                               problems remotely, perform routing operations on
                               the gateway and effect configuration and firmware
                               changes to keep customers up and running.
--------------------------------------------------------------------------------
netOctopus DesktopSupport      netOctopus DesktopSupport utilizes a Web
                               architecture requiring a small size PC-component
                               to provide live desktop assistance remotely.
                               Technical support and customer service agents can
                               communicate with their customers while remotely
                               sharing and operating their desktops, sharing
                               files, chatting as well as diagnosing and
                               troubleshooting desktop problems in real time.
--------------------------------------------------------------------------------
eCare                          eCare is support interaction software optimized
                               for call centers and help desks to assist
                               computer users in resolving technical support
                               issues by providing bi-directional remote desktop
                               assistance, online support request queues, the
                               ability to observe the users desktop, text chat,
                               send files, log and report on call statistics and
                               integrate into the customers customer relation
                               management (CRM) system.
--------------------------------------------------------------------------------
eCommerce                      Includes the eSite and eStore hosting solutions
                               which offer "no assembly required" Web sites
                               (eSites) and e-commerce enabled Web sites
                               (eStores) for small and medium size businesses.
--------------------------------------------------------------------------------
Systems Management             Includes Timbuktu and netOctopus systems
                               management tools for the multi-platform
                               enterprise, which include remote computer
                               configuration, computer asset management,
                               software distribution, remote control and file
                               transfer.
--------------------------------------------------------------------------------

Customers

We sell our products both domestically, in the United States, and
internationally, primarily in Europe. We primarily sell our broadband equipment
and broadband services to:

      o     Telecommunication carriers, including incumbent local exchange
            carriers (ILECs), such as SBC Communications Inc. (SBC), BellSouth
            Corporation (BellSouth) and Verizon Communications Inc. (Verizon);
            competitive local exchange carriers (CLECs), including Covad
            Communications Company (Covad), McLeodUSA Incorporated (McLeod) and
            NextGenTel; Internet service providers (ISPs), including Business
            Telecommunications, Inc. (BTI) and Integra Telecom, Inc. (Integra
            Telecom); and Internet Exchange Carriers (IXCs) including AT&T Corp.
            (AT&T), Sprint Corporation (Sprint) and WorldCom, Inc. (WorldCom);

      o     Distributors, including Ingram Micro Inc. (Ingram Micro), Groupe
            Softway (Softway) and Tech Data Corporation (Tech Data);

      o     Cable companies, including Comcast Corporation (Comcast); and

      o     Directly to end-users.

Historically, we have depended upon the ability of our customers to successfully
offer broadband services, in particular DSL services. In the past, our largest
customers have been CLECs. Many CLECs have incurred operating losses and
negative cash flows as they attempted to establish their networks and
operations, and many have filed for protection under the Bankruptcy Act or
ceased operations. Most notably, Covad, which currently is our largest CLEC
customer, filed a voluntary petition under the Bankruptcy Act in August 2001 as
part of a capital-restructuring plan. Covad emerged from bankruptcy in December
2001 and has announced that it has adequate cash to allow it to become cash flow
positive by the latter half of 2003. Additionally, the financial instability of
the


                                                                          Page 5
<PAGE>

telecommunications industry was highlighted when WorldCom, Inc. announced in
July 2002 that WorldCom and substantially all of its active United States
subsidiaries filed voluntary petitions for reorganization under Chapter 11 of
the United States Bankruptcy Code. As a result of the bankruptcy proceedings
commenced by WorldCom, we recorded a $0.3 million provision for doubtful
accounts during fiscal year 2002, representing 100% of the outstanding accounts
receivable owed by WorldCom. In July 2002, the Bankruptcy Court approved interim
financing arrangements that WorldCom believes should provide sufficient funds to
continue operations. During fiscal year 2002, we recorded $0.8 million in
revenues from sales of our broadband equipment to WorldCom of which, $0.1
million is related to shipments we approved after WorldCom's bankruptcy filings.

As a result of the financial and operational difficulties encountered by many of
our CLEC customers, who had primarily served the business market for DSL
services, we have recently acted aggressively to expand our customer base and
markets served. As a result of our acquisition of Cayman in October 2001, we
have established relationships with ILECs such as BellSouth and SBC, customers
with whom we have not had historic relationships for broadband equipment, and
have developed new products designed for the residential market for DSL
services. We expect that our continued operations will become substantially
dependent upon our ability to develop and enhance products to meet the needs of
the residential market for DSL services and requirements of our ILEC customers.
The ILECs and our other customers are significantly larger than we are, and are
able to exert a high degree of influence over our business. As a result, our
larger customers may be able to reschedule or cancel orders without significant
penalty and force our products to undergo lengthy approval and purchase
processes.

Distribution, Sales and Marketing

We sell our products through a domestic field sales organization and through
selected distributors. We market our products domestically within the United
States, as well as in Canada, Europe and the Asia Pacific region. Our broadband
equipment products are generally sold directly to our telecommunication carrier
customers or in some cases to distributors who then resell our products. Our
broadband service products are generally sold directly to our customers.

The sales process for both our broadband equipment and broadband services can be
lengthy. At the first stage of the process, our telecommunication carrier
customers invite us, and many competitors, to respond to lengthy and detailed
requests for proposal. Even if our products are selected for further
consideration as a result of our written response to a request for proposal,
prior to selling our broadband equipment to telecommunication carriers, the
products must undergo lengthy approval and purchase processes. Evaluation can
take as little as a few months to over a year or more for products based on new
technologies. Although the telecommunication carrier approval processes varies
to some extent depending on the customer and the product being evaluated, they
generally are conducted as follows:

      o     Laboratory Evaluation. The product's function and performance are
            tested against all relevant industry standards and customer
            requirements.

      o     Technical Trial. A number of telephone lines are equipped with the
            product for simulated operation in a field trial. The field trial is
            used to evaluate performance, assess ease of installation and
            establish troubleshooting procedures.

      o     Marketing Trial. Emerging products and services, such as DSL, are
            tested for market acceptance. Marketing trials usually involve a
            greater number of systems than technical trials because systems are
            deployed at several locations in the telecommunication carriers
            network. This stage gives the carrier an opportunity to establish
            procedures, train employees to install and maintain the new product
            and to obtain more feedback on the product from a wider range of
            operations personnel.

      o     Commercial Deployment. Commercial deployment usually involves
            substantially greater numbers of systems and locations than the
            marketing trial stage. In the first phase of commercial deployment,
            a telecommunication carrier initially installs the equipment in
            select locations for select applications. This phase is followed by
            general deployment involving greater numbers of systems and
            locations. Commercial deployment does not usually mean that one
            supplier's product is purchased for all of the carriers needs
            throughout the system as telecommunication carriers often rely upon
            multiple suppliers to ensure that their


                                                                          Page 6
<PAGE>

            needs can be met. Subsequent orders, if any, are generally placed
            under supply agreements that, regardless of term, are generally not
            subject to minimum volume commitments.

Research and Development

We believe that our future business and operating results depend in part on our
ability to continue to develop new products in a timely manner, enhance existing
products and develop strategic product development relationships. We
continuously evaluate the needs of our telecommunication carrier customers,
distribution channel partners, end users and end markets to provide them with
new broadband Internet equipment and services incorporating new technologies,
standards and functionality. We continue to devote a significant amount of our
resources to research and development. Research and development expenses were
$17.5 million, $13.8 million and $13.3 million for fiscal years 2002, 2001 and
2000, respectively. We expect to continue to devote substantial resources to
product and technological development.

Our research and development personnel are organized into development teams
focused either on the development of our broadband equipment, our eCare and
eCommerce products or our netOctopus broadband service offerings. Each product
development team is generally responsible for conceiving new products in
cooperation with other functions within our company, adapting standard products
or technology to meet new customer needs and sustaining engineering activities
related to our existing products. In particular, our hardware development team
is charged with implementing the engineering strategy of reducing product costs
and enhancing performance for each succeeding generation of broadband equipment
product in an effort to be a highly valued, superior quality provider, without
compromising functionality or serviceability. We believe the key to this
strategy is developing an initial architecture for each product that enables
engineering innovations to result in performance enhancements and future cost
reductions.

We compete in markets characterized by continuing technological advancement,
changes in customer requirements and evolving industry standards. To compete
successfully, we must design, develop, manufacture and sell new or enhanced
products and services that provide increasingly higher levels of performance,
reliability, compatibility, and cost savings for our customers. We may not be
able to successfully develop, introduce, enhance or market these or other
products and services necessary to our future success. In addition, any delay in
developing, introducing or marketing these or other products would seriously
harm our business.

Product and Customer Support

We believe that effective product and customer support is a key criterion used
by our customers in selecting our broadband Internet equipment and service
offerings. Telecommunication carriers, ISPs, independent distributors and
dealers, value-added resellers (VARs), end users, network managers and
administrators, consultants and other experienced technical experts utilize our
toll-free telephone support lines, fax and online support services to access our
support personnel and internal technical databases. Additionally, support
personnel are trained to satisfy the needs of customers and end users who are
not technical experts and do not have access to sophisticated technical support.
We believe that our support programs have been successful in creating brand
loyalty through our focused support of the specialized needs of these customers
and end users, and through the easy-to-use, plug-and-play design of our
broadband Internet equipment and services.

With different service programs, including "Up and Running, Guaranteed!" and VPN
set-up services, we can remotely configure our Internet gateways and assist
users in setting up Internet service with the user's telecommunication carrier
and ISP. Our expertise in solving technical problems enables us to commit our
resources to analyze any problem a customer or end user may have, even if it
involves a product from another company. The effect of these activities is to
build customer loyalty to us as the single source for broadband Internet
equipment and services.

Manufacturing

We utilize a combination of third-party contract manufacturers and limited
internal manufacturing capabilities to meet our customer requirements and
product demand. Our third-party contract manufacturers are located in Asia,


                                                                          Page 7
<PAGE>

Mexico and the United States. They produce substantially all of the circuit
boards for our broadband Internet equipment and in certain circumstances
assemble, package and ship our products directly to our customers. Reliance on
third-party subcontractors involves several risks, including the potential
absence of adequate capacity and reduced control over product quality, delivery
schedules, manufacturing yields and costs.

Competition

The markets for our broadband Internet equipment and broadband services are
intensely competitive, highly fragmented and characterized by rapidly changing
technology, evolving industry standards, price competition and frequent new
product introductions. A number of companies offer products that compete with
one or more of our products. We expect competition to intensify as current
competitors expand their product and service offerings and new competitors enter
the market. Increased competition is likely to result in price reductions,
reduced gross margins and loss of market share, any one of which could seriously
harm our business.

Competitors vary in size, scope and breadth of the products and services
offered. Our current and prospective competitors include original equipment
manufacturers (OEMs), product manufacturers of broadband Internet equipment,
developers of Web site and e-commerce software, developers of remote control and
collaboration software, and developers of Web based help desk applications. In
the market for broadband Internet equipment, we primarily compete with Thomson
Corporation (Thomson), Cisco Systems, Inc. (Cisco), Siemens Aktiengesellschaft
(Siemens) (through its Efficient Networks subsidiary), Linksys Group Inc.
(Linksys), 2Wire, Inc. (2Wire), Westell Technologies, Inc. (Westell), and ZyXEL
Communications Co. (ZyXEL). In the market for our Web platforms products, we
primarily compete with Computer Associates International, Inc. (Computer
Associates), Microsoft Corporation (Microsoft), Vector Networks, Inc. (Vector
Networks), Stac Software, Symantec Corporation (Symantec), and Tivoli Software
(a wholly-owned subsidiary of International Business Machines Corporation)
(IBM). We anticipate intense competition from some of these companies because
they provide their products to consumers at no cost. For example, Microsoft has
available at no cost a communications and collaboration software product that
could limit the market for Timbuktu.

Many of our current and potential competitors in each product area have longer
operating histories, significantly greater financial, technical, marketing and
other resources, significantly greater name recognition and a larger base of
customers than we do. In addition, many of our competitors have well-established
relationships with our current and potential customers and have extensive
knowledge of these industries. In the past, we have lost potential customers to
competitors in each product area for various reasons, including lower prices and
other incentives not matched by us. Current and potential competitors also have
established or may establish cooperative relationships among themselves or with
third parties to increase the ability of their products and services to address
customer needs. Accordingly, new competitors or alliances among competitors may
emerge and rapidly acquire significant market share. We also expect that
competition will increase as a result of industry consolidation.

We believe that the principal competitive factors in our markets are:

      o     Product feature, function and reliability;

      o     Customer service and support;

      o     Price and performance;

      o     Ease of use;

      o     Timeliness of new product introductions;

      o     Size and scope of distribution channels;

      o     Breadth of product line;

      o     Size and loyalty of customer base;

      o     Brand name recognition; and

      o     Strategic alliances.


                                                                          Page 8
<PAGE>

We cannot assure you that we will be able to compete successfully in the future.
Our inability to successfully compete would seriously harm our business.

Government Regulations

The telecommunications industry, including most of our customers, is subject to
regulation from federal and state agencies, including the Federal Communications
Commission (FCC) and various state public utility and service commissions. While
such regulation does not affect us directly, the effects of such regulations on
our customers may, in turn, adversely impact our business and results of
operations. For example, FCC regulatory policies affecting the availability of
telephone and communications services and other terms on which service providers
conduct their business may impede our penetration of certain markets. The
Telecommunications Act lifted certain restrictions on the carriers' ability to
provide interactive multimedia services including video on demand. Under the
Telecommunications Act, new regulations have been established whereby carriers
may provide various types of services beyond traditional voice offerings.
Additionally, the Telecommunications Act permits the carriers to engage in
manufacturing activities after the FCC authorizes a carrier to provide long
distance services within its service territory. A carrier must first meet
specific statutory and regulatory tests demonstrating that its monopoly market
for local exchange services is open to competition before it will be permitted
to enter the long distance market. When these tests are met, a carrier will be
permitted to engage in manufacturing activities, and the carriers, which are our
largest customers, may become our competitors as well.

Intellectual Property and Other Proprietary Rights

Our ability to compete is dependent in part on our proprietary rights and
technology. We rely primarily on a combination of patent, copyright, trademark
and trade secret laws, confidentiality procedures and contractual provisions to
protect our proprietary rights. We presently have one United States patent
issued that relates to our Timbuktu software. We generally enter into
confidentiality or license agreements with our employees, consultants,
resellers, distributors, customers and potential customers and limit access to
the distribution of our software, hardware designs, documentation and other
proprietary information. However, in some instances, we may find it necessary to
release our source code to certain parties.

Despite our efforts to protect our proprietary rights, unauthorized parties may
attempt to copy aspects of our products or obtain and use information that we
regard as proprietary. Policing unauthorized use of our products is difficult,
and there is no guarantee that the safeguards that we employ will protect our
intellectual property and other valuable competitive information. For example,
in selling our Timbuktu software, we often rely on license cards that are
included in our products and are not signed by licensees. Therefore, such
licenses may be unenforceable under the laws of certain jurisdictions. In
addition, the laws of some foreign countries where our products are or may be
manufactured or sold, particularly developing countries including various
countries in Asia, such as the People's Republic of China, do not protect our
proprietary rights as fully as do the laws of the United States. We rely upon
certain software, firmware and hardware designs that we license from third
parties, including firmware that is integrated with our internally developed
firmware and used in our products to perform key functions. We cannot be certain
that these third-party licenses will continue to be available to us on
commercially reasonable terms. The loss of, or inability to maintain, such
licenses could result in shipment delays or reductions until equivalent firmware
is developed, identified, licensed and integrated which would seriously harm our
business.

There has been a substantial amount of litigation in the software and Internet
industries regarding intellectual property rights. It is possible that in the
future third parties may claim that our current or potential future products or
we infringe their intellectual property. It is possible that our patent may be
successfully challenged, that our patent may not provide us with any competitive
advantages, or that the patents of others will seriously harm our ability to do
business. Any claims, with or without merit, could be time-consuming, result in
costly litigation, cause product shipment delays or require us to enter into
royalty or licensing agreements. Royalty or licensing agreements, if required,
may not be available on terms acceptable to us or at all, which could seriously
harm our business.

Employees

As of December 13, 2002, we employed 316 persons, including 81 in sales and
marketing, 111 in research and development, 63 in customer service and support,
31 in manufacturing operations, and 30 in general and


                                                                          Page 9
<PAGE>

administrative functions. We also contract with consultants who provide us short
and long-term services in various areas of our business. Since March 2001, we
have significantly reduced our workforce to align expenses better with revenue
levels. None of our employees is represented by a collective bargaining
agreement, nor have we experienced any work stoppage. We consider our relations
with our employees to be good.

Our future performance depends on the continued service of our senior
management, product development and sales personnel, particularly Alan Lefkof,
our President and Chief Executive Officer. None of our employees are bound by an
employment agreement, and we do not carry key person life insurance. The loss of
the services of one or more of our key personnel could seriously harm our
business. Our future success depends on our continuing ability to attract, hire,
train and retain a substantial number of highly skilled managerial, technical,
sales, marketing and customer support personnel. In addition, new hires
frequently require extensive training before they achieve desired levels of
productivity. Competition for qualified personnel is intense, and we may fail to
retain our key employees or to attract or retain other highly qualified
personnel.


                                                                         Page 10
<PAGE>

ITEM 2. PROPERTIES

Each of the facilities we occupy is leased for a term of one to nine years. We
believe that our existing facilities are adequate for our current needs and that
additional space sufficient to meet our needs for the foreseeable future will be
available on reasonable terms. We believe it may be necessary to secure
additional space should our business operations expand beyond our current
productive capacity. Since our California facilities are located near major
earthquake fault lines in the San Francisco Bay area, our business could be
seriously harmed in the event of a major earthquake. The following table sets
forth our facilities and their related lease terms as of September 30, 2002:

<TABLE>
<CAPTION>
                                                          Operating      Square       Lease
Location                               Primary use         segment        feet        term
================================================================================================
<S>                                <C>                    <C>            <C>         <C>
Alameda, California (a)               Headquarters;        Internet      49,047      5 years
                                       research and       equipment
                                       development,        and Web
                                   selling, marketing,    platforms
                                    customer service,
                                       general and
                                      administrative
------------------------------------------------------------------------------------------------

Billerica, Massachusetts (b)           Research and        Internet      19,291      5 years
                                       development,       equipment
                                     customer service
                                                                          4,909      5 years

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

San Leandro, California (c)        Distribution center       Both        14,406      5 years

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

Lawrence, Kansas                       Research and          Web          7,465      3 years
                                       development        platforms
------------------------------------------------------------------------------------------------

Fremont, California                    Research and        Internet       7,061      5 years
                                       development        equipment
------------------------------------------------------------------------------------------------

Addison, Texas                           Selling             Web          7,160     5 years,
                                                          platforms                 8 months
------------------------------------------------------------------------------------------------

Orem, Utah                             Research and          Web          4,249      3 years
                                       development        platforms
------------------------------------------------------------------------------------------------

Los Altos, California                  Research and          Web          3,000      1 year
                                       development        platforms
------------------------------------------------------------------------------------------------

Other (d)                              Selling and           Both       Less than
                                        marketing                         2,000
------------------------------------------------------------------------------------------------

<CAPTION>
                                                      Renewal     Renewal       Renewal
Location                               Expires        option       term        commences
============================================================================================
<S>                                 <C>                 <C>      <C>           <C>
Alameda, California (a)             December 31,        Yes       5 years      January 1,
                                        2002                                      2003





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

Billerica, Massachusetts (b)          March 31,         Yes       3 years       April 1,
                                        2005                     9 months         2005

                                      March 31,         Yes       3 years       April 1,
                                        2005                                      2005
--------------------------------------------------------------------------------------------

San Leandro, California (c)         December 31,        No          n/a           n/a
                                        2002
--------------------------------------------------------------------------------------------

Lawrence, Kansas                      June 30,          No          n/a           n/a
                                        2005
--------------------------------------------------------------------------------------------

Fremont, California                  December 1,        No          n/a           n/a
                                        2004
--------------------------------------------------------------------------------------------

Addison, Texas                        July 31,          Yes       3 years      August 1,
                                        2007                                      2007
--------------------------------------------------------------------------------------------

Orem, Utah                          February 28,        No          n/a           n/a
                                        2005
--------------------------------------------------------------------------------------------

Los Altos, California                 March 31,         Yes      6 months       April 1,
                                        2003                                      2003
--------------------------------------------------------------------------------------------

Other (d)

--------------------------------------------------------------------------------------------
</TABLE>

(a)   We expect to vacate our headquarters facility in Alameda, California at
      the lease termination date of December 31, 2002 and immediately thereafter
      commence occupancy of our new headquarters facility in Emeryville,
      California. We have entered into a lease for the Emeryville facility,
      comprising 30,438 square feet, for a 5 year, 6 month term which expires
      June 30, 2008 and does not have a renewal option.
(b)   Subleased from Eastman Kodak Company.
(c)   We have agreed to a preliminary proposal to renew this lease for a 2 year,
      8 month term commencing on January 1, 2003 and expiring on August 27,
      2005, and to increase the square footage leased to 28,816 square feet. A
      renewal option is not provided in this new proposal. This preliminary
      proposal is not binding, and we cannot give assurance that we will enter
      into a lease on these terms.
(d)   Other office space with less than 2,000 square feet per location in Paris,
      France; Neunkirchen am Brand, Germany; Maastricht, The Netherlands; Hong
      Kong; Springfield, Virginia; Beijing, China; and San Jose, California used
      primarily for sales and research and development activities. The lease of
      office space in San Jose, California expired on September 30, 2002.

ITEM 3. LEGAL PROCEEDINGS

From time to time we are involved in litigation incidental to the conduct of our
business. We are not party to any lawsuit or proceeding that, in our opinion, is
likely to seriously harm our business.


                                                                         Page 11
<PAGE>

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

There were no matters submitted to a vote of our security holders during the
fiscal fourth quarter ended September 30, 2002.

ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT

Our executive officers, and their ages as of December 13, 2002, are as follows:

<TABLE>
<CAPTION>
             Name                     Age                                   Position
========================================================================================================================
<S>                                    <C>    <C>
Alan B. Lefkof                         49     President, Chief Executive Officer and Director
William D. Baker                       56     Senior Vice President, Finance and Operations, and Chief Financial Officer
Brooke A. Hauch                        54     Senior Vice President and Chief Information Officer
Jayant Kadambi                         37     Vice President, Research and Development
David A. Kadish                        50     Senior Vice President, General Counsel and Secretary
Jeffrey G. Porter                      39     Vice President, Marketing
Thomas A. Skoulis                      46     Senior Vice President and General Manager
John G. Stephens                       45     Vice President, Broadband Services
</TABLE>

Alan B. Lefkof. Mr. Lefkof, President, Chief Executive Officer and Director,
joined Netopia as President and a member of the Board of Directors in August
1991 and has been Chief Executive Officer since November 1994. He also serves as
a director of QuickLogic Corporation and MS2, Inc. Prior to joining Netopia; Mr.
Lefkof served as President of GRiD Systems, and as a Management Consultant at
McKinsey & Company. Mr. Lefkof received a B.S. in computer science from the
Massachusetts Institute of Technology in 1975 and an M.B.A. from Harvard
Business School in 1977.

William D. Baker. Mr. Baker, Senior Vice President, Finance and Operations, and
Chief Financial Officer, joined Netopia in July 2001 as Senior Vice President
and Chief Financial Officer. He was appointed to his current position in January
2002. Prior to joining Netopia, Mr. Baker was Vice President and Chief Financial
Officer at BITMICRO NETWORKS, Inc., a developer of solid-state storage devices,
from June 2000 through April 2001, and Vice President and Chief Financial
Officer at the JPM Company, an international manufacturer of wire harness and
cable assemblies for the computer, networking and telecommunications industries,
from January 1996 through June 2000. Mr. Baker received a B.A. in Business
Administration from St. Francis College in 1969 and is a Certified Public
Accountant.

Brooke A. Hauch. Ms. Hauch, Senior Vice President and Chief Information Officer,
joined Netopia in October 1991 as Director, MIS. Ms. Hauch was appointed Vice
President and Chief Information Officer in May 1997, and became Senior Vice
President in October 2000. Prior to joining Netopia, Ms. Hauch served in various
positions at Argonaut Information Systems, Inc., Ross Systems, Inc. and Blue
Cross of Northern California. Ms. Hauch holds a bachelor's degree in business
from Arizona State University.

Jayant Kadambi. Mr. Kadambi, Vice President, Research and Development, joined
Netopia in October 1999. Prior to joining Netopia, Mr. Kadambi co-founded
StarNet Technologies, Inc. (StarNet), an early provider of voice over DSL
(VoDSL) equipment. Before StarNet, Mr. Kadambi served in various engineering and
marketing positions at AMD and was a Member of Technical Staff at AT&T Bell
Laboratories. Mr. Kadambi received a B.S.E.E from Rensselaer Polytechnic
University in 1985 and an M.S.E.E from R.P.I. in 1986.

David A. Kadish. Mr. Kadish, Senior Vice President, General Counsel and
Secretary, joined Netopia in June 1999. Mr. Kadish provided legal services to
Netopia as a consultant from September 1996 to June 1999. Mr. Kadish operated an
independent legal consulting practice from May 1996 to June 1999. He previously
served in various corporate legal positions at the Electric Power Research
Institute, Integral Systems and BRAE Corporation, and as an associate at the law
firm of Morrison & Foerster. Mr. Kadish received a B.A. in American history from
University of California at Santa Cruz in 1973, an M.A. in American history from
Brandeis University in 1974 and a J.D. from Yale University in 1979.


                                                                         Page 12
<PAGE>

Jeffrey G. Porter. Mr. Porter, Vice President, Marketing, joined Netopia in July
1991 as an Inside Sales Representative. Mr. Porter was appointed Vice President,
Timbuktu Marketing in November 1999, and he became Vice President, Web Platforms
Marketing in November 2000. He was appointed to his current position in October
2001. He previously held various sales positions at Logitech Corporation. Mr.
Porter a B.A. in Management Science from University of California at San Diego
in 1986.

Thomas A. Skoulis. Mr. Skoulis, Senior Vice President and General Manager,
joined Netopia in September 1991 as Corporate Accounts Manager. Mr. Skoulis was
appointed Vice President, North America Sales in October 1994, and became Senior
Vice President in February 1997. Prior to joining Netopia, Mr. Skoulis held
various sales management positions with 3Com and Digital Equipment Corporation.
Mr. Skoulis received a B.A. in business administration from Miami University in
Oxford, Ohio, in 1980.

John G. Stephens. Mr. Stephens, Vice President, Broadband Services, joined
Netopia as part of the acquisition of Cayman in October 2001. In 1987, Mr.
Stephens was a founder of Cayman and from 1987 to October 2001, held various
Engineering and Management roles culminating in the Chief Technical Officer
position. Active in International Standards Bodies, Mr. Stephens has served as
Chair of several Technical Working Groups at the DSL Forum. Mr. Stephens
received a BA in Economics from Williams College in 1979 and an MBA from MIT's
Sloan School of Management in 1986.

PART II.

ITEM 5. MARKET FOR NETOPIA'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

Since our initial public offering in June 1996, our common stock has been traded
on the Nasdaq National Market. We were originally listed under the symbol FRLN.
In November 1997, when we changed our name from Farallon Communications, Inc. to
Netopia, Inc., our symbol changed to NTPA. The following table sets forth the
range of quarterly intra-day high and low sale prices of our common stock on the
Nasdaq National Market for the last two fiscal years ended September 30, 2002
and 2001.

<TABLE>
<CAPTION>
                                                      2002                    2001
                                             ----------------------- -----------------------
                                                 High        Low         High        Low
============================================================================================
<S>                                            <C>        <C>          <C>        <C>
Fourth fiscal quarter ended September 30       $  2.720   $  0.990     $  6.850   $  2.900
Third fiscal quarter ended June 30                5.150      2.140        7.560      2.125
Second fiscal quarter ended March 31              7.090      3.370       10.125      1.938
First fiscal quarter ended December 31            6.810      3.150       14.188      3.313
</TABLE>

On December 13, 2002, we had 159 stockholders of record and 18,906,973 shares of
common stock outstanding. The closing price of our common stock as reported on
the Nasdaq National Market was $1.40 per share. Historically, we have neither
declared nor paid cash dividends on our common stock, and we expect this trend
to continue.

The market price of our common stock may fluctuate significantly in response to
a number of factors, including the following, some of which are beyond our
control:

      o     Variations in our quarterly operating results;

      o     Changes in securities analysts' estimates of our financial
            performance;

      o     Changes in market valuations of similar companies;

      o     Announcements by us or our competitors of technological innovations,
            new products or enhancements, significant contracts, acquisitions,
            strategic partnerships, joint ventures or capital commitments;

      o     Losses of major customers, major projects with major customers or
            the failure to complete significant licensing transactions;

      o     Additions or departures of key personnel;


                                                                         Page 13
<PAGE>

      o     Volatility generally of securities of companies in our industry;

      o     General conditions in the broadband communications industry, in
            particular the DSL market, or the domestic and worldwide economies;

      o     Decreases or delays in purchases by significant customers;

      o     A shortfall in revenue or earnings from securities analysts'
            expectations or other announcements by securities analysts;

      o     Our ability to protect and exploit our intellectual property or
            defend against the intellectual property rights of others; and

      o     Developments in our relationships with customers, distributors and
            suppliers.

In recent years the stock market in general, and the market for shares of high
technology stocks in particular, have experienced extreme price fluctuations,
which often have been unrelated to the operating performance of affected
companies. There can be no assurance that the market price of our common stock
will not experience significant fluctuations in the future, including
fluctuations that are unrelated to our performance.


