<PAGE>   1

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                               ------------------
                                    FORM 10-Q

(MARK ONE)
   [X]                QUARTERLY REPORT UNDER SECTION 13 OR
                  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
                 FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2001

                                       OR

   [ ]             TRANSITION REPORT PURSUANT TO SECTION 13 OR
                  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
                 FOR THE TRANSITION PERIOD FROM ______ TO _______

                        COMMISSION FILE NUMBER 000-30741

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

<TABLE>
<S>                                                    <C>
               DELAWARE                                    77-0442752
   (State or other jurisdiction of                      (I.R.S. Employer
    incorporation or organization)                     Identification No.)

           301 SCIENCE DRIVE                                  93021
          MOORPARK, CALIFORNIA                              (Zip Code)
(Address of principal executive office)
</TABLE>

                                 (805) 553-9680
              (Registrant's telephone number, including area code)

                                       N/A
      (Former name, former address and former fiscal year, if changed since
                                  last report)

INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL DOCUMENTS AND
REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS.

                               YES [X]   NO [ ]

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

       Number of shares of Common Stock outstanding as of May 11, 2001:
50,530,972 shares.


<PAGE>   2

                                      INDEX

<TABLE>
<CAPTION>
Part I  Financial Information                                                                      Page
-----------------------------                                                                      ----
<S>                                                                                                <C>
Item 1.     Consolidated Balance Sheets..................................................            1
            Consolidated Statements of Operations........................................            2
            Consolidated Statements of Cash Flows........................................            3
            Notes to Consolidated Financial Statements...................................            4

Item 2.     Management's Discussion and Analysis of Financial Condition and Results of
              Operations.................................................................            9

Item 3.     Quantitative and Qualitative Disclosures About Market Risk ..................           35

Part II    Other Information
----------------------------

Item 1.      Legal Proceedings............................................................          36

Item 2.      Changes in Securities and Use of Proceeds....................................          36

Item 3.      Defaults Upon Senior Securities..............................................          37

Item 4.      Submission of Matters to a Vote of Security Holders..........................          37

Item 5.      Other Information............................................................          37

Item 6.      Exhibits and Reports on Form 8-K.............................................          38
             A.  Exhibits.................................................................          38
             B.  Reports on Form 8-K......................................................          38

Signatures................................................................................          39
</TABLE>

              In this Report, "Accelerated Networks," the "Company," "we," "us"
and "our" collectively refers to Accelerated Networks, Inc.


                                       i
<PAGE>   3

                          PART I. FINANCIAL INFORMATION

                          ITEM 1. FINANCIAL STATEMENTS

                           ACCELERATED NETWORKS, INC.
                           CONSOLIDATED BALANCE SHEETS
                       (THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                                          AS OF
                                                                              -----------------------------
                                                                              MARCH 31,          DECEMBER 31,
                                                                                 2001                2000
                                                                              ---------          ------------
                                     ASSETS                                  (unaudited)
<S>                                                                          <C>                 <C>
Current assets:
  Cash and cash equivalents ........................................          $  46,052           $  62,194
  Short term investments ...........................................             17,504               7,913
  Accounts receivable, net of allowance for doubtful accounts
     of $760  at March 31, 2001 and December 31, 2000...............                516               5,490
  Amounts due from related party ...................................              1,582              11,147
  Inventories ......................................................              6,843               5,266
  Prepaid and other current assets .................................              1,564               1,570
                                                                              ---------           ---------
    Total current assets ...........................................             74,061              93,580
Property and equipment, net ........................................             11,237              10,164
Other Assets .......................................................                183                 199
                                                                              ---------           ---------
      Total assets .................................................          $  85,481           $ 103,943
                                                                              =========           =========
                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable and accrued expenses ............................              9,314              13,216
  Accrued payroll ..................................................              1,449               1,708
  Capital lease obligations, current ...............................                101                  97
  Credit facilities, current .......................................                 --                  --
  Deferred revenue .................................................              3,041               3,370
                                                                              ---------           ---------
      Total current liabilities ....................................             13,905              18,391
Capital lease obligations, net of current portion ..................                142                 168
Credit facilities, net of current portion ..........................                 --                  --
                                                                              ---------           ---------
    Total liabilities ..............................................             14,047              18,559
                                                                              ---------           ---------
Commitments and contingencies

Redeemable convertible preferred stock .............................                 --                  --
Stockholders' equity................................................
  Common stock, authorized -- 200,000 shares;  issued and
     outstanding -- 50,531 and 50,387 shares at March 31,
     2001 and December 31, 2000, respectively ......................                 51                  50
  Additional paid-in capital .......................................            179,367             180,913
  Deferred stock compensation ......................................             (2,855)             (4,391)
  Foreign currency translation adjustment ..........................                (80)                (79)
  Accumulated deficit ..............................................           (105,049)            (91,109)
                                                                              ---------           ---------
      Total stockholders' equity ...................................             71,434              85,384
                                                                              ---------           ---------
      Total liabilities and stockholders' equity ...................          $  85,481           $ 103,943
                                                                              =========           =========
</TABLE>

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


                                       1
<PAGE>   4

                           ACCELERATED NETWORKS, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                       (THOUSANDS, EXCEPT PER SHARE DATA)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                         THREE MONTHS ENDED
                                                                    ---------------------------
                                                                    MARCH 31,          MARCH 31,
                                                                      2001               2000
                                                                    --------           --------
<S>                                                                 <C>                <C>
Net revenue (includes related party revenue
  of $1,311 and 1,332 for the three months
  ended March 31, 2001 and 2000,
  respectively) ..........................................          $  1,559           $  7,152
Cost of revenue ..........................................             2,437              5,355
                                                                    --------           --------

Gross profit .............................................              (878)             1,797

Operating expenses
  Research and product development .......................             7,515              5,428
  Sales and marketing ....................................             3,857              4,644
  General and administrative .............................             2,548                952
                                                                    --------           --------

    Total operating expenses .............................            13,920             11,024
                                                                    --------           --------

Loss from operations .....................................           (14,798)            (9,227)

  Other income, net ......................................               858                385
                                                                    --------           --------

Loss before provision for income taxes ...................           (13,940)            (8,842)

Provision for income taxes ...............................                --                  1
                                                                    --------           --------

Net loss .................................................           (13,940)            (8,843)

Beneficial conversion feature ............................                --             (9,882)
                                                                    --------           --------

Net loss applicable to common stockholders ...............          $(13,940)          $(18,725)
                                                                    ========           ========

Basic and diluted net loss per share
  applicable to common stockholders ......................          $  (0.28)          $  (2.44)
                                                                    ========           ========

Weighted-average shares outstanding used to
  compute basic and diluted net loss per
  share applicable to common stockholders ................            49,454              7,664
                                                                    ========           ========

Amortization of deferred compensation included in:

Cost of revenues .........................................          $     18           $    268

Research and product development .........................                53              1,278

Sales and marketing ......................................              (178)               681

General and administrative ...............................                86                158
                                                                    --------           --------
                                                                    $    (21)          $  2,385
                                                                    ========           ========
</TABLE>


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


                                       2
<PAGE>   5

                           ACCELERATED NETWORKS, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                      THREE MONTHS ENDED
                                                                                  ---------------------------
                                                                                  MARCH 31,          MARCH 31,
                                                                                    2001               2000
                                                                                  --------           --------
<S>                                                                               <C>                <C>
Operating activities:
  Net loss .............................................................          $(13,940)          $ (8,843)
  Adjustments to reconcile net loss to net cash used in operating
  activities:
    Depreciation and amortization ......................................             1,095                508
    Provision for bad debts ............................................                --                 84
    Amortization of deferred stock compensation ........................               (21)             2,385
    Changes in current assets and liabilities:
      Accounts receivable ..............................................            14,539             (1,285)
      Inventories ......................................................            (1,577)               413
      Prepaid and other assets .........................................                22               (425)
      Accounts payable and accrued expenses ............................            (3,902)             2,252
      Accrued payroll ..................................................              (259)              (127)
      Deferred revenue .................................................              (329)               320
                                                                                  --------           --------
        Net cash used for operating activities .........................            (4,372)            (4,718)

INVESTING ACTIVITIES:
  Purchase of available-for-sale  securities, net of
     maturities ........................................................            (9,591)                --
  Purchase of property and equipment ...................................            (2,168)            (1,584)
                                                                                  --------           --------
        Net cash used in investing activities ..........................           (11,759)            (1,584)

FINANCING ACTIVITIES:
  Proceeds from issuance of redeemable convertible preferred
      stock, net .......................................................                --             38,425
  Proceeds from exercise of stock options, net of repurchases ..........                11                630
  Payments under capital lease obligations and credit
      facilities .......................................................               (22)              (162)
                                                                                  --------           --------
        Net cash provided (used) by financing activities ...............               (11)            38,893
                                                                                  --------           --------
        Net increase (decrease) in cash and cash equivalents ...........           (16,142)            32,591
Cash and cash equivalents at beginning of period .......................            62,194             15,207
                                                                                  --------           --------
Cash and cash equivalents at end of period .............................          $ 46,052           $ 47,798
                                                                                  ========           ========
Supplemental disclosure of non-cash transactions:
  Reversal of deferred stock compensation related to
      stock option cancellations .......................................          $  1,536                 --
                                                                                  ========           ========
</TABLE>


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


                                       3
<PAGE>   6

                           ACCELERATED NETWORKS, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (ALL INTERIM INFORMATION RELATING TO THE PERIODS ENDED
                      MARCH 31, 2001 AND 2000 IS UNAUDITED)



   1. BUSINESS AND BASIS OF PRESENTATION

The Company

       Accelerated Networks, Inc. (the "Company") develops, manufactures, and
markets telecommunications products that enable the bundling of voice and data
services over a single broadband access network. The Company's target customers
are providers of voice and/or data services including competitive local exchange
carriers, or CLECs, interexchange carriers, or IXCs, regional bell operating
companies, or RBOCs, incumbent local exchange carriers, or ILECs, and foreign
telephone companies. The market for the Company's products is extremely
competitive and is characterized by rapid technological change, new product
development and product obsolescence, and a competitive business environment for
the attraction and retention of knowledge workers.

Basis of Presentation

       The accompanying consolidated financial statements of the Company are
unaudited, other than the consolidated balance sheet at December 31, 2000, and
reflect all material adjustments, consisting only of normal recurring
adjustments, which in the opinion of management are necessary to present fairly
the Company's financial position, results of operations and cash flows for the
interim periods. The results of operations for the current interim periods are
not necessarily indicative of results to be expected for the entire fiscal year.

       These consolidated financial statements have been prepared in accordance
with the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations. These
consolidated financial statements should be read in conjunction with the
consolidated financial statements and the notes thereto included in the
Company's Form 10-K, as filed with the Securities and Exchange Commission on May
8, 2001 for the year ended December 31, 2000.

        The Company reports its quarterly results based on a thirteen week
accounting calendar. Accordingly, the actual quarter end for the first quarter
of fiscal 2001 was March 30, 2001. However, for financial presentation purposes,
the Company reports its quarterly results as of the last calendar day of the
last full month within the period.


                                       4
<PAGE>   7

Use of Estimates

       In the normal course of preparing financial statements in conformity with
generally accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.

