##### Table of Contents

---

UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington, D.C.
20549

FORM 10-Q

(Mark One)

|x | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ---------------------------------------------------------------------------------------
|  |                                                                                        
|  | For the quarterly period ended September 30, 2002.                                     

or

|o | 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
(000-25865)

Copper Mountain Networks, Inc.(Exact name of registrant as specified in its charter)

|Delaware                                                                                                 |  | 33-0702004                          
|-------------------------------------------------------------------------------------------------------- |  | ------------------------------------
|(State or other jurisdiction of incorporation or organization)                                           |  | (I.R.S. Employer Identification No.)
|                                                                                                         |  |                                     
|                                                                                                        
|1850 Embarcadero Road, Palo Alto, California 94303                                                      
|(650) 687-3300                                                                                          
|(Address, including zip code, and telephone number, including area code, of principal executive offices)

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

|Yes | x | No | o
|--- | - | -- | -

The number of shares outstanding of the issuers
common stock, $.001 par value, as of October  31, 2002 was 5,820,925.

---



---

##### Table of Contents

COPPER MOUNTAIN NETWORKS, INC. INDEX

|         |                       |                                                                                                    | Page
|-------- | --------------------- | -------------------------------------------------------------------------------------------------- | ----
|         |                       |                                                                                                    |     
|Part I.  | Financial Information |                                                                                                   
|         |                       |                                                                                                   
|         | Item 1.               | Financial Statements                                                                               |     
|         |                       |                                                                                                    |     
|         |                       | Condensed Balance Sheets at September 30, 2002 and December 31, 2001                               | 2   
|         |                       |                                                                                                    |     
|         |                       | Condensed Statements of Operations for the three and nine months ended September 30, 2002 and 2001 | 3   
|         |                       |                                                                                                    |     
|         |                       | Condensed Statement of  Stockholders Equity for the nine months ended September 30, 2002          | 4   
|         |                       |                                                                                                    |     
|         |                       | Condensed Statements of Cash Flows for the nine months ended September 30, 2002 and 2001           | 5   
|         |                       |                                                                                                    |     
|         |                       | Notes to Condensed Financial Statements                                                            | 6   
|         |                       |                                                                                                    |     
|         | Item 2.               | Managements Discussion and Analysis of Financial Condition and Results of Operations              | 12  
|         |                       |                                                                                                    |     
|         | Item 3.               | Quantitative and Qualitative Disclosures About Market Risk                                         | 35  
|         |                       |                                                                                                    |     
|         | Item 4.               | Disclosure and Control Procedures                                                                  | 35  
|         |                       |                                                                                                    |     
|Part II. | Other Information     |                                                                                                   
|         |                       |                                                                                                   
|         | Item 1.               | Legal Proceedings                                                                                  | 36  
|         |                       |                                                                                                    |     
|         | Item 2.               | Changes in Securities and Use of Proceeds                                                          | 36  
|         |                       |                                                                                                    |     
|         | Item 4.               | Submission of Matters to a Vote of Security Holders                                                | 36  
|         |                       |                                                                                                    |     
|         | Item 5.               | Other Information                                                                                  | 37  
|         |                       |                                                                                                    |     
|         | Item 6.               | Exhibits and Reports on Form 8-K                                                                   | 37  
|        



---

##### Table of Contents

COPPER MOUNTAIN NETWORKS, INC.CONDENSED BALANCE SHEETS (in thousands)