                                                                         Page 14
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

In the tables below, we provide our selected consolidated financial data. We
have prepared this information using our audited consolidated financial
statements for the five fiscal years ended September 30, 2002. It is important
that when reading this information you also read Item 7, Management's Discussion
and Analysis of Financial Condition and Results of Operations, the annual
audited consolidated financial statements and related notes thereto included
elsewhere in this Form 10-K.

<TABLE>
<CAPTION>
Fiscal years ended September 30,                      2002        2001        2000        1999        1998
============================================================================================================
                                                          (in thousands, except for per share amounts)
<S>                                                 <C>         <C>         <C>         <C>         <C>
Statements of operations data:
Total revenues                                      $ 64,064    $ 77,318    $ 90,206    $ 44,151    $ 24,836
Gross profit                                          31,102      37,358      42,927      27,908      16,881
Operating loss (a)                                   (31,644)    (43,222)    (21,197)     (9,926)     (8,104)
Loss from continuing operations (a)                  (34,267)    (41,712)    (17,618)     (7,860)     (8,037)
Net loss (a, b, c)                                   (34,267)    (43,111)    (15,137)     (7,860)    (10,533)

Per share data, continuing operations:
   Basic and diluted loss per share                 $  (1.86)   $  (2.33)   $  (1.05)   $  (0.60)   $  (0.69)
============================================================================================================
   Shares used in the per share calculations(d)       18,455      17,902      16,830      13,092      11,687
============================================================================================================

Per share data, net loss:
   Basic and diluted loss per share                 $  (1.86)   $  (2.41)   $  (0.90)   $  (0.60)   $  (0.90)
============================================================================================================
   Shares used in the per share calculations(d)       18,455      17,902      16,830      13,092      11,687
============================================================================================================
</TABLE>

<TABLE>
<CAPTION>
As of September 30,                                   2002        2001        2000        1999         1998
============================================================================================================
                                                                         (in thousands)
<S>                                                 <C>         <C>         <C>         <C>         <C>
Balance sheet data:
Cash, cash equivalents and short-term investments   $ 25,022    $ 48,996    $ 59,777    $ 69,483    $ 42,095
Working capital                                       28,628      56,593      72,292      75,394      38,152
Total assets                                          58,995      82,712     128,373      95,969      56,292
Long-term liabilities (e)                              4,614         256         328         544         260
Total stockholders' equity (f)                        40,047      71,713     112,289      85,079      44,801
</TABLE>

----------
(a)   Included in our operating loss, loss from continuing operations and net
      loss are charges for in-process research and development and amortization
      of goodwill and other intangible assets related to our acquisitions.
      Included in fiscal year(s): 2002, 2000 and 1999, are amounts allocated to
      in-process research and development; 2001, 2000 and 1999, are amounts
      related to the amortization of goodwill and other intangible assets; 2002
      are amounts related to the amortization of other intangible assets; and
      2002 and 2001 are amounts related to the impairments and write-downs of
      amounts allocated to goodwill and other intangible assets. (See Item 7,
      Management's Discussion and Analysis of Financial Condition and Results of
      Operations and Notes 2 and 3 of Notes to Consolidated Financial
      Statements.)

(b)   Included in our net loss for fiscal year 2001, is a charge we recorded
      upon the adoption of Staff Accounting Bulletin (SAB) 101, Revenue
      Recognition in Financial Statements, which changed our accounting related
      to Web platforms license sales that provided for nonrefundable upfront
      payments. (See Item 7, Management's Discussion and Analysis of Financial
      Condition and Results of Operations and Note 1, Revenue Recognition, of
      Notes to Consolidated Financial Statements.)

(c)   Included in our net loss for fiscal years 2001, 2000 and 1998 are amounts
      recorded in connection with our disposition of the LAN Division. (See Item
      7, Management's Discussion and Analysis of Financial Condition and Results
      of Operations and Note 4 of Notes to Consolidated Financial Statements.)

(d)   See Note 1, Per Share Calculations, of Notes to Consolidated Financial
      Statements for information on shares used in the per share calculations.

(e)   Included in fiscal year 2002 is $4.4 million of long-term debt from
      borrowings under our credit facility the balance of which for fiscal year
      2002 and for fiscal years 2001, 2000, 1999 and 1998 primarily represent
      long-term portions of deferred revenue. (See Item 7, Management's
      Discussion and Analysis of Financial Condition and Results of Operations
      and Note 15 of Notes to Consolidated Financial Statements.)


                                                                         Page 15
<PAGE>

(f)   Historically, we have neither paid nor declared cash dividends on our
      common equity securities. We expect this trend to continue.

The following table sets forth certain unaudited quarterly results of operations
data for the eight quarters ended September 30, 2002. This data has been derived
from our unaudited condensed consolidated financial statements that, in our
opinion, include all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of such information. It is
important that when reading this information you also read Item 7, Management's
Discussion and Analysis of Financial Condition and Results of Operations, the
annual audited consolidated financial statements and related notes thereto
included elsewhere in this Form 10-K.

<TABLE>
<CAPTION>
                                                                    Fiscal year 2002
                                                      ---------------------------------------------
                                                      Sep. 30,    Jun. 30,    Mar. 31,    Dec. 31,
Three months ended,                                     2002        2002        2002        2001
===================================================================================================
                                                        (in thousands, except per share amounts)
<S>                                                   <C>         <C>         <C>         <C>
REVENUES:
   Internet equipment                                 $ 12,405    $ 10,096    $ 11,239    $ 11,811
   Web platform licenses and services                    4,501       5,468       4,470       4,074
---------------------------------------------------------------------------------------------------
      Total revenues                                    16,906      15,564      15,709      15,885
---------------------------------------------------------------------------------------------------

COST OF REVENUES:
   Internet equipment                                    9,272       7,740       7,928       7,383
   Web platform licenses and services                      175         154         146         164
---------------------------------------------------------------------------------------------------
      Total cost of revenues                             9,447       7,894       8,074       7,547
---------------------------------------------------------------------------------------------------

   GROSS PROFIT                                          7,459       7,670       7,635       8,338

OPERATING EXPENSES:
   Research and development                              4,481       4,546       4,348       4,148
   Selling and marketing                                 6,028       6,204       5,975       6,128
   General and administrative (a)                        1,690       1,466       1,267         973
   Acquired in-process research and development (b)         --          --       1,908       2,150
   Amortization of goodwill and other
      intangible assets (c)                                374         374         374         374
   Impairment of goodwill and other
      intangible assets (d)                              9,146          --          --          --
   Restructuring costs (e)                                  --          --          --         482
   Integration costs                                        --          --          --         309
   Terminated merger costs (f)                              --          --          --          --
---------------------------------------------------------------------------------------------------
      Total operating expenses                          21,719      12,590      13,872      14,564
---------------------------------------------------------------------------------------------------

OPERATING LOSS                                         (14,260)     (4,920)     (6,237)     (6,226)
Other income (loss), net
   Loss on impaired securities (g)                      (1,543)         --      (1,400)         --
   Other income, net                                        29          54          80         156
---------------------------------------------------------------------------------------------------
      Other income (loss), net                          (1,514)         54      (1,320)        156
---------------------------------------------------------------------------------------------------

Loss from continuing operations before cumulative
effect from adoption of SAB 101 and before gain on
sale of discontinued operation                         (15,774)     (4,866)     (7,557)     (6,070)
Cumulative effect from adoption of SAB 101 (h)              --          --          --          --
Discontinued operations, net of taxes                       --          --          --          --
---------------------------------------------------------------------------------------------------

          NET LOSS                                    $(15,774)   $ (4,866)   $ (7,557)   $ (6,070)
===================================================================================================

Per share data, continuing operations:
   Basic and diluted loss per share                   $  (0.84)   $  (0.26)   $  (0.41)   $  (0.34)
===================================================================================================
   Shares used in the per share calculations(i)         18,822      18,648       18255      18,092
===================================================================================================

Per share data, net loss:
   Basic and diluted loss per share                   $  (0.84)   $  (0.26)   $  (0.41)   $  (0.34)
===================================================================================================
   Shares used in the per share calculations(i)         18,822      18,648       18255      18,092
===================================================================================================

<CAPTION>
                                                                   Fiscal year 2001
                                                      --------------------------------------------
                                                      Sep. 30,    Jun. 30,    Mar. 31,    Dec. 31,
Three months ended,                                     2001        2001        2001        2000
==================================================================================================
                                                        (in thousands, except per share amounts)
<S>                                                   <C>         <C>         <C>         <C>
REVENUES:
   Internet equipment                                 $ 13,080    $ 14,478    $ 16,458    $ 14,845
   Web platform licenses and services                    4,056       4,483       4,370       5,548
--------------------------------------------------------------------------------------------------
      Total revenues                                    17,136      18,961      20,828      20,393
--------------------------------------------------------------------------------------------------

COST OF REVENUES:
   Internet equipment                                    8,872       9,653      10,845       9,795
   Web platform licenses and services                      187         182         225         201
--------------------------------------------------------------------------------------------------
      Total cost of revenues                             9,059       9,835      11,070       9,996
--------------------------------------------------------------------------------------------------

   GROSS PROFIT                                          8,077       9,126       9,758      10,397

OPERATING EXPENSES:
   Research and development                              3,460       3,444       3,263       3,669
   Selling and marketing                                 5,878       6,577       7,504       7,185
   General and administrative (a)                        1,015       2,010       1,360       3,143
   Acquired in-process research and development (b)         --          --          --          --
   Amortization of goodwill and other
      intangible assets (c)                              2,996       2,996       2,996       2,996
   Impairment of goodwill and other
      intangible assets (d)                             16,375          --          --          --
   Restructuring costs (e)                                  --          --       1,073          --
   Integration costs                                        --          --          --          --
   Terminated merger costs (f)                              --          --       2,640          --
--------------------------------------------------------------------------------------------------
      Total operating expenses                          29,724      15,027      18,836      16,993
--------------------------------------------------------------------------------------------------

OPERATING LOSS                                         (21,647)     (5,901)     (9,078)     (6,596)
Other income (loss), net
   Loss on impaired securities (g)                          --          --         (19)       (981)
   Other income, net                                       440         509         588         973
--------------------------------------------------------------------------------------------------
      Other income (loss), net                             440         509         569          (8)
--------------------------------------------------------------------------------------------------

Loss from continuing operations before cumulative
effect from adoption of SAB 101 and before gain on
sale of discontinued operation                         (21,207)     (5,392)     (8,509)     (6,604)
Cumulative effect from adoption of SAB 101 (h)              --          --          --      (1,555)
Discontinued operations, net of taxes                      156          --          --          --
--------------------------------------------------------------------------------------------------

          NET LOSS                                    $(21,051)   $ (5,392)   $ (8,509)   $ (8,159)
==================================================================================================

Per share data, continuing operations:
   Basic and diluted loss per share                   $  (1.18)   $  (0.30)   $  (0.48)   $  (0.38)
==================================================================================================
   Shares used in the per share calculations(i)         18,020      17,882      17,819      17,607
==================================================================================================

Per share data, net loss:
   Basic and diluted loss per share                   $  (1.17)   $  (0.30)   $  (0.48)   $  (0.46)
==================================================================================================
   Shares used in the per share calculations(i)         18,020      17,882      17,819      17,607
==================================================================================================
</TABLE>


                                                                         Page 16
<PAGE>

(a)   In addition to standard provisions for doubtful accounts, general and
      administrative expense includes incremental provisions for doubtful
      accounts primarily for outstanding accounts receivable owed by customers
      that filed voluntary petitions under the Bankruptcy Act. (See Item 7,
      Management's Discussion and Analysis of Financial Condition and Results of
      Operations and Note 1, Concentrations of Credit Risk, of Notes to
      Consolidated Financial Statements.) The following table sets forth these
      incremental amounts for the periods indicated.

<TABLE>
<CAPTION>
                                              Sep. 30,  Jun. 30,  Mar. 31,  Dec. 31,  Sep. 30,  Jun. 30,  Mar. 31,  Dec. 31,
Three months ended,                             2002      2002      2002      2001      2001      2001      2001      2000
===========================================================================================================================
<S>                                            <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>
Incremental provisions for doubtful accounts   $  264    $  307    $   --    $   --    $   --    $  916    $   --    $1,837
General and administrative                      1,426     1,159     1,267       973     1,015     1,094     1,360     1,306
---------------------------------------------------------------------------------------------------------------------------
   Total general and administrative            $1,690    $1,466    $1,267    $  973    $1,015    $2,010    $1,360    $3,143
===========================================================================================================================
</TABLE>

(b)   For the three months ended March 31, 2002 and December 31, 2001, these
      amounts represent the amount of purchase price allocated to in-process
      research and development in connection with the acquisitions of Cayman and
      DoBox. (See Item 7, Management's Discussion and Analysis of Financial
      Condition and Results of Operations and Note 2 of Notes to Consolidated
      Financial Statements.)

(c)   For fiscal year 2002, this amount represents the amortization of the
      amount allocated to other intangible assets related to the acquisition of
      Cayman. We early adopted Statement of Financial Accounting Standards
      (SFAS) No. 142 pursuant to which we ceased amortization of amounts
      allocated to goodwill. For fiscal year 2001, this amount represent
      amortization of the amounts allocated to goodwill and other intangible
      assets related to the acquisitions of WebOrder, StarNet, Serus LLC (Serus)
      and netOctopus. (See Item 7, Management's Discussion and Analysis of
      Financial Condition and Results of Operations and Notes 2 and 3 of Notes
      to Consolidated Financial Statements.)

(d)   For the three months ended September 30, 2002, this amount represents full
      impairment of the remaining goodwill acquired in connection with the
      acquisitions of Cayman and StarNet. For the three months ended September
      30, 2001, this amount represents the impairment and write-down of the
      amounts allocated to goodwill and other intangible assets related to our
      acquisitions of WebOrder, StarNet and Serus. (See Item 7, Management's
      Discussion and Analysis of Financial Condition and Results of Operations
      and Notes 2 and 3 of Notes to Consolidated Financial Statements.)

(e)   Represents charges recorded in connection with workforce reductions and
      costs to exit certain business activities. (See Item 7, Management's
      Discussion and Analysis of Financial Condition and Results of Operations
      and Note 12 of Notes to Consolidated Financial Statements.)

(f)   Represents the charge recorded in connection with the terminated merger
      with Proxim, Inc. (Proxim). (See Item 7, Management's Discussion and
      Analysis of Financial Condition and Results of Operations and Note 14 of
      Notes to Consolidated Financial Statements.)

(g)   For the three months ended September 30 and March 31, 2002, these amounts
      represent losses on impaired securities related to our long-term
      investments in Everdream Corporation (Everdream) and MegaPath Networks,
      Inc. (MegaPath), respectively. For fiscal year 2001, these amounts
      represent the loss on impaired securities related to our long-term
      investment in NorthPoint. (See Item 7, Management's Discussion and
      Analysis of Financial Condition and Results of Operations and Note 11 of
      Notes to Consolidated Financial Statements.)

(h)   Represents the adoption of SAB 101 for Web platforms license sales that
      provided for nonrefundable upfront payments. (See Item 7, Management's
      Discussion and Analysis of Financial Condition and Results of Operations
      and Note 1, Revenue Recognition, of Notes to Consolidated Financial
      Statements.)

(i)   See Note 1, Per Share Calculations, of Notes to Consolidated Financial
      Statements for information on shares used in the per share calculations.


                                                                         Page 17
<PAGE>

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

Some of the information in this Form 10-K contains forward-looking statements
that involve substantial risks and uncertainties. You can identify these
statements by forward-looking words such as "may," "will," "should," "expect,"
"anticipate," "potential," "believe," "estimate," "intends" and "continue" or
similar words. You should read statements that contain these words carefully
because they: (i) discuss our expectations about our future performance; (ii)
contain projections of our future operating results or of our future financial
condition; or (iii) state other "forward-looking" information. There will be
events in the future that we are not able to predict or over which we have no
control, which may adversely affect our future results of operations, financial
condition or stock price. The risk factors described in this Form 10-K, as well
as any cautionary language in this Form 10-K, provide examples of risks,
uncertainties and events that may cause our actual results to differ materially
from the expectations we described in our forward-looking statements. You should
be aware that the occurrence of any of the risks, uncertainties, or events
described in this Form 10-K could seriously harm our business and that, upon the
occurrence of any of these events, the trading price of our common stock could
decline.

Overview

We develop, market and support broadband equipment, software and services that
enable our carrier and broadband service provider customers to simplify and
enhance the delivery of broadband services to their residential and
enterprise-class customers. Our product and service offerings enable carriers
and broadband service providers to (i) improve their profitability with feature
rich routers and gateways, and software that "manages to the edge" of the
network to reduce costs, and (ii) provide value added services to enhance
revenue generation. These bundled service offerings often include DSL or
broadband cable equipment bundled with backup, bonding, VPN, firewall
protection, parental controls, Web content filtering, integrated voice and data,
and eSite and eStore hosting.

Broadband Equipment. We have developed a comprehensive line of broadband
Internet gateways, which allow the transport of high-speed data over the local,
copper loop and enable telecommunications carriers to provide cost-effective and
high-speed services over existing copper infrastructure. Our products support
many types of high-speed WAN interfaces, including connectivity for ADSL, SHDSL,
SDSL, IDSL, Ethernet, Cable, T1, Fractional T1, 56K DDS, Dual Analog, ISDN, and
wireless networks. Our broadband Internet gateway family includes routers and
modems for data services, and IADs for combined voice and data services, all of
which are designed to deliver high performance, excellent reliability and
scalability, all the while maintaining affordability for the customer. We
believe a key to our success is comprehensive interoperability with leading
central office equipment and a common firmware platform across all WAN
connections. The substantial majority of our revenues are derived from sales of
our broadband Internet gateways, in particular our DSL routers and modems.
During each of fiscal years 2002, 2001 and 2000, revenue from the sale of our
broadband Internet gateways have accounted for more than 70% of our total
revenues. When reading our statement of operations, revenues and cost of
revenues related to the sale of our broadband Internet equipment are classified
as "Internet equipment."

Broadband Services. Our service delivery platform includes the netOctopus suite
of broadband gateway, PC management and customer support software solutions, Web
eCommerce server software and Timbuktu software solutions. netOctopus server
software products enable remote support and centralized management of installed
broadband gateways, allowing carriers and broadband service providers to "manage
to the edge" of their network. netOctopus Desktop Support and eCare software
enable broadband service providers and traditional enterprises to support their
customers by remotely viewing and operating the customer's desktop computer. The
Netopia Web eCommerce server solution provides "no assembly required" Web sites
and online stores, what we refer to as eSites and eStores, with a wide variety
of vertical market content packages to suit many needs, from franchisees to sole
proprietors. Timbuktu software solutions include systems management tools such
as remote control, remote computer configuration and file transfer. During each
of fiscal years 2002, 2001 and 2000, revenue from the sale of our broadband
services have accounted for approximately 24% to 29% of our total revenues. When
reading our statement of operations, revenues and cost of revenues related to
the sale of our broadband services are classified as "Web platform licenses and
services."

We sell our products both domestically, in the United States, and
internationally, primarily in Europe. We primarily sell our broadband equipment
and broadband services to:

                                                                         Page 18
<PAGE>

      o     Telecommunication carriers, including ILECs, such as SBC, BellSouth
            and Verizon; CLECs, including Covad, McLeod and NextGenTel; ISPs,
            including BTI and Integra Telecom; and IXCs including AT&T, Sprint
            and WorldCom;

      o     Distributors, including Ingram Micro, Softway and Tech Data;

      o     Cable companies, including Comcast; and

      o     Directly to end-users.

Historically, we have depended upon the ability of our customers to successfully
offer broadband services, in particular DSL services. In the past, our largest
customers have been CLECs. Many CLECs have incurred operating losses and
negative cash flows as they attempted to establish their networks and
operations, and many have filed for protection under the Bankruptcy Act or
ceased operations. Most notably, Covad, which currently is our largest CLEC
customer, filed a voluntary petition under the Bankruptcy Act in August 2001 as
part of a capital-restructuring plan. Covad emerged from bankruptcy in December
2001 and has announced that it has adequate cash to allow it to become cash flow
positive by the latter half of 2003. Additionally, the financial instability of
the telecommunications industry was highlighted when WorldCom, Inc. announced in
July 2002 that WorldCom and substantially all of its active United States
subsidiaries filed voluntary petitions for reorganization under Chapter 11 of
the United States Bankruptcy Code. As a result of the bankruptcy proceedings
commenced by WorldCom, we recorded a $0.3 million provision for doubtful
accounts during fiscal year 2002, representing 100% of the outstanding accounts
receivable owed by WorldCom. In July 2002, the Bankruptcy Court approved interim
financing arrangements that WorldCom believes should provide sufficient funds to
continue operations. During fiscal year 2002, we recorded $0.8 million in
revenues from sales of our broadband equipment to WorldCom of which, $0.1
million is related to shipments we approved after WorldCom's bankruptcy filings.

As a result of the financial and operational difficulties encountered by many of
our CLEC customers, who had primarily served the business market for DSL
services, we have recently acted aggressively to expand our customer base and
markets served. As a result of our acquisition of Cayman in October 2001, we
have established relationships with ILECs such as BellSouth and SBC, customers
with whom we have not had historic relationships for broadband equipment, and
have developed new products designed for the residential market for DSL
services. We expect that our continued operations will become substantially
dependent upon our ability to develop and enhance products to meet the needs of
the residential market for DSL services and requirements of our ILEC customers.
The ILECs and our other customers are significantly larger than we are, and are
able to exert a high degree of influence over our business. As a result, our
larger customers may be able to reschedule or cancel orders without significant
penalty and force our products to undergo lengthy approval and purchase
processes.

Critical Accounting Policies and Estimates

Management's discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance with United States generally accepted accounting
principles. We review the accounting policies used in reporting our financial
results on a regular basis. The preparation of these financial statements
requires us to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses. On an ongoing basis, we evaluate our
processes used to develop estimates, including those related to accounts
receivable, inventories, investments, and intangible assets. We base our
estimates on historical experience, expectations of future results, and on
various other assumptions that are believed to be reasonable for making
judgments about the carrying value of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates due to actual outcomes being different from those on which we based
our assumptions. These estimates and judgments are reviewed by management on an
ongoing basis and by the Audit Committee at the end of each quarter prior to the
public release of our financial results. We believe the following critical
accounting policies affect our more significant judgments and estimates used in
the preparation of our condensed consolidated financial statements.

Revenue Recognition. We recognize revenue from the sale of Internet equipment
when persuasive evidence of an arrangement exists, delivery has occurred, the
fees are fixed or determinable, and collectibility is reasonably assured. We
recognize revenue from the sale of Web platform licenses and services in
accordance with Statement of Position (SOP) 97-2, Software Revenue Recognition,
as amended. In general, software license revenues are recognized when


                                                                         Page 19
<PAGE>

a non-cancelable license agreement has been signed and the customer acknowledges
an unconditional obligation to pay, the software product has been delivered,
there are no uncertainties surrounding product acceptance, the fees are fixed
and determinable, and collection is considered probable; professional services
revenues are recognized as such services are performed; and maintenance
revenues, including revenues bundled with software agreements which entitle the
customers to technical support and future unspecified enhancements to the
Company's products, are deferred and recognized ratably over the related
contract period, generally twelve months. Revenues recognized from
multiple-element software arrangements are allocated to each element of the
arrangement based on the specific objective evidence of the fair values of the
elements, such as software products, upgrades, enhancements, post contract
customer support, installation, or training. We record unearned revenue for
software arrangements when cash has been received from the customer and the
arrangement does not qualify for revenue recognition under our revenue
recognition policy. We record accounts receivable for software arrangements when
the arrangement qualifies for revenue recognition and cash or other
consideration has not been received from the customer. We recognize revenue from
long-term software development contracts using the percentage of completion
method in accordance with SOP 81-1, Accounting for Performance of
Construction-Type and Certain Production-Type Contracts. Under the percentage of
completion method, we recognize revenue as work on the contract progresses.

Goodwill and Other Identifiable Intangible Assets. On October 1, 2001, we early
adopted SFAS No. 142, which provides that goodwill should not be amortized but
instead be tested for impairment annually at the reporting unit level. The
impairment testing is performed in two steps: (i) the determination of
impairment, based upon the fair value of a reporting unit as compared to its
carrying value, and (ii) if there is an indication of impairment, this step
measures the amount of impairment loss by comparing the implied fair value of
goodwill with the carrying amount of that goodwill. In accordance with SFAS No.
142, we completed the transitional impairment test of intangible assets during
the three months ended March 31, 2002. That effort, and preliminary assessments
of our identifiable intangible assets, indicated no adjustment was required upon
adoption of the pronouncement. We performed the annual impairment test required
by SFAS No. 142 on August 31, 2002 for our two reporting units. At August 31,
2002, the implied fair value of the Internet equipment reporting unit was found
to be less than its carrying amount and as a result, we recorded a $9.1 million
charge to our Consolidated Statement of Operations for the fiscal year ended
September 30, 2002. This charge represents full impairment of the remaining
goodwill acquired in connection with the acquisitions of Cayman and StarNet. As
of September 30, 2002, the remaining carrying value of our goodwill and other
intangible assets was $7.7 million. We will continue to perform our annual
impairment test, as required by SFAS No. 142, in our fiscal fourth quarter.

Impairment of Long-Lived Assets, Including Identifiable Intangibles. We elected
to early adopt the provisions of SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, on October 1, 2001. SFAS No. 144 serves to
clarify and further define the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. We
evaluate our long-lived assets, including identifiable intangible assets in
accordance with SFAS No. 144 and test our long-lived assets and identifiable
intangibles for impairment whenever events or changes in circumstances indicate
that the carrying amount of the asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount of
an asset to the estimated undiscounted future net cash flows expected to be
generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount exceeds the fair value of the assets. Fair value is estimated using the
discounted cash flow method. Assets to be disposed of are reported at the lower
of carrying values or fair values, less costs of disposal. At September 30,
2002, our identifiable intangible assets consisted of developed product
technology, core technology and sales channel relationships related to the
acquisition of Cayman as well as a certain marketing license. As a result of the
downturn in the economy and the impairment charge recorded in connection with
the SFAS No. 142 analysis, we tested our identifiable intangible assets in
accordance with SFAS No. 144 and found no impairment.

Allowance for Doubtful Accounts. We maintain allowances for doubtful accounts
for estimated losses resulting from the inability of our customers to make
required payments. Management specifically analyzes the aging of accounts
receivable and also analyzes historical bad debts, customer concentrations,
customer credit-worthiness, current economic trends and changes in customer
payment terms, and sales returns when evaluating the adequacy of the allowance
for doubtful accounts and sales returns in any accounting period. If the
financial condition of our customers or channel partners were to deteriorate,
resulting in an impairment of their ability to make payments, additional
allowances may be required.


                                                                         Page 20
<PAGE>

Non-Marketable Securities. We periodically make strategic investments in
companies whose stock is not currently traded on a stock exchange and for which
no quoted price exists. The cost method of accounting is used to account for
these investments, as we do not exert significant influence over these
investments. We review these investments for impairment when events or changes
in circumstances indicate that the carrying amount of the assets might not be
recoverable. Examples of events or changes in circumstances that may indicate to
management that an impairment exists may be a significant decrease in the market
value of the company, poor or deteriorating market conditions in the public and
private equity capital markets, significant adverse changes in legal factors or
within the business climate the company operates, and current period operating
or cash flow losses combined with a history of operating or cash flow losses or
projections and forecasts that demonstrate continuing losses associated with the
company's future business plans. Impairment indicators identified during the
reporting period could result in a significant write down in the carrying value
of the investment if we believe an investment has experienced a decline in value
that is other than temporary. These investments had a total carrying value of
$1.5 million as of September 30, 2002, and have been permanently written down a
total of $2.5 million from original cost. Also, future adverse changes in market
conditions or poor operating results of underlying investments could result in
significant additional impairment charges in the future.

Excess and Obsolete Inventory. We assess the need for reserves on excess and
obsolete inventory based upon monthly forward projections of sales of products.
Inventories are recorded at the lower of cost (first-in, first-out method) or
market. Cost includes material costs and applicable manufacturing overheads. The
provision for potentially obsolete or slow moving inventory is made based upon
management's analysis of inventory levels, forecasted sales, expected product
life cycles and market conditions. Once inventory is reserved, the reserve can
only be relieved by the subsequent sale or scrapping of the inventory.

Provision for Income Taxes. We did not record an income tax benefit for the
fiscal years 2002, 2001 and 2000 primarily due to continued substantial
uncertainty regarding our ability to realize our deferred tax assets. Based upon
available objective evidence, there has been sufficient uncertainty regarding
the realizability of our deferred tax assets to warrant a full valuation
allowance in our financial statements. The factors considered included prior
losses, inconsistent profits, and lack of carryback potential to realize our
deferred tax assets. Based on our estimates for fiscal year 2003 and beyond, we
believe the uncertainty regarding the realizability of our deferred tax assets
may diminish to the point where it is more likely than not that our deferred tax
assets will be realized. At such point, we would also reverse all or a portion
of our valuation allowance which will result in an income tax benefit.

Available-for-Sale Securities. We classify certain of our cash equivalents and
all our investments as available-for-sale. The securities are carried at cost,
which approximates fair value. The amortized cost of available-for-sale debt
securities is adjusted for amortization of premiums and accretion of discounts
to maturity. Such amortization is included in other income, net. Realized gains
and losses, and declines in value judged to be other than temporary on
available-for-sale securities are included in other income, net. The cost of
securities sold is based on the specific identification method. Interest and
dividends on securities classified as available-for-sale are included in other
income, net.