2.     NET LOSS PER SHARE

       The following table sets forth the computation of basic and diluted net
loss per share (thousands, except per share data):

<TABLE>
<CAPTION>
                                                  Three Months Ended
                                              ---------------------------
                                              March 31,          March 31,
                                                2001               2000
                                              --------           --------
<S>                                           <C>                <C>
Numerator:
Net loss                                      $(13,940)          $(18,725)
                                              ========           ========

Denominator (basic and diluted):
Weighted average shares
outstanding                                     50,498             10,309

Less: weighted average common
  shares subject to repurchase                  (1,044)            (2,645)
                                              --------           --------
Weighted average shares used to
  compute basic and diluted net
  loss per share                                49,454              7,664
                                              ========           ========

Basic and diluted net loss per share          $  (0.28)          $  (2.44)
                                              ========           ========
</TABLE>

The following table presents common stock equivalents (potential common stock)
that are not included in the diluted net loss per share calculation above
because their effect would be antidilutive for the periods indicated (shares in
thousands):

<TABLE>
<CAPTION>
                                                      Three Months Ended
                                                   -------------------------
                                                   March 31,       March 31,
                                                     2001            2000
                                                   ---------       ---------
<S>                                                <C>             <C>
Weighted-average common stock equivalents:
Preferred stock                                         --          33,133
Unvested shares of common stock subject to
   repurchase                                        1,044           2,645
Warrants                                                29              29
Stock options                                        4,526           4,626
                                                    ------          ------
                                                     5,599          40,433
                                                    ======          ======
</TABLE>

3.     INVENTORIES


                                       5
<PAGE>   8

       Inventories consist of the following (in thousands):

<TABLE>
<CAPTION>
                        March 31,      December 31,
                          2001            2000
                        ---------      ------------
<S>                     <C>            <C>
Raw materials            $2,510          $1,651
Work-in-process             800             925
Finished goods            3,533           2,690
                         ------          ------
                         $6,843          $5,266
                         ======          ======
</TABLE>

4.     SIGNIFICANT CUSTOMERS AND SEGMENT REPORTING

       For the three months ended March 31, 2001, sales to the Company's largest
customer (a related party) accounted for approximately 84% of total revenue.
With the deterioration of market conditions in the telecommunications industry,
certain customers have acknowledged that not all of their purchased inventory
has been deployed in service provider networks. To date, the Company has not
granted inventory return rights and only limited stock rotation rights to
certain types of customers, the revenue for which has been fully deferred as of
March 31, 2001. The Company has collected the majority of its accounts
receivable outstanding at March 31, 2001 subsequent to the end of the period,
pursuant to normal payment terms.

       The Company operates in one industry segment providing multi-service
broadband access products. Through March 31, 2001, the Company's foreign
operations have been insignificant.


5.     RELATED-PARTY TRANSACTIONS

       For the three month periods ended March 31, 2001 and March 31, 2000, the
Company sold product of approximately $1,311,000 and $1,332,000, respectively,
to a significant stockholder (the "Stockholder") of the Company. At March 31,
2001 amounts due from the Stockholder totaled $1,582,000.

       In connection with certain sales to the Stockholder commencing in the
quarter ended September 30, 2000, the Company agreed to guarantee a portion of
the financing provided by the Stockholder to one of the Stockholder's customers,
an end-user of the Company's products (the "End User"). Under the terms of the
recourse guarantee, the Company has agreed to guarantee 10% of the aggregate
amount of the Company's products sold by the Stockholder to the End User, up to
$15,000,000, through November 2007. The Company defers 10% of all product
revenue related to these shipments. Through March 31, 2001, the Company has
shipped $12,200,000 under this arrangement, of which $1,220,000 has been
deferred.

       On April 18, 2001, the End User voluntarily filed for protection under
Chapter 11 of the U.S. Bankruptcy Code. As of May 10, 2001, the Company had
approximately $303,000 in accounts receivable outstanding related to sales
transactions between the


                                       6
<PAGE>   9

Stockholder and the End User. While management believes that the Stockholder is
ultimately obligated to pay pursuant to the standard terms and conditions
included in the contracts between the Company and the Stockholder, management
also believes that any collection risk related to these sales transactions are
adequately accounted for in the Company's bad debt reserves.

       In addition, the Company has not been notified as to whether an event of
default between the Stockholder and the End User has occurred, and whether or
not the Company may be obligated to pay its applicable portion of the recourse
guarantee in the event of any such default.


6.     LEGAL PROCEEDINGS

Securities Class Action Litigation

       As of May 11, 2001, eight securities class action lawsuits had been filed
against the Company and certain current and former officers, in the United
States District Court for the Central District of California. The lawsuits
allege that defendants made materially false and/or misleading statements
regarding the Company's financial condition and prospects during the period of
June 22, 2000 through April 17, 2001, in violation of sections 10(b), 10b-5 and
20(a) of the Securities Exchange Act of 1934. The Company expects that the cases
and any subsequently filed cases will be consolidated into a single action. The
Company believes that these lawsuits are without merit and it intends to
vigorously defend itself. The Company has not recorded any charge related to
these claims.

Product Defect Litigation

       In October 2000, the Company was advised by one of its customers that the
customer believed that certain of the Company's products sold and delivered to
the customer were defective and that it believed that the Company failed to
perform under the agreement between the two parties. The customer demanded that
it be permitted to return the products to the Company in exchange for a return
of the purchase price of approximately $3.0 million.

       On May 8, 2001, the customer filed a lawsuit against the Company in the
United States District Court of Colorado related to this claim. The Company has
denied the customer's allegations, and has retained counsel to continue
investigation into the allegations. The Company has not recorded any charge
related to this claim.

Patent Claim

       In July 2000, the Company received notification from a competitor of
alleged patent infringement related to the distribution of certain of its
products. The Company has engaged outside legal counsel with respect to this
matter and believes that the resolution of this matter will not have a material
adverse effect on the Company's consolidated financial position, results of
operations or cash flows. The Company has not recorded any charge related to
this claim.


                                       7
<PAGE>   10

7.     RECENT EVENTS

       On February 12, 2001, Mr. Gary J. Sbona replaced Mr. Suresh Nihalani as
the Company's Chief Executive Officer and Chairman of the Board of Directors. On
February 13, 2001, Mr. H. Michael Hogan III replaced Mr. Frederic T. Boyer as
the Company's Chief Financial Officer. In addition, the Company entered into an
agreement with Regent Pacific Management Corporation ("Regent Pacific"), a
management firm of which Mr. Sbona is the Chief Executive Officer, pursuant to
which Regent Pacific will provide management services to the Company, including
the services of Mr. Sbona and Mr. Hogan, two of a six-person Regent Pacific
Management team. The agreement has an 18-month term and may be cancelled by the
Company after expiration of the initial 12-month period, with a minimum
compensation to Regent Pacific of $3,900,000 for that initial period.

8.     SUBSEQUENT EVENTS

       In May 2001, the Company announced a new operating plan designed to meet
the following objectives:

       -      optimize the organization and reduce operating expenses;

       -      refocus R&D efforts to maximize current product lines and
              development of certain next generation product lines; and

       -      redirect sales and marketing activities to focus on near-term
              sales and profit opportunities and potential future customers.

       Implementation of major components of this operating plan began in the
second quarter of 2001, and included a workforce reduction of approximately 30%
in headcount. The initial savings from these reductions is expected to occur in
the third quarter of 2001. The Company expects to incur one-time charges related
to employee separation and restructuring in the second quarter of fiscal 2001.

       On April 24, 2001, the Company received a Nasdaq staff determination
that, pursuant to Marketplace Rule 4310(c)(14), the Company's common stock is
subject to delisting from The Nasdaq National Market because the Company delayed
the filing of its Form 10-K for the period ended December 31, 2000. The Company
has since filed its Form 10-K on May 8, 2001. In response to the Staff
Determination, the Company requested a hearing before the Nasdaq Listing
Qualifications Panel, which was scheduled for May 10, 2001. On May 11, 2001, the
Company announced that this hearing had been rescheduled to June 8, 2001,
because Nasdaq staff had requested the hearing be continued for 30 days to allow
it sufficient time to determine the necessity of a hearing.


                                       8
<PAGE>   11

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

       This report on Form 10-Q contains forward-looking statements based on our
current expectations, estimates and projections about our industry, management's
beliefs and certain assumptions made by us. Words such as "anticipates,"
"expects," "intends," "plans," "believes," "may," "will" or similar expressions
are intended to identify forward-looking statements. In addition, any statements
that refer to expectations, projections or other characterizations of future
events or circumstances, including any underlying assumptions, are
forward-looking statements. Such statements are not guarantees of future
performance and are subject to certain risks, uncertainties and assumptions that
are difficult to predict. Therefore, our actual results could differ materially
and adversely from those expressed in any forward-looking statements as a result
of various factors. The section entitled "Risk Factors" set forth in this Form
10-Q and similar discussions in our registration statement declared effective by
the SEC on June 22, 2000 and our subsequent reports on Form 10-K and Form 10-Q/A
filed with the SEC on May 8, 2001, discuss some of the important risk factors
that may affect our business, results of operations and financial condition. You
should carefully consider those risks, in addition to the other information in
this report and in our other filings with the SEC, before deciding to invest in
our company or to maintain or increase your investment. We undertake no
obligation to revise or update publicly any forward-looking statements for any
reason. The information contained in this Form 10-Q is not a complete
description of our business or the risks associated with an investment in our
common stock. We urge you to carefully review and consider the various
disclosures made by us in this report and in our other reports filed with the
SEC that discuss our business in greater detail.

OVERVIEW

       We design and market telecommunications products that enable the bundling
of voice and data services over a single broadband access network. Our
multiservice broadband access products are designed to allow our customers to
efficiently and cost-effectively deliver and manage multiple voice and data
services over a single broadband access facility using various broadband access
technologies. Our target customers are CLECs, IXCs, RBOCs, ILECs, and foreign
telephone companies.

       We were incorporated in October 1996. From inception through March 1999,
our operating activities consisted primarily of developing a research and
development organization, testing prototype designs, staffing of our marketing,
sales, field service and customer support organizations, building a management
team, and establishing relationships with potential customers. We commenced
shipments of our MSAP voice gateways, MSAP concentrators and carrier-class IADs
in the second calendar quarter of 1999. Since inception, we have incurred
significant losses and as of March 31, 2001, we had an accumulated deficit of
$105.0 million. We have not achieved profitability on a quarterly or annual
basis and do not expect to achieve profitability in the near future, if at all.
We expect to incur significant research and development, sales and marketing,
and general and administrative expenses in the future and, as a result, we will
need to generate significantly higher revenue to achieve and maintain
profitability.


                                       9
<PAGE>   12

       We believe our future success is dependent upon establishing successful
relationships with a variety of distribution partners. To date, we have entered
into a value-added reseller agreement with Solunet and OEM relationships with
Siemens AG and its affiliate, Siemens ICN. To be successful, we must reach
agreements with additional distribution partners, both domestically and
internationally. Similarly, the complexity of our products require highly
trained customer service, professional services and support personnel.

       Currently, competition in our market is intense. We continue to add
features to our products based on the needs of our current and potential
customers. This has resulted in increased research and development expenses and
may result in reduced operating margins. We expect competition to increase in
the future. This competition may also result in price reductions and loss of
market share. We expect that product life cycles will remain relatively short
and that the average selling price and gross margin for our products will
decline as each product matures. To offset such declines, we must introduce new,
higher performance products on a timely basis. Further, we must reduce our
manufacturing costs on a per unit basis and sell sufficient volumes in order to
maintain our gross margin. If we fail to reduce our manufacturing costs on a per
unit basis or achieve volume shipment requirements, our gross margin will
decline. Any of the above events could have a material and adverse effect on our
business, results of operations and financial condition.