|                                                                                   |                                                                                 | September 30, 2002 |        | December 31, 2001 |  
|---------------------------------------------------------------------------------- | ------------------------------------------------------------------------------- | ------------------ | ------ | ----------------- | -
|                                                                                   |                                                                                 |                    |        |                   |  
|                                                                                   |                                                                                 | (Unaudited)        |        |                   |  
|ASSETS                                                                             |                                                                                 |                    |        |                   |  
|Current assets:                                                                    |                                                                                 |                    |        |                   |  
|                                                                                   | Cash and cash equivalents, net                                                  |                    | $      | 30,488            |  
|                                                                                   | Short-term marketable investments                                               |                    |        | 14,179            |  
|                                                                                   | Accounts receivable, net                                                        |                    |        | 1,320             |  
|                                                                                   | Inventory, net                                                                  |                    |        | 2,475             |  
|                                                                                   | Other current assets                                                            |                    |        | 1,884             |  
|                                                                                   |                                                                                 |                    |        |                   |  
|Total current assets                                                               |                                                                                 |                    | 50,346 |                   |  
|Property and equipment, net                                                        |                                                                                 |                    | 7,428  |                   |  
|Other assets                                                                       |                                                                                 |                    | 624    |                   |  
|                                                                                   |                                                                                 |                    |        |                   |  
|Total assets                                                                       |                                                                                 | $                  | 58,398 |                   | $
|                                                                                   |                                                                                 |                    |        |                   |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                               |                                                                                 |                    |        |                   |  
|Current liabilities:                                                               |                                                                                 |                    |        |                   |  
|                                                                                   | Accounts payable                                                                |                    | $      | 1,469             |  
|                                                                                   | Adverse purchase commitment                                                     |                    |        |                  |  
|                                                                                   | Accrued restructuring costs                                                     |                    |        | 2,221             |  
|                                                                                   | Accrued liabilities                                                             |                    |        | 6,084             |  
|                                                                                   | Current portion of obligations under capital leases and equipment notes payable |                    |        | 3,262             |  
|                                                                                   |                                                                                 |                    |        |                   |  
|Total current liabilities                                                          |                                                                                 |                    | 13,036 |                   |  
|Obligations under capital leases and equipment notes payable, less current portion |                                                                                 |                    | 1,062  |                   |  
|Accrued restructuring costs                                                        |                                                                                 |                    | 3,349  |                   |  
|Other accrued                                                                      |                                                                                 |                    | 304    |                   |  
|Stockholders equity:                                                              |                                                                                 |                    |        |                   |  
|                                                                                   | Common stock                                                                    |                    |        | 6                 |  
|                                                                                   | Additional paid in capital                                                      |                    |        | 245,387           |  
|                                                                                   | Deferred compensation                                                           |                    |        | (877              | )
|                                                                                   | Accumulated deficit                                                             |                    |        | (203,869          | )
|                                                                                   | Other comprehensive income                                                      |                    |        |                  |  
|                                                                                   |                                                                                 |                    |        |                   |  
|Total stockholders equity                                                         |                                                                                 |                    | 40,647 |                   |  
|                                                                                   |                                                                                 |                    |        |                   |  
|Total liabilities and stockholders equity                                         |                                                                                 | $                  | 58,398 |                   | $
|                                                                                   |                                                                                 |                    |        |                   |  

See accompanying notes to condensed financial statements

2



---

##### Table of Contents

COPPER MOUNTAIN NETWORKS, INC.CONDENSED STATEMENTS OF OPERATIONS (in thousands, except per share data) (unaudited)