Liquidity and Capital Resources

The following sections discuss the effects of changes in our balance sheets,
cash flows and commitments on our liquidity and capital resources. As of
September 30, 2002, our principal source of liquidity included cash, cash
equivalents and short-term investments of $25.0 million and a $15.0 million
credit facility from which we had outstanding borrowings of $4.4 million and
$0.8 million available. As of November 30, 2002, we had repaid the borrowings
outstanding as of September 30, 2002.

Cash, Cash Equivalents and Short-Term Investments. The following table sets
forth our cash, cash equivalents and short-term investments as of the fiscal
years ended September 30, 2002, 2001 and 2000.

<TABLE>
<CAPTION>
                                                                                              Increase/(decrease)
                                                                                                from prior year
                                                                                              -------------------
Fiscal years ended September 30,                                2002       2001       2000      2002      2001
=================================================================================================================
                                                                     (in thousands)
<S>                                                           <C>        <C>        <C>        <C>       <C>
Cash, cash equivalents and short-term investments             $ 25,022   $ 48,996   $ 59,777   (48.9%)   (18.0%)
</TABLE>


                                                                         Page 21
<PAGE>

For the fiscal year ended September 30, 2002, cash, cash equivalents and
short-term investments decreased primarily due to the use of cash to acquire
Cayman, cash used by our operating activities, and purchases of capital
equipment. We used approximately $17.7 million of cash in connection with our
acquisitions of Cayman and DoBox, our operating activities, excluding the
changes in operating assets and liabilities, used $11.3 million primarily as a
result of a decline in our revenues and associated gross profit, and we
purchased $4.2 million of capital equipment, primarily computer equipment used
for a new website hosting location and equipment used in the research and
development process. This use of cash was partially offset by cash provided from
borrowings under our credit facility, which at September 30, 2002, totaled $4.4
million, changes in operating assets and liabilities of $4.0 million, primarily
related to the decrease of inventory and increase of accounts payable and other
liabilities, and $1.1 million primarily provided from common stock sold to
employees under our Employee Stock Purchase Program.

For the fiscal year ended September 30, 2001, cash, cash equivalents and
short-term investments decreased primarily due to the use of $13.0 million,
excluding the changes in operating assets and liabilities, to support our
operating activities as a result of a decline in our revenues and associated
gross profit, paying the expenses related to our terminated merger with Proxim
and paying severance benefits in connection with the restructuring charge we
recorded in our fiscal second quarter of 2001, $3.8 million for capital
expenditures primarily for computer equipment used in the research and
development process, $2.0 million for our long-term equity investment in
MegaPath, and $1.1 million of capitalized software development costs incurred
subsequent to the delivery of a working model, under a development agreement
with third parties. This use of cash was partially offset by cash provided from
changes in operating assets and liabilities of $7.2 million related to our
increased collections of accounts receivable and decrease of inventory,
partially offset by increased accounts payable, and $2.0 million provided from
common stock sold to employees under our Employee Stock Purchase Program and the
exercise of stock options by employees.

We expect to continue to use our credit facility along with our existing cash,
cash equivalent and short-term investments to support our working capital needs
in both the short and long-term. Additionally, our cash, cash equivalents and
short-term investments at December 31, 2002 will be less than the balances at
September 30, 2002 as we repaid the outstanding borrowings from under our credit
facility as of September 30, 2002 and that we will need to use our existing cash
and cash equivalents to support our continuing operations. As of September 30,
2002, we did not have any material commitments for capital expenditures. We do
not utilize any off-balance sheet financing arrangements. We will require
additional capital to finance our future growth and fund our ongoing research
and development activities during fiscal 2003 and beyond. If our continuing
operations cannot generate sufficient capital to meet our needs and if we are
unable to reduce our level of expenditures, we will have to seek additional
financing which may not be available when needed and, if such financing is
available, it may not be available on terms we believe favorable. If we issue
additional stock to raise capital, our existing stockholders percentage
ownership in Netopia of would be reduced.

Trade Accounts Receivable, Net. The following table sets forth our trade
accounts receivables, net as of the fiscal years ended September 30, 2002, 2001
and 2000.

<TABLE>
<CAPTION>
                                                                                                Increase/(decrease)
                                                                                                  from prior year
                                                                                                -------------------
Fiscal years ended September 30,                                 2002       2001      2000         2002      2001
===================================================================================================================
                                                                      (in thousands)
<S>                                                            <C>        <C>       <C>            <C>      <C>
Trade accounts receivable, net                                 $ 9,950    $ 9,550   $ 15,646       4.2%     (39.0%)
Days sales outstanding (DSO)                                   54 days    51 days    60 days
</TABLE>

Changes in our trade accounts receivable, net balances and days sales
outstanding are primarily due to the lack of linearity of sales, particularly
with respect to licenses of our Web platforms software products, and collections
performance. Our targeted range for DSO is 50 to 60 days.


                                                                         Page 22
<PAGE>

Inventories, Net. The following table sets forth our inventories, net as of the
fiscal years ended September 30, 2002, 2001 and 2000.

<TABLE>
<CAPTION>
                                                                                                Increase/(decrease)
                                                                                                 from prior year
                                                                                                -------------------
Fiscal years ended September 30,                               2002        2001       2000        2002      2001
===================================================================================================================
                                                                     (in thousands)
<S>                                                          <C>        <C>        <C>           <C>       <C>
Inventories, net                                               $ 6,259    $ 7,156   $ 10,284     (12.5)%   (30.4%)
Inventory turns                                              5.8 turns  3.9 turns  5.4 turns
</TABLE>

Inventories consist primarily of raw materials; work in process, and finished
goods. Inventories, net have decreased and inventory turns have improved
primarily as a result of increased inventory management efforts. Inventory turns
decreased in 2001 from 2000 primarily due to our implementation of inventory
management processes to balance inventory levels with actual and expected sales
results. Inventory levels may increase in the near future if we cannot correctly
forecast expected customer demand or as a result of customer purchase deferrals
or delays. We may have to further borrow against our credit facility to finance
expected inventory increases. Inventory management remains an area of focus as
we balance the need to maintain adequate inventory levels to ensure competitive
lead times against the risk of inventory obsolescence because of rapidly
changing technology and customer requirements.

Borrowings Under Credit Facility. The following table sets forth the outstanding
borrowings under our credit facility as of the fiscal years ended September 30,
2002. As of November 30, 2002, we had repaid the borrowings outstanding as of
September 30, 2002.

<TABLE>
<CAPTION>
                                                                                              Increase/(decrease)
                                                                                                from prior year
                                                                                              -------------------
Fiscal years ended September 30,                                2002       2001       2000       2002      2001
=================================================================================================================
                                                                      (in thousands)
<S>                                                            <C>          <C>        <C>        <C>       <C>
Borrowings under credit facility                               $ 4,428      n/a        n/a        n/a       n/a
</TABLE>

On June 27, 2002, we entered into a Loan and Security Agreement with Silicon
Valley Bank (the "Credit Facility"). Pursuant to the Credit Facility, we may
borrow up to $15.0 million from time to time from Silicon Valley Bank. The term
of the Credit Facility is two years. We must maintain an adjusted quick ratio,
as defined as the ratio of (i) our unrestricted cash maintained at Silicon
Valley Bank plus cash equivalents maintained at Silicon Valley Bank plus
receivables and investments made on our behalf through Silicon Valley Bank's
Investment Product Services Division ("ISP Division") to (ii) our current
liabilities plus the outstanding principal amount of any obligations less
deferred revenues, of not less than 1.25 to 1 from June 2002 through December
31, 2002 and 1.5 to 1 from January 1, 2003 to the end of the term. For the first
year of the Credit Facility, we must maintain a tangible net worth of not less
than $32.0 million; the minimum tangible net worth covenant will be reset for
the second year of the Credit Facility. On December 9, 2002, Silicon Valley Bank
waived our default of the tangible net worth covenant for the first year as set
forth in the Credit Facility agreement. There is no assurance that Silicon
Valley Bank will waive any future default of this or any other covenant
contained in the Credit Facility agreement. The Credit Facility bears interest
at a rate equal to the prime rate (the rate announced by Silicon Valley Bank as
its "prime rate") plus 0.75% per annum. The credit limit is determined based on
a formula related to the amount of accounts receivable and inventory at any
particular time. We may borrow under the Credit Facility in order to finance
working capital requirements for new products and customers, and otherwise for
general corporate purposes in the normal course of business.

Commitments

As of September 30, 2002, we had commitments that consisted of facilities and
equipment under operating lease agreements expiring at various dates through
2005. These commitments and obligations are reflected in our financial
statements once goods or services have been received or payments related to the
obligations become due. The following is a schedule of our future minimum rental
payments required under these operating lease agreements that have initial or
remaining non-cancelable lease terms in excess of one year (in thousands):

<TABLE>
<CAPTION>
Fiscal years ended September 30,                                2003        2004       2005      Total
=======================================================================================================
<S>                                                            <C>         <C>        <C>       <C>
Facility and operating lease commitments                       $ 1,535     $  926     $  362    $ 2,823
</TABLE>


                                                                         Page 23
<PAGE>

Subsequent to September 30, 2002, we entered into a lease for a new headquarters
facility located in Emeryville, California. The future minimum rental payments
related to this new lease are not included in the table above. The following is
a schedule of the future minimum rental payments required under this new lease
agreement (in thousands):

<TABLE>
<CAPTION>
Fiscal years ended September 30,             2003       2004       2005       2006       2007       2008       Total
=====================================================================================================================
<S>                                         <C>        <C>        <C>        <C>        <C>        <C>        <C>
Facility and operating lease commitments    $  101     $  624     $  642     $  663     $  682     $  526     $ 3,238
</TABLE>

Results of Operations for Fiscal Years Ended September 30, 2002, 2001 and 2000

The following table sets forth for the periods indicated certain statement of
operations data. Each item of data is also shown as a percentage of total
revenues, with the percentage change from the prior year also provided for each
item.

<TABLE>
<CAPTION>
                                                                                                                  Increase
                                                                                                              (decrease) from
                                                                                                                 prior year
                                                                                                              ---------------
Fiscal years ended September 30,                           2002                2001                2000         2002    2001
=============================================================================================================================
                                                                        ($ in thousands)
<S>                                                 <C>         <C>     <C>         <C>     <C>         <C>     <C>     <C>
REVENUES:
   Internet equipment                               $ 45,551     71%    $ 58,861     76%    $ 65,546     73%    (23%)   (10%)
   Web platform licenses and services                 18,513     29%      18,457     24%      24,660     27%      0%    (25%)
-------------------------------------------------------------------------------------------------------------
     Total revenues                                   64,064    100%      77,318    100%      90,206    100%    (17%)   (14%)
-------------------------------------------------------------------------------------------------------------

COST OF REVENUES:
   Internet equipment                                 32,323     50%      39,165     51%      46,582     52%    (17%)   (16%)
   Web platform licenses and services                    639      1%         795      1%         697      1%    (20%)    14%
-------------------------------------------------------------------------------------------------------------
     Total cost of revenues                           32,962     51%      39,960     52%      47,279     53%    (18%)   (15%)
-------------------------------------------------------------------------------------------------------------

   GROSS PROFIT                                       31,102     49%      37,358     48%      42,927     47%    (17%)   (13%)

OPERATING EXPENSES:
   Research and development                           17,522     27%      13,836     18%      13,324     15%     27%      4%
   Selling and marketing                              24,334     38%      27,144     35%      25,842     28%    (10%)     5%
   General and administrative                          5,398      9%       7,528     10%       6,554      7%    (28%)    15%
   Acquired in-process research
     and development                                   4,058      6%          --     --%       8,658     10%     --%   (100%)
   Amortization of goodwill and
     other intangible assets                           1,497      2%      11,984     15%       9,746     11%    (88%)    23%
   Impairment of goodwill and
     other intangible assets                           9,146     14%      16,375     21%          --     --%    (44%)   --%
   Restructuring costs                                   482      1%       1,073      1%          --     --%    (55%)   --%
   Integration costs                                     309      1%          --     --%          --     --%     --%    --%
   Terminated merger costs                                --     --%       2,640      4%          --     --%   (100%)   --%
-------------------------------------------------------------------------------------------------------------
     Total operating expenses                         62,746     98%      80,580    104%      64,124     71%    (22%)    26%
-------------------------------------------------------------------------------------------------------------

OPERATING LOSS                                       (31,644)   (49%)    (43,222)   (56%)    (21,197)   (24%)   (27%)   104%
Other income (loss), net
   Loss on impaired securities                        (2,943)    (5%)     (1,000)    (1%)         --     --%    194%     --%
   Other income, net                                     320      1%       2,510      3%       3,579      4%    (87%)   (30%)
-------------------------------------------------------------------------------------------------------------
     Total other income (loss), net                   (2,623)    (4%)      1,510      2%       3,579      4%   (274%)   (58%)
-------------------------------------------------------------------------------------------------------------

Loss from continuing operations before cumulative
effect from adoption of SAB 101 and before gain
on sale of discontinued operations, net of taxes     (34,267)   (53%)    (41,712)   (54%)    (17,618)   (20%)   (18%)   137%
Cumulative effect from adoption of SAB 101                --     --%      (1,555)    (2%)         --     --%   (100%)    --%
Discontinued operations, net of taxes                     --     --%         156      0%       2,481      3%   (100%)   (94%)
-------------------------------------------------------------------------------------------------------------

   NET LOSS                                         $(34,267)   (53%)   $(43,111)   (56%)   $(15,137)   (17%)   (21%)   185%
=============================================================================================================
</TABLE>


                                                                         Page 24
<PAGE>

REVENUES

Total revenues for fiscal year 2002 decreased from fiscal year 2001 primarily
due to decreased revenues from the sale of our broadband Internet equipment
products.

Internet Equipment Revenues. Broadband Internet equipment revenues decreased for
fiscal year 2002 from fiscal year 2001 primarily due to declining sales to the
CLEC market and declining average selling prices partially offset by increased
sales volumes. Sales volumes increased primarily as a result of the customers we
acquired in connection with our acquisition of Cayman and new customers in
Europe. Sales to the CLEC market, as illustrated in the customer table below,
have declined as a result of the operational and financial difficulties
encountered by customers such as Covad, Rhythms NetConnections, Inc. (Rhythms)
and NorthPoint as they attempted to build out DSL networks. (Rhythms and
NorthPoint have subsequently ceased operations.) Average selling prices are
declining primarily as a result of the mix of products sold, price competition
from foreign and domestic competitors and customer driven demands. The mix of
broadband Internet equipment sales is changing as we begin entering the
residential ADSL market. Historically, residential-class products, and ADSL
products generally, have carried a lower average selling price than similar
business-class products. We expect that we will continue to experience declining
average selling prices, primarily as a result of the changing mix of products we
sell and price competition from both foreign and domestic suppliers. We believe
that increased sales volumes to the customers acquired in connection with our
acquisition of Cayman and to our new European customers will offset these
declines.

Web Platform License and Services. Web platforms revenues increased slightly for
fiscal year 2002 from fiscal year 2001. Recurring revenue from the hosting of
our eSite and eStore products increased for fiscal year 2002 from fiscal year
2001 but was almost equally offset by reduced license sales of our eSite and
eStore products and reduced sales of Timbuktu, our system management software.
Licensing of our eSite and eStore products decreased as a result of fewer
licensing opportunities available to the "dot com"-type customers to whom we
licensed our eSite and eStore products.

Total revenues for fiscal year 2001 decreased from fiscal year 2000 primarily
due to decreased revenues from our broadband Internet equipment and Web
platforms products.

Internet Equipment Revenues. Broadband Internet equipment revenue decreased
primarily due to declining average selling prices of our broadband Internet
equipment, particularly our DSL routers, worldwide as a result of price
competition and pricing strategies as we entered new markets and channels,
decreased sales of our broadband Internet equipment products, particularly our
DSL routers in the United States, primarily as a result of the financial and
operational difficulties encountered by our CLEC customers such as Covad,
NorthPoint and Rhythms, and decreased sales of our ISDN routers in Europe
primarily as a result of growing demand for DSL Internet services that began to
replace the use of ISDN Internet services in the European markets in which we
distribute our broadband Internet equipment products. These decreases were
partially offset by increased sales of our DSL routers in Europe.

Web Platform License and Services. Web platforms revenues decreased primarily
due to reduced license sales of our eSite and eStore products and reduced sales
of Timbuktu, partially offset by increased recurring revenue from the hosting of
our eSite and eStore products. Sales of our Web platforms products decreased as
a result of companies reducing their IT spending and fewer licensing
opportunities available to the "dot com"-type customers to whom we licensed our
eSite and eStore products.


                                                                         Page 25
<PAGE>

Customer Information

Historically, we have sold our products primarily to CLECs, distributors, ILECs,
ISPs and directly to end-users. The following table sets forth for the periods
indicated, our customers who have represented greater than 10% of our revenues
in such period, along with such data expressed as a percentage of total revenues
as well as the change from the prior year. No other customers for fiscal years
2002, 2001 and 2000 accounted for 10% or more of total revenues.

<TABLE>
<CAPTION>
                                                                                           Increase
                                                                                       (decrease) from
                                                                                          prior year
                                                                                       ---------------
Fiscal year ended September 30,          2002             2001              2000         2002    2001
======================================================================================================
                                                   ($ in thousands)
<S>                                <C>        <C>   <C>         <C>   <C>         <C>   <C>      <C>
Covad (a)                          $ 8,481    13%   $12,565     16%   $14,812     16%    (33%)   (15%)
Ingram Micro                         7,970    12%     8,380     11%     6,162      7%     (5%)    36%
Rhythms (b)                             --            8,204     11%     5,181      6%   (100%)    58%
NorthPoint (c)                          --            2,415      3%    10,608     12%   (100%)   (77%)
</TABLE>

----------
(a)   Covad filed a voluntary petition under the Bankruptcy Act in August 2001
      as part of a capital restructuring plan. Covad emerged from bankruptcy in
      December 2001and has announced that it has adequate cash to allow it to
      become cash flow positive by the latter half of 2003.
(b)   Rhythms received Bankruptcy Court approval and completed the sale of a
      substantial portion of its assets to Worldcom in December 2001.
(c)   NorthPoint ceased operations during March 2001.

Including the greater than 10% customers in the table above, the following table
sets forth the number of customers who each individually represented at least 5%
of our revenues for the fiscal years ended September 30, 2002, 2001 and 2000.

Fiscal years ended September 30,                     2002       2001       2000
================================================================================

Number of customers                                     4          3          5
Percent of total revenue                               36%        38%        46%

Geographic Information

The following table sets forth for the periods indicated, revenues by region in
such period along with such data expressed as a percentage of total revenues as
well as the change from the prior year:

<TABLE>
<CAPTION>
                                                                                             Increase
                                                                                         (decrease) from
                                                                                            prior year
                                                                                         ---------------
Fiscal year ended September 30,           2002              2001              2000         2002    2001
========================================================================================================
                                                     ($ in thousands)
<S>                                 <C>        <C>    <C>        <C>    <C>        <C>     <C>     <C>
Europe                              $10,544     16%   $ 9,378     12%   $13,558     15%     12%    (31%)
Canada                                1,046      2%     1,168      2%     1,689      2%    (10%)   (31%)
Asia Pacific and other                1,602      3%     1,030      1%     1,215      1%     56%    (15%)
---------------------------------------------------------------------------------------
   Subtotal international revenue    13,192     21%    11,576     15%    16,462     18%     14%    (30%)
United States                        50,872     79%    65,742     85%    73,744     82%    (23%)   (11%)
---------------------------------------------------------------------------------------
     Total revenues                 $64,064    100%   $77,318    100%   $90,206    100%    (17%)   (14%)
=======================================================================================
</TABLE>

International revenues increased for fiscal year 2002 from fiscal year 2001
primarily due to increased sales of our ADSL routers into the European
residential market through our new European customers partially offset by
decreased sales of our ISDN routers as a result of the growing demand for DSL
Internet services as well as decreased sales of our Web platforms products.
Revenues from the United States decreased for fiscal 2002 from 2001 primarily
due to declining sales to the CLEC market and declining average selling prices
partially offset by increased sales to customers we acquired in connection with
our acquisition of Cayman as discussed above.

International revenues decreased for fiscal year 2001 from fiscal year 2000
primarily due to decreased sales of our ISDN routers in Europe as a result of
growing demand for DSL Internet services that are replacing the use of ISDN
Internet services in the European markets in which we distribute our broadband
Internet equipment products as well


                                                                         Page 26
<PAGE>

as decreased sales of our Web platforms products. These decreases were partially
offset by increased sales of our DSL routers in Europe. Revenues from the United
States decreased for fiscal 2001 from 2000 primarily due to declining average
selling prices of our broadband Internet equipment, particularly our DSL
routers, as a result of price competition and pricing strategies from entering
new markets and channels, and decreased sales of our broadband Internet
equipment products, particularly our DSL routers in the United States, as a
result of the financial and operational difficulties encountered by our CLEC
customers as discussed above.

COST OF REVENUES

Cost of revenues consist primarily of material costs related to our contract
manufacturing operations and manufacturing variances. Although our sales volumes
increased for fiscal year 2002 from fiscal year 2001, total cost of revenues
decreased primarily due to declining material costs for our broadband Internet
equipment as a result of product redesigns and the introduction of new ADSL
products that have a lower average cost than our other broadband Internet
equipment, the increased use of contract manufacturing operations in Asia where
our products can be manufactured less expensively than in the United States and
declining component costs. Total cost of revenues decreased for fiscal year 2001
from fiscal year 2000 primarily as a result of reduced sales volumes of our
broadband Internet equipment products, reduced manufacturing variances as well
as our ability to obtain cost reductions from our contract manufacturers.

Gross Margin

Our total gross margin increased to 49% for fiscal year 2002 from 48% for fiscal
year 2001 primarily due to the increased proportion of revenues from our higher
margin Web platforms products partially offset by the decline of average selling
prices of our broadband Internet equipment.

Internet Equipment. Broadband Internet equipment gross margin decreased to 29%
for fiscal year 2002 from 33% for fiscal year 2001 primarily due to declining
average selling prices as a result of price competition and pricing strategies
as we enter new markets, introduce new products and expand our customer base,
increased sales of lower margin ADSL products, reduced sales of dedicated router
products which carry a higher gross margin than our DSL products as well than
slower than planned product transitions to lower cost, higher margin products.
This decrease was partially offset by declining product costs as discussed in
the above cost of revenue discussion.

Web Platform License and Services. Web platforms gross margin increased to 97%
for fiscal year 2002 from 96% for fiscal year 2001 primarily due to our ability
to reduce our costs related to supporting and provisioning our eSite and eStore
products.

Our total gross margin increased to 48% for fiscal year 2001 from 47% for fiscal
year 2000 primarily due to the increase in broadband equipment gross margins
partially offset by the decreased proportion of revenues from our higher margin
Web platforms products.

Internet Equipment. Broadband Internet equipment gross margin increased to 33%
for fiscal year 2001 from 29% for fiscal year 2000. Broadband Internet equipment
gross margins were adversely affected in fiscal year 2000 due to a $1.1 million
inventory charge we recorded in fiscal year 2000 related to the discontinuation
of certain non-DSL products. Excluding the charge we recorded in fiscal year
2000, broadband Internet equipment gross margins increased to 33% for fiscal
year 2001 from 31% for fiscal year 2000 primarily due to our ability to obtain
cost reductions from our contract manufacturers who build our products. This
improvement in broadband Internet equipment gross margin was partially offset by
declining average selling prices of our broadband Internet equipment worldwide
as a result of price competition and pricing strategies as we enter new markets
and channels.

Web Platform License and Services. Web platforms gross margin decreased to 96%
for fiscal year 2001 from 97% for fiscal year 2000 primarily due to reduced
volume license sales of our Web platforms products and increased costs related
to supporting our hosting of eSite and eStore products.

Our Internet equipment products have a lower average gross margin than our Web
platforms products. Accordingly, to the extent we sell more Internet equipment
than Web platforms products, our gross margins would be lower. In


                                                                         Page 27
<PAGE>

the past, our gross margin has varied significantly and will likely vary
significantly in the future. Our gross margins depend primarily on:

      o     The mix of Internet equipment and Web platforms products sold;

      o     Pricing strategies;

      o     Increased sales of our residential-class broadband Internet
            equipment which historically have had a lower average selling price
            than our business-class broadband Internet equipment;

      o     Standard cost changes;

      o     New versions of existing products; and

      o     External market factors, including, but not limited to, price
            competition.

RESEARCH AND DEVELOPMENT

Research and development expenses consist primarily of employee related
expenses, depreciation and amortization, development related expenses such as
product prototyping, design and testing, and overhead allocations. Research and
development expenses increased for fiscal year 2002 from fiscal year 2001
primarily due to:

      o     Increased research and development staff and employee related
            expenses as a result of our acquisitions of Cayman in October 2001
            and DoBox in March 2002 and their research and development
            personnel; and

      o     Increased facility and depreciation expenses as a result of the
            acquisitions of Cayman and DoBox and their leased facilities and
            development assets.

These increases were partially offset by reduced product prototyping and design
expenses. Additionally, the use of third party contractors was reduced for
fiscal year 2002 from fiscal year 2001.

Research and development expenses increased for fiscal year 2000 from fiscal
year 1999 primarily due to:

      o     Increased research and development staff and employee related
            expenses as a result of our acquisitions of StarNet in October 1999
            and WebOrder in March 2000 and their research and development staff;
            and

      o     Increased development expenses related to the DSL IAD technology
            acquired in connection with the StarNet acquisition and the
            e-commerce products acquired in connection with the WebOrder
            acquisition.

We expect to continue to devote substantial resources to product and
technological development. We expect research and development costs may increase
in absolute dollars in fiscal year 2003 as we continue to expand the breadth and
depth of our product offerings. We believe our process for developing software
is essentially completed concurrently with the establishment of technological
feasibility, and we have not capitalized any internal software development costs
to date. However, during fiscal year 2001, we capitalized $1.1 million and
during fiscal year 2000, we capitalized $0.7 million of product development
costs incurred subsequent to delivery of a working model, under a development
agreement with a third party.

SELLING AND MARKETING

Selling and marketing expenses consist primarily of salary and commission
expense for our sales force, travel and entertainment, advertising and
promotional expenses, product marketing, customer service and support costs.
Selling and marketing expenses decreased for fiscal year 2002 from fiscal year
2001 primarily due to:

      o     Decreased sales and marketing headcount and employee related
            expenses as well as decreased travel and entertainment expenses as a
            result of our restructuring in October 2001; and

      o     Decreased marketing programs and activities.

These decreases were partially offset by increased depreciation and equipment
maintenance expense related to capital purchases for equipment used in our
technical support and service functions.


                                                                         Page 28
<PAGE>

Selling and marketing expenses increased for fiscal year 2001 from 2000
primarily due to increased headcount and employee related expenses as a result
of our efforts to expand the number of channels through which we sell our
products. These increases were partially offset by reduced advertising and
promotional expenses.

We expect selling and marketing expenses may decrease in absolute dollars in
fiscal 2003 as a result of our restructuring and termination of certain
employees and increased expense control efforts.

GENERAL AND ADMINISTRATIVE

General and administrative expenses consist primarily of employee related
expenses, provisions for doubtful accounts and legal, accounting and insurance
costs. General and administrative expenses decreased for fiscal year 2002 from
fiscal year 2001 primarily due to reduced incremental provisions for doubtful
accounts for outstanding accounts receivable owed by customers that filed
voluntary petitions under the Bankruptcy Act and many of which ceased
operations. Included in general and administrative expense for fiscal year 2002
is $0.6 million of incremental provisions for doubtful accounts. For fiscal year
2001, general and administrative expense includes $2.9 million of incremental
provisions for doubtful accounts of which $1.7 million was related to the
outstanding accounts receivable of NorthPoint. During December 2001, in a
private transaction whereby we sold our claim in the NorthPoint bankruptcy
proceedings, we recovered approximately $0.2 million of the $1.7 million
NorthPoint receivable for which we had recorded a provision for doubtful
accounts in fiscal year 2000.

General and administrative expenses increased for fiscal year 2001 from fiscal
year 2000 primarily due to increased incremental provisions for doubtful
accounts for outstanding accounts receivable owed by our CLEC customers who
filed voluntary petitions under the Bankruptcy Act and many of which ceased
operations during our fiscal year 2001 as well as increased employee related
expenses and insurance costs. For fiscal year 2001, general and administrative
expense includes $2.9 million of incremental provisions for doubtful accounts as
discussed above and for fiscal year 2000, includes $1.9 million of incremental
provisions for doubtful accounts related to the outstanding accounts receivable
of Jato.

We expect general and administrative expenses may decrease in absolute dollars
in fiscal 2003 as a result of our restructuring and termination of certain
employees, relocation to a new, smaller headquarters facility, and increased
expense control efforts.

ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT

Acquired in process research and development represents research and development
assets acquired in connection with our acquisitions of Cayman and DoBox in
fiscal year 2002, and WebOrder and StarNet in fiscal year 2000, that were not
technologically feasible at the time of acquisition and had no alternative
future use, and as such were expensed at the time of the transaction.

For fiscal year 2002, we allocated approximately $2.2 million of the purchase
price of Cayman and approximately $1.9 million, or 100%, of the purchase price
of DoBox to acquired in-process research and development. For fiscal year 2000,
we allocated a charge of approximately $3.0 million of the purchase price of
WebOrder and approximately $5.7 million of the purchase price of StarNet to
acquired in-process research and development. Each of the amounts we allocated
to acquired in-process research and development in connection with these
acquisitions was based upon an independent third party valuation analysis. (See
Note 2 of Notes to Consolidated Financial Statements.)