Recent Events

       In February 2001, Suresh Nihalani resigned as our Chief Executive Officer
and Chairman, and Fred Boyer, our Chief Financial Officer and Vice President of
Finance and Administration, left the company. In connection with these changes,
executives of Regent Pacific Management Corporation filled several senior
management positions, including Chief Executive Officer, Chief Financial
Officer, and Vice President of Sales and Marketing. Mr. Nihalani will remain an
employee of the Company and will provide consulting to the new management on an
as-needed basis through February 2002. In May 2001, we announced a new operating
plan designed to meet the following objectives:

       -      optimize the organization and reduce operating expenses;

       -      refocus R&D efforts to maximize current product lines and
              development of certain next generation product lines; and

       -      redirect sales and marketing activities to focus on near-term
              sales and profit opportunities and potential future customers.

       Implementation of major components of this operating plan began in the
second quarter of 2001, and included a workforce reduction of approximately 30%
in headcount. The initial savings from these reductions is expected to occur in
the third quarter of 2001. We expect to incur one-time charges related to
employee separation and restructuring in the second quarter of fiscal 2001.
There can be no assurance that our management, including Regent Pacific, will be
able to successfully complete the implementation of the plan or that any of its
objectives will be achieved. In addition, we may make other significant changes
to our business, strategies and operating budget as a result of the plan.


                                       10
<PAGE>   13

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THE
THREE MONTHS ENDED MARCH 31, 2000

NET REVENUE

       To date, we have generated substantially all of our revenue from sales of
our MSAP and carrier-class IAD products and we believe that sales of these
products will continue to account for substantially all of our revenue for the
foreseeable future. Sales of our MSAP and carrier-class IAD products constituted
approximately 38% and 62%, respectively, of our revenue for the three months
ended March 31, 2001 and approximately 48% and 52%, respectively, of our revenue
for the three months ended March 31, 2000.

       We recognized net revenue of approximately $1.6 million for the three
months ended March 31, 2001, which represented a decrease of approximately $5.6
million, or 78%, from approximately $7.2 million for the three months ended
March 31, 2000. This decrease was attributable to decreased sales of both our
MSAP voice gateways and concentrators and our carrier-class IAD's, primarily as
a result of the deterioration of market conditions in the telecommunications
equipment industry which has severely impacted our customers' spending. For
example, during the three months ended March 31, 2001 one of our customers
cancelled an expected $3.6 million order and we reversed approximately $578,000
in revenues related to shipments made to a customer that filed for Chapter 11
bankruptcy protection in April 2001. In addition, we have historically derived
the majority our revenues through our relationship with Siemens, who in recent
periods has derived a substantial portion of revenues related to our products
from a single customer. In April 2001, this customer filed for Chapter 11
bankruptcy protection, which also negatively impacted our anticipated revenues
for the three months ended March 31, 2001 and will negatively impact the
remainder of fiscal 2001. We expect that the current conditions in the
telecommunications equipment industry will continue to have a negative impact on
the financial condition of our existing and prospective customers.

       For the three months ended March 31, 2001, sales to our largest customer,
Siemens, accounted for approximately 84% of our revenue. For the year ended
December 31, 2000, sales to our three largest customers accounted for
approximately 90% of our revenue, of which sales to Siemens, CTC Communications
Group and Lightyear Communications, Inc. (formerly UniDial Communications, Inc.)
accounted for approximately 38%, 26% and 26% of our revenue, respectively. While
we anticipate that sales to any specific customer will vary from period to
period, we expect that we will continue to have significant customer
concentration for the foreseeable future. To date, we have derived a significant
portion of our revenue from a small number of orders and our sales have been
made on the basis of individual purchase orders, rather than long-term
commitments. In addition, while Siemens AG currently owns approximately 18.1% of
our common stock and has been a significant distribution channel for us, Siemens
may decide to focus its efforts in the future on Efficient Networks' products,
given its recent acquisition of Efficient Networks. There can be no assurance
that we will be able to compete successfully with our existing or new
competitors, or that competitive pressures will not materially and adversely
affect our business, financial condition and results of operations.


                                       11
<PAGE>   14

COST OF REVENUE

       Our cost of revenue consists primarily of amounts paid to third-party
contract manufacturers, personnel and other costs such as royalties on product
shipments, warranty expense and assembly costs. We outsource most of our product
and printed circuit board assembly to contract manufacturers.

       Cost of revenue, net of amortization of deferred compensation, for the
three months ended March 31, 2001 was approximately $2.4 million, which
represented a decrease of approximately $2.7 million, or 52%, from approximately
$5.1 million for the three months ended March 31, 2000. This decrease was
primarily a result of decreased sales of our products. Cost of revenue in the
three months ended March 31, 2001 consisted primarily of amounts paid to
third-party contract manufacturers, personnel and other costs such as royalties
on product shipments, warranty expense, and assembly costs. Cost of revenue as a
percentage of net revenue was 155% and 71% for the three months ended March 31,
2001 and 2000, respectively. This increase was attributed primarily to a higher
percentage of IAD product sales, which typically have lower margins, the higher
absorption rate of fixed manufacturing overhead costs as a result of decreased
sales, and approximately $393,000 in direct cost of revenues for which no
corresponding sales were recorded as the result of shipments to a major customer
that filed for bankruptcy in April 2001.

       In addition, we defer revenue related to a recourse guarantee on certain
sales with Siemens (see Note 5 - Notes to Consolidated Financial Statements). We
expense our cost of revenues related to revenues deferred under the recourse
guarantee as products are shipped; accordingly, we record cost of revenue on
these shipments with only a partial increase in corresponding revenues. We may
experience significant fluctuations in our cost of sales as a percentage of net
revenues based upon the inclusion or exclusion of transactions in our sales mix
that give rise to deferred revenue under the recourse guarantee. For example,
during the three months ended March 31, 2001, we deferred approximately $111,000
of our product shipments related to the recourse guarantee, for which
approximately $91,900 in cost of revenue was incurred.

       We expect that our cost of revenue will increase in absolute dollars in
future periods but will vary as a percentage of net revenue depending on the mix
and average selling prices of products sold. Our actual mix of products sold
will depend significantly on the amount of orders from new and existing
customers, and the stage of their network deployment. As a result, our gross
margin may fluctuate significantly from period to period. In general, our gross
margin will primarily be affected by the following factors:

              -      the mix of our products and services sold;

              -      demand for our products and services;

              -      new product introductions both by us and by our
                     competitors;

              -      changes in our pricing policies and those of our
                     competitors;

              -      the mix of sales channels through which our products and
                     services are sold; and


                                       12
<PAGE>   15

              -      the volume manufacturing pricing we are able to attain from
                     our contract manufacturers for outsourced manufacturing.

       In addition, we anticipate that competitive and economic pressures, as
well as the impact of the recent downturn in our market, could cause us to
reduce our prices, adjust the carrying values of our inventory, or record losses
related to excess or obsolete inventory or noncancelable purchase commitments
with suppliers. Any one of these factors will also have a negative impact on
gross margins.

RESEARCH AND PRODUCT DEVELOPMENT EXPENSES

       Research and development expenses consist primarily of salaries and
related personnel costs, consulting costs, costs associated with licensed
technology, prototype costs and other costs related to the design, development,
testing, and enhancements of our products. We also incur significant expenses in
connection with the purchase of equipment used to test our products as well as
the use of our products for internal design and learning purposes. We expense
our research and development costs as they are incurred, with the exception of
capital expenditures, which are capitalized and depreciated over their estimated
useful lives, generally two to five years.

       Research and product development expenses, excluding amortization of
deferred compensation, for the three months ended March 31, 2001 were
approximately $7.5 million, which represented an increase of approximately $3.3
million, or approximately 80%, from approximately $4.2 million for the three
months ended March 31, 2000. These increases were primarily a result of
increased engineering personnel, increased use of third-party development,
increased design and prototype activity and increased use of our products for
internal design and testing purposes. As a percentage of net revenue, research
and product development expenses for the three months ended March 31, 2001,
excluding amortization of deferred compensation, were approximately 481%.
Research and development expenditures are essential to our future success and we
expect that these expenses will continue to represent a significant portion of
our operating expenses in the future.

SALES AND MARKETING EXPENSES

       Sales and marketing expenses consist primarily of salaries, commissions
and related expenses for personnel engaged in marketing, sales and customer
engineering support functions, as well as costs associated with promotional
demonstration equipment and other marketing expenses.

       Sales and marketing expenses, excluding amortization of deferred
compensation, for the three months ended March 31, 2001 and 2000 remained flat
at approximately $4.0 million. We incurred increased personnel costs related to
the hiring of additional sales and systems engineers, customer support, product
marketing, and key management personnel, offset by a decrease in commission
expenses, advertising, trade shows and public relations costs, and demonstration
equipment costs. As a percentage of net revenue, sales and marketing expenses
for the three months ended March 31, 2001, excluding amortization of deferred
compensation, were approximately 259%. We do not anticipate that our sales and
marketing costs will increase substantially in absolute dollars in the
foreseeable future; however, we believe such costs will fluctuate as a
percentage of revenue.


                                       13
<PAGE>   16

       A significant portion of our sales expenses are incurred to support our
direct sales force; however, to date we have sold a significant amount of our
products in the United States through our OEM relationship with Siemens. For the
three months ended March 31, 2001, direct sales and sales through Siemens
accounted for 14% and 84%, respectively, of our product sales. To date, we have
not generated any revenue from international sales, although we continue to
devote limited resources to our sales and marketing efforts internationally,
including the opening of a sales office in Belgium in October 2000.

GENERAL AND ADMINISTRATIVE EXPENSES

       General and administrative expenses consist primarily of salaries and
related expenses for executive, finance, human resources, information
technology, and administrative personnel, as well as recruiting, professional
fees, insurance and other general corporate expenses.

       General and administrative expenses, excluding amortization of deferred
compensation, for the three months ended March 31, 2001 were approximately $2.5
million, which represented an increase of approximately $1.7 million, or
approximately 210%, from approximately $794,000 for the three months ended March
31, 2000. This increase was primarily due to additional general and
administrative personnel, facilities expansion and related overhead costs to
support our operations, the appointment of Regent Pacific to assist in managing
the company, and increased insurance, legal and accounting expenses to support
the compliance requirements of being a public company. We anticipate that our
general and administrative expenses will decrease in future periods, related
primarily to our recent reduction in workforce and other cost reduction
initiatives.

AMORTIZATION OF DEFERRED STOCK COMPENSATION

       In fiscal 2000, we recorded total deferred stock compensation of
approximately $6.0 million, representing the difference between the deemed value
of our common stock for accounting purposes and the exercise price of the
options at their date of grant, and reversed deferred stock compensation of
approximately $5.5 million and $1.5 million resulting from stock option
cancellations and repurchase of unvested common shares from employees for the
year ended December 31, 2000 and three months ended March 31, 2001,
respectively. We are amortizing the deferred stock compensation over the vesting
periods of the applicable options, or repurchase periods for the exercised
options, generally over four years. We reversed approximately $178,000 of stock
compensation expense previously recorded on unvested stock options which were
cancelled and recognized approximately $157,000 of stock compensation expense
during the three months ended March 31, 2001 as compared to approximately $2.4
million in amortization incurred for the three months ended March 31, 2000. At
March 31, 2001 we had $2.9 million of unamortized deferred stock compensation
which will be amortized over the vesting period of the underlying options. We
expect to record additional reversals of our deferred stock amortization expense
and deferred stock compensation in the second quarter of fiscal 2001 related to
our workforce reduction in April 2001.