|                                                                                                                                                       |                                              | Three Months Ended September 30, |        | Nine Months Ended September 30, |  
|------------------------------------------------------------------------------------------------------------------------------------------------------ | -------------------------------------------- | -------------------------------- | ------ | ------------------------------- | -
|                                                                                                                                                       |                                              |                                  |        |                                 |  
|                                                                                                                                                       |                                              | 2002                             |        | 2001                            |  
|                                                                                                                                                       |                                              |                                  |        |                                 |  
|Net revenue                                                                                                                                            |                                              | $                                | 3,313  |                                 | $
|Cost of revenue                                                                                                                                        |                                              |                                  | 2,617  |                                 |  
|                                                                                                                                                       |                                              |                                  |        |                                 |  
|                                                                                                                                                       | Gross margin                                 |                                  |        | 696                             |  
|Operating expenses:                                                                                                                                    |                                              |                                  |        |                                 |  
|                                                                                                                                                       | Research and development                     |                                  |        | 4,257                           |  
|                                                                                                                                                       | Sales and marketing                          |                                  |        | 1,754                           |  
|                                                                                                                                                       | General and administrative                   |                                  |        | 2,083                           |  
|                                                                                                                                                       | Amortization of purchased intangibles        |                                  |        |                                |  
|                                                                                                                                                       | Amortization of deferred stock compensation* |                                  |        | 131                             |  
|                                                                                                                                                       | Recovery of bad debt                         |                                  |        | (689                            | )
|                                                                                                                                                       | Restructuring costs                          |                                  |        | 1,361                           |  
|                                                                                                                                                       | Write-off of purchased intangibles           |                                  |        |                                |  
|                                                                                                                                                       |                                              |                                  |        |                                 |  
|                                                                                                                                                       | Total operating expenses                     |                                  |        | 8,897                           |  
|                                                                                                                                                       |                                              |                                  |        |                                 |  
|Loss from operations                                                                                                                                   |                                              |                                  | (8,201 | )                               |  
|Other income (expense):                                                                                                                                |                                              |                                  |        |                                 |  
|                                                                                                                                                       | Interest and other income                    |                                  |        | 193                             |  
|                                                                                                                                                       | Interest expense                             |                                  |        | (129                            | )
|                                                                                                                                                       |                                              |                                  |        |                                 |  
|Loss before income taxes                                                                                                                               |                                              |                                  | (8,137 | )                               |  
|Provision  for income taxes                                                                                                                            |                                              |                                  |       |                                 |  
|                                                                                                                                                       |                                              |                                  |        |                                 |  
|Net Loss                                                                                                                                               |                                              | $                                | (8,137 | )                               | $
|                                                                                                                                                       |                                              |                                  |        |                                 |  
|Basic net loss per share                                                                                                                               |                                              | $                                | (1.50  | )                               | $
|                                                                                                                                                       |                                              |                                  |        |                                 |  
|Diluted net loss per share                                                                                                                             |                                              | $                                | (1.50  | )                               | $
|                                                                                                                                                       |                                              |                                  |        |                                 |  
|Basic common equivalent shares                                                                                                                         |                                              |                                  | 5,418  |                                 |  
|                                                                                                                                                       |                                              |                                  |        |                                 |  
|Diluted common equivalent shares                                                                                                                       |                                              |                                  | 5,418  |                                 |  
|                                                                                                                                                       |                                              |                                  |        |                                 |  
|                                                                                                                                                       |                                              |                                  |        |                                 |  
|* The following table shows how the Companys deferred stock compensation would be allocated to cost of revenue and the respective expense categories: |                                             
|                                                                                                                                                       |                                              |                                  |        |                                 |  
|Cost of revenue                                                                                                                                        |                                              | $                                | 90     |                                 | $
|Research and development                                                                                                                               |                                              |                                  | (359   | )                               |  
|Sales and marketing                                                                                                                                    |                                              |                                  | (85    | )                               |  
|General and administrative                                                                                                                             |                                              |                                  | 485    |                                 |  
|                                                                                                                                                       |                                              |                                  |        |                                 |  
|                                                                                                                                                       | Total                                        |                                  | $      | 131                             |  
|                                                                                                                                                       |                                              |                                  |        |                                 |  
|                                                                                                                                                       |                                              |                                  |        |                                 |  

See accompanying notes to condensed financial statements.