AMORTIZATION OF GOODWILL AND OTHER INTANGIBLE ASSETS

For fiscal year 2002, this amount represents the amortization of intangible
assets with identifiable lives related to our acquisition of Cayman. For fiscal
years 2001 and 2000, amortization of goodwill and other intangible assets
represents the amortization of both goodwill and other intangible assets related
to our acquisitions of WebOrder, StarNet, Serus and netOctopus. (See Notes 2 and
3 of Notes to Consolidated Financial Statements.)


                                                                         Page 29
<PAGE>

We elected to early adopt the provisions of SFAS No. 142 on October 1, 2001, the
beginning of fiscal year 2002. SFAS No. 142 requires that goodwill resulting
from a business combination no longer be amortized to earnings, but instead be
reviewed for impairment on at least an annual basis and be expensed against
earnings when the implied fair value of a reporting unit is less than its
carrying amount. For goodwill resulting from business combinations prior to July
1, 2001, amortization of such goodwill continued through the fiscal year ended
September 30, 2001, but ceased on October 1, 2001.

IMPAIRMENT OF GOODWILL AND OTHER INTANGIBLE ASSETS

For fiscal year 2002, this amount represents the full impairment of the
remaining goodwill acquired in connection with the acquisitions of Cayman and
StarNet. In accordance with SFAS No. 142, we completed our annual goodwill
impairment test on August 31, 2002 for the Internet equipment and Web platform
reporting units. The impairment testing is performed in two steps: (i) the
determination of impairment, based upon the fair value of a reporting unit as
compared to its carrying value, and (ii) if there is an impairment, this step
measures the amount of impairment loss by comparing the implied fair value of
goodwill with the carrying amount of that goodwill. At August 31, 2002, the
implied fair value of our Internet equipment reporting unit was found to be less
than its carrying amount and as a result, we recorded a charge to our
Consolidated Statement of Operations in the fiscal year ended September 30, 2002
of $9.1 million. (See Notes 2 and 3 of Notes to Consolidated Financial
Statements.)

For fiscal year 2001, this amount represents the impairment of goodwill and
other intangible assets related to our acquisitions of WebOrder, StarNet and
Serus. As provided under SFAS No. 121, given the slower than anticipated growth
in the market for IAD products (the technology for which we acquired from
StarNet) and the rapid and sharp decline in the "dot com" market to which we
marketed and licensed certain of our Web platforms products (including
technology which we acquired from WebOrder and Serus) in addition to the slower
than anticipated revenue growth in the market for such products, we determined
the net carrying value of the goodwill and other intangible assets related to
these acquisitions will not be fully recovered. Accordingly, we recorded a
charge of $16.4 million based on the difference of the carrying value and the
estimated discounted future operating cash flows of the goodwill and other
intangible assets related to these acquisitions. (See Note 2 of Notes to
Consolidated Financial Statements.)

RESTRUCTURING COSTS

For fiscal year 2002, restructuring costs consist primarily of employee
severance benefits recorded in connection with a reduction in the Company's
workforce of approximately 24 people whose positions were determined to be
redundant subsequent to the closing of the Cayman acquisition. For fiscal year
2001, restructuring costs consist primarily of employee severance benefits and
the costs to exit certain of our business activities and closure of a facility.
We expect to pay the remaining restructuring costs accrued during the fiscal
year ended September 30, 2003. (See Note 12 of Notes to Consolidated Financial
Statements.)

INTEGRATION COSTS

Integration costs consist of expenses incurred in connection with the
acquisition of Cayman and integrating Cayman's customers, systems and
operations. We expect to pay the remaining integration costs accrued during the
fiscal year ended September 30, 2003. (See Note 13 of Notes to Consolidated
Financial Statements.)

TERMINATED MERGER COSTS

This amount represents the costs incurred in connection with the terminated
merger between our company and Proxim. The charge consists primarily of expenses
for accounting and legal advisory services, initiation of joint marketing and
research and development programs in anticipation of the merger that we had
undertaken at the direction of Proxim, certain shared merger costs, and other
related costs. We expect to pay the remaining terminated merger costs accrued
during the fiscal year ended September 30, 2003. (See Note 14 of Notes to
Consolidated Financial Statements.)


                                                                         Page 30
<PAGE>

OTHER INCOME (LOSS), NET

Other income (loss), net consists of interest income we earn on our cash, cash
equivalents and short-term investments, interest expense, realized and
unrealized gains and losses on foreign currency transactions as well as losses
on impaired securities that we deem other than temporary.

Loss on Impaired Securities. For fiscal year 2002, loss on impaired securities
represents a $1.4 million and a $1.5 million charge for impaired securities
related to our investments in MegaPath and Everdream, respectively. These
impairment charges were recorded in connection with the valuation of MegaPath
and Everdream based upon their most recent rounds of financing. For fiscal year
2001, loss on impaired securities represents the entire loss of our investment
in NorthPoint. (See Note 11 of Notes to Consolidated Financial Statements.)

Other Income, Net. Other income, net has decreased for fiscal years 2002 and
2001 primarily due to our reduced cash, cash equivalents and short-term
investments combined with reductions in interest rates.

CUMULATIVE EFFECT FROM ADOPTION OF SAB 101

This amount represents the charge we recorded upon adoption of SAB 101. We
expect to recognize the remaining amounts of deferred revenue related to the
adoption of SAB 101 during the fiscal year ended September 30, 2003. (See Note
1, Revenue Recognition, of Notes to Consolidated Financial Statements.)

DISCONTINUED OPERATIONS

Represents the gain on sale of our sale of the Farallon LAN Division (the LAN
Division), which we sold in August 1998. (See Note 4 of Notes to Consolidated
Financial Statements.)

Recent Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board (FASB) approved for
issuance SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143
addresses financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. This Statement amends FASB Statement No. 19, Financial Accounting and
Reporting by Oil and Gas Producing Companies. SFAS No. 143 requires that the
fair value of a liability for an asset retirement obligation be recognized in
the period in which it is incurred if a reasonable estimate of fair value can be
made. The associated asset retirement costs are capitalized as part of the
carrying amount of the long-lived asset. The provisions of SFAS No. 143 are
effective for financial statements issued for fiscal years beginning after June
15, 2002. The Company is currently evaluating the impact of the adoption of the
provisions of the pronouncement.

In May 2002, the FASB approved for issuance SFAS No. 145, Rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. SFAS No. 145 requires gains and losses from extinguishment of debt
to be classified as an extraordinary item only if the criteria in APB No. 30
have been met. Further, lease modifications with economic effects similar to
sale-leaseback transactions must be accounted for in the same manner as
sale-leaseback transactions. While the technical corrections to existing
pronouncements are not substantive in nature, in some instances they may change
accounting practice. The Company has adopted the provisions of SFAS No. 145
required for financial statements issued on or after May 15, 2002. This adoption
had no impact on the Company's consolidated financial statements. The Company is
currently evaluating the impact of the remaining provisions of the
pronouncement.

In June 2002, the FASB approved for issuance SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. SFAS No. 146 addresses accounting
and reporting for costs associated with exit and disposal activities and
supersedes Emerging Issues Task Force No. 94-3 (EITF 94-3), Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring). SFAS No. 146
requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred, as defined by the
Statement. Under EITF 94-3, an exit cost was recognized at the date an entity
committed to an exit plan. Additionally, SFAS No. 146 provides that exit and
disposal costs


                                                                         Page 31
<PAGE>

should be measured at fair value and that the associated liability will be
adjusted for changes in estimated cash flows. The provisions of SFAS No. 146 are
effective for exit and disposal activities that are initiated after December 31,
2002.

Risk Factors

In addition to other information in this Form 10-K, the following risk factors
should be considered carefully in evaluating our business because such factors
currently may have a significant impact on our business, operating results and
financial condition. As a result of the risk factors set forth below and
elsewhere in this Form 10-K, and the risks discussed in our other filings with
the United States Securities Exchange Commission, actual results could differ
materially from those projected in any forward-looking statements.

We have a history of losses and negative cash flow. We may incur losses and
negative cash flow in the future.

Our failure to significantly increase our revenues or sufficiently reduce our
operating expenses will result in continuing losses and negative cash flow. We
incurred losses from continuing operations of $34.3 million for the fiscal year
ended September 30, 2002 and have incurred losses from continuing operations of
$41.7 million and $17.6 million for fiscal years 2001 and 2000, respectively.
Our operations used $7.3 million and $5.8 million of cash for the fiscal years
ended September 30, 2002 and 2001 and provided $0.1 million of cash for fiscal
year 2000. Our cash, cash equivalents and short-term investments have decreased
to $25.0 million as of September 30, 2002 from $49.0 million as of September 30,
2001, which decreased from $59.8 million as of September 30, 2000. Even if we
reach profitability and maintain positive cash flow, we may not be able to
sustain or increase profitability or cash flow on a quarterly or annual basis.

We may incur negative cash flow in the future particularly to the extent we
complete any acquisition opportunities. As a result of continuing substantial
capital expenditures and product development, sales, marketing and
administrative expenses, we will need to generate significant revenues to
maintain positive cash flow.

We may find it difficult to raise needed capital in the future, which could
significantly harm our business.

We must continue to enhance and expand our product and service offerings in
order to maintain our competitive position and to increase our market share. As
a result and due to our net losses and use of cash, the continuing operations of
our business may require substantial capital infusions. Whether or when we can
achieve cash flow levels sufficient to support our operations cannot be
accurately predicted. Unless such cash flow levels are achieved, we may require
additional borrowings or the sale of debt or equity securities, sale of
non-strategic assets, or some combination thereof, to provide funding for our
operations. If we issue additional stock or other instruments to raise capital,
the percentage ownership in Netopia of existing stockholders would be reduced.
If we cannot generate sufficient cash flow from our operations and if we are
unable to reduce our level of expenditures, or are unable to borrow or otherwise
obtain additional funds to finance our operations when needed, our financial
condition and operating results would be materially adversely affected and we
would not be able to operate our business.

Substantial sales of our broadband Internet equipment will not occur unless
telecommunications carriers continue substantial deployment of DSL services.

The success of our broadband Internet equipment depends upon whether
telecommunications carriers deploy DSL and other broadband technologies and upon
the timing of the deployment of such technologies. Factors that will impact such
deployment include:

      o     A prolonged approval process by service providers, including
            laboratory tests, technical trials, marketing trials, initial
            commercial deployment and full commercial deployment;

      o     The development of a viable business model for DSL and other
            broadband services, including the capability to market, sell,
            install and maintain DSL and other broadband services;

      o     The ability of our CLEC customers to obtain required capital
            resources;


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<PAGE>

      o     Cost constraints, such as installation costs and space and power
            requirements at the telecommunications service provider's central
            office;

      o     Lack of compatibility of DSL equipment that is supplied by different
            manufacturers;

      o     Evolving industry standards for DSL and other broadband
            technologies; and

      o     Government regulation.

Demand for DSL services has exceeded the ability of certain telecommunications
carriers and ISPs to deploy services in a timely manner and to provide
satisfactory customer service. We offer to carriers and service provider
customers the opportunity to bundle basic DSL connectivity with value-added
features that enable the provider to bundle differentiated services that will
justify higher recurring revenues from end users. These features include dial
backup, VPN, voice over DSL, remote management and configuration, and eSite or
eStore hosting. We can offer no assurance that our strategy of enabling bundled
service offerings will be widely accepted. If telecommunications carriers do not
continue to expand their deployment of DSL and other broadband services, or if
additional telecommunications carriers do not offer DSL and other broadband
services on a timely basis, then our business, financial condition and results
of operations will be seriously harmed.

We expect our revenues to become increasingly dependent on our ability to sell
our broadband gateway products to ILECs, and we may incur losses if we cannot
successfully market and sell our products through ILEC channels.

ILECs have been aggressively marketing DSL services principally focusing on
residential services. Prior to the acquisition of Cayman, we had not sold
meaningful quantities of our broadband Internet equipment to ILECs in the United
States. As a result of our acquisition of Cayman, we have expanded the channels
through which we sell our products to include ILEC customers, such as SBC and
BellSouth, and have committed resources that are focused on expanding our
presence in the ILEC channel both domestically and internationally in response
to changing market conditions. There continue to be barriers associated with
such sales including, but not limited to, lengthy product evaluation cycles, the
ability to dislodge competitors whose products are currently being utilized, a
long-term contract cycle and intense price pressures. ILECs currently obtain
equipment from our competitors, such as Thomson, Siemens (through its Efficient
Networks subsidiary), Westell, ZyXEL, Linksys and 2Wire, who have proven to be
strong competitors. There is no guarantee we will be successful in retaining the
customers acquired in connection with our acquisition of Cayman or our ability
to successfully expand our presence in the ILEC market. If we fail to retain the
customers acquired in connection with our acquisition of Cayman or fail to
penetrate further the ILEC market for our products and services, our business
may be materially and adversely affected.

We expect our revenues to become increasingly dependent on our ability to
develop broadband Internet equipment for and successfully enter the residential
broadband gateway market.

We have historically developed, marketed and sold business class broadband
Internet equipment products to CLECs serving the business market for DSL
Internet connectivity. Through our acquisitions of Cayman in October 2001 and
DoBox in March 2002, we believe that we have acquired existing customer
relationships, products and technology that will enable us to more quickly
develop, enhance and market broadband Internet equipment products and services
to ILECs serving the residential market. There are numerous risks associated
with our entrance into the residential broadband gateway market such as:

      o     The ability to design and develop products that meet the needs of
            the residential market;

      o     The ability to successfully market these products to ILECs currently
            serving this market;

      o     The ability to dislodge current suppliers of residential class
            broadband gateways; and

      o     Our failure to successfully complete and bring to market the
            products and technology acquired in connection with our acquisitions
            of Cayman and DoBox.

If we are unable to overcome these challenges or if the ILECs are unsuccessful
marketing or deploying DSL services into the residential market, our business
will be materially and adversely affected.


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<PAGE>

The DSL market, and the channels through which we historically have sold our DSL
products, has experienced significant business difficulties during the past
year, which have negatively affected our business and operating results.

Prior to our acquisition of Cayman in October 2001, our most significant
customers were CLECs and ISPs. Since the middle of calendar year 2000, CLECs
have experienced significant business difficulties due to an inability to obtain
financing to continue to build out their networks. The difficulties of these
customers have materially and adversely affected our operating results, causing
a significant decline in the price of our common stock. During the last two
years, three of our CLEC customers, Covad, Rhythms, and NorthPoint have
demonstrated the following market difficulties:

      o     Covad, our largest customer in fiscal years 2002, 2001 and 2000, has
            reduced its breadth of network build-out and significantly scaled
            back its operations. In addition, Covad filed a voluntary petition
            under the Bankruptcy Act in August 2001 as part of a
            capital-restructuring plan. In November 2001, Covad announced that
            it had secured an agreement with SBC to provide Covad with $150
            million in funding. Covad emerged from bankruptcy in December 2001
            upon closing the SBC funding. Additionally, Covad has announced that
            this funding is expected to provide the cash that it believes will
            allow it to become cash flow positive by the latter half of 2003;

      o     Rhythms voluntarily filed for protection under the Bankruptcy Act in
            August 2001, and subsequently ceased normal operations in September
            2001. In December 2001, WorldCom purchased Rhythms' key DSL assets.
            As a result, WorldCom has been delivering service to customers on
            the Rhythms network. In July 2002, WorldCom and substantially all of
            its active United States subsidiaries filed voluntary petitions for
            reorganization under Chapter 11 of the United States Bankruptcy
            Code. There is no certainty that WorldCom will continue to purchase
            our equipment for deployment on the Rhythms network, and there is no
            certainty that WorldCom will continue to operate the Rhythms network
            as a result of the pending bankruptcy proceedings; and

      o     NorthPoint voluntarily filed for protection under the Bankruptcy Act
            in January 2001 and subsequently ceased operations in March 2001.

Like the CLECs, ISPs also have struggled for the past two years. Most ISPs have
had significant difficulties in differentiating their services from the services
provided by their competitors. As a result, the lack of differentiation has led
to significant erosion in the prices charged to customers. Many of our ISP
customers such as Mpower Communications Corp., PSINet, Inc. (PSINet), Onsite
Access Inc. and BTI, have all experienced business difficulties and some have
filed for bankruptcy or ceased operations. PSINet, which had been one of our key
ISP customers, filed a voluntary petition under the Bankruptcy Act in June 2001,
and no longer is purchasing products from us. The pricing pressure for ISPs
continues to date, and, accordingly, sales of our products to ISPs remain
difficult. The financing market for CLECs and ISPs has remained difficult and
has been largely closed in calendar years 2001 and 2002, resulting in
significantly decreased sales to CLECs and ISPs and write-offs of outstanding
accounts receivable.

If we are unable to retain our customers and/or employees and complete our
projects and products in development, our business would be seriously harmed.

We have attempted to expand the channels through which and markets to which we
sell our products through our acquisitions and product development and marketing
efforts. Historically, we have focused on serving the small and medium size
business market primarily through the CLEC channels from which we have derived a
substantial portion of our revenue. The Cayman acquisition in October 2001,
helped to expand our customer base to include ILEC customers, such as SBC and
BellSouth. Our recent product introductions have helped us win new customers in
Europe. If we are unable to retain our customers and/or employees, maintain the
quality of our products and timely and successfully develop, manufacture and
gain market acceptance of our new products, our business will be seriously
harmed.


                                                                         Page 34
<PAGE>

The loss of, or decline in, purchases by one or more of our key distributors or
customers would result in a significant decline in our revenues.

Our revenues will decline and we may incur losses if we lose one or more of our
significant customers or if our customers reduce or delay purchases of our
products. For the fiscal year ended September 30, 2002, there were four
customers who each individually represented at least 5% of our revenues and in
the aggregate, accounted for 36% of our total revenues. In fiscal year 2002,
sales to Covad and Ingram Micro represented approximately 13% and 12%,
respectively, of our total revenues.

Our quarterly operating results are likely to fluctuate because of many factors
and may cause our stock price to fluctuate.

Our revenues and operating results have varied in the past and are likely to
vary in the future from quarter to quarter. As a result, we believe that
period-to-period comparisons of our operating results are not necessarily
meaningful. Investors should not rely on the results of any one quarter or
series of quarters as an indication of our future performance.

It is likely that in some future quarter, quarters or year our operating results
will be below the expectations of securities analysts or investors. In such
event, the market price of our common stock may decline significantly.
Variations in our operating results will likely be caused by factors related to
the operation of our business, including:

      o     Variations in the timing and size of orders for our broadband
            Internet equipment products;

      o     Decreases or delays in purchases by significant customers, or loss
            of customers such as Covad, Ingram Micro, SBC or BellSouth;

      o     Increased price competition for our broadband Internet equipment
            products;

      o     Our ability to license, and the timing of licenses, of our Web
            platforms products;

      o     The growth rate in the number of eSites and eStores that are built
            using our Web platforms products from which we derive revenues;

      o     The mix of products and services and the gross margins associated
            with such products and services, including the impact of our
            increased sales of lower margin broadband Internet equipment
            products as a percentage of our total revenues and increased sales
            of lower margin ADSL products within our family of broadband
            Internet equipment products;

      o     Shifts in the channel fulfilling demand from small, medium and
            distributed enterprises for DSL services to entities with whom we do
            not have historical relationships;

      o     The price and availability of chip sets and other components for our
            DSL products;

      o     The timing and size of expenses, including operating expenses and
            expenses of developing new products and product enhancements; and

      o     Our ability to attract and retain key personnel.

These variations may also be caused by factors related to the development of the
market for broadband Internet equipment, the market for our Web platforms
products and the competition we face in these markets, including:

      o     The ability of CLECs to obtain required capital resources;

      o     The timing, rate and ability of telecommunications service providers
            to deploy DSL and other broadband services;

      o     Anticipated price and promotion competition in the market for
            broadband Internet equipment and Web platforms products;

      o     The level of market penetration of our broadband Internet equipment
            and Web platforms products relative to those of our competitors; and


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      o     The timing and rate of deployment of alternative high-speed data
            transmission technologies, such as cable and high-speed wireless
            data transmission.

These variations may also be caused by other factors affecting our business,
many of which are substantially outside of the control of our management,
including:

      o     Foreign currency and exchange rate fluctuations which may make our
            dollar-denominated products more expensive in those foreign markets
            where we sell our products in United States dollars or could expose
            us to currency rate fluctuation risks to the extent we do not
            adequately hedge these foreign currency sales;

      o     Costs associated with future litigation, including securities
            litigation or litigation relating to the use or ownership of
            intellectual property;

      o     Acquisition costs or other non-recurring charges in connection with
            the acquisition of companies, products or technologies; and

      o     General global economic conditions that could adversely affect sales
            to our customers.

Because the markets for our products and services are intensely competitive and
some of our competitors are larger, better established and have more cash
resources, we may not be able to compete successfully against current and future
competitors.

We sell products and services in markets that are highly competitive. We expect
competition to intensify as current competitors expand their product and service
offerings and new competitors enter the market. Increased competition is likely
to result in price reductions, reduced gross margins and loss of market share,
any one of which could seriously harm our business. Competitors vary in size,
scope and breadth of the products and services offered.

In the market for broadband Internet equipment, we primarily compete with
Thomson, Cisco, Siemens (through its Efficient Networks subsidiary), Linksys,
2Wire, Westell, and ZyXEL.

In the market for our Web platforms products, we primarily compete with Computer
Associates, Microsoft, Vector Networks, Stac Software, Symantec, and Tivoli
Software (a wholly-owned subsidiary of IBM). We anticipate intense competition
from some of these companies because some of these competitors provide their
products to consumers at no cost. For example, Microsoft has available at no
cost a communications and collaboration software product that could limit the
market for our Timbuktu product.

Many of our current and potential competitors in all product areas have longer
operating histories, significantly greater financial, technical, marketing and
other resources, significantly greater name recognition and a larger base of
customers than we do. In addition, many of our competitors have well-established
relationships with our current and potential customers and have extensive
knowledge of these industries. In the past, we have lost potential customers to
competitors in all product areas for various reasons, including lower prices and
other incentives not matched by us. In addition, current and potential
competitors have established or may establish cooperative relationships among
themselves or with third parties to increase the ability of their products and
services to address customer needs. Accordingly, new competitors or alliances
among competitors may emerge and rapidly acquire significant market share. We
also expect that competition will increase as a result of industry
consolidation.

The market for integrated voice and data products and combined services may not
grow as anticipated.

We have released a line of IADs designed to allow for voice and data services
over a single DSL line. To date, service providers have not deployed such
combined services broadly and the market has grown more slowly than anticipated.
Unless such products and services are broadly deployed, our integrated voice and
data products and combined services may not have a meaningful commercial impact,
and our business may be harmed.

Other technologies for the broadband gateway market compete with DSL services.

DSL services compete with a variety of different broadband services, including
cable, satellite and other wireless technologies. Many of these technologies
compete effectively with DSL services. If any technology competing with


                                                                         Page 36
<PAGE>

DSL technology is more reliable, faster, less expensive, reaches more customers
or has other advantages over DSL technology, then the demand for our DSL
products and services and our revenues and gross margins will decrease. There is
no guarantee we will be able to develop and introduce products for these
competing technologies.

We purchase the semiconductor chips for our DSL products from a limited number
of suppliers.

All of our DSL products rely on special semiconductor chips that we purchase
from a limited number of suppliers. We do not have volume purchase contracts
with any of our suppliers and they could cease selling us these semiconductor
chips at any time. If we are unable to timely obtain a sufficient quantity of
these semiconductor chips from any of our suppliers, for any reason, sales of
our DSL products could be delayed or halted. Further, we could also be forced to
redesign our DSL products and qualify new suppliers of semiconductor chip sets.
The resulting stoppage or delay in selling our products and the expense of
redesigning our DSL products would seriously harm our reputation and business.

Substantially all of our circuit boards are manufactured by a limited number of
contract manufacturers.

Substantially all of our broadband Internet equipment includes circuit boards
that are manufactured by a limited number of contract manufacturers.
Additionally, certain of our broadband Internet equipment products are assembled
and packaged by these contract manufacturers. If supplies of circuit boards or
broadband Internet equipment products from these contract manufacturers are
interrupted for any reason, we will incur significant losses until we can
arrange for alternative sources. Any such interruption may seriously harm our
reputation and business.

We may be unable to obtain components for our broadband Internet equipment from
independent contractors and specialized suppliers.

We do not manufacture any of the components used in our products and perform
only limited assembly on some products. All of our broadband Internet equipment
relies on components that are supplied by independent contractors and
specialized suppliers. We generally do not have guaranteed supply arrangements
with these third parties and they could cease selling components to us at any
time. Moreover, the ability of independent contractors and specialized suppliers
to provide us with sufficient components for our broadband Internet equipment
also depends on our ability to accurately forecast our future requirements. If
we are unable to timely obtain a sufficient quantity of components from
independent contractors or specialized suppliers for any reason, sales of our
broadband Internet equipment could be delayed or halted. In addition, we may be
required to pay premiums for components purchased from other vendors should our
regular independent contractors and specialized suppliers be unable to timely
provide us with sufficient quantity of components. To the extent we pay any
premiums, our gross margins and operating results would be harmed. Further, we
could also be forced to redesign our broadband Internet equipment and qualify
new suppliers of components. The resulting stoppage or delay in selling our
products and the expense of redesigning our broadband Internet equipment would
seriously harm our reputation and business. In addition, we anticipate that it
will be necessary for us to establish relationships with additional component
suppliers in the future. If we are unsuccessful in establishing these
relationships, we may not be able to obtain sufficient components in some future
period.

We need to develop, introduce and market new and enhanced products and services
in a timely manner to remain competitive.

We compete in markets characterized by continuing technological advancement,
changes in customer requirements and evolving industry standards. To compete
successfully, we must design, develop, manufacture and sell new or enhanced
products and services that provide increasingly higher levels of performance,
reliability, compatibility, and cost savings for our customers. We will need to
continue to integrate our DSL router technology with the architectures of
leading central office equipment providers in order to enhance the reliability,
ease-of-use and management functions of each of our DSL products. Currently, our
router products are fully integrated with Copper Mountain Networks, Inc.'s
central office access concentrators and are interoperable with Alcatel, Cisco,
LM Ericsson Telephone Company (Ericsson), Lucent Technologies Inc., Nortel
Networks Corporation, Nokia Corporation, Paradyne Networks, Inc. and Zhone
Technologies, Inc. central office access concentrators.


                                                                         Page 37
<PAGE>

We have recently developed and introduced a new broadband services platform that
enables network operations centers of broadband service providers the ability to
remotely manage, support, and troubleshoot installed broadband gateways thereby
reducing support costs. We believe this service delivery platform is new to and
has unique features in the market for broadband services and can assist us in
differentiating our products and services from those of our competitors. While
this platform is based upon technology developed within Netopia or acquired in
connection with our recent acquisition of DoBox, it is relatively new and we
cannot provide any assurance that, when deployed in mass scale, it will perform
as expected, there are no hidden bugs or defects, or it will be widely adopted
by the customers to whom we are marketing the platform.

We may not be able to successfully develop, introduce, enhance or market these
or other products and services necessary to our future success. In addition, any
delay in developing, introducing or marketing these or other products would
seriously harm our business. Many of our broadband Internet equipment products
and services are relatively new. You should consider our prospects in light of
the difficulties we may encounter because these products are at an early stage
of development in a relatively new, rapidly evolving and intensely competitive
market. For example, we may not correctly anticipate market requirements,
including requirements for performance, price, features and compatibility with
other DSL equipment. We may not be able to introduce rapidly innovative new
products that meet these market requirements. It is possible that the market for
broadband Internet equipment will develop in a manner that we do not anticipate.

We may engage in acquisitions or divestitures that involve numerous risks,
including the use of cash, diversion of management attention and significant
write-offs.

In the past, we have engaged in both acquisitions and divestitures. For example:
in December 1998, we acquired netOctopus and Serus; in October 1999, we acquired
StarNet; in March 2000, we acquired WebOrder; in October 2001, we acquired
Cayman; and in March 2002, we acquired the assets of DoBox. We also entered into
an agreement and plan of reorganization in January 2001 under which we agreed to
be acquired by Proxim. This agreement was mutually terminated in March 2001. In
addition, in August 1998, we sold our LAN Division. We may continue to acquire
companies, technologies or products or to sell or discontinue some of our
technologies or products in future periods. In the past, our acquisitions and
divestitures have involved numerous risks, including the use of significant
amounts of our cash, diversion of the attention of our management from our core
business, loss of our key employees and significant expenses and write-offs. For
example, in fiscal year 2002, we recorded a $4.1 million charge for acquired
in-process research and development related to our acquisitions of DoBox and
Cayman and a $9.1 million charge for impairment of goodwill related to our
acquisitions of Cayman and StarNet. Similarly, in September 2001, we recorded a
$16.4 million charge for impairment of goodwill and other intangible assets
related to our acquisitions of WebOrder, StarNet and Serus. Incremental
acquisition related charges including in-process research and development and
amortization of goodwill and other intangibles or divestitures of profitable
technologies or products could adversely impact our profitability. The success
of these acquisitions depends upon our ability to retain the customers and key
employees, and timely and successfully develop, manufacture and gain market
acceptance for the products we acquired. If we engage in additional acquisitions
or divestitures in future periods, we may not be able to address these risks and
our business may be harmed.

Our revenues will not grow and we may incur losses if we cannot successfully
introduce, market and sell our Web platforms products. We derive a substantial
portion of the recurring revenues from our Web platforms products from a small
number of large customers.

The majority of our Web platforms revenues are derived from the sale of
Timbuktu. We anticipate that the market for Timbuktu will grow more slowly than
the market for our other Web platforms products and services. In addition, we
rely on a small number of licensees of our Web platforms to promote the use of
our Web platforms for building eSites and eStores. As a result, we derive a
substantial portion of the recurring revenues from our Web platforms products
from a small number of large customers. The extent and nature of the promotions
by licensees of our Web platforms are outside of our control. If licensees of
our eSite and eStore Web platforms do not successfully promote our eSite and
eStore Web platforms to their customers, we will not generate recurring revenues
from royalties on eSites and eStores promoted by licensees of our Web platforms.
If these customers were to choose a competitive platform, this could lead to
reduced revenues and adversely impact our results.