OTHER INCOME (EXPENSE)


                                       14
<PAGE>   17

       Our other income (expense) consists primarily of interest earned on our
cash balances and cash equivalents partially offset by interest expenses paid on
capital leases and credit facilities. Other income, net of other expenses, for
the three months ended March 31, 2001 was approximately $858,000, which
represented an increase of approximately $473,000, or approximately 123% from
approximately $385,000 for the three months ended March 31, 2000. This increase
was primarily attributable to interest earned on higher average cash balances
throughout the relevant period.

BENEFICIAL CONVERSION FEATURE

       In connection with the issuance of Series D preferred stock in February
and March 2000, we incurred a non-cash charge to equity of approximately $9.9
million related to the beneficial conversion feature on the Series D preferred
stock. As a result of this non-cash equity charge, our net loss attributed to
common shareholders was adversely impacted for the three months ended March 31,
2000. There were no such charges incurred for the three months ended March 31,
2001.

LIQUIDITY AND CAPITAL RESOURCES

       Since inception, we have financed our operations primarily through sales
of equity securities. We raised approximately $88.6 million in private
placements of redeemable convertible preferred securities prior to our initial
public offering. In June 2000, we completed an initial public offering of 4.6
million shares (including 600,000 shares pursuant to the underwriters'
over-allotment option) of Common Stock at a price of $15.00 per share, resulting
in proceeds of approximately $62.3 million net of the underwriters discount and
offering expenses. We also sold 200,000 shares of our Common Stock at $15.00 per
share in a concurrent private placement, resulting in proceeds of approximately
$3.0 million.

       At March 31, 2001, we had cash and cash equivalents of approximately
$46.1 million, no outstanding debt under any credit facilities, and
approximately $243,000 of outstanding obligations under our equipment loans.

       We used approximately $4.4 million in cash for operating activities for
the three months ended March 31, 2001, a decrease of approximately $346,000, or
7%, from approximately $4.7 million used for operating activities for the three
months ended March 31, 2000. The decrease was primarily due to a decrease in our
accounts receivable from approximately $14.5 million for the three months ended
March 31, 2001 compared to an increase of approximately $1.3 million for the
three months ended March 31, 2000. This decrease was offset in large part by our
net loss of approximately $13.9 million for the three months ended March 31,
2001, an increase in inventory of approximately $1.6 million, and a decrease in
accounts payable and accrued expenses of approximately $3.9 million.

       We used approximately $11.8 million for our investing activities in the
three months ended March 31, 2001, as compared to approximately $1.6 million
used for investing activities for the three months ended March 31, 2000. The
difference was due primarily to the purchase of short-term investments (net of
maturities) of approximately $9.6 million for the three months ended March 31,
2001.


                                       15
<PAGE>   18

       Cash used by financing activities for the three months ended March 31,
2001 was approximately $11,000, as compared to cash generated from financing
activities of approximately $38.9 million for the three months ended March 31,
2000. This decrease was attributed primarily to net proceeds of approximately
$38.4 million generated from our Series D preferred stock financing in the three
months ended March 31, 2000.

       We currently have no significant commitments for capital expenditures. We
anticipate that we will increase our capital expenditures and capital lease
commitments consistent with our anticipated needs. At March 31, 2001, we had
approximately $5.0 million in purchase commitments to one of our contract
manufacturers, Fine Pitch.

       We anticipate that operating expenses, as well as planned capital
expenditures, will constitute a material use of our cash resources. In addition,
we may use cash resources to fund acquisitions or investments in complementary
businesses, technologies or products. We believe that our cash on hand will be
sufficient to meet our working capital and capital expenditure requirements for
at least the next 12 months. In the event additional financing is required, we
may not be able to raise it on acceptable terms, or at all.


                                       16
<PAGE>   19

                                  RISK FACTORS

       Before deciding to invest in Accelerated Networks or to maintain or
increase your investment, you should carefully consider the risks described
below, in addition to the other information contained in this report and in our
other filings with the SEC, including our reports on Forms 10-K, 10-Q/A and 8-K.
The risks and uncertainties described below are not the only ones facing our
company. Additional risks and uncertainties not presently known to us or that we
currently deem immaterial may also affect our business operations. If any of
these risks actually occur, our business, financial condition or results of
operations could be seriously harmed. In that event, the market price of our
common stock could decline and you may lose all or part of your investment.

WE HAVE A LIMITED OPERATING HISTORY, WHICH WILL MAKE IT DIFFICULT OR IMPOSSIBLE
FOR YOU TO PREDICT OUR FUTURE RESULTS OF OPERATIONS.

       We have a very limited operating history upon which to base your
investment decision. We were incorporated in October 1996 and did not begin
shipping our products in significant volume until June 1999. Due to our limited
operating history, it is difficult or impossible to predict our future results
of operations. Investors in our common stock must consider our business,
industry and prospects in light of the risks and difficulties typically
encountered by companies in their early stages of development, particularly
those in rapidly evolving and intensely competitive markets such as the market
for broadband access equipment. In particular, you should carefully consider the
specific risks which are discussed in more detail in this section, in our Annual
Report on Form 10-K and Quarterly Reports on Form 10-Q/A filed with the SEC on
May 8, 2001 and in our registration statement on Form S-1 declared effective by
the SEC on June 22, 2000.

WE HAVE A HISTORY OF LOSSES AND MAY NOT BE ABLE TO GENERATE SUFFICIENT NET
REVENUE IN THE FUTURE TO ACHIEVE OR SUSTAIN PROFITABILITY.

       We have incurred significant losses since inception and expect that our
net losses and negative cash flow will continue for the foreseeable future. As
of March 31, 2001, we had an accumulated deficit of approximately $105.0
million. Although we generated net revenue of approximately $34.2 million for
the year ended December 31, 2000, we expect our net revenue to significantly
decrease in the near future, and we cannot assure you that we will ever generate
sufficient net revenue to achieve or sustain profitability.

       We have large fixed expenses and we expect to continue to incur
significant expenses for research and development, sales and marketing, customer
support, developing distribution channels and general and administrative
expenses. In particular, given our early stage of development, the deterioration
of market conditions in the telecommunications equipment industry, our
significant operating expenses, and the rate at which competition in our
industry is intensifying, we may not be able to adequately control our costs and
expenses or achieve or maintain adequate operating margins. As a result, our
ability to achieve and sustain profitability will depend on our ability to
generate and sustain substantially higher revenue while maintaining reasonable
cost and expense levels. We may not be able to achieve or sustain profitability
in the future.


                                       17
<PAGE>   20

IF OUR REVENUE AND OPERATING RESULTS FALL BELOW ANALYSTS' AND INVESTORS'
EXPECTATIONS, OUR STOCK PRICE COULD SIGNIFICANTLY DECLINE.

       Our quarterly operating results have fluctuated in the past and are
likely to fluctuate significantly in the future due to a variety of factors,
many of which are outside of our control. If our quarterly or annual operating
results do not meet the expectations of investors and securities analysts, the
trading price of our common stock could significantly decline. Some of the
factors that could affect our quarterly or annual operating results include:

              -      telecommunications market conditions and economic
                     conditions;

              -      the amount and timing of orders for our products;

              -      the cancellation or rescheduling of significant orders for
                     our products;

              -      our ability to receive and fulfill orders evenly, across
                     any given quarter;

              -      our ability to develop, manufacture, introduce, ship and
                     support new products and product enhancements;

              -      our mix of products sold and the mix of distribution
                     channels through which our products are sold;

              -      the amount and timing of our research and development
                     expenses;

              -      our ability to control costs;

              -      our ability to obtain sufficient supplies of sole or
                     limited source components for our products;

              -      changes in the prices of our components;

              -      our ability to attain and maintain production volumes and
                     quality levels for our products;

              -      the length and variability of the sales cycle for our
                     products;

              -      our ability to realize forecasted sales for a particular
                     period;

              -      the timing of recognizing revenue and deferral of revenue;

              -      our ability to manage product transitions and adapt to
                     technological advancements;

              -      our ability to develop, manufacture, ship and support all
                     of our product lines, for example, IADs, MSAP as a
                     concentrator and MSAP as a voice gateway;


                                       18
<PAGE>   21

              -      announcements, new product introductions and reductions in
                     the price of products offered by our competitors;

              -      potential seasonality of our sales; and

              -      costs relating to possible acquisitions and integration of
                     technologies or businesses.

       As a result of any of these factors, it is likely that in the future, our
quarterly or annual operating results will fall below the expectations of public
market analysts and investors. In this event, the price of our common stock
could significantly decline.

SALES OF OUR PRODUCTS DEPEND ON THE WIDESPREAD ADOPTION OF MULTISERVICE
BROADBAND ACCESS SERVICES AND IF THE DEMAND FOR MULTISERVICE BROADBAND ACCESS
SERVICES DOES NOT DEVELOP, THEN OUR RESULTS OF OPERATIONS AND FINANCIAL
CONDITION WOULD BE ADVERSELY AFFECTED.

       Our business would be harmed, and our results of operations and financial
condition would be adversely and materially affected, if the demand for
multiservice broadband access services does not increase as rapidly as we
anticipate, or if our customers' multiservice broadband access service offerings
are not well received in the marketplace. Certain critical factors will likely
continue to affect the development of the multiservice broadband access services
market. These factors include:

              -      demand for broadband access;

              -      the development of a viable business model for multiservice
                     broadband access services, including the capability to
                     market, sell, install and maintain these services;

              -      the extent that service providers are unable to deploy
                     broadband access using DSL due to delays or other
                     difficulties in gaining access to the copper-pair
                     infrastructure from ILECs;

              -      cost constraints, such as installation, space and power
                     requirements at carrier central offices;

              -      ability to interoperate with equipment from multiple
                     vendors in service provider networks;

              -      evolving industry standards for DSL, T1 and other
                     transmission technologies;

              -      varying and uncertain conditions of the copper-pair
                     infrastructure, including size and length, electrical
                     interference, and crossover interference with voice and
                     data telecommunications services; and

              -      domestic and foreign government regulation.

Even if these factors are adequately addressed, the market for multiservice
broadband access services may fail to develop or may develop more slowly than
anticipated. This


                                       19
<PAGE>   22

could happen for a number of reasons. For instance, our customers, particularly
CLECs, may not be able to obtain sufficient capital, personnel and other
resources to operate and grow their business or may fail to execute their
business plans. In the case of DSL, we believe that the rate of deployment of
broadband access using DSL has in fact been slower than expected, resulting in
decreased capital expenditures on broadband access equipment by
telecommunications service providers. If these circumstances continue to exist,
or if we are not able to address the foregoing factors, our business would be
harmed, and our results of operations and financial condition would be adversely
affected.

WE DERIVE ALMOST ALL OF OUR REVENUE FROM A SMALL NUMBER OF CUSTOMERS AND OUR
REVENUE COULD DECLINE SIGNIFICANTLY IF WE LOSE A CUSTOMER, IF A CUSTOMER CANCELS
OR DELAYS AN ORDER, OR IF WE ARE NOT ABLE TO COLLECT RECEIVABLES FROM CUSTOMERS
OR ARE REQUIRED TO GRANT STOCK ROTATION OR INVENTORY RETURN RIGHTS TO OUR
CUSTOMERS.