3



---

##### Table of Contents

COPPER MOUNTAIN NETWORKS, INC.CONDENSED STATEMENT OF STOCKHOLDERS EQUITY (in thousands) (unaudited)

|                              |                                                                    | Common  Stock    |       | Additional Paid in Capital |   | Deferred Compensation |   | Accumulated Deficit |         | Other Comprehensive Income |   | Total Stockholders Equity |      
|----------------------------- | ------------------------------------------------------------------ | ---------------- | ----- | -------------------------- | - | --------------------- | - | ------------------- | ------- | -------------------------- | - | -------------------------- | -----
|                              |                                                                    |                  |       |                            |   |                       |   |                    
|                              |                                                                    | Number of Shares |       | Amount                     |   |                       |   |                     |         |                           
|                              |                                                                    |                  |       |                            |   |                       |   |                     |         |                            |   |                            |      
|Balance at December 31,  2001 |                                                                    |                  | 5,835 |                            | $ | 6                     |   | $                   | 246,178 |                            | $ | (5,666                     | )    
|                              | Amortization related to deferred stock compensation                |                  |       |                           |   |                       |  |                     |         |                           |   |                            | 3,905
|                              | Common stock issued under Employee Stock Purchase Plan             |                  |       | 13                         |   |                       |  |                     |         | 64                         |   |                            |     
|                              | Exercise of options to purchase common stock                       |                  |       | 29                         |   |                       |  |                     |         | 31                         |   |                            |     
|                              | Repurchase of fractional shares related to the reverse stock split |                  |       |                           |   |                       |  |                     |         | (2                         | ) |                            |     
|                              | Cancellation of restricted common stock                            |                  |       | (98                        | ) |                       |  |                     |         | (1,584                     | ) |                            | 1,584
|                              | Issuance of restricted common stock                                |                  |       | 25                         |   |                       |  |                     |         | 71                         |   |                            | (71  
|                              | Variable deferred stock based compensation                         |                  |       |                           |   |                       |  |                     |         | 629                        |   |                            | (629 
|                              | Realization of unrealized gain on marketable investment            |                  |       |                           |   |                       |  |                     |         |                           |   |                            |     
|                              | Net loss                                                           |                  |       |                           |   |                       |  |                     |         |                           |   |                            |     
|                              |                                                                    |                  |       |                            |   |                       |   |                     |         |                            |   |                            |      
|Balance at September 30, 2002 |                                                                    |                  | 5,804 |                            | $ | 6                     |   | $                   | 245,387 |                            | $ | (877                       | )    
|                              |                                                                    |                  |       |                            |   |                       |   |                     |         |                            |   |                            |      

See accompanying notes to condensed financial statements

4



---

##### Table of Contents

COPPER MOUNTAIN NETWORKS, INC.CONDENSED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)

|                                                     |                                                                             | Nine Months Ended September 30, |        
|---------------------------------------------------- | --------------------------------------------------------------------------- | ------------------------------- | -------
|                                                     |                                                                             |                                 |        
|                                                     |                                                                             | 2002                            |        
|                                                     |                                                                             |                                 |        
|Cash flows from operating activities:                |                                                                             |                                 |        
|                                                     | Net loss                                                                    |                                 | $      
|                                                     | Adjustments to reconcile net loss to net cash used in operating activities: |                                 |        
|                                                     | Write-off of purchased intangibles                                          |                                 |        
|                                                     | Depreciation and amortization                                               |                                 |        
|                                                     | Non-cash restructuring costs                                                |                                 |        
|                                                     | Non-cash compensation, net                                                  |                                 |        
|                                                     | Realized gain on vendor settlements                                         |                                 |        
|                                                     | Realized gain on marketable investment                                      |                                 |        
|                                                     | Changes in operating assets and liabilities:                                |                                 |        
|                                                     | Accounts receivable                                                         |                                 |        
|                                                     | Inventory                                                                   |                                 |        
|                                                     | Other current assets and other assets                                       |                                 |        
|                                                     | Adverse purchase commitment                                                 |                                 |        
|                                                     | Accounts payable and accrued liabilities                                    |                                 |        
|                                                     | Accrued restructuring costs                                                 |                                 |        
|                                                     |                                                                             |                                 |        
|Net cash used in operating activities                |                                                                             |                                 | (25,308
|                                                     |                                                                             |                                 |        
|Cash flows from investing activities:                |                                                                             |                                 |        
|                                                     | Maturities of marketable investments, net                                   |                                 |        
|                                                     | Purchases of property and equipment                                         |                                 |        
|                                                     |                                                                             |                                 |        
|Net cash provided by investing activities            |                                                                             |                                 | 31,411 
|                                                     |                                                                             |                                 |        
|Cash flows from financing activities:                |                                                                             |                                 |        
|                                                     | Payments on capital leases and equipment notes payable                      |                                 |        
|                                                     | Proceeds from issuance of common stock, net                                 |                                 |        
|                                                     |                                                                             |                                 |        
|Net cash used in financing activities                |                                                                             |                                 | (2,238 
|                                                     |                                                                             |                                 |        
|Net increase (decrease) in cash and cash equivalents |                                                                             |                                 | 3,865  
|Cash and cash equivalents at beginning of period     |                                                                             |                                 | 26,623 
|                                                     |                                                                             |                                 |        
|Cash and cash equivalents, net at end of period      |                                                                             | $                               | 30,488 
|                                                     |                                                                             |                                 |        
|Supplemental information:                            |                                                                             |                                 |        
|                                                     | Unrealized gain on marketable investments                                   |                                 | $      
|                                                     |                                                                             |                                 |        
|                                                     | Interest paid                                                               |                                 | $      
|                                                     |                                                                             |                                 |        
|                                                     |                                                                             |                                 |        