                                                                         Page 38
<PAGE>

If hosting services for our Web platforms perform poorly, our reputation will be
damaged and we could be sued.

We depend on our servers, networking hardware and software infrastructure, and
third-party service and maintenance of these items to provide reliable,
high-performance eSite and eStore hosting and eSupport services for our
customers. In addition, our servers are located at third-party facilities.
Failure or poor performance by third parties with whom we contract to maintain
our servers and hardware and software, could lead to interruption or
deterioration of our eSite and eStore hosting and eSupport services.
Additionally, a slowdown or failure of our systems due to an increase in the use
of the eSites and eStores we currently host, or due to damage or destruction of
our systems for any reason, or the possibility of rolling blackouts could also
lead to interruption or deterioration of our eSite and eStore hosting and
eSupport services. If there is an interruption or a deterioration of our eSite
and eStore hosting and eSupport services, our reputation would be seriously
harmed and, consequently, sales of our products and services would decrease. If
such circumstances do arise in some future period, in order to retain current
customers and attract new customers, we may have to provide our eSite and eStore
hosting and eSupport services at a subsidized price or even at no cost. In
addition, if our eSite and eStore hosting or eSupport services are interrupted,
perform poorly, or are unreliable, we are at risk of litigation from our
customers.

We may continue to experience declining gross margins due to price competition
and an increase in sales of lower margin broadband Internet equipment as a
percentage of our total revenue.

We expect that sales of our broadband Internet equipment may account for a
larger percentage of our total revenues in future periods. Because our broadband
Internet equipment products are generally sold at lower gross margins than our
Web platforms products and sales volumes of our lower margin ADSL products is
increasing, our overall gross margins will likely decrease. Further, we expect
that the market for broadband Internet equipment, in particular DSL products,
will become increasingly competitive and that we will be forced to lower the
prices we charge for our broadband Internet equipment in the future. As the
average selling price of our routers declines, our gross margins related to such
products, as well as our overall gross margins, are likely to decline.

Substantial portions of our revenues are derived from sales to international
customers.

A substantial portion of our revenues is derived from sales to European and
other international customers. We expect sales to international customers to
continue to comprise a significant portion of our revenues. For the past two
fiscal years, sales of broadband Internet equipment products to our European
customers who are members of the European Union have been denominated in the
Euro. All other international sales are denominated in United States dollars.
For our international sales that continue to be denominated in United States
dollars, fluctuations in currency exchange rates could cause our products and
services to become relatively more expensive to our foreign customers. This
could lead to decreased profitability of our products and services. In addition,
changes in the value of the Euro relative to the United States dollar could
adversely affect our operating results to the extent we do not hedge sales
denominated in the Euro.

There are risks associated with international operations.

Our international operations are subject to a number of difficulties and special
costs, including:

      o     Costs of customizing products for foreign countries;

      o     Laws and business practices favoring local competitors;

      o     Dependence on local vendors;

      o     Uncertain regulation of electronic commerce;

      o     Compliance with multiple, conflicting and changing governmental laws
            and regulations;

      o     Longer sales cycles;

      o     Greater difficulty in collecting accounts receivable;

      o     Import and export restrictions and tariffs;


                                                                         Page 39
<PAGE>

      o     Difficulties staffing and managing foreign operations;

      o     Multiple conflicting tax laws and regulations; and

      o     Political and economic instability.

In addition, if we establish more significant operations overseas, we may incur
costs that would be difficult to reduce quickly because of employee-related laws
and practices in those countries.

We typically experience a seasonal reduction in revenues in the three months
ended September 30.

In the past, we have experienced a seasonal reduction in our revenues in the
three months ended September 30, our fiscal fourth quarter, primarily due to
European vacation schedules that typically result in reduced economic activity
in Europe during such periods. We anticipate that this trend will continue.

Our success depends on retaining our current key personnel and attracting
additional key personnel.

Our future performance depends on the continued service of our senior
management, product development and sales personnel, particularly Alan Lefkof,
our President and Chief Executive Officer. None of our employees are bound by an
employment agreement, and we do not carry key person life insurance. The loss of
the services of one or more of our key personnel could seriously harm our
business. Our future success depends on our continuing ability to attract, hire,
train and retain a substantial number of highly skilled managerial, technical,
sales, marketing and customer support personnel. In addition, new hires
frequently require extensive training before they achieve desired levels of
productivity. Competition for qualified personnel is intense, and we may fail to
retain our key employees or to attract or retain other highly qualified
personnel.

Our intellectual property may not be adequately protected, and our products may
infringe upon the intellectual property rights of third parties.

We depend on our ability to develop and maintain the proprietary aspects of our
technology. To protect our proprietary technology, we rely primarily on a
combination of contractual provisions, confidentiality procedures, trade
secrets, and patent, copyright and trademark law. We presently have one United
States patent issued that relates to our Timbuktu software. Despite our efforts
to protect our proprietary rights, unauthorized parties may attempt to copy
aspects of our products or obtain and use information that we regard as
proprietary. Policing unauthorized use of our products is difficult, and there
is no guarantee that the safeguards that we employ will protect our intellectual
property and other valuable competitive information.

For example, in selling our Timbuktu software, we often rely on license cards
that are included in our products and are not signed by licensees. Therefore,
such licenses may be unenforceable under the laws of certain jurisdictions. In
addition, the laws of some foreign countries where our products are or may be
manufactured or sold, particularly developing countries including various
countries in Asia, such as the People's Republic of China, do not protect our
proprietary rights as fully as do the laws of the United States.

There has been a substantial amount of litigation in the software and Internet
industries regarding intellectual property rights. It is possible that in the
future third parties may claim that our current or potential future products or
we infringe their intellectual property. It is possible that our patent may be
successfully challenged, that our patent may not provide us with any competitive
advantages, or that the patents of others will seriously harm our ability to do
business. Any claims, with or without merit, could be time-consuming, result in
costly litigation, cause product shipment delays or require us to enter into
royalty or licensing agreements. Royalty or licensing agreements, if required,
may not be available on terms acceptable to us or at all, which could seriously
harm our business.

We may not be able to license necessary software, firmware and hardware designs
from third parties.

We rely upon certain software, firmware and hardware designs that we license
from third parties, including firmware that is integrated with our internally
developed firmware and used in our products to perform key functions. We cannot
be certain that these third-party licenses will continue to be available to us
on commercially


                                                                         Page 40
<PAGE>

reasonable terms. The loss of, or inability to maintain, such licenses could
result in shipment delays or reductions until equivalent firmware is developed,
identified, licensed and integrated which would seriously harm our business.

Our customers may return our products to us for replacement or refund.

We provide end users of our products with a limited warranty on our broadband
Internet equipment and our Timbuktu software. We permit end users to return our
broadband Internet equipment and Timbuktu for replacements or for refund of the
full purchase price if the products do not perform as warranted. Our other Web
platforms products are provided on an "as is" basis, and we generally do not
offer a warranty on this product. End users of our eSites and eStores generally
can discontinue their service at any time at no cost. In the past, we have not
encountered material warranty claims. In the future, if warranty claims exceed
our reserves for such claims, our business would be seriously harmed.
Additionally, we attempt to further limit our liability to end users through
disclaimers of special, consequential and indirect damages and similar
provisions. However, we cannot assure you that such limitations of liability
will be legally enforceable.

Our products are complex and may contain undetected or unresolved defects.

Our products are complex and may contain undetected or unresolved defects when
first introduced or as new versions are released. We cannot assure you that,
despite our testing, defects will not be found in new products or new versions
of products following commercial release. If our products do contain undetected
or unresolved defects, we may lose market share, experience delays in or losses
of market acceptance or be required to issue a product recall. In addition, we
would be at risk of product liability litigation for financial or other damages
to our customers because of defects in our products. Although we attempt to
limit our liability to end users through disclaimers of special, consequential
and indirect damages and similar provisions, we cannot assure you that such
limitations of liability will be legally enforceable.

Substantial sales of our common stock by our large stockholders could cause our
stock price to fall.

We have a limited number of stockholders that hold a large portion of our common
stock. To the extent our large stockholders sell substantial amounts of our
common stock in the public market, the market price of our common stock could
fall.

Our industry may become subject to changes in tariffs and regulations.

Our industry and industries on which our business depends may be affected by
changes in tariffs and regulations. For example, we depend on telecommunications
service providers for sales of our broadband gateway products, and companies in
the telecommunications industry must comply with numerous regulations and pay
numerous tariffs. If our industry or industries on which we depend become
subject to increases in tariffs and regulations that lead to corresponding
increases in the cost of doing our business or doing business with us, our
revenues could decline. For example, if a regulatory agency imposed restrictions
on DSL service that were not also imposed on other forms of high-speed Internet
access, our business could be harmed.

Business interruptions could adversely affect our business.

Our operations are vulnerable to interruption by fire, earthquake, power loss,
telecommunications failure, labor disputes by transportation providers and other
events beyond our control. In particular, our headquarters are located near
earthquake fault lines in the San Francisco Bay area and may be susceptible to
the risk of earthquakes. If there is an earthquake in the region, our business
could be seriously harmed. We do not have a detailed disaster recovery plan. In
addition, we do not carry sufficient business interruption insurance to
compensate us for losses that may occur and any losses or damages incurred by us
could have a material adverse effect on our business.

Our stock price may be volatile, which may result in substantial losses for our
stockholders.

The market price of our common stock may fluctuate significantly in response to
the following factors, some of which are beyond our control:


                                                                         Page 41
<PAGE>

      o     Variations in our quarterly operating results;

      o     Changes in securities analysts' estimates of our financial
            performance;

      o     Changes in market valuations of similar companies;

      o     Announcements by us or our competitors of technological innovations,
            new products or enhancements, significant contracts, acquisitions,
            strategic partnerships, joint ventures or capital commitments;

      o     Losses of major customers, major projects with major customers or
            the failure to complete significant licensing transactions;

      o     Additions or departures of key personnel;

      o     Volatility generally of securities of companies in our industry;

      o     General conditions in the broadband communications industry, in
            particular the DSL market, or the domestic and worldwide economies;

      o     Decreases or delays in purchases by significant customers;

      o     A shortfall in revenue or earnings from securities analysts'
            expectations or other announcements by securities analysts;

      o     Our ability to protect and exploit our intellectual property or
            defend against the intellectual property rights of others; and

      o     Developments in our relationships with customers, distributors and
            suppliers.

In recent years the stock market in general, and the market for shares of high
technology stocks in particular, have experienced extreme price fluctuations,
which often have been unrelated to the operating performance of affected
companies. There can be no assurance that the market price of our common stock
will not experience significant fluctuations in the future, including
fluctuations that are unrelated to our performance.

We are at risk of securities class action litigation due to the expected
volatility of our stock price.

In the past, securities class action litigation has often been brought against a
company following periods of volatility in the market price of its securities.
In the future, we may be a target of similar litigation. Securities litigation
could result in substantial costs and divert management's attention and
resources.

A third party may have difficulty acquiring us, even if doing so would be
beneficial to our stockholders.

Provisions of our Amended and Restated Certificate of Incorporation, our Bylaws
and Delaware law could make it difficult for a third party to acquire us, even
if doing so would be beneficial to our stockholders.


                                                                         Page 42
<PAGE>

ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

Our exposure to market risk for changes in interest rates relates primarily to
our investment portfolio. Our exposure to foreign exchange risk relates
primarily to sales made to international customers denominated in Euros in
European Union countries. We do not use derivative financial instruments for
speculative or trading purposes. We place our investments in instruments that
meet high credit quality standards, as specified in our investment policy. This
policy also limits the amount of credit exposure to any one issue, issuer and
type of instrument. We do not expect any material loss with respect to our
investment portfolio. Beginning in our fiscal third quarter of 2000, sales to
European countries that are members of the European Union have been denominated
in the Euro. In order to reduce our exposure resulting from currency
fluctuations, we have entered into currency exchange forward contracts. These
contracts guarantee a predetermined exchange rate at the time the contract is
purchased. We do not enter into currency exchange contracts for speculative or
trading purposes. All currency exchange contracts have a maturity of less than
one year.

Interest Rate Risk

The table below presents the market value and related weighted-average interest
rates for our investment portfolio at September 30, 2002 and 2001. All of our
investments mature in twelve months or less.

<TABLE>
<CAPTION>
                                                    September 30, 2002                   September 30, 2001
                                              ------------------------------       -----------------------------
                                                           Fair      Average                    Fair     Average
Principal (notional) amounts in                Cost       market    interest        Cost       market   interest
United States dollars:                         basis       value      rate          basis      value      rate
================================================================================================================
                                                (in thousands)                       (in thousands)
<S>                                           <C>         <C>         <C>          <C>        <C>         <C>
Cash equivalents - fixed rate (a)             $17,615     $17,615     1.90%        $34,387    $34,482     3.31%
Short-term investments - fixed rate (b)            --          --       --%         13,112     13,219     3.67%
----------------------------------------------------------------------------------------------------------------
  Total                                       $17,615     $17,615                  $47,499    $47,701
================================================================================================================
</TABLE>

(a)   Cash equivalents represent the portion of our investment portfolio that
      mature in less than 90 days.
(b)   Short-term investments represent the portion of our investment portfolio,
      which mature in greater than or equal to 90 days.

Our market interest rate risk relates primarily to changes in the United States
short-term prime interest rate. These changes impact the price and yield of our
short-term investments. We minimize this risk by following a policy of portfolio
diversification.

Foreign Currency Exchange Risk

The table below presents the carrying value, in United States dollars, of our
accounts receivable denominated in Euros at September 30, 2002 and 2001. The
accounts receivable September 30, 2002 are valued at the United States/Euro
exchange rate as of September 30, 2002 and the accounts receivable September 30,
2001 are valued at the United States/Euro exchange rate as of September 30,
2001. The carrying value approximates fair value at September 30, 2002 and 2001.

<TABLE>
<CAPTION>
                                                       September 30, 2002               September 30, 2001
                                                    ------------------------        -------------------------
Principal (notional) amounts in                      Carrying       Exchange         Carrying        Exchange
United States dollars:                                amount          rate            amount           rate
=============================================================================================================
                                                  (in thousands)                  (in thousands)
<S>                                                 <C>              <C>            <C>               <C>
Accounts receivable denominated in Euros            $   1,164        0.9801         $   1,321         0.9115
</TABLE>


                                                                         Page 43
<PAGE>

The table below presents the carrying value of our currency exchange forward
contracts, in United States dollars, at September 30, 2002 and 2001. The
carrying value approximates fair value at September 30, 2002 and 2001.

<TABLE>
<CAPTION>
                                                    September 30, 2002                   September 30, 2001
                                           ------------------------------------    ---------------------------------
                                              Carrying     Spot      Settlement    Carrying      Spot     Settlement
Principal (notional) amounts in Euros:         amount      rate         date        amount       rate        date
====================================================================================================================
                                           (in thousands)                       (in thousands)
<S>                                             <C>       <C>         <C>            <C>        <C>        <C>
                                                                      October                              October
Currency exchange forward contract # 1          $329      0.9648        2002         $407       0.8351       2001
                                                                      November                             November
Currency exchange forward contract # 2          $191      0.9571        2002         $134       0.8963       2001
                                                                      December
Currency exchange forward contract # 3          $ 96      0.9559        2002          n/a         n/a        n/a
</TABLE>

Our foreign currency exchange risk relates to changes in the value of the Euro
relative to the United States dollar. We manage this risk by entering into
currency exchange forward contracts. These contracts guarantee a predetermined
exchange rate at the time the contract is purchased.

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Consolidated Financial Statements

The following consolidated financial statements are filed as part of this Report
on Form 10-K:

<TABLE>
<CAPTION>
                                                                                                              Page
<S>                                                                                                            <C>
Consolidated Financial Statements:
Independent Auditors' Report.............................................................................      45
Consolidated Balance Sheets at September 30, 2002 and 2001...............................................      46
Consolidated Statements of Operations and Comprehensive Loss for the fiscal years ended
   September 30, 2002, 2001 and 2000.....................................................................      47
Consolidated Statements of Stockholders' Equity for the fiscal years ended September 30,
   2002, 2001 and 2000...................................................................................      48
Consolidated Statements of Cash Flows for the fiscal years ended September 30, 2002, 2001
   and 2000..............................................................................................      49
Notes to Consolidated Financial Statements...............................................................      50

Financial Statement Schedule:
Valuation and Qualifying Accounts........................................................................      74
</TABLE>


                                                                         Page 44
<PAGE>

                          Independent Auditors' Report


The Board of Directors and Shareholders
Netopia, Inc.:


We have audited the consolidated financial statements of Netopia, Inc. and
subsidiaries as listed in the preceding index. In connection with our audits of
the consolidated financial statements, we have also audited the financial
statement schedule as listed in the preceding index. These consolidated
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on our
audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Netopia, Inc. and
subsidiaries as of September 30, 2002 and 2001 and the results of their
operations and their cash flows for each of the years in the three-year period
ended September 30, 2002 in conformity with accounting principles generally
accepted in the United States of America. Also in our opinion, the related
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth herein.

As discussed in Note 1 to the consolidated financial statements, effective
October 1, 2001, the Company changed its method of accounting for goodwill in
accordance with SFAS No. 142 "Goodwill and Other Intangible Assets."


                                    KPMG LLP


San Francisco, California
November 5, 2002


                                                                         Page 45
<PAGE>

                         Netopia, Inc. and Subsidiaries
                           Consolidated Balance Sheets

<TABLE>
<CAPTION>
September 30,                                                                      2002         2001
======================================================================================================
                                                                                    (in thousands)
<S>                                                                             <C>          <C>
ASSETS
Current assets:
   Cash and cash equivalents                                                    $  25,022    $  35,703
   Short-term investments                                                              --       13,293
   Trade accounts receivable less allowance for doubtful accounts and returns
     of $567 and $641 at September 30, 2002 and 2001, respectively                  9,950        9,550
   Inventories, net                                                                 6,259        7,156
   Prepaid expenses and other current assets                                        1,731        1,634
------------------------------------------------------------------------------------------------------
     Total current assets                                                          42,962       67,336
Furniture, fixtures and equipment, net                                              5,507        5,770
Acquired technology, net                                                            5,538           --
Other intangible assets and goodwill, net                                           2,157        3,446
Long-term investments                                                               1,463        4,000
Deposits and other assets                                                           1,368        2,160
------------------------------------------------------------------------------------------------------
     TOTAL ASSETS                                                               $  58,995    $  82,712
======================================================================================================

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable                                                             $   7,088    $   4,713
   Accrued compensation                                                             2,736        2,148
   Accrued liabilities                                                              2,245        1,116
   Deferred revenue                                                                 2,223        2,589
   Other current liabilities                                                           42          177
------------------------------------------------------------------------------------------------------
     Total current liabilities                                                     14,334       10,743
Long-term liabilities:
   Borrowings under credit facility                                                 4,428           --
   Other long-term liabilities                                                        186          256
------------------------------------------------------------------------------------------------------
     Total liabilities                                                             18,948       10,999
------------------------------------------------------------------------------------------------------

Commitments and contingencies

Stockholders' equity:
   Common stock: $0.001 par value, 50,000,000 shares authorized;
      18,905,223 and 18,076,812 shares issued and outstanding at
      September 30, 2002 and 2001, respectively                                        19           17
   Additional paid-in capital                                                     147,485      144,886
   Accumulated deficit                                                           (107,457)     (73,190)
------------------------------------------------------------------------------------------------------
      Total stockholders' equity                                                   40,047       71,713
------------------------------------------------------------------------------------------------------
      TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                $  58,995    $  82,712
======================================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.


                                                                         Page 46
<PAGE>

                         Netopia, Inc. and Subsidiaries
          Consolidated Statements of Operations and Comprehensive Loss

<TABLE>
<CAPTION>
Fiscal years ended September 30,                                          2002        2001        2000
========================================================================================================
                                                                              (in thousands, except
                                                                              for per share amounts)
<S>                                                                     <C>         <C>         <C>
REVENUES:
   Internet equipment                                                   $ 45,551    $ 58,861    $ 65,546
   Web platform licenses and service                                      18,513      18,457      24,660
--------------------------------------------------------------------------------------------------------
        Total revenues                                                    64,064      77,318      90,206
--------------------------------------------------------------------------------------------------------

COST OF REVENUES:
   Internet equipment                                                     32,323      39,165      46,582
   Web platform licenses and services                                        639         795         697
--------------------------------------------------------------------------------------------------------
        Total cost of revenues                                            32,962      39,960      47,279
--------------------------------------------------------------------------------------------------------

   GROSS PROFIT                                                           31,102      37,358      42,927

OPERATING EXPENSES:
   Research and development                                               17,522      13,836      13,324
   Selling and marketing                                                  24,334      27,144      25,842
   General and administrative                                              5,398       7,528       6,554
   Acquired in-process research and development                            4,058          --       8,658
   Amortization of goodwill and other intangible assets                    1,497      11,984       9,746
   Impairment of goodwill and other intangible assets                      9,146      16,375          --
   Restructuring costs                                                       482       1,073          --
   Integration costs                                                         309          --          --
   Terminated merger costs                                                    --       2,640          --
--------------------------------------------------------------------------------------------------------
        Total operating expenses                                          62,746      80,580      64,124
--------------------------------------------------------------------------------------------------------

OPERATING LOSS                                                           (31,644)    (43,222)    (21,197)
Other income (loss), net
   Loss on impaired securities                                            (2,943)     (1,000)         --
   Other income, net                                                         320       2,510       3,579
--------------------------------------------------------------------------------------------------------
     Total other income (loss), net                                       (2,623)      1,510       3,579
--------------------------------------------------------------------------------------------------------

   Loss from continuing operations before cumulative effect from
   adoption of Staff Accounting Bulletin (SAB) 101 and before gain on
   sale of discontinued operations, net of taxes                         (34,267)    (41,712)    (17,618)

Cumulative effect from adoption of SAB 101                                    --      (1,555)         --
Gain on sale of discontinued operations, net of taxes                         --         156       2,481
--------------------------------------------------------------------------------------------------------

        NET LOSS                                                        $(34,267)   $(43,111)   $(15,137)
========================================================================================================

Comprehensive loss:
   Net loss                                                             $(34,267)   $(43,111)   $(15,137)
   Other comprehensive income (loss)                                          --         506        (534)
--------------------------------------------------------------------------------------------------------
     Total comprehensive loss                                           $(34,267)   $(42,605)   $(15,671)
========================================================================================================

Per share data, continuing operations:
   Basic and diluted loss per share                                     $  (1.86)   $  (2.33)   $  (1.05)
========================================================================================================
   Common shares used in the per share calculations                       18,455      17,902      16,830
========================================================================================================

Per share data, net loss:
   Basic and diluted net loss per share                                 $  (1.86)   $  (2.41)   $  (0.90)
========================================================================================================
   Common shares used in the per share calculations                       18,455      17,902      16,830
========================================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.


                                                                         Page 47
<PAGE>

                         Netopia, Inc. and Subsidiaries
                 Consolidated Statements of Stockholders' Equity

<TABLE>
<CAPTION>
                                                                                                         Accumulated
                                                   Common stock           Additional                        other          Total
                                               ---------------------       paid-in        Accumulated   comprehensive  stockholders'
                                                 Shares       Amount       capital          deficit     income (loss)     equity
====================================================================================================================================
                                                                     (in thousands, except share amounts)
<S>                                            <C>              <C>       <C>              <C>              <C>         <C>
BALANCES, SEPTEMBER 30, 1999                   15,519,198       $15       $  99,978        $ (14,942)       $  28       $  85,079

Exercise of stock options                       1,203,369         1           5,794               --           --           5,795
Issuance of common stock under Employee
   Stock Purchase Plan                            130,306        --           1,738               --           --           1,738
Issuance of common stock for acquisitions         677,848         1          35,386               --           --          35,387
Exercise of stock warrant                          56,875        --              --               --           --              --
Costs related to issuance of common stock
   under secondary offering                            --        --             (39)              --           --             (39)
Net unrealized investment loss                         --        --              --               --         (534)           (534)
Net loss                                               --        --              --          (15,137)          --         (15,137)
------------------------------------------------------------------------------------------------------------------------------------

BALANCES, SEPTEMBER 30, 2000                   17,587,615        17         142,857          (30,079)        (506)        112,289

Exercise of stock options                         239,042        --             785               --           --             785
Issuance of common stock under Employee
   Stock Purchase Plan                            250,155        --           1,231               --           --           1,231
Issuance of common stock warrants                      --        --              16               --           --              16
Costs related to issuance of common stock
   under secondary offering                            --        --              (3)              --           --              (3)
Net unrealized investment income                       --        --              --               --          506             506
Net loss                                               --        --              --          (43,111)          --         (43,111)
------------------------------------------------------------------------------------------------------------------------------------

BALANCES, SEPTEMBER 30, 2001                   18,076,812        17         144,886          (73,190)          --          71,713

Exercise of stock options                          99,231        --             299               --           --             299
Issuance of common stock under Employee
   Stock Purchase Plan                            429,180         1             809               --           --             810
Issuance of common stock for acquisitions         300,000         1           1,485               --           --           1,486
Stock options granted to non-employees                 --        --               6               --           --               6
Net loss                                               --        --              --          (34,267)          --         (34,267)
------------------------------------------------------------------------------------------------------------------------------------

BALANCES, SEPTEMBER 30, 2002                   18,905,223       $19       $ 147,485        $(107,457)       $  --       $  40,047
====================================================================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.


                                                                         Page 48
<PAGE>

                         Netopia, Inc. and Subsidiaries
                      Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
Fiscal years ended September 30,                                                          2002            2001             2000
=================================================================================================================================
                                                                                                     (in thousands)
<S>                                                                                     <C>             <C>             <C>
Cash flows from operating activities:
Net loss                                                                                $(34,267)       $(43,111)       $(15,137)
Adjustments to reconcile net loss to net cash provided by (used in) operating
   activities:
      Depreciation and amortization                                                        6,809          15,352          12,324
      Non-cash compensation for services                                                       6              --              --
      Unrealized loss on impaired securities                                               2,943           1,000              --
      Charge for in-process research and development                                       4,058              --           8,658
      Charge for impairment of goodwill and other intangible assets                        9,146          16,375              --
      Charge for impairment of capitalized software development costs                         80              --              --
      Changes in allowance for doubtful accounts and returns on
         accounts receivable                                                                 (74)         (2,617)          2,462
      Changes in operating assets and liabilities, net of effects of acquisition:
         Trade accounts receivable                                                          (326)          8,713          (8,255)
         Inventories                                                                         897           3,128          (6,603)
         Prepaid expenses and other current assets                                           (96)            357             383
         Deposits and other assets                                                            47              (7)          1,035
         Accounts payable and accrued liabilities                                          2,946          (4,658)          3,643
         Deferred revenue                                                                   (413)            394             748
         Other liabilities                                                                   988            (757)            803
---------------------------------------------------------------------------------------------------------------------------------
             Net cash provided by (used in) operating activities                          (7,256)         (5,831)             61
---------------------------------------------------------------------------------------------------------------------------------

Cash flows from investing activities:
      Purchase of short-term investments                                                  (4,793)        (50,799)        (62,025)
      Proceeds from the sale of short-term investments                                    18,085          59,445          48,190
      Purchase of furniture, fixtures and equipment                                       (4,190)         (3,750)         (2,914)
      Acquisition of long term investment                                                   (406)         (2,000)         (2,000)
      Capitalization of software development costs                                            --          (1,130)           (679)
      Acquisition of businesses                                                          (17,659)           (100)        (11,669)
---------------------------------------------------------------------------------------------------------------------------------
             Net cash provided by (used in) investing activities                          (8,963)          1,666         (31,097)
---------------------------------------------------------------------------------------------------------------------------------

Cash flows from financing activities:
      Borrowings under credit facility                                                     4,428              --              --
      Proceeds from the issuance of common stock, net                                      1,110           2,029           7,494
---------------------------------------------------------------------------------------------------------------------------------
             Net cash provided by financing activities                                     5,538           2,029           7,494
---------------------------------------------------------------------------------------------------------------------------------

Net increase (decrease) in cash and cash equivalents                                     (10,681)         (2,136)        (23,542)
Cash and cash equivalents, beginning of year                                              35,703          37,839          61,381
---------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year                                                  $ 25,022        $ 35,703        $ 37,839
=================================================================================================================================

Supplemental disclosures of cash flow activities:
   Income taxes paid                                                                    $      5        $      6        $     --
=================================================================================================================================

Supplemental disclosures of non-cash investing and financing activities:
   Issuance of common stock for acquisition of businesses                               $  1,485        $     --        $ 35,387
=================================================================================================================================
   Issuance of common stock equivalents for consulting services                         $     --        $     16        $     --
=================================================================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.


                                                                         Page 49
<PAGE>

                         Netopia, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements

(1)   Nature of Business and Summary of Significant Accounting Policies

Nature of Business. Netopia, Inc. (the "Company") develops, markets and supports
hardware, software and services that enhance the delivery of broadband Internet
services by carriers and broadband service providers to residential and
business-class customers.

Principles of Consolidation. The accompanying consolidated financial statements
include the accounts of the Company and its wholly owned subsidiaries located in
France, Germany, Australia, and the Netherlands. All significant intercompany
balances and transactions have been eliminated in consolidation.

Cash Equivalents and Short-Term Investments. Cash equivalents consist of
instruments with original maturities of 90 days or less. Certain cash
equivalents and all of the Company's investments are classified as
available-for-sale. The securities are carried at cost, which approximates fair
value.