       Since we depend on a small number of customers, our revenue could be
materially and adversely impacted if we lose a customer, if a customer cancels
or delays an order, or if we are not able to collect receivables from customers
or are required to grant stock rotation or inventory return rights to our
customers. Sales to Siemens accounted for approximately 84% of our revenues for
the three months ended March 31, 2001. Sales to Siemens, CTC Communications
Group and Lightyear Communications accounted for approximately 38%, 26% and 26%
our total revenue, respectively, for the year ended December 31, 2000.
Accordingly, if we do not diversify and expand our customer base, our future
success would significantly depend upon the timing and size of future purchase
orders, if any, from our largest existing customers. In addition, if any of our
customers is acquired, we may lose its business. The loss of any one of our
customers, or the delay of a significant order from any of our customers, even
if only temporary, could, among other things, reduce or delay our recognition of
revenue, harm our reputation in the industry, and reduce our ability to
accurately predict cash-flow. Market conditions in the telecommunications
equipment industry have also deteriorated significantly and many of our
customers and potential customers have experienced financial difficulties,
including bankruptcy. Accordingly, while we have to date collected the majority
of our accounts receivable outstanding as of March 31, 2001, we may not be able
to do so in the future, and may be required to write off a significant amount of
accounts receivable. In addition, some of our customers have not yet deployed
equipment that they have purchased from us, and may request stock rotation or
inventory return rights with respect to equipment they purchase from us. While
to date, we have not granted inventory return rights and have only granted
limited stock rotation rights to certain customers, we may grant inventory
return rights or additional stock rotation rights in the future. Since we derive
almost all of our revenue from a small number of customers, any of these events
could materially and adversely affect our business, financial condition and
results of operations.

OUR COMMON STOCK MAY BE DELISTED FROM THE NASDAQ NATIONAL MARKET.

       In April 2000, we received notice from Nasdaq that our shares of common
stock will be delisted from the NASDAQ National Market because we did not timely
file our Annual Report on Form 10-K for the year ended December 31, 2000. We
have appealed the delisting and have since filed our Annual Report on Form 10-K.
Nasdaq has postponed a hearing on our appeal until June 8, 2001 while it reviews
additional information regarding our company. We cannot assure you that our
shares will not be delisted after the


                                       20
<PAGE>   23

conclusion of the appeal process. Such delisting may reduce the liquidity of our
stock and adversely impact our ability to execute our business plan.

OUR CUSTOMERS MAY SPORADICALLY PLACE LARGE ORDERS WITH SHORT LEAD TIMES, WHICH
MAY CAUSE OUR REVENUE AND OPERATING RESULTS TO VARY SIGNIFICANTLY FROM QUARTER
TO QUARTER.

       We believe that our customers often deploy their networks in large
increments and on a sporadic basis. Accordingly, we expect to receive purchase
orders for significant dollar amounts on an irregular basis. These orders may
have short lead times. As a result, we may not have sufficient inventory to
fulfill these orders and we may incur significant costs in attempting to
expedite and fulfill these orders. Further, our revenue and operating results
may vary significantly and unexpectedly from quarter to quarter.

IF WE FAIL TO CAPITALIZE ON OPPORTUNITIES TO WIN CONTRACTS FROM OUR KEY
CUSTOMERS, WE MAY NOT BE ABLE TO SELL PRODUCTS TO THOSE CUSTOMERS FOR AN
EXTENDED PERIOD OF TIME.

       We believe that our key customers deploy their networks in large
increments and on a sporadic basis. As a result, if we fail to win a purchase
contract from a key customer, we may not have an opportunity to sell products to
that customer until its next purchase cycle, which may not be for an extended
period of time. In addition, if we fail to win contracts from key customers that
are at an early stage in their design cycle, our ability to sell products to
these customers in the future may be adversely affected because they may prefer
to continue purchasing products from their existing vendor. Since we rely on a
small number of customers for the majority of our sales, our failure to
capitalize on limited opportunities to win contracts with these customers would
have a material adverse effect on our business, results of operations and
financial condition.

THE LONG SALES AND IMPLEMENTATION CYCLES FOR OUR PRODUCTS MAY CAUSE OUR REVENUE
AND OPERATING RESULTS TO VARY SIGNIFICANTLY.

       A customer's decision to purchase our products often involves a
significant commitment of its resources and a lengthy evaluation and product
qualification process. As a result, our sales cycles may be lengthy and we may
incur substantial sales and marketing expenses and expend significant management
effort without any guarantee of a sale. The length of our sales cycles will vary
depending on the type of customer to whom we are selling. In particular, we
believe that our sales cycle will typically range from 3 to 6 months for CLECs,
6 to 12 months for IXCs, and 9 to 15 months for RBOCs. Even after making the
decision to purchase our products, our customers often deploy our products
slowly and deliberately. Timing of deployment can vary widely and depends on:

              -      the skill set of our customers;

              -      the size of the network deployment;

              -      the complexity of our customers' network environment;

              -      the degree of hardware and software configuration necessary
                     to deploy our products; and


                                       21
<PAGE>   24

              -      their ability to finance their purchase of our products as
                     well as their operations.

As a result, our revenue and operating results may vary significantly from
quarter to quarter.

IF WE FAIL TO MANAGE OUR ORDER BACKLOG, NEW ORDERS AND SHIPMENT SCHEDULES FOR
EACH QUARTER, OUR OPERATING RESULTS FOR THAT PERIOD WILL BE ADVERSELY AFFECTED.

       We recognize revenue when our products are shipped, subject to
appropriate deferrals and allowances. Accordingly, the linearity of our revenue
will depend on our ability to receive and fulfill orders evenly across any given
quarter. To date, our order backlog at the beginning of each quarter has not
been significant and we expect this trend to continue for the foreseeable
future. Accordingly, we must obtain additional orders in a quarter for shipment
in that quarter to achieve our revenue objectives. Our sales agreements may
allow purchasers to delay scheduled delivery dates without penalty. Further, our
customer purchase orders allow purchasers to cancel orders within negotiated
time frames without significant penalty. In addition, due in part to factors
such as the timing of product release dates, purchase orders and product
availability, significant volume shipments of our products could occur at the
end of our fiscal quarters. If we fail to ship products by the end of a quarter,
our operating results may be materially and adversely affected for that quarter.
In the past, we have experienced cancellation of orders, resulting in additional
costs and expenses. We defer revenue for PCS, stock rotation rights under
specific arrangements with distributors and amounts related to a recourse
guarantee with Siemens. We may experience significant fluctuations in our
revenue in the future based upon the inclusion or exclusion of one or any of
these components in our sales mix that give rise to deferred revenue. For
example, for the three months ended March 31, 2001, approximately $1.1 million
of our product shipments was subject to the Siemens recourse guarantee, of which
approximately $110,000 was deferred. In addition, as of March 31, 2001 we had
approximately $1.1 million in deferred revenue related to stock rotation rights
granted to distributors and resale contingencies.

IF WE FAIL TO INCREASE OUR REVENUE, OR IF WE EXPERIENCE DELAYS IN GENERATING OR
RECOGNIZING REVENUE, WE COULD INCUR SUBSTANTIAL OPERATING LOSSES.

       Our operating expenses are largely based on anticipated personnel
requirements and revenue trends, and a high percentage of our expenses are, and
will continue to be, fixed. In addition, we may be required to spend more in
research and development than originally budgeted in order to respond to
industry trends. We may also incur significant new costs related to possible
acquisitions and the integration of new technologies. As a result, if we fail to
increase our revenue, or if we experience delays in generating or recognizing
revenue results, we could incur substantial operating losses.


                                       22
<PAGE>   25

IF WE FAIL TO MANAGE OUR OPERATIONS, OUR BUSINESS WILL BE ADVERSELY AFFECTED.

       We have experienced significant changes in our operations. These changes
have placed a significant strain on our managerial, operational and financial
resources. For example, we recently experienced several changes in our senior
management, including the hiring of personnel from Regent Pacific Management
Corporation, to act as our new CEO, new CFO and new Vice President of Sales and
Marketing. In addition, we recently downsized our workforce by approximately 30%
and began the implementation of a business strategy designed to meet the
following objectives:

       -      optimize the organization and reduce operating expenses;

       -      refocus R&D efforts to maximize current product lines and
              development of certain next generation product lines; and

       -      redirect sales and marketing activities to focus on near-term
              sales and profit opportunities and potential future customers.

       In addition, we will need to coordinate our domestic and international
operations and may be required to establish the necessary infrastructure to
implement our international strategy. For instance, we recently opened an office
in Belgium and will need to integrate that office into existing operations. If
we are not able to accomplish the foregoing in an efficient and timely manner,
our business, financial condition and results of operations could be materially
and adversely affected.

IF WE FAIL TO ENHANCE OUR EXISTING PRODUCTS OR DEVELOP AND INTRODUCE NEW
PRODUCTS THAT MEET CHANGING CUSTOMER REQUIREMENTS AND TECHNOLOGICAL ADVANCES,
OUR ABILITY TO SELL OUR PRODUCTS WOULD BE MATERIALLY AND ADVERSELY AFFECTED.

       Our markets are characterized by rapid technological advances, evolving
industry standards, changes in end-user requirements, frequent new product
introductions and changes in voice and data service offerings by service
providers. Our future success will significantly depend on our ability to
anticipate or adapt to such changes and to offer, on a timely and cost-effective
basis, products that meet changing customer demands and industry standards. The
timely development of new or enhanced products is a complex and uncertain
process and we may not have sufficient resources to successfully and accurately
anticipate technological and market trends, or to successfully manage long
development cycles. We may also experience design, manufacturing, marketing and
other difficulties that could delay or prevent our development, introduction or
marketing of new products and enhancements. The introduction of new or enhanced
products also requires that we manage the transition from older products to
these new or enhanced products in order to minimize disruption in customer
ordering patterns and ensure that adequate supplies of new products are
available for delivery to meet anticipated customer demand. We may also be
required to collaborate with third parties to develop our products and may not
be able to do so on a timely and cost-effective basis, if at all. If we are not
able to develop new products or enhancements to existing products on a timely
and cost-effective basis, or if our new products or enhancements fail to achieve
market acceptance, our business, financial condition and results of operations
would be materially and adversely affected.


                                       23
<PAGE>   26

OUR ABILITY TO OPERATE AND GROW OUR BUSINESS MAY BE HARMED IF WE ARE UNABLE TO
DEVELOP AND MAINTAIN STRATEGIC RELATIONSHIPS WITH THIRD PARTIES.

       Our success will substantially depend on our ability to develop and
maintain strategic relationships. Our strategic relationships are relatively
new, and we cannot be certain that any revenue will be derived from those
arrangements. The amount and timing of resources that our strategic partners
devote to our business is not within our control and our strategic partners may
not perform their obligations as expected. In the event that any strategic
partner breaches or terminates its relationship with us, we may not be able to
sustain or grow our business. We may also not be able to maintain or develop
strategic relationships or to replace strategic partners. In addition, our
current largest distribution partner, Siemens, recently acquired Efficient
Networks, one of our competitors. As a result, we do not know whether Siemens
will devote adequate, if any, resources to work with us in the future.

IF WE ARE UNABLE TO RETAIN AND HIRE QUALIFIED PERSONNEL, WE MAY NOT BE ABLE TO
SUCCESSFULLY ACHIEVE OUR OBJECTIVES.

       Our success depends to a significant degree upon the continued
contributions of the principal members of our sales, marketing, engineering and
management personnel, many of whom perform important management functions and
would be difficult to replace. During the fourth quarter of 2000 and in the
first quarter of 2001, we experienced significant personnel changes at the
senior management level, including the hiring of a new Chief Executive Officer
and Chairman of the Board, Chief Financial Officer and Vice President of Finance
and Administration, Vice President of Worldwide Sales, and Vice President of
Marketing. Although the Board has entered into an agreement with Regent Pacific
Management Corporation to provide personnel to fill these and other senior
management positions, the agreement is due to expire in August of 2003 and may
be canceled at any time after February 2002. If the agreement with Regent
Pacific were canceled or not renewed, the loss of the Regent Pacific personnel
could have a material adverse effect on our operations, especially during any
transition phase to new management after the cancellation or non-renewal.
Similarly, if any adverse change in our relationship with Regent Pacific occurs,
it could hinder management's ability to direct our business and materially and
adversely affect our business, financial condition and results of operations. In
addition, the loss of the services of any other key management personnel, or key
sales personnel and engineers, could materially adversely affect our business,
financial condition and results of operations.