See accompanying notes to condensed financial statements

5



---

##### Table of Contents

NOTE 1 - General

In managements opinion, the accompanying unaudited financial statements for Copper Mountain Networks, Inc. (the
Company) for the three and nine month periods ended September 30, 2002 and 2001 have been prepared in accordance with generally accepted accounting principles for interim financial statements and include all adjustments (consisting only
of normal recurring accruals except for a restructuring charge totaling $1.4 million and a recovery of bad debt of $0.7 million for the three months ended September 30, 2002; a decrease in the reserve for obsolete inventory and adverse purchase
commitment totaling $14.9 million, a recovery of bad debt of $3.7 million, a restructuring charge totaling $1.4 million and a gain on investment of $1.0 million for the nine months ended September 30, 2002;  a restructuring charge of $16.0
million for the three months ended September 30, 2001;  a charge to write-off certain intangible assets of $40.8 million, a charge related to excess inventory on hand and on order of $51.0 million, a restructuring charge of $20.4 million, a
$2.6 million charge related to the collectibility of certain receivables and a charge related to the investment in commercial paper of Southern California Edison of $1.0 million for the nine months ended September 30, 2001) that the Company
considers necessary for a fair presentation of its financial position, results of operations, and cash flows for such periods. However, the accompanying financial statements do not contain all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. All such financial statements are unaudited except for the December 31, 2001 balance sheet. This quarterly report and the accompanying financial statements should be read in
conjunction with the Companys audited financial statements and notes thereto presented in its Annual Report on Form 10-K for the year ended December 31, 2001 (the 2001 Annual Report).  Footnotes which would substantially
duplicate the disclosures in the Companys audited financial statements for the year ended December 31, 2001 contained in the 2001 Annual Report have been omitted. The interim financial information contained in this quarterly report is not
necessarily indicative of the results to be expected for any other interim period or for the full year ending December 31, 2002.

Investments In Marketable Securities

At September 30, 2002, the Company held investments in investment grade debt and money market securities with various maturities through January 2003.  Management determines the appropriate classification of the
Companys investments in debt securities at the time of purchase and reevaluates such designation as of each balance sheet date.  The Companys total investments in these securities as of September 30, 2002 totaled $42.2
million.  The Company has included $28.0 million of these securities in cash and cash equivalents at September 30, 2002, as they have original maturities of less than 90 days.   The remaining debt securities totaling $14.2 million at
September 30, 2002 have been classified as short-term marketable investments.  The fair value of the Companys total investments in marketable securities based upon the closing market prices of such securities on September 30, 2002
approximated the carrying value.  The Company has designated all of its investments held on September 30, 2002 as held-to-maturity.