The amortized cost of available-for-sale debt securities is adjusted for
amortization of premiums and accretion of discounts to maturity. Such
amortization is included in other income, net. Realized gains and losses, and
declines in value judged to be other than temporary on available-for-sale
securities are included in other income, net. The cost of securities sold is
based on the specific identification method. Interest and dividends on
securities classified as available-for-sale are included in other income, net.

Cash equivalents and short-term investments classified as available-for-sale as
of September 30, 2002 and 2001, consisted of the following:

September 30,                                               2002        2001
================================================================================
                                                             (in thousands)

Money market funds                                        $ 17,615    $  1,039
Corporate debt                                                  --      20,127
Commercial paper                                                --      26,535
--------------------------------------------------------------------------------
                                                          $ 17,615    $ 47,701
================================================================================

The available-for-sale securities as of September 30, 2002 and 2001 were all due
in one year or less. Expected maturities may differ from contractual maturities
because issuers of the securities may have the right to prepay obligations
without penalties.

Revenue Recognition. The Company recognizes revenue from the sale of Internet
equipment when persuasive evidence of an arrangement exists, delivery has
occurred, the fees are fixed or determinable, and collectibility is reasonably
assured. The Company recognizes revenue from its distributors upon shipment of
product to the distributor.

The Company recognizes software revenue in accordance with Statement of Position
(SOP) 97-2, Software Revenue Recognition, as amended. In general, software
license revenues are recognized when a non-cancelable license agreement has been
signed and the customer acknowledges an unconditional obligation to pay, the
software product has been delivered, there are no uncertainties surrounding
product acceptance, the fees are fixed and determinable, and collection is
considered probable; professional services revenues are recognized as such
services are performed; and maintenance revenues, including revenues bundled
with software agreements which entitle the customers to technical support and
future unspecified enhancements to the Company's products, are deferred and
recognized ratably over the related contract period, generally twelve months.
Revenues recognized from multiple-element software arrangements are allocated to
each element of the arrangement based on the specific objective evidence of the
fair values of the elements, such as software products, upgrades, enhancements,
post contract customer support, installation, or training.

The Company recognizes revenue from long-term software development contracts
using the percentage of completion method in accordance with SOP 81-1,
Accounting for Performance of Construction-Type and Certain Production-Type
Contracts. Under the percentage of completion method, the Company recognizes
revenue as work on the contract progresses.


                                                                         Page 50
<PAGE>

                         Netopia, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements

The Company records unearned revenue for software arrangements when cash has
been received from the customer and the arrangement does not qualify for revenue
recognition under the Company's revenue recognition policy. The Company records
accounts receivable for software arrangements when the arrangement qualifies for
revenue recognition and cash or other consideration has not been received from
the customer.

In December 1999, the SEC issued Staff Accounting Bulletin (SAB) 101, Revenue
Recognition in Financial Statements. SAB 101 provides guidance on applying
generally accepted accounting principles to revenue recognition issues in
financial statements. The Company adopted SAB 101 in its fiscal first quarter of
2001 resulting in a change in the accounting for certain revenue contracts that
include nonrefundable upfront payments from customers. As a result of the
adoption of SAB 101, the Company recorded a $1.6 million charge to its statement
of operations and a $1.6 million increase in deferred revenue to its
consolidated balance sheet.

                                                                     SAB 101
                                                                     Deferred
                                                                     Revenue
================================================================================
                                                                  (in thousands)

Charge for SAB 101 deferred revenue                                   $1,555
Less amounts recognized:
   Fiscal year ended September 30, 2001                                  898
   Fiscal year ended September 30, 2002                                  557
--------------------------------------------------------------------------------
     Subtotal                                                          1,455
--------------------------------------------------------------------------------
   Net SAB 101 deferred revenue as of September 30, 2002              $  100
================================================================================

Concentrations of Credit Risk. Financial instruments that potentially expose the
Company to concentrations of credit risk principally consist of cash, cash
equivalents, short-term investments and accounts receivable.

The Company limits the amounts invested in any one type of investment and
maintains its cash investments with one financial institution. Management
believes the financial risks associated with such deposits are minimal.

The Company sells its products primarily through distributors and resellers.
Sales are generally not collateralized, credit evaluations are performed, and
allowances are provided for estimated credit losses. Prior to fiscal year 2000,
the Company had not experienced significant losses on trade receivables from any
particular customer, industry, or geographic region. However, during fiscal
years 2002, 2001 and 2000, the Company fully reserved $0.6 million, $2.9 million
and $1.9 million, respectively, of outstanding accounts receivable primarily
owed by certain telecommunication carrier customers.

Inventories. Inventories are stated at the lower of cost or market. Cost is
determined by the first-in, first-out (FIFO) method.

Furniture, Fixtures, and Equipment. Furniture, fixtures, and equipment are
stated at cost, net of accumulated depreciation. Depreciation is computed using
the straight-line method over the shorter of estimated useful lives or related
lease terms. The following table sets forth the depreciable lives by major class
of asset:

                                                             Depreciable life
Major class of asset                                              (years)
================================================================================

Office equipment                                                     1
Furniture and fixtures                                               7
Computers                                                            3
Leasehold improvements                                          Shorter of
                                                             estimated useful
                                                                  life or
                                                              remaining term
                                                                 of lease
--------------------------------------------------------------------------------


                                                                         Page 51
<PAGE>

                         Netopia, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements

Goodwill and Other Intangible Assets. The Company elected to early adopt the
provisions of Statement of Financial Accounting Standards (SFAS) No. 142,
Goodwill and Other Intangible Assets, on October 1, 2001. SFAS No. 142 requires
that goodwill resulting from a business combination no longer be amortized to
earnings, but instead be reviewed for impairment on at least an annual basis and
be expensed against earnings when the implied fair value of a reporting unit is
less than its carrying amount. For goodwill resulting from business combinations
prior to July 1, 2001, amortization of such goodwill continued through September
30, 2001, but ceased on October 1, 2001. For business combinations occurring on
or after July 1, 2001, the associated goodwill will not be amortized. The
Company completed its tests for goodwill impairment upon adoption and found that
no impairment existed as of October 1, 2001.

The Company performed the annual impairment test required by SFAS No. 142 on
August 31, 2002 for it's two reporting units. At August 31, 2002, the implied
fair value of the Company's Internet equipment reporting unit was found to be
less than its carrying amount and as a result, the Company recorded a charge to
it's Consolidated Statement of Operations in the fiscal year ended September 30,
2002 of $9.1 million. This charge represents full impairment of the remaining
goodwill acquired in connection with the acquisitions of Cayman Systems, Inc.
(Cayman) and StarNet.

Impairment of Long-Lived Assets, Including Identifiable Intangibles. The Company
elected to early adopt the provisions of SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets on October 1, 2001. SFAS No. 144
serves to clarify and further define the provisions of SFAS No. 121 Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of. The Company evaluates long-lived assets, including identifiable intangible
assets in accordance with SFAS No. 144 and tests its long-lived assets and
identifiable intangibles for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to the estimated undiscounted
future net cash flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount exceeds the fair value of the assets. Fair
value is estimated using the discounted cash flow method. Assets to be disposed
of are reported at the lower of carrying values or fair values, less costs of
disposal.

At September 30, 2002, the Company's identifiable intangible assets consisted of
developed product technology, core technology and sales channel relationships
related to the Company's acquisition of Cayman as well as a certain marketing
license. As a result of the downturn in the economy and the impairment charge
recorded in connection with the Company's SFAS No. 142 analysis, the Company
tested its identifiable intangible assets in accordance with SFAS No. 144 and
found no impairment.

In fiscal year 2001, the Company tested it's intangible assets for impairment as
provided under SFAS No. 121. Given the slower than anticipated growth in the
market for integrated access device (IAD) products (the technology for which the
Company acquired from StarNet) and the sharp decline in the "dot com" market to
which the Company marketed and licensed certain of its Web platforms products
(including technology which the Company acquired from WebOrder and Serus), the
Company determined the net carrying value of the goodwill and other intangible
assets related to these acquisitions would not be fully recovered. Accordingly,
the Company recorded a charge of $16.4 million based on the difference of the
carrying value and the estimated discounted future operating cash flows of the
goodwill and other intangible assets related to these acquisitions.

Research and Development and Software Development Costs. Research and
development costs include costs related to the development of software products
that are expensed as incurred until the technological feasibility of the product
has been established. The Company has defined technological feasibility as
completion of a working model. After technological feasibility is established,
any additional software development costs are capitalized in accordance with
SFAS No. 86, Accounting for the Costs of Computer Software to Be Sold, Leased,
or Otherwise Marketed. Product development costs capitalized are amortized over
a future period.

Amortization of capitalized product development costs begins when the products
are available for general release to customers, and is computed on a
product-by-product basis as the greater of: (i) the ratio of current gross
revenue for a product to the total of current and estimated future gross
revenues for the product; or (ii) the straight-line method over the remaining
estimated economic life of the product, which is generally two years.


                                                                         Page 52
<PAGE>

                         Netopia, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements

All other research and development expenditures are charged to research and
development expense in the period incurred. During fiscal year 2002, the Company
did not capitalize any software development costs. During fiscal years 2001 and
2000, the Company capitalized $1.1 million and $0.7 million, respectively, of
product development costs incurred subsequent to delivery of a working model,
under a development agreement with a third party.

Advertising Costs. The Company expenses advertising costs as incurred.
Advertising expense was $0.7 million, $1.0 million and $0.7 million for fiscal
years 2002, 2001 and 2000, respectively.

Income Taxes. Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years that those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. A valuation allowance is provided to
the extent such deferred tax assets may not be realized.

Long-Term Investments. The Company holds equity securities in two privately held
companies in which the Company does not exert significant influence. These
investments are carried at cost. It is the policy of the Company to regularly
review the assumptions underlying the operating performance and cash flow
forecasts in assessing the carrying values of these securities. The Company
identifies and records impairment losses on investments when events and
circumstances indicate that such decline in fair value is other than temporary.

During fiscal year 2002, the Company recorded losses on these investments of
$2.9 million. These impairment charges were recorded in connection with recent
valuations of the underlying companies.

Stock-Based Compensation. The Company has elected to continue to use the
intrinsic value-based method as allowed under Accounting Principles Board (APB)
Opinion No. 25, Accounting for Stock Issued to Employees, to account for all of
its stock-based employee compensation plans. Pursuant to SFAS No. 123,
Accounting for Stock-Based Compensation, the Company is required to disclose the
pro forma effects on operating results as if the Company had elected to use the
fair value approach to account for all its stock-based employee compensation
plans.

In accordance with SFAS No. 123, the Company recognizes as an expense, the fair
value of options and other equity instruments granted to non-employees. The
Company uses the Black-Scholes option valuation model to determine the fair
value of any options or other equity instruments granted to non-employees.

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

Per Share Calculations. Basic net loss per share is based on the weighted
average number of shares of common stock outstanding during the period. Diluted
net loss per share is based on the weighted average number of shares of common
stock outstanding during the period plus potential dilutive shares from options
and warrants outstanding using the treasury stock method.

All potential dilutive common shares have been excluded from the computation of
the diluted loss per share for fiscal years 2002, 2001 and 2000, as their effect
on the loss per share was anti-dilutive. Potential dilutive common shares which
were excluded from the computation of diluted loss per share consisted of
options to purchase common stock totaling 7,199,088 shares in fiscal year 2002;
3,268,128 shares in fiscal year 2001; 4,019,480 shares in fiscal year 2000; and
warrants to purchase common stock totaling 5,000 shares in fiscal year 2001.


                                                                         Page 53
<PAGE>

                         Netopia, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements

Comprehensive Income (Loss). Comprehensive loss is comprised of the Company's
net loss, unrealized gains and losses on certain of its investment securities
and foreign currency translation.

Recent Accounting Pronouncements. In June 2001, the FASB approved for issuance
SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143
addresses financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. This Statement amends FASB Statement No. 19, Financial Accounting and
Reporting by Oil and Gas Producing Companies. SFAS No. 143 requires that the
fair value of a liability for an asset retirement obligation be recognized in
the period in which it is incurred if a reasonable estimate of fair value can be
made. The associated asset retirement costs are capitalized as part of the
carrying amount of the long-lived asset. The provisions of SFAS No. 143 are
effective for financial statements issued for fiscal years beginning after June
15, 2002. The Company is currently evaluating the impact of the adoption of the
provisions of the pronouncement.

In May 2002, the Financial Accounting Standards Board (FASB) approved for
issuance SFAS No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment
of FASB Statement No. 13, and Technical Corrections. SFAS No. 145 requires gains
and losses from extinguishment of debt to be classified as an extraordinary item
only if the criteria in APB No. 30 have been met. Further, lease modifications
with economic effects similar to sale-leaseback transactions must be accounted
for in the same manner as sale-leaseback transactions. While the technical
corrections to existing pronouncements are not substantive in nature, in some
instances they may change accounting practice. The Company has adopted the
provisions of SFAS No. 145 required for financial statements issued on or after
May 15, 2002. This adoption had no impact on the Company's consolidated
financial statements. The Company is currently evaluating the impact of the
remaining provisions of the pronouncement.

In June 2002, the FASB approved for issuance SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. SFAS No. 146 addresses accounting
and reporting for costs associated with exit and disposal activities and
supersedes Emerging Issues Task Force No. 94-3 (EITF 94-3), Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring). SFAS No. 146
requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred, as defined by the
Statement. Under EITF 94-3, an exit cost was recognized at the date an entity
committed to an exit plan. Additionally, SFAS No. 146 provides that exit and
disposal costs should be measured at fair value and that the associated
liability will be adjusted for changes in estimated cash flows. The provisions
of SFAS No. 146 are effective for exit and disposal activities that are
initiated after December 31, 2002. The Company is currently evaluating the
impact of the adoption of the provisions of the pronouncement.

(2)   Acquisitions

DoBox, Inc. (DoBox). In March 2002, the Company closed a transaction to purchase
substantially all of the assets and assume certain liabilities of DoBox, a
developer of broadband gateway parental control, content filtering and family
firewall software. The Company accounted for the acquisition as a purchase of
net assets. The aggregate purchase price of the transaction was $1.9 million,
based upon consideration paid at closing.

The aggregate purchase price included:

      o     300,000 shares of the Company's common stock which were valued using
            the average of the closing price of the Company's common stock on
            the first business day after the closing date of the acquisition
            agreement;

      o     $0.1 million in cash in severance benefits to DoBox employees that
            were not retained; and

      o     $0.1 million in cash for the Company's transaction costs including
            legal, accounting and other professional services.

The Company also assumed certain other liabilities of DoBox.


                                                                         Page 54
<PAGE>

                         Netopia, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements

The transaction did not meet the criteria of a business combination as outlined
by EITF 98-3, Determining Whether a Non-Monetary Transaction Involves Receipt of
Productive Assets or of a Business, because upon acquisition, the net asset
acquired did not have any significant outputs. Accordingly, the excess purchase
price over the net tangible assets received was attributed to in-process
research and development and was expensed in the accompanying consolidated
statement of operations.

Cayman. In October 2001, the Company and Cayman, a Massachusetts corporation,
consummated a merger (the Merger) whereby Amazon Merger Corporation, a Delaware
corporation and a wholly-owned subsidiary of Netopia (Merger Sub), was merged
with and into Cayman pursuant to an Agreement and Plan of Merger and
Reorganization (the Merger Agreement) dated as of September 19, 2001, as
amended. Cayman, a developer and supplier of business class broadband gateways,
has survived the Merger as a wholly owned subsidiary of Netopia. The Company
purchased Cayman primarily for its technology, product and customer base.

The Company accounted for the transaction under the purchase method. The
aggregate purchase price of the transaction was $14.9 million, based on the
consideration paid at closing. The aggregate purchase price included:

      o     $6.0 million in cash in exchange for all of Cayman's outstanding
            equity, including in-the-money stock options;

      o     $4.2 million in cash in exchange for all of Cayman's outstanding
            convertible debt;

      o     $2.4 million in cash to satisfy an outstanding credit line of
            Cayman;

      o     $0.9 million in cash in fees to Cayman's investment bankers,
            attorneys and accountants;

      o     $0.7 million in cash for the Company's transaction costs including
            legal, accounting and other professional services; and

      o     $0.7 million cash in severance benefits to Cayman employees that
            were not retained.

The Company also assumed certain other liabilities of Cayman.

Approximately $1.7 million is being held in escrow to satisfy Cayman's
indemnification obligations under the Merger Agreement. Upon the satisfaction of
Cayman's indemnification obligations, certain amounts are to be released from
escrow on the one-year anniversary date of the close of the transaction and any
remaining amounts are to be released from escrow on the two-year anniversary
date of the close of the transaction.

The allocation of the purchase price is based upon the Company's estimates of
the fair value of the tangible and intangible assets acquired and is as follows:

<TABLE>
<CAPTION>
                                                                           Annual        Useful
                                                             Amount     amortization      life
==================================================================================================
                                                                (in thousands)
<S>                                                         <C>            <C>           <C>
Current assets                                              $  4,455           n/a           n/a
Long-term assets                                                 895           n/a           n/a
Current liabilities                                           (8,021)          n/a           n/a
Identified intangible assets:
    Developed product technology                               1,120       $   224       5 years
    Core technology leveraged                                  5,570           928       6 years
    Sales channel relationships                                1,380           345       4 years
    Goodwill                                                   7,325           n/a           n/a
Acquired in-process research and development                   2,150           n/a           n/a
------------------------------------------------------------------------------------
      Total purchase price                                  $ 14,874       $ 1,497
====================================================================================
</TABLE>

The allocation of the total purchase price of Cayman to its individual assets
and assumed liabilities was supported by an independent third party-valuation
analysis. In addition to the current assets and liabilities that were acquired,
certain intangible assets were identified and a portion of the purchase price
was allocated to acquired in-process research and development projects. These
identified intangible assets are as follows:


                                                                         Page 55
<PAGE>

                         Netopia, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements

      o     Developed product technology, which represents the value of Cayman's
            proprietary know-how that is technologically feasible as of the
            acquisition date;

      o     Core technology leveraged, which represents the value of Cayman's
            research and development projects in process that are leveraged off
            of Cayman's previously developed products and technology;

      o     Sales channel relationships, which represents the value of Cayman's
            established relationships with its incumbent local exchange carrier
            (ILEC) and cable company customers to whom Netopia expects to
            continue to sell products; and

      o     Goodwill, which represents the excess of the Cayman purchase price
            over the fair value of the underlying net identifiable assets, was
            attributed to the Company's Internet equipment reporting unit. In
            connection with the Company's annual impairment test as required by
            SFAS No. 142, the Company determined that this amount was fully
            impaired at August 31, 2002. As a result, the Company recorded a
            charge of $7.3 million to its Consolidated Statement of Operations
            in the fiscal year ended September 30, 2002 representing the full
            impairment of the goodwill acquired in connection with the Cayman
            acquisition.

The estimated useful lives of developed product technology, core technology
leveraged and sales channel relationships are 5, 6 and 4 years, respectively.
The Company is amortizing the value of these identified intangible assets on a
straight-line basis over their estimated useful lives.

Cayman was developing new products that qualified as in-process research and
development. In-process research and development is defined as acquired research
and developments assets that are not currently technologically feasible. In
accordance with SFAS No. 86, Accounting for the Costs of Computer Software to be
Sold, Leased or Otherwise Marketed, the costs of internally developed products
are expensed until the product has established technological feasibility.
Technological feasibility is determined when a product reaches the "working
model" stage, which is generally when the product has reached the beta version
release. Beta products are operative versions of the products that perform all
of the major functions planned for the product, and are ready for initial
customer testing. The Company believed that each of the in-process research and
development projects acquired were subject to significant further development
before they would be available for release to our customers. Developing these
products is time consuming, costly and complex and there is a risk that these
developments will be late, fail to meet customer or market requirements and may
not be competitive with other products using similar or alternative technologies
that offer comparable functionality.

The value that was assigned to acquired in-process research and development, as
part of the Company's independent third-party valuation, was determined by
estimating the costs to develop the in-process research and development projects
into commercially viable products, estimating the resulting net cash flows from
the projects when completed and discounting the net cash flows to their present
value. The revenue estimates used to value the in-process research and
development projects were based upon estimates of relevant market sizes and
growth factors, expected trends in technology and the nature and expected timing
of new product introductions by Cayman and its competitors.

The rate utilized to discount the net cash flows to their present value was 28%,
which the Company believes adequately reflects the nature of the investment and
the risk of the underlying cash flows. This discount rate is a weighted average
cost of capital based upon a peer group of companies.


                                                                         Page 56
<PAGE>

                         Netopia, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements

The following summary, prepared on an unaudited pro forma basis, reflects the
condensed consolidated statements of operations of the Company for the fiscal
year ended September 30, 2001, giving effect to the Cayman acquisition and
assuming that Cayman had been acquired as of the beginning of fiscal year ended
September 30, 2001:

Fiscal years ended September 30,                                       2001
================================================================================
                                                                  (In thousands,
                                                                    except per
                                                                       share
                                                                      amounts)

Revenue - as reported                                                $ 77,318
  Add: Cayman revenue                                                  17,906
--------------------------------------------------------------------------------
    Revenue - pro forma                                              $ 95,224
================================================================================

Net loss - as reported                                               $(43,111)
  Add: Cayman net loss                                                (15,866)
  Add: amortization of intangible assets related to
  Cayman acquisition                                                    1,497
--------------------------------------------------------------------------------
    Net loss - pro forma                                             $(60,474)
================================================================================

Basic and diluted net loss per share - as reported                   $  (2.41)
================================================================================
Basic and diluted net loss per share - pro forma                     $  (3.38)
================================================================================

Shares used in the per share calculations - as reported                17,902
================================================================================
Shares used in the per share calculations - pro forma                  17,902
================================================================================

These pro forma results are not necessarily indicative of what would have
occurred if the Cayman acquisition had been in effect for the periods presented.
In addition, they are not intended to be a projection of future results and do
not reflect any synergies that might have been achieved from the combined
operations during the periods presented. As of October 1, 2001, Cayman's
operations are included in our results of operations for the fiscal year ended
September 30, 2002.

WebOrder. In March 2000, the Company acquired all the outstanding common and
preferred stock of WebOrder, a California corporation, in a merger transaction
in which WebOrder merged into WO Merger Corporation, a wholly owned subsidiary
formed in connection with the transaction. WebOrder was a developer of eCommerce
infrastructure for small and medium size businesses that offered eCommerce
solutions to on-line businesses including the ability to manage order
processing, and the ability to maintain records of customer transactions flowing
through a merchant's on-line store.

The Company accounted for the transaction under the purchase method. The
aggregate purchase price of the transaction was approximately $20.7 million,
based on the consideration paid at closing. The final purchase price is
dependent on potential earnout payments as discussed below. The aggregate
purchase price included:

      o     $1.6 million in cash paid on the closing date of the transaction;

      o     233,119 shares of the Company's common stock issued on the closing
            date;

      o     A series of potential earnout payments paid in cash and common stock
            after the closing date if certain revenue milestones are achieved.
            At September 30, 2002, no milestones had been achieved, and no
            additional consideration will be payable;

      o     The substitution of stock options to purchase the Company's common
            stock in replacement of the WebOrder options held by WebOrder's
            former employees, who joined Netopia after the closing, valued at
            approximately $2.1 million. The Company used the Black-Scholes
            method to value the options issued using the following assumptions:
            volatility of 101%, expected life of 5 years, interest rate of 5.7%,
            and no dividends; and

      o     Transaction costs of approximately $1.0 million that included legal
            fees, accounting fees, and fees for other related professional
            services.


                                                                         Page 57
<PAGE>

                         Netopia, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements

All of WebOrder's former full time employees became employees of Netopia.
WebOrder's founder and one other key stockholder/employee entered into
non-competition agreements in connection with the acquisition.

Approximately 15,695 shares of the Company's common stock were held in escrow
for one year after the closing to satisfy WebOrder's indemnification obligations
under the definitive acquisition agreements. During fiscal year 2001, WebOrder's
indemnification obligations were satisfied and all shares were released from
escrow to WebOrder's former stockholders.

The excess purchase price over the net book value of the assets acquired was
approximately $20.1 million of which, based upon the Company's estimates
prepared in conjunction with a third party valuation consultant, the Company
allocated approximately $17.1 million to goodwill and other intangible assets,
which was being amortized over four and three years, respectively, and recorded
a charge for acquired in-process research and development of approximately $3.0
million. Both cost and income approaches were used to appraise the value of the
business and projects acquired. Such methods take into consideration replacement
costs of assets acquired, the stage of completion of the projects and estimates
related to expected future revenues, expenses and cash flows which are then
discounted back to present day amounts. Based upon these estimates, material net
cash flows from the acquired business were expected to occur during the
Company's fiscal first quarter of 2001. These cash flows were discounted using a
weighted average discount rate of 42%. Based upon the expenses incurred and the
development time invested in the products prior to the acquisition and the
estimated expenses and development time to complete the products, the Company
determined the products purchased in aggregate, including products under
development and completed products, to be approximately 82% complete at the time
of acquisition. The Company completed the in-process research and development
during the fiscal fourth quarter of 2000.

During the fiscal year ended September 30, 2001, the Company recorded a charge
of $9.6 million for impairment of goodwill and other intangible assets related
to its acquisition of WebOrder. This charge was based on the difference of the
carrying value and the estimated discounted future operating cash flows of the
goodwill and other intangible assets related to this acquisition. Given the
uncertainties in the "dot com"-type market to which the Company marketed and
licensed certain of its Web platforms products, including technology which the
Company acquired from WebOrder, in addition to the slower than anticipated
revenue growth in the market for such products, the Company determined the net
carrying value of the goodwill and other intangible assets related to the
WebOrder acquisition would not be fully recovered.

StarNet. In October 1999, the Company acquired StarNet, a California
corporation, in a merger transaction in which StarNet merged into a wholly owned
subsidiary. StarNet had been developing a voice channel technology architecture
that allows the transmission of voice lines over a digital subscriber line along
with the simultaneous transmission of standard data packets.

The Company accounted for the transaction under the purchase method. The
aggregate purchase price of the transaction was approximately $27.5 million,
based upon the consideration paid at closing. The final purchase price was
dependent upon potential earnout payments that could aggregate to an additional
$4.9 million. The aggregate consideration included:

      o     $8.4 million in cash paid on the closing date of the transaction;

      o     447,852 shares of the Company's common stock issued on the closing
            date;

      o     A series of potential cash earnout payments aggregating up to
            approximately $5.9 million at various times after the closing date
            if certain technical and revenue milestones are achieved. These
            earnout opportunities will be included in the purchase price for
            accounting purposes when the milestones are achieved and additional
            consideration is distributable. At the acquisition date, we had
            deemed probable and recorded approximately $1.0 million in earnout
            payments. During the fiscal third quarter of 2000, the Company
            determined that the milestones for the $1.0 million potential
            earnout payment would not be met and accordingly, reduced the
            purchase price and amortization of goodwill relating to the purchase
            of StarNet by such amount. As of September 30, 2002, no earnouts
            have been achieved, and no additional consideration will be paid.


                                                                         Page 58
<PAGE>

                         Netopia, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements

      o     The substitution of stock options to purchase the Company's common
            stock in replacement of the StarNet options held by StarNet's former
            employee, who joined Netopia after the closing, valued at
            approximately $1.4 million. The Company used the Black-Scholes
            method to value the options issued using the following assumptions:
            volatility of 101%, expected life of 4 years, interest rate of 4.9%;
            and no dividends; and

      o     Transaction costs of approximately $0.8 million that included legal
            fees, accounting fees, fees paid for an independent fairness
            opinion, and fees for other services.

All of StarNet's former full time employees became employees of Netopia. Each of
StarNet's founders, and certain other key employees, entered into
non-competition agreements in connection with the acquisition.

Approximately 30,673 shares of common stock were held in escrow for a period of
time after the closing to satisfy StarNet's indemnification obligations under
the definitive acquisition agreements. During the fiscal third quarter of 2000,
a portion of these shares were released from the escrow to Netopia to satisfy
Netopia's indemnification claims, and the remaining shares were released from
escrow to StarNet's former stockholders.

The excess purchase price over the net book value of the assets acquired was
approximately $28.1 million of which, based upon the Company's estimates
prepared in conjunction with a third party valuation consultant, the Company
allocated approximately $22.4 million to goodwill and other intangible assets,
which was being amortized over four and three years, respectively, and recorded
a charge for acquired in-process research and development of $5.7 million. The
Company used the income approach to appraise the value of the business and
projects acquired. Such method takes into consideration the stage of completion
of the projects and estimates related to expected future revenues, expenses and
cash flows then are discounted back to present day amounts. Based upon these
estimates, material net cash flows from the acquired business were expected to
occur during the fiscal fourth quarter of 2000. These cash flows were discounted
using a weighted average discount rate of 20%. Based upon the expenses incurred
and the development time invested in the products prior to the acquisition and
the estimated expenses and development time to complete the products, the
Company determined the products purchased in aggregate, including products under
development and completed products, to be approximately 73% complete at the time
of acquisition. The Company completed the in-process research and development in
the fiscal third quarter of 2001.

During the fiscal year ended September 30, 2001, the Company recorded a charge
of $6.1 million for impairment of goodwill and other intangible assets related
to its acquisition of StarNet. This charge was based on the difference of the
carrying value and the estimated discounted future operating cash flows of the
goodwill and other intangible assets related to this acquisition. Given the
slower than anticipated growth in the market for IAD products, the technology
for which the Company acquired from StarNet, the Company determined the net
carrying value of the goodwill and other intangible assets related to the
StarNet acquisition would not be fully recovered.