       In addition, recruiting qualified personnel in our industry is intensely
competitive and time-consuming. In particular, we have experienced difficulty in
hiring hardware, software, system and test and customer support engineers. We
believe that we will continue to experience difficulty in recruiting and
retaining qualified personnel in the future. If we are not able to attract and
retain the necessary personnel, we will not be able to operate and grow our
business.


                                       24
<PAGE>   27

WE DEPEND ON SOLE SOURCE AND LIMITED SOURCE SUPPLIERS FOR KEY COMPONENTS, AND IF
WE ARE UNABLE TO BUY THESE COMPONENTS ON A TIMELY BASIS, WE WILL NOT BE ABLE TO
DELIVER OUR PRODUCTS TO OUR CUSTOMERS.

       Several of the key components used in our products, including field
programmable gate arrays, DSL transreceivers, microprocessors, digital signal
processors and custom power supplies, are sourced from single or limited sources
of supply. These suppliers range from small vendors to large established
companies. We do not have guaranteed supply arrangements with most of our key
suppliers, and we or our contract manufacturers may not be able to obtain
necessary supplies in a timely manner. Financial or other difficulties faced by
these suppliers or significant changes in demand for these components could
limit the availability of these components. In addition, any of our sole-source
suppliers could be acquired by, or enter into exclusive arrangements with, our
competitors, stop selling their products or components to us at commercially
reasonable prices, or refuse to sell their products or components to us
altogether. Any interruption or delay in the supply of any of these components,
or the inability to obtain these components from alternate sources at acceptable
prices and within a reasonable amount of time, would adversely affect our
ability to meet scheduled product deliveries to our customers and would
materially adversely affect our business, results of operations and financial
condition. As much as six months could be required before we would begin
receiving adequate supplies from alternative suppliers, if at all. In addition,
qualifying additional suppliers is time-consuming and expensive and exposes us
to potential supplier production difficulties or quality variations.

       It is also possible that a source may not be available for us or be in a
position to satisfy our production requirements at acceptable prices and on a
timely basis, if at all, which could have a material adverse effect on our
business, financial condition and results of operations.

BECAUSE WE DEPEND UPON A SMALL NUMBER OF OUTSIDE CONTRACTORS TO MANUFACTURE OUR
PRODUCTS, OUR OPERATIONS COULD BE DELAYED OR INTERRUPTED IF WE ENCOUNTER
PROBLEMS WITH THEM.

       We historically have relied on Avnet, A-Plus and Arrow to build our
products, and we are transitioning our contract services from Avnet to Fine
Pitch Industries, Inc. We do not have internal manufacturing capabilities. Our
reliance on these manufacturers involves a number of risks, including the
absence of adequate capacity, the unavailability of or interruptions in access
to certain process technologies and reduced control over component availability,
delivery schedules, manufacturing yields and costs. If Avnet, A-Plus, Arrow or
Fine Pitch are unable or unwilling to continue manufacturing our products in
required volumes and at high quality levels, we will have to identify, qualify
and select acceptable alternative manufacturers, which could take more than six
months. It is possible that an alternate source may not be available to us when
needed or be in a position to satisfy our production requirements at acceptable
prices and quality. Any significant interruption in manufacturing would result
in us having to reduce our supply of products to our customers, which in turn
could have a material adverse effect on our customer relations, business,
financial condition and results of operations. Avnet, Arrow, A-Plus and Fine
Pitch also build products for other companies, and we cannot be certain that
they will always have


                                       25
<PAGE>   28

sufficient quantities of inventory available to fill orders placed by our
customers, or that they will allocate their internal resources to fill our
orders on a timely basis.

       We are currently transitioning to Fine Pitch for our manufacturing
capability. In addition to the inherent risks associated with such a transition,
qualifying a new contract manufacturer and commencing volume production is
expensive and time consuming. If we are required or choose to change contract
manufacturers, our revenue may decline and our customer relationships may be
damaged.

       We may not be able to effectively manage our relationships with our
contract manufacturers and they may not meet our future requirements for timely
delivery. Any interruption in the operations of our contract manufacturers would
adversely affect our ability to meet our scheduled product deliveries to our
customers, which could cause the loss of existing or potential customers and
could materially adversely affect our business, results of operations and
financial condition. In addition, if our contract manufacturers fail to build
products with sufficient quality, our reputation, business, results of
operations and financial condition will be harmed.

IF WE ARE NOT ABLE TO ESTABLISH RELATIONSHIPS WITH A VARIETY OF DISTRIBUTION
PARTNERS, WE MAY NOT BE ABLE TO INCREASE OUR SALES AND GROW OUR BUSINESS.

       We believe that our future success is dependent upon establishing
successful relationships with a variety of distribution partners. To date, we
have entered into a value-added reseller agreement with Solunet and OEM
agreements with Siemens AG and Siemens ICN. While Siemens AG and its affiliates
currently own approximately 18.1% of our outstanding shares, Siemens also sells
products that compete with our products and recently acquired Efficient
Networks, one of our competitors. Accordingly, we cannot assure you that it will
devote adequate resources to distributing our products. We also cannot be
certain that we will be able to reach agreement with additional distribution
partners on a timely basis or at all, or that any of our current or future
distribution partners will devote adequate resources to selling our products. If
we cannot establish these relationships, we may not be able to increase our
sales and grow our business.

IF INSTALLATION OF OUR MSAP CONCENTRATORS AT CENTRAL OFFICES ARE DELAYED, OUR
REPUTATION MAY BE HARMED AND WE MAY LOSE SALES.

       Our MSAP concentrators are generally installed at carrier central
offices. In many cases, deployment of our equipment at carrier central offices
is intended to facilitate the provisioning of services that compete with the
carrier's services. Therefore, carriers may have an incentive to withhold or
delay installations of our MSAP concentrators. While we believe that current
regulations and laws require these carriers to cooperate in allowing
installation of our equipment, any delay, whether justified or not, will
adversely affect our customers' ability to deploy our equipment, which in turn
would adversely affect our reputation and result in lost sales. This would
result in a material adverse effect on our business, results of operations and
financial condition.

WE HAVE NO SIGNIFICANT EXPERIENCE OPERATING IN INTERNATIONAL MARKETS AND WE MAY
NOT BE ABLE TO SUCCESSFULLY ESTABLISH AND MANAGE OUR INTERNATIONAL OPERATIONS.


                                       26
<PAGE>   29

       We may decide to expand our international operations and enter new
markets. This expansion will require significant management attention and
financial resources. We have only recently launched our international sales
operations in Canada and Europe. As a result, we have limited experience in
marketing and distributing our products internationally and in developing
versions of our products that comply with local standards. Our current
international sales efforts, particularly those in Europe, will likely be
impacted by seasonal purchasing patterns in foreign countries, which is typical
of European customers during the summer months. In addition, our international
operations, including those in Canada and Europe, will be subject to other
inherent risks, including:

              -      international telecommunications market;

              -      difficulties and costs of staffing and managing foreign
                     operations;

              -      certification requirements;

              -      longer sales cycles;

              -      expenses associated with customizing products for foreign
                     countries;

              -      dependence on local vendors;

              -      dependence on our ability to establish and maintain
                     strategic relationships with international distribution
                     partners;

              -      protectionist laws and business practices that favor local
                     competition;

              -      reduced protection for intellectual property rights in some
                     countries;

              -      difficulties associated with enforcing agreements through
                     foreign legal systems;

              -      greater difficulty in collecting accounts receivable;

              -      fluctuations in currency exchange rates;

              -      unexpected changes in regulatory requirements;

              -      the impact of recessions in economies outside the United
                     States;

              -      political and economic instability;

              -      import or export licensing requirements; and

              -      potential adverse tax consequences.

IF OUR PRODUCTS CONTAIN UNDETECTED SOFTWARE OR HARDWARE ERRORS, WE COULD INCUR
SIGNIFICANT UNEXPECTED EXPENSES AND LOST SALES.


                                       27
<PAGE>   30

       Our products are highly technical and are designed for deployment in very
large and complex networks. Although we thoroughly test our products, because of
their nature, they can only be fully tested when deployed in live networks that
generate high amounts of voice and/or data traffic. Because of our short
operating history, our products have not yet been broadly deployed.
Consequently, our customers may discover errors or defects in our products after
they have been broadly deployed. In addition, our customers may use our products
in conjunction with products from other vendors. As a result, when problems
occur, it may be difficult to identify the source of the problem. Any defects or
errors in our products discovered in the future, or failures of our customers'
networks, whether caused by our products or another vendor's products, could
result in:

              -      loss of, or delay in, revenue and loss of market share;

              -      product returns;

              -      negative publicity regarding us and our products;

              -      unexpected expenses to remedy errors;

              -      diversion of our development resources;

              -      increased service warranty, costs and repair; and

              -      increased insurance and litigation costs.

Any of the above items could have a material adverse effect on our business,
results of operations and financial condition.

IF OUR PRODUCTS CONTAIN DEFECTS, WE COULD BE EXPOSED TO SIGNIFICANT PRODUCT
LIABILITY CLAIMS AND DAMAGE TO OUR REPUTATION.

       Because our products are designed to provide critical communications
services, we may be subject to significant liability claims. Our agreements with
customers typically contain provisions intended to limit our exposure to
liability claims. However, these limitations may not preclude all potential
claims resulting from a defect in one or more of our products. Although we
believe that we maintain adequate product liability insurance covering certain
damages arising from implementation and use of our products, our insurance may
not be sufficient to cover us against all possible liability. Liability claims
could also require us to spend significant time and money in litigation or to
pay significant damages. As a result, any such claims, whether or not
successful, could seriously damage our reputation and have a material adverse
effect on our business, financial condition and results of operations.


                                       28
<PAGE>   31

IF WE FAIL TO ACCURATELY PREDICT OUR MANUFACTURING REQUIREMENTS, WE COULD INCUR
ADDITIONAL COSTS OR EXPERIENCE MANUFACTURING DELAYS.

       We do not have long-term supply contracts with our contract
manufacturers. Consequently, these manufacturers are not obligated to supply
products to us for any specific period, in any specific quantity or at any
certain price, except as may be provided in a particular purchase order. We
currently provide forecasts of our demand to our contract manufacturers 12
months prior to scheduled delivery of products to our customers. Lead times for
the materials and components that we order vary significantly and depend on
numerous factors, including the specific supplier, contract terms and demand for
a component at a given time. If we overestimate our component requirements, our
contract manufacturers may purchase excess inventory. For those parts which are
unique to our products, we could be required to pay for these excess parts and
recognize related inventory write-down costs. If we underestimate our
requirements, our contract manufacturers may have an inadequate inventory, which
could interrupt manufacturing of our products and result in delays in shipments
and revenue. We also may experience shortages of certain components from time to
time, which also could delay the manufacturing of our products and recognition
of revenue.

WE MAY INVEST A SIGNIFICANT AMOUNT OF OUR RESOURCES TO DEVELOP, MARKET AND SELL
OUR PRODUCTS AND MAY NOT REALIZE ANY RETURN ON THIS INVESTMENT.