Investment In Sales-Type Leases

During the year ended December 31, 2000, the Company entered into an $8.6 million credit facility with a customer for the purchase of the Companys equipment under a capital lease agreement.  At December 31,
2000, the Company had a net lease receivable from this customer of $4.7 million.  During the nine months ended Septmeber 30, 2001, the Company received the lessees quarterly lease payments; however, as a result of the continuing
deterioration of the lessees financial position, the Company took a $2.6 million charge to reduce the carrying value of the lease receivable.  This charge is included in bad debt expense for the nine months ended September 30, 2001. 
The Company received the lessees quarterly lease payments totaling $0.7 million and $2.1 million for the three and nine months ended September 30, 2002, respectively, which is included in recovery of bad debt.

Concentration of Credit Risk

A relatively small number of customers account for a significant percentage of the Companys revenues.  The Company expects that
the sale of its products to a limited number of customers may continue to account for a high percentage of revenues for the foreseeable future. The Companys revenues for the three months ended September 30, 2002 include revenue recognized from
three significant customers totaling

6



---

##### Table of Contents

$1.0 million or 29% (international customer), $0.5 million or 14%, and $0.4 million or 12% of net revenue.  The Companys revenues for the nine months ended
September 30, 2002 include revenue recognized from two significant customers totaling $1.9 million or 22% (international customer), and $1.3 million or 14% of net revenue.

The Company performs
ongoing credit evaluations of its customers and generally requires no collateral.  The Company had significant accounts receivable balances due from three customers individually representing 29%, 28% and 25% of total accounts receivable at
September 30, 2002.

The Company from time to time maintains a substantial portion of its cash and cash equivalents in money market accounts with one financial institution.  The Company invests
its excess cash in debt instruments of the U.S. Treasury, governmental agencies and corporations with strong credit ratings.  The Company has established guidelines relative to diversification and maturities that attempt to maintain safety and
liquidity.

Inventory

Inventory is stated at the lower of cost, principally standard costs, which approximates actual costs on a
first-in, first-out basis, or market. During the nine months ended September 30, 2001, the Company recorded charges totaling $51.0 million related to finished goods and raw materials in excess of anticipated requirements.  The reductions to
inventory value and loss on purchase commitments are included in cost of revenues for that period.

During the nine months ended September 30, 2002, the Company paid an aggregate of $7.6 million to
settle disputes with several vendors.  These disputes pertained to inventory on hand and adverse purchase commitments.  As a result of these settlements, the Company reversed $14.9 million of the $51.0 million in charges described
above.  This resulted in a reduction of the adverse purchase commitment liability and a corresponding credit to cost of revenues for the nine months ended September 30, 2002.

Accounts
Receivable Sale

During 2001, NorthPoint Communications (NorthPoint), filed voluntary petitions under Chapter 11 of the Bankruptcy Code, initiating bankruptcy proceedings in the
Northern District of California, San Francisco Division (the Bankruptcy Cases).  NorthPoint was a customer of the Company.  The Bankruptcy Cases were converted to cases under Chapter 7 of the Bankruptcy Code in 2001.  The
Company filed a proof of claim against NorthPoint in the amount of approximately $10.4 million arising from unsecured claims under equipment purchase and software licensing agreements, a marketing and development agreement, and service agreements,
which have been rejected.  The Company believes that ultimately the claims will be allowed.

During the nine months ended September 30, 2002 the Company assigned the claim in the amount of $10.4
million to a third party for $1.4 million.  The transaction has been accounted for as an asset sale in accordance with Statement of Financial Accounting Standards No. 140 Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities.  This claim was assigned with recourse, which is based on whether the Companys claims are allowed as a valid claim to the NorthPoint bankruptcy estate.  The Company does not expect to make any
future payments as a result of the recourse provisions of the assignment.  Accordingly, the estimated fair value of the recourse liability associated with the claim is zero.  The ultimate liability associated with the claim could exceed
the amount of this estimate.  The resulting gain of $1.4 million recognized on the sale of the claim is included in recovery of bad debt for the nine months ended September 30, 2002.