The Company performed the annual impairment test as required by SFAS No. 142 on
August 31, 2002 for the remaining goodwill acquired in connection with the
StarNet acquisition, and determined that this goodwill was fully impaired. For
this reason, the Company recorded a charge of $1.8 million to its Consolidated
Statement of Operations in the fiscal year ended September 30, 2002 representing
the full impairment of the remaining goodwill acquired in connection with the
StarNet acquisition.

(3)   Intangible Assets

The Company's intangible assets at September 30, 2002 consist primarily of
identifiable intangible assets acquired in connection with the Cayman
acquisition, which the Company is amortizing on a straight-line basis over their
estimated useful lives, and goodwill acquired in connection with the
acquisitions of WebOrder and netOctopus which the Company is not amortizing.

On July 1, 2001, the Company adopted SFAS No. 141, Business Combinations, and on
October 1, 2001, the Company early adopted SFAS No. 142, Goodwill and Other
Intangible Assets. SFAS No. 141 requires that the purchase method of accounting
be used for all business combinations and that certain acquired intangible
assets


                                                                         Page 59
<PAGE>

                         Netopia, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements

be recognized as assets apart from goodwill. SFAS No. 142 provides that goodwill
should not be amortized but instead be tested for impairment annually at the
reporting unit level.

In accordance with SFAS No. 142, the Company completed the transitional
impairment test of its goodwill during the three months ended March 31, 2002.
That effort, and preliminary assessments of the Company's goodwill, indicated no
adjustment was required upon adoption of this pronouncement. The impairment
testing is performed in two steps: (i) the determination of impairment, based
upon the fair value of a reporting unit as compared to its carrying value, and
(ii) if there is an indication of impairment, this step measures the amount of
impairment loss by comparing the implied fair value of goodwill with the
carrying amount of that goodwill. The Company performed the annual impairment
test required by SFAS No. 142 on August 31, 2002 for it's two reporting units.
To complete the first step of the analysis, the Company discounted the cash
flows generated by its Internet equipment and Web platforms reporting unit's 5
year plans and applied the Gordon Growth factor to determine the residual value.
To complete the second step of the analysis, the Company used an independent
third party valuation consultant to determine the value of the intangible assets
of the Internet equipment reporting unit as compared to the excess of fair value
over the net book value of the assets of the Internet equipment reporting unit.
At August 31, 2002, the implied fair value of the Company's Internet equipment
reporting unit was found to be less than its carrying amount and as a result,
the Company recorded a charge to its Consolidated Statement of Operations in the
fiscal year ended September 30, 2002 of $9.1 million, representing full
impairment of the remaining goodwill acquired in connection with the
acquisitions of Cayman and StarNet.

Detail of the Company's identifiable intangible assets, by reporting unit, as of
September 30, 2002 is as follows:

<TABLE>
<CAPTION>
                                                                            Identifiable
                                                                          intangible assets
                                   Acquisition         Balance at        acquired during the      Accumulated         Balance at
                                       date        September 30, 2001          period            amortization     September 30, 2002
====================================================================================================================================
                                                                                     (in thousands)
<S>                                <C>                  <C>                  <C>                   <C>                <C>
Internet equipment:
  Acquired technology              October 2001         $     --             $     6,690           $   1,152          $    5,538
  Sales channel relationships      October 2001               --                   1,380                 345               1,035
------------------------------------------------------------------------------------------------------------------------------------
    Subtotal                                                  --                   8,070               1,497               6,573

Web platforms:
  Marketing license                 July 1999                688                      --                 550                 138
------------------------------------------------------------------------------------------------------------------------------------
Total                                                   $    688             $     8,070           $   2,047          $    6,711
====================================================================================================================================
</TABLE>

Estimated amortization expense for the next five years related to the Company's
identifiable intangible assets as of September 30, 2002 is as follows:

Fiscal years ended September 30,         2003     2004     2005     2006    2007
================================================================================
                                                      (in thousands)
Internet equipment:
  Acquired technology                   $1,152   $1,152   $1,152   $1,152   $928
  Sales channel relationships              345      345      345       --     --
--------------------------------------------------------------------------------
    Subtotal                             1,497    1,497    1,497    1,152    928

Web platforms:
  Marketing license                        138       --       --       --     --
--------------------------------------------------------------------------------
Total                                   $1,635   $1,497   $1,497   $1,152   $928
================================================================================


                                                                         Page 60
<PAGE>

                         Netopia, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements

Detail of the Company's goodwill, by reporting unit, as of September 30, 2002 is
as follows:

<TABLE>
<CAPTION>
                                                                          Goodwill           Goodwill
                                                       Balance at      acquired during      impairment        Balance at
                              Acquisition date     September 30, 2001    the period           charges    September 30, 2002
===========================================================================================================================
                                                                                 (in thousands)
<S>                             <C>                      <C>               <C>                 <C>               <C>
Internet equipment:
  Cayman                        October 2001             $   --            $ 7,325             $7,325            $ --
  StarNet Technologies          October 1999              1,821                 --              1,821              --
---------------------------------------------------------------------------------------------------------------------------
                                                         $1,821            $ 7,325             $9,146            $ --
---------------------------------------------------------------------------------------------------------------------------

Web platforms:
  WebOrder                        March 2000             $  572            $   (53)            $   --            $519
  netOctopus                    December 1998               365                100                 --             465
---------------------------------------------------------------------------------------------------------------------------
                                                         $  937            $    47             $   --            $984
---------------------------------------------------------------------------------------------------------------------------
Total goodwill                                           $2,758            $ 7,372             $9,146            $984
===========================================================================================================================
</TABLE>

The following table reflects the consolidated results adjusted as though the
adoption of SFAS No. 142 occurred at the beginning of the fiscal year ended
September 30, 2000:

<TABLE>
<CAPTION>
Fiscal year ended September 30,                           2002            2001            2000
=================================================================================================
<S>                                                     <C>             <C>             <C>
Net loss:
  As reported                                           $(34,267)       $(43,111)       $(15,137)
  Less: amortization of goodwill                              --           5,049           3,349
-------------------------------------------------------------------------------------------------
    Adjusted net loss                                   $(34,267)       $(38,062)         11,788
=================================================================================================

Basic and diluted net loss per share:
  As reported                                           $  (1.86)       $  (2.41)       $  (0.90)
  Less: amortization of goodwill                              --            0.28            0.20
-------------------------------------------------------------------------------------------------
    Adjusted basic and diluted net loss per share       $  (1.86)       $  (2.13)       $  (0.70)
=================================================================================================
</TABLE>

(4)   Discontinued Operations

In August 1998, the Company sold its local area network (LAN) Division including
the LAN Division's products, accounts receivable, inventory, property and
equipment, intellectual property and other related assets to Farallon
Communications, Inc. (Farallon), formerly known as Farallon Networking
Corporation, a Delaware corporation and an affiliate of Gores Technology Group.
The consideration the Company received for the sale of the LAN Division
consisted of the following (in thousands):

Cash                                                                      $2,000
Note receivable                                                              888
Royalties receivable                                                       1,782
Warrants                                                                     189
--------------------------------------------------------------------------------
                                                                          $4,859
================================================================================

The note receivable was for $1.0 million which was payable on July 31, 2000,
bearing interest at 8% per annum. Farallon paid the note and accrued interest in
its entirety on May 9, 2000.

The royalties receivable were based upon Farallon's total annual revenues over
each of the next five fiscal years ending on July 31, 2003. If total annual
revenues of at least $15.0 million were reached, the royalty rate applies to
total revenues, including the first $15.0 million. The value of the royalties
accrued at the close of the transaction was based upon the present value of the
Company's assumptions as to the projected future revenue of the LAN Division. In
accordance with the agreement, royalties accrued were not recorded to the extent
that total consideration on the transaction exceeded the net asset value of the
LAN Division assets being sold.


                                                                         Page 61
<PAGE>

                         Netopia, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements

Additionally, the Company received and valued a warrant to purchase up to 5% of
the equity of Farallon as of the closing of the transaction. Subsequently, the
Company entered into an agreement with the buyer to reduce the warrant
entitlement to 3% of the equity of Farallon.

During fiscal year 2000, Farallon bought out its royalty obligation in its
entirety for an amount in excess of the receivable on the Company's balance
sheet. In addition, the Company exercised its warrant in Farallon and sold the
shares received upon exercise of the warrant. These transactions resulted in
income of $1.3 million, net of taxes, and are included in the gain on sale from
discontinued operations for fiscal year 2000. The gain on sale from discontinued
operations also represented the reversal of a liability recorded for the excess
space created at the Company's Alameda, California headquarters that the Company
believed could not be subleased to third parties at the time of sale. During
fiscal year 2000, the Company found alternative uses for this excess space.

For fiscal year 2001, the gain on sale of discontinued operation was primarily
related to accounts receivable that were collected above amounts agreed upon in
the sale transaction.

(5)   Inventories

Inventories, net consisted of the following:

September 30,                                           2002               2001
================================================================================
                                                             (in thousands)

Raw materials                                          $3,646             $3,530
Work in process                                            85                927
Finished goods                                          2,528              2,699
--------------------------------------------------------------------------------
                                                       $6,259             $7,156
================================================================================

(6)   Furniture, Fixtures, and Equipment

Furniture, fixtures, and equipment consisted of the following:

September 30,                                           2002             2001
================================================================================
                                                            (in thousands)

Machinery and equipment                               $  3,655         $  4,506
Furniture and fixtures                                   2,804            2,455
Computers                                                8,733            8,164
Leasehold improvements                                     407              382
--------------------------------------------------------------------------------
                                                        15,599           15,507
Accumulated depreciation and amortization              (10,092)          (9,737)
--------------------------------------------------------------------------------
                                                      $  5,507         $  5,770
================================================================================

(7)   Income Taxes

Total income tax expense (benefit) for fiscal years ended September 30, 2002,
2001, and 2000 is allocated as follows:

September 30,                                   2002         2001          2000
================================================================================
                                                       (in thousands)

Continuing operations                          $  --        $  --         $  --
Discontinued operations                           --           --          (397)
--------------------------------------------------------------------------------
                                               $  --        $  --         $(397)
================================================================================


                                                                         Page 62
<PAGE>

                         Netopia, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements

Income tax expense (benefit) related to continuing operations differs from the
amounts computed by applying the statutory income tax rate of 34% to pretax loss
as a result of the following:

September 30,                                      2002        2001       2000
================================================================================
                                                         (in thousands)

Computed "expected" tax (benefit) of 34%        $(11,651)   $(14,182)   $(5,990)
Net operating loss not benefited                  10,601       9,405      1,853
Research credits                                      --          --         --
Investment impairment                              1,001          --         --
Amortization of goodwill                              18       4,777      4,073
State tax and other, net                              31          --         64
--------------------------------------------------------------------------------
                                                 $    --     $    --     $   --
================================================================================

The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets are presented below:

<TABLE>
<CAPTION>
September 30,                                           2002        2001        2000
======================================================================================
                                                               (in thousands)
<S>                                                   <C>         <C>         <C>
Deferred tax assets:
     Reserves and accruals not currently deductible   $  1,740    $  1,163    $  3,096
     Deferred rent                                          10          --          49
     Research and other credits                          2,822       3,712       2,950
     Tangible and intangible assets                      6,431         616          --
     Net operating losses                               24,594      18,254      11,689
--------------------------------------------------------------------------------------
         Gross deferred assets                          35,597      23,745      17,784
     Less valuation allowance                          (35,597)    (23,745)    (13,710)
--------------------------------------------------------------------------------------
         Total deferred tax assets                          --          --       4,074
--------------------------------------------------------------------------------------
Deferred tax liabilities:
     Tangible and intangible assets                         --          --      (4,074)
--------------------------------------------------------------------------------------
Total deferred tax liabilities                              --          --      (4,074)
--------------------------------------------------------------------------------------

Net deferred tax assets (liabilities)                 $     --    $     --    $     --
======================================================================================
</TABLE>

The net change in the total valuation allowance for fiscal years 2002 and 2001
was an increase of $11.9 million and $10.0 million, respectively.

At September 30, 2002 and 2001, the Company believed that based upon available
objective evidence, there was sufficient uncertainty regarding the realizability
of its deferred tax assets to warrant a full valuation allowance. The factors
considered included the relative shorter life cycles in the high technology
industry and the uncertainty of longer-term taxable income estimates.

At September 30, 2002, the Company had net operating loss carryforwards of
approximately $63.7 million for federal tax purposes and $33.1 million for state
tax purposes. If not utilized, the federal net operating loss carryforwards will
expire in various years beginning in 2018 through 2022 and the state net
operating loss carryforwards will expire in various years beginning 2002 through
2013.

At September 30, 2002, the Company had research credit carryforwards of
approximately $3.2 million for federal tax purposes and $1.6 million for state
tax purposes. If not earlier utilized, the federal research credit carryforwards
will expire in various years beginning 2006 through 2022. The state research
credits carry forward indefinitely until utilized. The Company has California
manufacturing credit carryforwards of approximately $0.1 million, which expire
in various years beginning 2006 through 2008.

At September 30, 2002, the Company also had minimum tax credit carryforwards of
approximately $114,000 for federal tax purposes and $169,000 for state tax
purposes. These credits carryforward indefinitely until utilized.

Federal and California state tax laws impose substantial restrictions on the
utilization of net operating loss carryforwards in the event of an "ownership
change" for tax purposes, as defined in section 382 of the Internal


                                                                         Page 63
<PAGE>

                         Netopia, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements

Revenue Code. The Company has not yet determined if an ownership change has
occurred. If such ownership change has occurred, utilization of the net
operating losses will be subject to annual limitations in future years.

(8)   Stockholders' Equity and Stock Option Plans

In April 1996, the Company was reincorporated in the State of Delaware. The
Company's authorized capital consists of 50,000,000 shares of $0.001 par value
common stock and 5,000,000 shares of $0.001 par value preferred stock. There was
no preferred stock issued or outstanding at September 30, 2002.

Common Stock. The holders of common stock are entitled to one vote per share on
all matters to be voted upon by the stockholders. Subject to preferences that
may be applicable to any outstanding preferred stock, the holders of common
stock are entitled to receive ratably such dividends, if any, as may be declared
from time to time by the Board of Directors out of funds legally available. In
the event of a liquidation, dissolution or winding up of the Company, the
holders of common stock are entitled to share ratably in all assets remaining
after payment of liabilities, subject to prior distribution rights of preferred
stock, if any, then outstanding. The common stock has no preemptive or
conversion rights or other subscription rights.

Common Stock Warrant. A warrant to purchase 5,000 shares of common stock was
issued in fiscal year 2001 for consulting services provided. The exercise price
of the warrant is $5.625, the fair market value of the Company's common stock on
the date of grant. The Company recognized an expense of $16,000 for the
estimated fair value of the warrant on the date of grant, as determined by the
Black-Scholes option valuation model. The warrant will expire on January 11,
2003 unless exercised on or prior to that date.

Stock Option Plans. On April 16, 1996, the Company adopted the 1996 Stock Option
Plan (the 1996 Plan) providing for the issuance of incentive or non-statutory
options to directors, employees, and non-employee consultants. Options are
granted at the discretion of the Board of Directors or the Compensation
Committee of the Board of Directors. Incentive stock options may be granted at
not less than 100% of the fair market value per share and non-statutory stock
options may be granted at not less than 85% of the fair market value per share
at the date of grant as determined by the Board of Directors or the Compensation
Committee, except for options granted to a person owning greater than 10% of the
total combined voting power of all classes of stock of the Company, for which
the exercise price of the options must be not less than 110% of the fair market
value.

Included in the 1996 Plan is a provision for the automatic grant of
non-statutory options to non-employee Board of Director members of 25,000 shares
on the effective date of the Company's initial public offering at the initial
offering price. These options were granted to two non-employee Board of Director
members, of which one currently remains on the Company's Board of Directors.
Thereafter, each new director will be granted an option to purchase 25,000
shares of Common Stock on the date he or she becomes a Board member of the
Company at the then current fair market value. Initial options issued to Board
members after January 13, 2000 are exercisable in four successive and equal
annual installments over the non-employee Board member's period of continued
service as a Board member, beginning one year from the grant date of the option.
In addition, each non-employee Board member who is serving on the date of the
Annual Stockholders Meeting is granted on the date of the meeting a
non-statutory option to purchase 6,000 shares of common stock. The annual
options become exercisable in full upon completion of one year's Board service
measured from the option grant date. Options issued under the 1996 Plan normally
vest over four years commencing on the date of the grant, although other vesting
schedules may be approved by the Compensation Committee of the Board of
Directors in their discretion.

On October 18, 2000, the Company adopted the 2000 Stock Incentive Plan (the 2000
Plan) providing for issuance of non-statutory options and restricted stock to
employees, officers, directors, consultants, independent contractors and
advisors of the Company or any subsidiary of the Company. Options and restricted
stock awards granted under the 2000 Plan are granted at the discretion of the
Board of Directors or the Compensation Committee of the Board of Directors. The
2000 Plan is not a stockholder approved stock option plan and is intended to
comply with the exception for broadly based option plans in which a majority of
the participants are rank and file employees not officers or directors, and a
majority of the grants are made to such employees. Only nonqualified stock
options that do not qualify as incentive stock options within the meaning of
Section 422(b) of the Code may be granted under this Plan. The Board of
Directors or the Compensation Committee will


                                                                         Page 64
<PAGE>

                         Netopia, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements

determine the exercise price of an option when the option is granted and may be
not less than the par value of the shares on the date of grant. A restricted
stock award is an offer by the Company to sell to an eligible person shares that
are subject to restrictions. The purchase price of shares sold pursuant to a
restricted stock award will be determined by the compensation committee on the
date the restricted stock award is granted and may be not less than the par
value of the shares on the date of grant. Restricted stock awards shall be
subject to such restrictions as the Board of Directors or the Compensation
Committee may impose. As of September 30, 2002, there were no restricted stock
awards granted under the 2000 Plan.

On December 13, 2001, subject to approval by the Company's stockholders, the
Company adopted the 2002 Equity Incentive Plan (the 2002 Plan) providing for the
issuance of incentive or non-statutory options, stock awards and other equity
awards to directors, employees, and non-employee consultants. The Company's
stockholders approved the 2002 Plan at the Annual Stockholder Meeting on January
30, 2002. The 2002 Plan is a successor to the 1996 Plan. Options and other
awards are granted at the discretion of the Board of Directors or the
Compensation Committee of the Board of Directors. Incentive stock options may be
granted at not less than 100% of the fair market value per share and
non-statutory stock options may be granted at not less than 85% of the fair
market value per share at the date of grant as determined by the Board of
Directors or the Compensation Committee.

The initial number of shares of common stock of the Company, which may be issued
under the 2002 Plan, is 750,000 shares. The number of shares of common stock
available for issuance under the 2002 Plan will automatically increase on the
first trading day of each calendar year beginning 2003 by an amount equal to
four and three-quarter percent (4.75%) of the shares of common stock outstanding
on December 31 of the immediately preceding calendar year, provided, however,
that no such automatic annual increase may exceed 1,000,000 shares.

Included in the 2002 Plan is a provision for the automatic grant of
non-statutory options to non-employee Board of Director members of 25,000 shares
on the on the date he or she becomes a Board member of the Company at the then
current fair market value. Initial options issued to Board members are
exercisable in four successive and equal annual installments over the
non-employee Board member's period of continued service as a Board member,
beginning one year from the grant date of the option. In addition, each
non-employee Board member who is serving on the date of the Annual Stockholders
Meeting is granted on the date of the meeting a non-statutory option to purchase
6,000 shares of common stock. The annual options become exercisable in full upon
completion of one year's Board service measured from the option grant date. The
automatic grant provisions of the 2002 Plan take effect only at such time as
there are not sufficient shares available under the existing automatic grant
program in the 1996 Plan.

As of September 30, 2002, the Company had 7,199,088 shares subject to
outstanding options and 274,537 shares available for grant.


                                                                         Page 65
<PAGE>

                         Netopia, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements

The following table summarizes activity under the Company's stock option plans:

                                                                   Weighted
                                                Shares under        average
Stock options                                      options      exercise price
================================================================================

Outstanding as of September 30, 1999              4,040,520         $ 7.26
Options granted                                   1,564,823          41.13
Options exercised                                (1,203,369)          4.81
Options cancelled                                  (382,494)         20.34
--------------------------------------------------------------------------------
Outstanding as of September 30, 2000              4,019,480          19.94
Options granted                                   3,529,000           5.93
Options exercised                                  (239,042)          3.22
Options cancelled                                (4,041,310)         20.02
--------------------------------------------------------------------------------
Outstanding as of September 30, 2001              3,268,128           5.92
Options granted                                   4,729,830           3.70
Options exercised                                   (99,231)          3.19
Options cancelled                                  (699,639)          7.49
--------------------------------------------------------------------------------
Outstanding as of September 30, 2002              7,199,088         $ 4.35
================================================================================

Exercisable                                       3,436,653         $ 5.30
================================================================================

The fair market value, based upon the Black-Scholes option valuation model, of
the options granted during fiscal years 2002, 2001 and 2000 were $2.75, $4.40
and $31.22, respectively,

The following table summarizes information about the Company's stock options
outstanding at September 30, 2002:

<TABLE>
<CAPTION>
                                        Options outstanding                  Options exercisable
                            -----------------------------------------     --------------------------
                              Number of       Weighted-                      Number
                             outstanding       average      Weighted-     exercisable      Weighted-
                            shares as of     remaining      average          as of         average
                            September 30,    contractual    exercise      September 30,    exercise
Range of exercise prices        2002        life (years)      price           2002           price
====================================================================================================
<S>                           <C>                <C>        <C>            <C>             <C>
    $0.6105 - $1.2000           799,400          9.59       $ 1.1962          22,400       $ 0.9258
     1.6000 -  3.3300           844,712          8.89         2.8000         272,344         2.8834
     3.5500 -  3.6000           552,638          9.00         3.5952          63,402         3.5864
     3.6100 -  3.7000           834,963          9.37         3.6995         104,413         3.6987
     3.8438 -  4.0000           567,061          8.87         3.9904         136,359         3.9786
     4.2400 -  4.2500           882,487          8.19         4.2497         681,241         4.2500
     4.3700 -  5.5313           598,098          5.88         4.9576         518,819         4.9514
     5.5500 -  5.5500         1,241,880          9.25         5.5500         829,695         5.5500
     5.6250 -  48.000           877,849          5.58         8.0438         807,980         7.6323
----------------------------------------------------------------------------------------------------
                              7,199,088          8.35       $ 4.3518       3,436,653       $ 5.2961
====================================================================================================
</TABLE>

1996 Employee Stock Purchase Plan. In April 1996, the Board of Directors adopted
the 1996 Employee Stock Purchase Plan (the Purchase Plan) and reserved 300,000
shares of common stock for issuance under the Purchase Plan. To date an
additional 1,950,000 shares have been approved for issuance under the Purchase
Plan. Employees may purchase shares of common stock at a price per share that is
85% of the lesser of the fair market value as of the beginning or the end of the
semi-annual option period.

Shares issued under the Purchase Plan totaled 429,180 in fiscal year 2002;
250,155 in fiscal year 2001; and 130,306 in fiscal year 2000. As of September
30, 2002, 1,340,755 shares have been issued under the Purchase Plan and 909,245
shares were reserved for future issuances under the plan.

Option Exchange Offer. In April 2001, the Company's Board of Directors approved
an offer by the Company to its employees who regularly work more than 30 hours
per week, and to its directors, an offer to exchange (the Offer to Exchange) all
options to purchase shares of the Company's common stock that are outstanding
under


                                                                         Page 66
<PAGE>

                         Netopia, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements

the 1996 Plan with an exercise price above $10.00 per share, for new options to
purchase shares of common stock to be granted by the Company under the Plan. The
key features of the new options are as follows:

      o     The number of shares subject to the new option will equal the number
            of shares subject to cancelled options, subject to adjustments for
            any stock splits, stock dividends and similar events.

      o     The exercise price of the new option will equal the closing sale
            price of the Company's common stock as reported on the Nasdaq
            National Market on the replacement grant date which shall be no
            sooner than six months and one day from the date of the exchange.

      o     The new option will vest and become exercisable on the same dates
            with respect to the same number of shares as the cancelled options.

      o     The new option will be an incentive stock option to the extent
            possible under applicable tax laws.

      o     The new option will have other terms and conditions that are
            substantially the same as those of the cancelled option.

Pursuant to the Offer to Exchange, on June 4, 2001 the Company accepted for
exchange, options to purchase an aggregate of 1,509,911 shares of the Company's
common stock, representing approximately 86.5% of the shares subject to options
that were eligible to be exchanged under the Offer to Exchange. On December 31,
2001, pursuant to the Offer to Exchange, the Compensation Committee of the Board
of Directors approved the grant of 912,066 new options. The exercise price of
the new options was $5.55 per share, which was the closing sale price of the
Company's common stock as reported by the Nasdaq National Market.

Pro Forma Disclosure -- Compensatory Stock Arrangements. Stock options are
granted at not less than the fair market value of the common stock on the date
of grant. All options expire no later than 10 years from the date of grant. The
Company has adopted the disclosure provisions of SFAS No. 123, Accounting for
Stock Based Compensation, which was issued in October 1995. As permitted by the
provisions of SFAS No. 123, the Company applies APB Opinion 25 and related
interpretations in accounting for its stock option plans.

If the Company had elected to recognize compensation cost based on the fair
value of the options granted at grant date and the fair value of shares
purchased under the plan as prescribed by SFAS No. 123, net loss and per share
results would have been the pro forma amounts indicated in the table below:

<TABLE>
<CAPTION>
Fiscal years ended September 30,                                      2002          2001          2000
==========================================================================================================
                                                                  (in thousands, except per share amounts)
<S>                                                                <C>           <C>           <C>
Net loss -- as reported                                            $ (34,267)    $ (43,111)    $ (15,137)
Add: Compensation cost as prescribed by SFAS No. 123                   7,693        11,202        13,755
----------------------------------------------------------------------------------------------------------
      Net loss -- pro forma                                        $ (41,960)    $ (54,313)    $ (28,892)
==========================================================================================================

Basic and diluted net loss per share -- as reported                $   (1.86)    $   (2.41)    $   (0.90)
==========================================================================================================
Basic and diluted net loss per share -- pro forma                  $   (2.27)    $   (3.03)    $   (1.72)
==========================================================================================================

Shares used in the per share calculations -- as reported               18,455        17,902        16,830
==========================================================================================================
Shares used in the per share calculations -- pro forma                 18,455        17,902        16,830
==========================================================================================================
</TABLE>

The effect on net loss and net loss per share is not expected to be indicative
of the effects on results in future years.

The effect of applying SFAS No. 123 for disclosing compensation costs may not be
representative of the effects on reported net loss for the future years as pro
forma net loss reflects compensation costs only for stock options granted
beginning in fiscal year 1997. The Black-Scholes Single Option weighted average
fair value of employee stock options granted during fiscal years 2002, 2001 and
2000 was $2.75, $4.40 and $31.22, respectively.

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options, which have no vesting restrictions and are fully
transferable while the Company's employee stock options have


                                                                         Page 67
<PAGE>

                         Netopia, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements

characteristics significantly different from those of traded options. In
addition, option valuation models require the input of highly subjective
assumptions including the expected stock price volatility. The fair value of
each option grant and share purchased under the Purchase Plan are estimated on
the date of grant or share purchase using the Black-Scholes option-pricing model
with the following assumptions:

Years ended September 30,                         2002        2001        2000
================================================================================

Expected volatility                              110.3%      108.0%      103.5%
Risk-free interest rate                           2.63%       4.12%       5.77%
Expected dividend yield                             --          --          --

The expected lives of options under the Employee Stock Option and Employee Stock
Purchase Plans are estimated at four years and six months, respectively, for all
years presented.

(9)   Commitments and Contingencies

Leases. The Company conducts its operations in leased facilities and with
equipment under operating lease agreements expiring at various dates through
2005. The following is a schedule of future minimum rental payments required
under these leases that have initial or remaining non-cancelable lease terms in
excess of one year (in thousands):

Fiscal years ended September 30,            2003      2004      2005      Total
================================================================================

Facility and operating lease commitments   $ 1,535   $  926    $  362    $ 2,823

Total rental expense for all operating leases amounted to $2.0 million, $1.9
million and $1.7 million for fiscal years 2002, 2001 and 2000, respectively.

Subsequent to September 30, 2002, the Company entered into a lease for new
headquarters facilities located in Emeryville, California. The future minimum
rental payments related to this new lease are not included in the table above.
The following is a schedule of the future minimum rental payments required under
this new lease agreement (in thousands):

<TABLE>
<CAPTION>
Fiscal years ended September 30,             2003     2004      2005      2006     2007      2008     Total
============================================================================================================
<S>                                         <C>      <C>       <C>       <C>      <C>       <C>      <C>
Facility and operating lease commitments    $ 101    $ 624     $ 642     $ 663    $ 682     $ 526    $ 3,238
</TABLE>

Litigation. The Company is involved in various legal matters that have arisen in
the normal course of business. Management believes, after consultation with
counsel, any liability that may result from the disposition of such legal
matters will not have a material adverse effect on the Company's operating
results and financial condition.

Plan for Savings and Investments. The Company maintains a plan for savings and
investments under which eligible employees may contribute up to 15% of their
annual compensation. In addition, the Company may make discretionary retirement
contributions to the plan. No discretionary retirement contributions were made
in any period presented.