       We plan to invest a significant amount of our resources to develop,
market and sell our products. Accordingly, our success will depend on our
ability to generate sufficient revenue from sales of these products to offset
the expenses associated with developing, marketing and selling them. There are
many risks that we face in doing so. In particular, the rapidly changing
technological environment in which we operate can require the frequent
introduction of new products, resulting in short product lifecycles.
Accordingly, if our products do not quickly achieve market acceptance, they may
become obsolete before we have generated enough revenue from their sales to
realize a sufficient return on our investment.

       As a result, we may incur significant expenses and losses due to lack of
customer demand, unusable purchased components for these products and the
diversion of our engineers from future product development efforts. From time to
time we may also need to write-off excess and obsolete inventory.

IF THE DEVELOPMENT AND ADOPTION OF RELEVANT INDUSTRY STANDARDS DO NOT OCCUR ON A
TIMELY BASIS, OUR PRODUCTS MAY NOT ACHIEVE MARKET ACCEPTANCE.

       Our ability to achieve market acceptance for our products will also
depend on the timing and adoption of industry standards for new technologies in
our markets. Many technological developments occur prior to the adoption of
relevant industry standards. The absence of an industry standard related to a
specific technology may prevent widespread


                                       29
<PAGE>   32

market acceptance of products using that technology. The existence of multiple
competing standards may also retard or delay the development of a broad market
for our products. We may develop products that use new technologies prior to the
adoption of industry standards related to these technologies. Consequently, our
products may not comply with eventual industry standards, which could hurt our
ability to sell these products and also require us to quickly design and
manufacture new products that meet these standards. Even after industry
standards are adopted, the future success of our products depends upon
widespread market acceptance of their underlying technologies.

OUR INABILITY TO PROTECT OUR INTELLECTUAL PROPERTY COULD ADVERSELY AFFECT OUR
ABILITY TO COMPETE.

       Our success and ability to compete substantially depend on our
proprietary technology. Despite our efforts to protect our proprietary rights,
existing copyright, trademark and trade secret laws afford us only limited
protection. Any infringement of our proprietary rights could result in
significant litigation costs, and any failure to adequately protect our
proprietary rights could result in our competitors offering similar products,
potentially resulting in loss of a competitive advantage and decreased revenue.
We rely on a combination of patent, copyright, trademark and trade secret laws,
as well as confidentiality agreements and licensing arrangements, to establish
and protect our proprietary rights. We presently have no patents, although we
have seven patent applications pending. In addition, the laws of certain foreign
countries do not protect our proprietary rights to the same extent as do the
laws of the United States. Attempts may be made to copy or reverse engineer
aspects of our products or to obtain and use information that we regard as
proprietary. Accordingly, we may not be able to protect our proprietary rights
against unauthorized third-party copying or use. Furthermore, policing the
unauthorized use of our products is difficult. Litigation may be necessary in
the future to enforce our intellectual property rights, to protect our trade
secrets or to determine the validity and scope of the proprietary rights of
others. Such litigation could result in substantial costs and diversion of
resources and could have a material adverse effect on our business, financial
condition and operating results.

WE COULD BECOME SUBJECT TO LITIGATION REGARDING INTELLECTUAL PROPERTY RIGHTS
WHICH COULD SERIOUSLY HARM OUR BUSINESS.

       Our industry is characterized by frequent intellectual property
litigation based on allegations of infringement of intellectual property rights.
From time to time, third parties may assert patent, copyright, trademark and
other intellectual property rights to technologies or rights that are important
to our business. In addition, in our agreements, we may agree to indemnify our
customers for any expenses or liabilities resulting from claimed infringements
of patents, trademarks or copyrights of third parties. Any claims asserting that
our products infringe or may infringe on proprietary rights of third parties,
with or without merit, could be time-consuming, resulting in costly litigation
and diverting the efforts of our technical and management personnel. These
claims could also result in product shipment delays or require us to modify our
products or enter into royalty or licensing agreements. Such royalty or
licensing agreements, if required, may not be available on terms acceptable to
us, if at all.


                                       30
<PAGE>   33

       Although we are not aware of any material intellectual property claims
against us, we may be a party to litigation in the future. We also cannot assure
you that we would prevail in any such actions, given their complex technical
issues and inherent uncertainties. Although we carry general liability
insurance, our insurance may not cover potential claims of this type or may not
be adequate to indemnify us for all liability that may be imposed.

IF WE BECOME SUBJECT TO UNFAIR HIRING CLAIMS WE COULD INCUR SUBSTANTIAL COSTS IN
DEFENDING OURSELVES.

       Companies in our industry whose employees accept positions with
competitors frequently claim that their competitors have engaged in unfair
hiring practices. We have received claims of this kind in the past and we cannot
assure you that we will not receive claims of this kind in the future or that
those claims will not result in material litigation. We could incur substantial
costs in defending ourselves against these claims, regardless of their merits,
which would have a material and adverse effect on our business, financial
condition and results of operations.

POTENTIAL ECONOMIC AND POLITICAL INSTABILITY IN INDIA COULD ADVERSELY AFFECT OUR
PRODUCT DEVELOPMENT EFFORTS.

       We believe that we currently receive favorable tax and tariff treatment
for our product development activities in India. However, if political
instability in India results in a government adverse to foreign corporate
activity, a number of adverse consequences could occur, including higher
tariffs, taxes or export controls, and increased governmental ownership or
regulation, any of which would increase our costs of product development. In
addition, we record expenses for our subsidiary in India in Indian Rupees.
Accordingly, our operating results are also exposed to changes in exchange rates
between the U.S. dollar and Indian Rupee. While to date, our results have not
materially been affected by any changes in currency exchange rates, devaluation
of the U.S. dollar against the Indian Rupee would adversely affect our expenses
for our Indian subsidiary.

OUR BUSINESS COULD BE SHUT DOWN OR SEVERELY IMPACTED IF A NATURAL DISASTER
OCCURS.

       Our business and operations depend on the extent to which our facility
and products are protected against damage from fire, earthquakes, power loss,
and similar events. Despite precautions taken by us, a natural disaster or other
unanticipated problem could, among other things, hinder our research and
development efforts, delay the shipment of our products and affect our ability
to receive and fulfill orders. For example, since we perform all of our final
assembly and tests in one location, any fire or other disaster at our assembly
facility would have a material adverse effect on our business, results of
operations and financial condition. While we believe that our insurance policy
is comparable to those of similar companies in our industry, it does not cover
all natural disasters, in particular, earthquakes or floods.


                                       31
<PAGE>   34

INTENSE COMPETITION COULD PREVENT US FROM INCREASING OR SUSTAINING OUR REVENUE
AND PREVENT US FROM ACHIEVING OR SUSTAINING PROFITABILITY.

       The market for multiservice broadband access products is highly
competitive. We compete directly with numerous companies, including Alcatel SA,
Cisco Systems, Inc., CopperCom, Inc., Copper Mountain Networks, Inc., Jetstream
Communications, Inc., Lucent Technologies, Inc., Nokia, Nortel Networks, Inc.,
Tollbridge Technologies, Inc. and Zhone Technologies. Many of our current and
potential competitors have longer operating histories, significantly greater
selling and marketing, technical, manufacturing, financial, customer support,
professional services and other resources, including vendor-sponsored financing
programs. As a result, these competitors are able to devote greater resources to
the development, promotion, sale and support of their products. Moreover, our
competitors may foresee the course of market developments more accurately than
we do and could develop new technologies that compete with our products or even
render our products obsolete. We may not have sufficient resources to continue
to make the investments or achieve the technological advances necessary to
compete successfully with existing or new competitors. In addition, due to the
rapidly evolving markets in which we compete, additional competitors with
significant market presence and financial resources, including other large
telecommunications equipment manufacturers, may enter our markets, thereby
further intensifying competition.

       The markets in which we compete are characterized by increasing
consolidation, as exemplified by the acquisitions of Efficient Networks by
Siemens, Promatory Communications, Inc., by Nortel Networks and PairGain
Technologies, Inc. by ADC Telecommunications, Inc. We cannot predict how
industry consolidation will affect our competitors and we may not be able to
compete successfully in an increasingly consolidated industry. Additionally,
because we may be dependent on strategic relationships with third parties in our
industry, any consolidation involving these parties could reduce the demand for
our products and otherwise harm our business prospects. For instance, Siemens
has been a significant distribution channel for our products but we do not know
if Siemens will provide adequate, if any, resources to work with us in the
future, in light of Siemens' acquisition of Efficient Networks, one of our
competitors. Our competitors that have large market capitalizations or cash
reserves are also better positioned than we are to acquire other companies,
including our competitors, thereby obtaining new technologies or products that
may displace our product lines. Any of these acquisitions could give our
competitors a strategic advantage that would materially and adversely affect our
business, financial condition and results of operations.

       In addition, many of our competitors have much greater name recognition
and have a more extensive customer base, broader customer relationships,
significant financing programs, and broader product offerings than we do. These
companies can adopt aggressive pricing policies and leverage their customer
bases and broader product offerings to gain market share. We have encountered,
and expect to continue to encounter, potential customers that, due to existing
relationships with our competitors, are committed to the product offerings of
these competitors. As a result, these potential customers may not consider
purchasing our products.


                                       32
<PAGE>   35

       We expect that competitive pressures will result in price reductions,
reduced margin and loss of market share, which would materially and adversely
affect our business, financial condition and results of operations.

       IF OUR PRODUCTS ARE NOT INTEROPERABLE WITHIN OUR CUSTOMERS' NETWORKS,
ORDERS WILL BE DELAYED OR CANCELED AND COULD RESULT IN SUBSTANTIAL PRODUCT
RETURNS, WHICH COULD SERIOUSLY HARM OUR BUSINESS.

       Many of our customers require that our products be designed to interface
with their existing networks, each of which may have different specifications
and utilize multiple protocol standards. Our customers' networks may contain
multiple generations of products from different vendors that have been added
over time as their networks have grown and evolved. Our products may be required
to interoperate with these products as well as with future products in order to
meet our customers' requirements. In some cases, we may be required to modify
our product designs to achieve a sale, which may result in a longer sales cycle,
increased research and development expense, and reduced operating margins. If
our products do not interoperate with existing equipment in our customers'
networks, installations could be delayed, orders for our products could be
cancelled or our products could be returned. This could have a material adverse
effect on our business, financial condition and results of operations.

IF WE FAIL TO COMPLY WITH REGULATIONS AND EVOLVING INDUSTRY STANDARDS, SALES OF
OUR EXISTING AND FUTURE PRODUCTS COULD BE ADVERSELY AFFECTED.

       The markets for our products are characterized by a significant number of
laws, regulations and standards, including those promulgated by the Federal
Communications Commission, or FCC, and standards established by Underwriters
Laboratories, some of which are evolving as new technologies are deployed. While
we believe that our products comply with all current governmental laws,
regulations and standards, we cannot assure you that we will be able to continue
to design our products to comply with all necessary requirements in the future.
In addition, our customers may require our products to comply with various
industry standards, such as those promulgated by Telcordia Technologies, or
proprietary standards promoted by our competitors. Our key competitors may
establish proprietary standards which they do not make available to us. As a
result, we may not be able to achieve interoperability with their products.
Internationally, we may also be required to comply with standards established by
telecommunications authorities in various countries as well as with
recommendations of the International Telecommunication Union.