(10)  Segment, Geographic and Significant Customer Information

Segment Information. The Company adopted the provisions of SFAS No. 131,
Disclosure about Segments of an Enterprise and Related Information, during
fiscal year 1999. SFAS No. 131 establishes standards for the reporting by public
business enterprises of information about operating segments, products and
services, geographic areas, and major customers. The methodology for determining
the information reported is based on the organization of operating segments and
the related information that the Chief Operating Decision Maker (CODM) uses for
operational decisions and assessing financial performance. Netopia's Chief
Executive Officer (CEO) is considered the Company's CODM. For purposes of making
operating decisions and assessing financial performance, the Company's CEO
reviews financial information presented on a consolidated basis accompanied by
disaggregated information for revenues and gross margins by product group as
well as


                                                                         Page 68
<PAGE>

                         Netopia, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements

revenues by geographic region and by customer. Operating expenses and assets are
not disaggregated by product group for purposes of making operating decisions
and assessing financial performance.

The Company generates revenue from two groups of products and services.
Disaggregated financial information regarding the operating segments is as
follows:

<TABLE>
<CAPTION>
                                September 30, 2002                 September 30, 2001                     September 30, 2000
                         -------------------------------    ----------------------------------     ---------------------------------
                         Internet       Web                  Internet       Web                     Internet      Web
                         equipment   platform     Total     equipment    platform        Total     equipment   platform     Total
====================================================================================================================================
                                                                      (in thousands)
<S>                       <C>         <C>       <C>          <C>          <C>          <C>          <C>         <C>       <C>
Revenue                   $45,551     $18,513   $ 64,064     $58,861      $18,457      $ 77,318     $65,546     $24,660   $ 90,206
Cost of revenues           32,323         639     32,962      39,165          795        39,960      46,582         697     47,279
------------------------------------------------------------------------------------------------------------------------------------
   Gross profit            13,228      17,874     31,102      19,696       17,662        37,358      18,946      23,963     42,927
   Gross margin               29%         97%        49%         33%          96%           48%         29%         97%        48%
Unallocated operating
  expenses                                        62,746                                 80,580                             64,124
------------------------------------------------------------------------------------------------------------------------------------
   Operating loss                               $(31,644)                              $(43,222)                          $(21,197)
====================================================================================================================================
</TABLE>

Geographic Information. The Company sells its products and provides services
worldwide through a direct sales force, independent distributors, and
value-added resellers. It currently operates in four regions: United States,
Europe, Canada, and Asia Pacific and other. Revenues outside of the United
States are primarily export sales denominated in United States dollars. The
Company does not have material operating assets outside of the United States.
Disaggregated financial information regarding the Company's revenues by
geographic region for the fiscal years 2002, 2001 and 2000 is as follows:

<TABLE>
<CAPTION>
Fiscal year ended September 30,          2002             2001             2000
====================================================================================
                                                   ($ in thousands)
<S>                                 <C>       <C>    <C>       <C>    <C>       <C>
Europe                              $10,544    16%   $ 9,378    12%   $13,558    15%
Canada                                1,046     2%     1,168     2%     1,689     2%
Asia Pacific and other                1,602     3%     1,030     1%     1,215     1%
------------------------------------------------------------------------------------
   Subtotal international revenue    13,192    21%    11,576    15%    16,462    18%
United States                        50,872    79%    65,742    85%    73,744    82%
------------------------------------------------------------------------------------
     Total revenues                 $64,064   100%   $77,318   100%   $90,206   100%
====================================================================================
</TABLE>

The Company has no material operating assets outside the United States.

Customer Information. Historically, the Company has sold its products to
competitive local exchange carriers (CLECs), distributors, ILECs, Internet
service providers (ISPs) and directly to end-users. Disaggregated financial
information regarding the Company's customers who accounted for 10% or more of
the Company's revenue for the fiscal years 2002, 2001 and 2000 is as follows:

<TABLE>
<CAPTION>
Fiscal year ended September 30,                        2002            2001            2000
===============================================================================================
                                                                ($ in thousands)
<S>                                                <C>      <C>   <C>       <C>   <C>       <C>
Covad Communications Company (Covad) (a)           $8,481   13%   $12,565   16%   $14,812   16%
Ingram Micro Inc. (Ingram Micro)                    7,970   12%     8,380   11%     6,162    7%
Rhythms NetConnections, Inc. (Rhythms) (b)             --   --      8,204   11%     5,181    6%
NorthPoint Communications, Inc. (NorthPoint) (c)       --   --      2,415    3%    10,608   12%
</TABLE>

----------
(a)   Covad filed a voluntary petition under the Bankruptcy Act in August 2001
      as part of a capital-restructuring plan. Covad emerged from bankruptcy in
      December 2001and has announced that it has adequate cash to allow it to
      become cash flow positive by the latter half of 2003.
(b)   Rhythms received Bankruptcy Court approval and completed the sale of a
      substantial portion of its assets to Worldcom Group in December 2001.
(c)   NorthPoint ceased operations during March 2001.


                                                                         Page 69
<PAGE>

                         Netopia, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements

No other customers during the fiscal years ended September 30, 2002, 2001 and
2000 accounted for 10% or more of the Company's total revenues. For fiscal year
2002, there were four customers who each individually represented at least 5% of
the Company's revenues and in the aggregate, accounted for 36% of the Company's
total revenues. For fiscal year 2001, there were three customers who each
individually represented at least 5% of the Company's revenues and in the
aggregate, accounted for 38% of the Company's total revenues. For fiscal year
2000, there were five customers who each individually represented at least 5% of
the Company's total revenues and in aggregate, accounted for 46% of the
Company's total revenues.

The following table sets forth the accounts receivable balance for the customers
identified above along with such data expressed as a percentage of total
accounts receivable:

<TABLE>
<CAPTION>
Fiscal year ended September 30,         2002               2001               2000
=======================================================================================
                                                     ($ in thousands)
<S>                                <C>        <C>     <C>        <C>     <C>        <C>
Covad                              $1,144     11%     $1,649     17%     $1,054      7%
Ingram Micro                        1,480     15%      1,881     20%      1,688     11%
Rhythms (a)                            --     --%         --     --%        912      6%
NorthPoint (b)                         --     --%         --     --%      1,680     11%
</TABLE>

----------
(a)   Beginning June 2001, Rhythms prepaid for all purchases of the Company's
      broadband Internet equipment products, and consequently accounted for no
      additional amounts of accounts receivable.

(b)   NorthPoint ceased operations during March 2001. During the three months
      ended December 31, 2000, the Company fully reserved approximately $1.7
      million related to NorthPoint's outstanding accounts receivable balance.
      Beginning January 2001, NorthPoint prepaid for all purchases of the
      Company's broadband Internet equipment products, and consequently
      accounted for no additional amounts of accounts receivable other than the
      amount previously fully reserved. During fiscal 2002, in a private
      transaction whereby the Company sold its claim in the NorthPoint
      bankruptcy proceedings, the Company recovered approximately $0.2 million
      of the $1.7 million receivable for which the Company had recorded a
      provision for doubtful accounts in fiscal 2001.

(11)  Long-Term Investments

In fiscal year 2001, the Company purchased $2.0 million of Series D Preferred
stock in MegaPath Networks Inc. (MegaPath). MegaPath offers high-speed DSL
access and eCommerce and Web hosting services to small and medium size
businesses. During fiscal years 2002 and 2001, MegaPath purchased $0.9 million
and $0.1 million, respectively, of the Company's products. At September 30,
2002, MegaPath's accounts receivable with the Company was $0.2 million. In
fiscal year 2002, the Company recorded a $1.4 million unrealized loss on
impaired securities related to its investment in MegaPath. This impairment was
recorded in connection with the valuation of MegaPath based upon its most recent
round of financing. During fiscal year 2002, the Company purchased $0.4 million
of Series E Preferred stock in MegaPath and currently owns approximately 4.0% of
MegaPath. Although there is no public market for MegaPath's stock, the Company
believes that the market value of its investment in Series D and Series E
Preferred shares is not less than the Company's $1.0 million carrying value at
September 30, 2002.

In fiscal year 2000, the Company purchased $2.0 million of Series C Preferred
Stock in Everdream Corporation (Everdream). Everdream provides outsourced
information technology (IT) expertise, products and services that enable small
and medium size businesses to focus on their core competencies. During fiscal
year 2000, the Company entered into an agreement with Everdream to host a
co-branded version of the Company's eStore platform for Everdream's customers.
During fiscal years 2001 and 2000, Everdream purchased $5,000 and $0.1 million,
respectively, of the Company's products. Everdream did not purchase any of the
Company's products during fiscal year 2002 and did not account for any accounts
receivable at September 30, 2002. In fiscal year 2002, the Company recorded a
$1.5 million unrealized loss on impaired securities related to its investment in
Everdream. This impairment was recorded in connection with the valuation of
Everdream based upon its most recent round of financing. The Company currently
owns approximately 2.5% of Everdream. Although there is no public market for
Everdream's stock, the Company believes that the market value of these shares is
not less than the Company's $0.5 million carrying value at September 30, 2002.

In April 1999, the Company purchased $1.0 million of Series D-1 Preferred Stock
of NorthPoint. Upon the initial public offering of the common stock of
NorthPoint in May 1999, the Company's Series D-1 Preferred


                                                                         Page 70
<PAGE>

                         Netopia, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements

Stock converted into 55,555 shares of Class B common stock. During fiscal year
2001, the Company recorded an unrealized loss on impaired securities to reflect
the entire loss of the investment in NorthPoint.

(12)  Restructuring Costs

During fiscal year 2002, the Company recorded a restructuring charge of $0.5
million in connection with a reduction in the Company's workforce of
approximately 24 people whose positions were determined to be redundant
subsequent to the closing of the Cayman acquisition. The charge consisted
primarily of employee severance benefits. Details of the restructuring charge is
as follows (in thousands):

         Total charge                                   $   482
         Less:
              Amounts paid                                  301
              Non-cash charges                               58
         ------------------------------------------------------
         Balance at September 30, 2002                  $   123
         ======================================================

During fiscal year 2001, the Company recorded a restructuring charge in
connection with a reduction in the Company's workforce of approximately 27
people and costs to exit certain business activities. The charge consisted of
employee severance benefits, costs related to exiting certain Internet portal
business activities and future lease costs associated with facilities to be
abandoned. Details of the restructuring charge is as follows:

                                    Employee    Internet
                                    severance  portal exit  Facility
                                    benefits      costs       costs        Total
================================================================================
                                                   (in thousands)

Total charge                           $475        $510        $88        $1,073
Less:
      Amounts paid                      320          97         47           464
      Non-cash charges                   63         413         --           476
--------------------------------------------------------------------------------

Balance at September 30, 2001            92          --         41           133
Less:
      Amounts paid                       20          --         --            20
--------------------------------------------------------------------------------
Balance at September 30, 2002          $ 72        $ --        $41        $  113
================================================================================

(13)  Integration Costs

During fiscal year 2002, the Company recorded a charge of $0.3 million for
integration costs incurred in connection with the Cayman acquisition for
integrating Cayman's customers, systems and operations. Details of the charge
for integration costs is as follows:

                                            Customer
                                           integration      Systems
                                         communications   integration      Total
================================================================================
                                                         (in thousands)

Total charge                                   $269           $40           $309
   Less amounts paid                            269            17            286
--------------------------------------------------------------------------------
Balance at September 30, 2002                  $ --           $23           $ 23
================================================================================

(14)  Terminated Merger Costs

During fiscal year 2001, the Company recorded a non-recurring charge of $2.6
million for costs incurred in connection with the terminated merger between the
Company and Proxim. The non-recurring charge consisted of fees for accounting
and legal advisory services, initiation of joint marketing and research


                                                                         Page 71
<PAGE>

                         Netopia, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements

and development expenses in anticipation of the merger that we had undertaken at
the direction of Proxim, certain shared merger costs, and other related
expenses. Details of the charge is as follows:

<TABLE>
<CAPTION>
                                   Accounting                    Joint
                                   and legal      Joint      research and      Shared
                                    advisory    marketing     development      merger
                                    services   commitments       costs          costs       Other        Total
===============================================================================================================
                                                                    (in thousands)
<S>                                  <C>           <C>            <C>            <C>         <C>         <C>
Total charge                         $1,257        $572           $429           $150        $232        $2,640
Less:
     Amounts paid                     1,257         560            429            117         216         2,579
     Non-cash charges                    --          --             --             --          16            16
---------------------------------------------------------------------------------------------------------------

Balance at September 30, 2001            --          12             --             33          --            45
Less:
     Amounts paid                        --          --             --             --          --            --
     Non-cash charges                    --          --             --             --          --            --
---------------------------------------------------------------------------------------------------------------
Balance at September 30, 2002        $   --        $ 12           $ --           $ 33        $ --        $   45
===============================================================================================================
</TABLE>

(15)  Credit Facility

In June 2002, the Company entered into a Loan and Security Agreement with
Silicon Valley Bank (the "Credit Facility"). Pursuant to the Credit Facility,
the Company may borrow up to $15.0 million from time to time from Silicon Valley
Bank. The term of the Credit Facility is two years. The Company must maintain an
adjusted quick ratio, as defined as the ratio of (i) the Company's unrestricted
cash maintained at Silicon Valley Bank plus cash equivalents maintained at
Silicon Valley Bank plus receivables and investments made on behalf of the
Company through Silicon Valley Bank's Investment Product Services Division ("ISP
Division") to (ii) the Company's current liabilities plus the outstanding
principal amount of any obligations less deferred revenues, of not less than
1.25 to 1 from June 2002 through December 31, 2002 and 1.5 to 1 from January 1,
2003 to the end of the term.

For the first year of the Credit Facility, the Company must maintain a tangible
net worth of not less than $32.0 million; the minimum tangible net worth
covenant will be reset for the second year of the Credit Facility. On December
9, 2002, Silicon Valley Bank waived the Company's default of the tangible net
worth covenant for the first year as set forth in the Credit Facility agreement.
There is no assurance that Silicon Valley Bank will waive any future default of
this or any other covenant contained in the Credit Facility agreement.

The Credit Facility bears interest at a rate equal to the prime rate (the rate
announced by Silicon Valley Bank as its "prime rate") plus 0.75% per annum. At
September 30, 2002, the interest rate was 5.5%. The credit limit is determined
based on a formula related to the amount of accounts receivable and inventory at
any particular time. The Company may borrow under the Credit Facility in order
to finance working capital requirements for new products and customers, and
otherwise for general corporate purposes in the normal course of business.

As of September 30, 2002, the Company had outstanding borrowings, collateralized
by the Company's accounts receivable and inventory, of $4.4 million. This
borrowing was recorded as a long-term liability on the Company's September 30,
2002 consolidated balance sheet based upon the contractual repayment terms that
exceed one year from the balance sheet date. As of September 30, 2002, $0.8
million was available under the Credit Facility. As of November 30, 2002, the
Company had repaid the borrowings outstanding as of September 30, 2002.


                                                                         Page 72
<PAGE>

                         Netopia, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements

(16)  Other Income (Loss), Net

Other income (loss), net consists of interest income the Company earns on its
cash, cash equivalents and short-term investments, interest expense related to
the Company's borrowing under its credit facility, realized and unrealized gains
and losses on foreign currency transactions as well as losses on impaired
securities that the Company deems other than temporary. The following table sets
forth for the periods indicated, detail of the Company's other income (loss),
net:

Fiscal years ended September 30,              2002          2001          2000
================================================================================

Interest income                             $   468       $ 2,619       $ 3,628
Interest expense                                (25)           --            --
Loss on impaired securities                  (2,943)       (1,000)           --
Other income (expense)                         (123)         (109)          (49)
-------------------------------------------------------------------------------
   Total                                    $(2,623)      $ 1,510       $ 3,579
================================================================================


                                                                         Page 73
<PAGE>

Schedule - Valuation and Qualifying Accounts

<TABLE>
<CAPTION>
                                                              Charged                      Balance
                                            Balance at      (credited)                      at end
                                           beginning of    to costs and                       of
               Description                    period         expenses       Deductions      period
==================================================================================================
                                                                  (in thousands)
<S>                                           <C>             <C>             <C>           <C>
Allowance for doubtful accounts:
  Fiscal year ended September 30, 2002        $  513          $  637          $1,057        $   93
  Fiscal year ended September 30, 2001         2,817           3,052           5,356           513
  Fiscal year ended September 30, 2000           579           2,832             594         2,817

Allowance for returns and rebates:
  Fiscal year ended September 30, 2002        $  128          $  349          $    3        $  474
  Fiscal year ended September 30, 2001           441              --             313           128
  Fiscal year ended September 30, 2000           217             336             112           441
</TABLE>

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

None.

PART III.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by Item 10 of Form 10-K regarding our directors is
incorporated by reference to the information contained in the section captioned
"Proposal No. 1 - Election of Directors" in our Proxy Statement to be filed with
the United States Securities and Exchange Commission within 120 days after the
end of the fiscal year ended September 30, 2002. The information required by
Item 10 of Form 10-K regarding our executive officers is set forth in the
section entitled "Executive Officers of the Registrant" in Part I, Item 4A of
this Form 10-K.

ITEM 11. EXECUTIVE COMPENSATION

The information required by Item 11 of Form 10-K is incorporated by reference to
the information contained in the section captioned "Executive Compensation and
Other Matters" in our Proxy Statement to be filed with the United States
Securities and Exchange Commission within 120 days after the end of the fiscal
year ended September 30, 2002.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by Item 12 is incorporated by reference to the
information contained in the section captioned "Security Ownership of Certain
Beneficial Owners and Management" in our Proxy Statement to be filed with the
United States Securities and Exchange Commission within 120 days after the end
of the fiscal year ended September 30, 2002.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by Item 13 is incorporated by reference to the
information contained in the section captioned "Certain Relationships and
Related Transactions" in our Proxy Statement to be filed with the United States
Securities and Exchange Commission within 120 days after the end of the fiscal
year ended September 30, 2002.

ITEM 14. CONTROLS AND PROCEDURES

As of a date within ninety (90) days of the date of this report (the "Evaluation
Date"), we carried out an evaluation, under the supervision and with the
participation of our management, including our President and Chief Executive


                                                                         Page 74
<PAGE>

Officer and Chief Financial Officer, of the effectiveness of the design and
operation of our disclosure controls and procedures pursuant to Rule 13a-14
under the Securities Exchange Act of 1934, as amended (the "Exchange Act").

Based upon this evaluation, our President and Chief Executive Officer and our
Chief Financial Officer concluded that, as of the Evaluation Date, our
disclosure controls and procedures were adequate to ensure that information
required to be disclosed in the reports filed or submitted under the Exchange
Act is recorded, processed, summarized and reported within the time periods
specified in the United States Securities and Exchange Commission rules and
forms.

Additionally, our President and Chief Executive Officer and Chief Financial
Officer determined, as of a date within ninety (90) days of the date of this
report, that there were no significant changes in our internal controls or in
other factors that could significantly affect our internal controls subsequent
to the date of their evaluation. The design of any system of controls and
procedures is based upon certain assumptions about the likelihood of future
events. There can be no assurance that any design will succeed in achieving its
stated goals under all potential future conditions.

PART IV.

ITEM 15. EXHIBITS, FINANCIAL SCHEDULES AND REPORTS ON FORM 8-K

(a)   See Item 8 for an index to the consolidated financial statements and
      supplementary financial information.

(b)   We did not file any Forms 8-K during the three months ended September 30,
      2002.

(c)   Exhibits have been filed separately with the United States Securities and
      Exchange Commission in connection with the Annual Report on Form 10-K or
      have been incorporated into the report by reference. You may obtain copies
      of such exhibits directly from us upon request.

      Exhibit
      Number     Description
      ------     -----------
      3.1(a)     Restated and Amended Certificate of Incorporation
      3.2(a)     Restated and Amended Bylaws of the Registrant
      3.3(b)     Certificate of Ownership and Merger (Corporate Name
                 Change)
      4.1        Reference is made to Exhibits 3.1, 3.2 and 3.3
      4.2(a)     Amended and Restated Investor Rights Agreement, dated
                 March 27, 1992, among the Registrant and the Investors and
                 Founders named therein, as amended
      10.1(a)    Form of Indemnification Agreement entered into between the
                 Registrant and it Directors and Officers
      10.2(a)    1996 Stock Option Plan and forms of agreements thereunder
      10.3(a)    Employee Stock Purchase Plan
      10.4(b)    Office Lease Agreement between the Company and WHLW Real
                 Estate Limited Partnership, dated May 1, 1997
      10.5(b)    Real Property Lease Extension Agreement between the
                 Company and Bobwhite Meadow, L.P., dated March 1,1996
      10.6(c)    Agreement of Purchase and Sale of Assets, dated August 5,
                 1998, by and between Netopia, Inc., a Delaware
                 corporation, and Farallon Networking Corporation, a
                 Delaware corporation
      10.7(d)    Serus Asset Purchase Agreement by and among Netopia, Inc.,
                 Serus LLC, Serus Acquisition Corporation and the Members
                 of Serus LLC dated as of December 16, 1998 (including
                 exhibits thereto)
      10.8(e)    Agreement and Plan of Reorganization dated September 28,
                 1999 by and between Netopia, Inc., a Delaware corporation,
                 SN Merger Corporation, a Delaware corporation that is a
                 wholly-owned subsidiary of Netopia, and StarNet
                 Technologies, Inc., a California corporation
      10.9(f)    Agreement and Plan of Reorganization, dated February 22,
                 2000 by and among Netopia, Inc., a Delaware corporation,
                 WO Merger Corporation, a Delaware corporation and
                 wholly-owned subsidiary of Netopia (Sub) and WebOrder, a
                 California corporation


                                                                         Page 75
<PAGE>

      10.10(g)   2000 Stock Incentive Plan and forms of agreements
                 thereunder
      10.11(h)   Agreement and Plan of Merger and Reorganization among
                 Netopia, Inc., Amazon Merger Corporation, Cayman Systems,
                 Inc., Certain Holders of Convertible Subordinated
                 Promissory Notes and Richard Burnes, as Security Holders'
                 Representative, dated as of September 19, 2001
      10.12(i)   Netopia, Inc. 2002 Equity Incentive Plan; as adopted by
                 the Netopia Board of Directors on December 13, 2001 and
                 approved by the Netopia shareholders on January 30, 2002
      10.13(j)   Silicon Valley Bank Loan and Security Agreement entered
                 into on June 27, 2002 10.14 Office Lease Agreement dated
                 December 9, 2002 between the Company and Christie Avenue
                 Partner - JS
      11.1       Reference is made to Note 1 of Notes to Consolidated
                 Financial Statements
      21.1(k,l)  Subsidiaries of the Registrant
      23.1       Consent of KPMG LLP, Independent Auditors
      24.1       Power of Attorney (see Signature page)
      99.1       Certifications pursuant to Section 906 of the
                 Sarbanes-Oxley Act of 2002

      ----------
      (a)        Incorporated by reference to our Registration Statement on
                 Form S-1 (No. 333-3868).
      (b)        Incorporated by reference to our Form 10-K for the fiscal
                 year ended September 30, 1997.
      (c)        Incorporated by reference to our Form 8-K as filed on
                 August 20, 1998.
      (d)        Incorporated by reference to our form 10-K for the fiscal
                 year ended September 30, 1998.
      (e)        Incorporated by reference to our Form 8-K as filed on
                 October 28, 1999.
      (f)        Incorporated by reference to our Form 8-K as filed on
                 April 7, 2000.
      (g)        Incorporated by reference to our Form S-8 as filed on
                 December 8, 2000.
      (h)        Incorporated by reference to our Form 8-K as filed on
                 October 17, 2001.
      (i)        Incorporated by reference to our Form 10-Q as filed on May
                 15, 2002.
      (j)        Incorporated by reference to our Form 10-Q as filed on
                 August 14, 2002.
      (k)        Incorporated by reference to our Registration Statement on
                 Form S-1 (No. 333-3868) for our Subsidiary in France.
      (l)        Updated for our new subsidiaries in the United States.


                                                                         Page 76
<PAGE>

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities indicated, in the City of
Alameda, State of California on this 20th day of December 2002.


                             By:      /s/ Alan B. Lefkof
                                      ------------------------------------------
                                      Alan B. Lefkof
                                      President and Chief Executive Officer


                             By:      /s/ William D. Baker
                                      ------------------------------------------
                                      William D. Baker
                                      Senior Vice President, Finance and
                                      Operations, and Chief Financial Officer
                                      (Principal Financial and Accounting
                                      Officer)

Dated: December 20, 2002

                                POWER OF ATTORNEY

By signing this form 10-K below, I hereby appoint each of Alan B. Lefkof and
William D. Baker as my attorney-in-fact to sign all amendments to this Form 10-K
on my behalf, and to file this Form 10-K (including all exhibits and other
documents related to the form 10-K) with the United States Securities and
Exchange Commission. I authorize each of my attorneys-in-fact to (1) appoint a
substitute attorney-in-fact for himself and (2) perform any actions that he
believes are necessary or appropriate to carry out the intention and purpose of
this Power of Attorney. I ratify and confirm all lawful actions taken directly
or indirectly by my attorneys-in-fact and by any properly appointed substitute
attorneys-in-fact.

Pursuant to the requirements of the Securities Exchange Act of 1934, the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated have signed this report.

<TABLE>
<CAPTION>
             Signature                                      Title                                       Date
==================================================================================================================
<S>                                       <C>                                                    <C>
/s/ David F. Marquardt                    Director                                               December 20, 2002
-------------------------------------
David F. Marquardt


/s/ Robert Lee                            Director                                               December 20, 2002
-------------------------------------
Robert Lee


/s/ Harold S. Wills                       Director                                               December 20, 2002
-------------------------------------
Harold S. Wills
</TABLE>


                                                                         Page 77
<PAGE>

                                  CERTIFICATION


I, Alan B. Lefkof, certify that:

1.    I have reviewed this annual report on Form 10-K of Netopia, Inc.;

2.    Based on my knowledge, this annual report does not contain any untrue
      statement of a material fact or omit to state a material fact necessary to
      make the statements made, in light of the circumstances under which such
      statements were made, not misleading with respect to the period covered by
      this annual report;

3.    Based on my knowledge, the financial statements, and other financial
      information included in this annual report, fairly present in all material
      respects the financial condition, results of operations and cash flows of
      the registrant as of, and for, the periods presented in this annual
      report;

4.    The registrant's other certifying officers and I are responsible for
      establishing and maintaining disclosure controls and procedures (as
      defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
      have:

            a)    designed such disclosure controls and procedures to ensure
                  that material information relating to the registrant,
                  including its consolidated subsidiaries, is made known to us
                  by others within those entities, particularly during the
                  period in which this annual report is being prepared;

            b)    evaluated the effectiveness of the registrant's disclosure
                  controls and procedures as of a date within 90 days prior to
                  the filing date of this annual report (the "Evaluation Date");
                  and

            c)    presented in this annual report our conclusions about the
                  effectiveness of the disclosure controls and procedures based
                  on our evaluation as of the Evaluation Date;

5.    The registrant's other certifying officer and I have disclosed, based on
      our most recent evaluation, to the registrant's auditors and the audit
      committee of registrant's board of directors:

            a)    all significant deficiencies in the design or operation of
                  internal controls which could adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial data and have identified for the registrant's
                  auditors any material weaknesses in internal controls; and

            b)    any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal controls; and

6.    The registrant's other certifying officer and I have indicated in this
      annual report whether there were significant changes in internal controls
      or in other factors that could significantly affect internal controls
      subsequent to the date of our most recent evaluation, including any
      corrective actions with regard to significant deficiencies and material
      weaknesses.


Date: December 20, 2002


                              By:      /s/ Alan B. Lefkof
                                       -----------------------------------------
                                       Alan B. Lefkof
                                       President and Chief Executive Officer


                                                                         Page 78
<PAGE>

                                  CERTIFICATION


I, William D. Baker, certify that:

1.    I have reviewed this annual report on Form 10-K of Netopia, Inc.;

2.    Based on my knowledge, this annual report does not contain any untrue
      statement of a material fact or omit to state a material fact necessary to
      make the statements made, in light of the circumstances under which such
      statements were made, not misleading with respect to the period covered by
      this annual report;

3.    Based on my knowledge, the financial statements, and other financial
      information included in this annual report, fairly present in all material
      respects the financial condition, results of operations and cash flows of
      the registrant as of, and for, the periods presented in this annual
      report;

4.    The registrant's other certifying officers and I are responsible for
      establishing and maintaining disclosure controls and procedures (as
      defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
      have:

            a)    designed such disclosure controls and procedures to ensure
                  that material information relating to the registrant,
                  including its consolidated subsidiaries, is made known to us
                  by others within those entities, particularly during the
                  period in which this annual report is being prepared;

            b)    evaluated the effectiveness of the registrant's disclosure
                  controls and procedures as of a date within 90 days prior to
                  the filing date of this annual report (the "Evaluation Date");
                  and

            c)    presented in this annual report our conclusions about the
                  effectiveness of the disclosure controls and procedures based
                  on our evaluation as of the Evaluation Date;

5.    The registrant's other certifying officer and I have disclosed, based on
      our most recent evaluation, to the registrant's auditors and the audit
      committee of registrant's board of directors:

            a)    all significant deficiencies in the design or operation of
                  internal controls which could adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial data and have identified for the registrant's
                  auditors any material weaknesses in internal controls; and

            b)    any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal controls; and

6.    The registrant's other certifying officer and I have indicated in this
      annual report whether there were significant changes in internal controls
      or in other factors that could significantly affect internal controls
      subsequent to the date of our most recent evaluation, including any
      corrective actions with regard to significant deficiencies and material
      weaknesses.


Date: December 20, 2002


                              By:      /s/ William D. Baker
                                       -----------------------------------------
                                       William D. Baker
                                       Senior Vice President, Finance and
                                       Operations, and Chief Financial Officer
                                       (Principal Financial and Accounting
                                       Officer)


                                                                         Page 79