       Our customers may also require, or we may otherwise deem it necessary or
advisable, that we modify our products to address actual or anticipated changes
in the regulatory environment. Failure of our products to comply, or delays in
compliance, with the various existing, anticipated, and evolving industry
regulations and standards could adversely affect sales of our existing and
future products. Moreover, the enactment of new laws or regulations, changes in
the interpretation of existing laws or regulations or a reversal of the trend
toward deregulation in the telecommunications industry, could have a material
adverse effect on our customers, and thereby materially adversely affect our
business, financial condition and results of operations.


                                       33
<PAGE>   36

OUR CUSTOMERS ARE SUBJECT TO GOVERNMENT REGULATION, AND CHANGES IN CURRENT OR
FUTURE LAWS OR REGULATIONS THAT NEGATIVELY IMPACT OUR CUSTOMERS COULD HARM OUR
BUSINESS.

       The jurisdiction of the FCC extends to the entire communications
industry, including our customers. Future FCC regulations affecting the
broadband access industry, our customers, or their service offerings, may harm
our business. For example, FCC regulatory policies that affect the availability
of data and Internet services may impede our customers' penetration into certain
markets or affect the prices that they are able to charge. In addition,
international regulatory bodies are beginning to adopt standards and regulations
for the broadband access industry. These domestic and foreign standards and
regulations address various aspects of Internet use, including issues relating
to liability for information retrieved from or transmitted over the Internet,
online context regulation, user privacy, taxation, consumer protection, security
of data, access by law enforcement, as well as intellectual property ownership,
obscenity and libel. Resulting standards and regulations, or judgments in favor
of plaintiffs in lawsuits against service providers, e-commerce and other
Internet companies, could adversely affect the development of e-commerce and
other uses of the Internet. This, in turn, could directly or indirectly
materially adversely impact the broadband telecommunications and data industry
in which our customers operate. To the extent our customers are adversely
affected by laws or regulations regarding their business, products or service
offerings, this could result in a material and adverse effect on our business,
financial condition and results of operations.

IF NECESSARY LICENSES OF THIRD PARTY TECHNOLOGY ARE NOT AVAILABLE TO US OR ARE
VERY EXPENSIVE, WE MAY NOT BE ABLE TO DEVELOP NEW PRODUCTS OR PRODUCT
ENHANCEMENTS, WHICH WOULD SERIOUSLY IMPAIR OUR ABILITY TO COMPETE EFFECTIVELY.

       From time to time we may be required to license technology from third
parties to develop new products or product enhancements. We cannot assure you
that these third-party licenses will be available to us on commercially
reasonable terms, if at all. Our inability to obtain necessary third-party
licenses may force us to obtain substitute technology of lower quality or
performance standards or at greater cost, any of which could seriously harm the
competitiveness of our products and which would result in a material and adverse
effect on our business, financial condition and results of operations.

IF THIRD-PARTY SUPPLIERS DO NOT CONTINUE TO DEVELOP NEW COMPONENTS THAT WE RELY
ON FOR FUTURE PRODUCTS, WE MAY NOT BE ABLE TO OFFER COMPETITIVE PRODUCTS.

       Some of our planned future products will rely on components developed by
third parties, such as higher bandwidth switch fabrics. If these components fail
to be developed by third parties in a timely basis, or at all, or if they are
not otherwise made available to us, we may not be able to offer new products
which are competitive. In this event, our business, financial condition and
results of operations could be materially and adversely affected.


                                       34
<PAGE>   37

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

       We do not hold financial instruments for trading or speculative purposes.
Our financial instruments have short maturities and therefore are not subject to
significant interest rate risk. We generally place our marketable security
investments in high credit quality instruments, primarily corporate obligations
with contractual maturities of less than one year. Our financial liabilities
that are subject to interest rate risk are our credit facilities, which have
stated interest rates based on the bank's prime rate. We do not expect any
material loss from our marketable security investments and therefore believe
that our potential interest rate exposure is not material. We do not use any
derivatives or similar instruments to manage our interest rate risk.

       We currently have product development activities in India. We record
expenses for our subsidiary in India in Indian Rupees. Accordingly, our
operating results are also exposed to changes in exchange rates between the U.S.
dollar and Indian Rupee. While to date, our results have not materially been
affected by any changes in currency exchange rates, devaluation of the U.S.
dollar against the Indian Rupee would adversely affect our expenses for our
Indian subsidiary.


                                       35
<PAGE>   38

                           PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Securities Class Action Litigation

       Beginning on or about April 19, 2001, a number of purported class action
lawsuits have been filed against the Company and certain current and former
officers in the United States District Court for the Central District of
California. The lawsuits purport to bring suit on behalf of those who purchased
the Company's publicly traded securities between June 22, 2000 and April 17,
2001. Plaintiffs allege that defendants made false and misleading statements,
purport to assert claims for violations of the federal securities laws, and seek
unspecified compensatory damages and other relief. The Company believes the
claims are without merit and intends to defend the actions vigorously.

       We are not a party to any other material legal proceedings. However, from
time to time and in the ordinary course of business, we may be subject to
various claims, charges and litigation.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

(c) SALE OF UNREGISTERED SECURITIES. On March 2, 2001, we granted Gary J. Sbona,
our Chairman and Chief Executive Officer, an option to purchase 3,880,600 shares
of our common stock at an exercise price of $1.938 per share in connection with
Mr. Sbona's employment agreement with us. The option has a term of five years,
and 323,383 of the shares subject to the option are immediately vested with the
remaining shares vesting over eleven equal monthly installments. The offer and
sale of the option, and the shares of common stock underlying the option, are
exempt from the registration requirements of the Securities Act of 1933, as
amended (the "Securities Act"), by virtue of Section 4(2) thereof.

(d) USE OF PROCEEDS FROM SALES OF REGISTERED SECURITIES. On June 28, 2000, the
Company completed an initial public offering (the "Offering") of its Common
Stock, $.001 par value. The shares of Common Stock sold in the Offering were
registered under the Securities Act on a Registration Statement on Form S-1 (the
"Registration Statement") (Reg. No. 333-31732) that was declared effective by
the SEC on June 22, 2000. The Offering commenced on June 23, 2000 and closed on
June 28, 2000 after all 4.6 million shares of Common Stock registered under the
Registration Statement (including 600,000 shares sold pursuant to the exercise
of the Underwriters' over-allotment option) were sold at a price of $15.00 per
share. The aggregate price of the Offering amount registered was $69.0 million.
In connection with the Offering, the Company paid an aggregate of $4.8 million
in underwriting discounts and commissions to the Underwriters and paid other
expenses of approximately $1.9 million. After deducting the underwriting
discounts and commissions and the estimated Offering expenses described above,
the Company received net proceeds from the Offering of approximately $62.3
million.

As of March 31, 2001, the Company had not used any of the net proceeds from the
Offering and had used its existing cash balances to fund the general operations
of the


                                       36
<PAGE>   39

Company. The Company intends to use the proceeds for general corporate purposes
as described in the prospectus for the Offering. None of the Company's net
proceeds of the Offering were paid directly or indirectly to any director,
officer, general partner of the Company or their associates, persons owning 10%
or more of any class of equity securities of the Company, or an affiliate of the
Company.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

              None.

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

              None.

ITEM 5. OTHER INFORMATION

       On April 3, 2001, the Company filed Form 12b-25, Notification of Late
Filing, with respect to its Annual Report on Form 10-K for the year ended
December 31, 2000. The Company had recently retained a new management team,
including its Chief Executive Officer and Chief Financial Officer, as well as
several other key employees in its sales and finance departments and only had a
limited period of time to review the Company's financial status and other
related information necessary to complete the filing of its Annual Report on
Form 10-K.

       On April 17, 2001, the Company announced that it was not yet able to file
its Annual Report for the 2000 fiscal year on Form 10-K as previously
contemplated, because it had determined that certain revenue recognized in the
second quarter of 2000 should have been deferred. Following the announcement,
Nasdaq notified the Company that trading in the Company's stock was halted,
pending additional information requested from the Company, and that trading
would remain halted until the Company had fully satisfied Nasdaq's request for
additional information.

       On April 24, 2001, the Company received a Nasdaq staff determination
that, pursuant to Marketplace Rule 4310(c)(14), the Company's common stock is
subject to delisting from The Nasdaq National Market because the Company delayed
the filing of its Form 10-K for the period ended December 31, 2000. The Company
has since filed its Form 10-K on May 8, 2001. In response to the Staff
Determination, the Company requested a hearing before the Nasdaq Listing
Qualifications Panel, which was scheduled for May 10, 2001. On May 11, 2001, the
Company announced that this hearing had been rescheduled to June 8, 2001,
because Nasdaq staff had requested the hearing be continued for 30 days to allow
it sufficient time to determine the necessity of a hearing.


                                       37
<PAGE>   40

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

       (a)    EXHIBITS
<TABLE>
<S>                       <C>
              3.1*        Amended and Restated Certificate of Incorporation of the
                          Registrant

              3.2*        Amended and Restated Bylaws of the Registrant

              10.1        Retainer Agreement dated as of February 5, 2001 by and
                          between the Registrant and Regent Pacific Management
                          Corporation (Incorporated by reference to Exhibit 10.35 to the
                          Registrant's Annual Report on Form 10-K filed on May 8, 2001)

              10.2        Employment Agreement dated as of February 12, 2001 by and
                          between the Registrant and Gary J. Sbona (Incorporated by
                          reference to Exhibit 10.36 to the Registrant's Annual Report
                          on Form 10-K filed on May 8, 2001)

              10.3        Separation and Consulting Agreement and General Release dated
                          March 16, 2001 by and between the Company and Suresh Nihalani
                          (Incorporated by reference to Exhibit 10.37 to the Registrant's
                          Annual Report on Form 10-K filed on May 8, 2001)
</TABLE>


       -----------------
       *      Incorporated by reference to Exhibits 3.1 and 3.2, respectively,
              to Registrant's Form S-1 (Registration No. 333-31732).


       (b)    REPORTS OF FORM 8-K

              There were no Reports on Form 8-K filed by the Company during the
three months ended March 31, 2001.


                                       38
<PAGE>   41

                                   SIGNATURES

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

                             ACCELERATED NETWORKS, INC.
                             (Registrant)



                             By: /s/ H. Michael Hogan III
                                 -----------------------------------------------
                                    H. Michael Hogan III
                                    Vice President, Finance and Administration
                             and
                                    Chief Financial Officer
                                    (Principal Financial and Accounting Officer)


Dated: May 15, 2001


                                       39
<PAGE>   42

                                 EXHIBIT INDEX

<TABLE>
<S>                       <C>
              3.1*        Amended and Restated Certificate of Incorporation of the
                          Registrant

              3.2*        Amended and Restated Bylaws of the Registrant

              10.1        Retainer Agreement dated as of February 5, 2001 by and
                          between the Registrant and Regent Pacific Management
                          Corporation (Incorporated by reference to Exhibit 10.35 to the
                          Registrant's Annual Report on Form 10-K filed on May 8, 2001)

              10.2        Employment Agreement dated as of February 12, 2001 by and
                          between the Registrant and Gary J. Sbona (Incorporated by
                          reference to Exhibit 10.36 to the Registrant's Annual Report
                          on Form 10-K filed on May 8, 2001)

              10.3        Separation and Consulting Agreement and General Release dated
                          March 16, 2001 by and between the Company and Suresh Nihalani
                          (Incorporated by reference to Exhibit 10.37 to the Registrant's
                          Annual Report on Form 10-K filed on May 8, 2001)
</TABLE>

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

* Incorporated by reference to Exhibits 3.1 and 3.2, respectively, to
  Registrant's Form S-1 (Registration No. 333-31732).