New
Accounting Standards

In July 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 146, Accounting for Costs Associated with Exit or Disposal
Activities (FAS 146).  This statement supercedes Emerging Issues Task Force Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in
a Restructuring) (EITF 94-3).  FAS 146 requires that a liability for a cost associated with an exit or disposal

7



---

##### Table of Contents

activity be recognized when the liability is incurred.  Under EITF 94-3, a liability for an exit cost was recognized at the date of an entitys commitment to an
exit plan.  FAS 146 is effective for exit or disposal activities that are initiated after December 31, 2002.  Adoption of FAS 146 is not currently expected to have a material impact on results of operations.

NOTE 2-Management Estimates and Assumptions

The preparation of financial statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period.  Some examples include
provisions for returns; bad debts; excess inventory and adverse purchase commitments; restructuring; and the ultimate outcome of litigation.  Actual results could differ from those estimates.

NOTE 3  Net Income Per Share

In July 2002, the Company completed a stockholder approved reverse stock split.  The ratio of the reverse stock split was
one-for-ten and reduced the number of shares of issued and outstanding stock from approximately 58 million shares to approximately 5.8 million shares.  All share and per share data has been restated to reflect this reverse stock
split.

Basic and diluted net income (loss) per share has been computed using the weighted-average number of shares of common stock outstanding during the period including any dilutive common stock
equivalents.

Common stock equivalents of 0.4 million and 0.3 million for the three and nine month periods ended September 30, 2002, respectively, were excluded from the calculation because of
their anti-dilutive effect.  Common stock equivalents of 0.1 million and 0.3 million for the three and nine month periods ended September 30, 2001, respectively, were excluded from the calculation because of their anti-dilutive
effect.

NOTE 4 - Composition of Certain Balance Sheet Captions (in thousands)

|                     |                                       | September 30, 2002 |       | December 31, 2001 |  
|-------------------- | ------------------------------------- | ------------------ | ----- | ----------------- | -
|                     |                                       |                    |       |                   |  
|                     |                                       | (Unaudited)        |       |                   |  
|Inventory:           |                                       |                    |       |                   |  
|                     | Raw materials                         |                    | $     | 64,966            |  
|                     | Work in process                       |                    |       | 7                 |  
|                     | Finished goods                        |                    |       | 10,784            |  
|                     | Allowance for excess and obsolescence |                    |       | (73,282           | )
|                     |                                       |                    |       |                   |  
|                     |                                       | $                  | 2,475 |                   | $
|                     |                                       |                    |       |                   |  
|Accrued liabilities: |                                       |                    |       |                   |  
|                     | Accrued compensation                  |                    | $     | 2,022             |  
|                     | Accrued warranty                      |                    |       | 400               |  
|                     | Accrued paid time off                 |                    |       | 709               |  
|                     | Deferred revenue                      |                    |       | 920               |  
|                     | Other                                 |                    |       | 2,033             |  
|                     |                                       |                    |       |                   |  
|                     |                                       | $                  | 6,084 |                   | $
|                     |                                       |                    |       |                   |  

NOTE 5  Restructuring

On March 7,
2001, the Company announced that it had adopted a business plan to re-size its business to reflect current and expected business conditions.  This restructuring plan was largely completed during 2001.  As a result of the adoption of this
plan, the Company recorded charges of $4.4 million during the

8



---

##### Table of Contents

three months ended March 31, 2001.  These charges primarily relate to: consolidation of the Companys continuing operations resulting in impairment of assets,
anticipated losses on disposition of assets and excess lease costs; and the elimination of job responsibilities, resulting in costs incurred for employee severance.  Employee reductions occurred in almost all areas of the Company, including
operations, marketing, sales and administrative areas.  As a result of this plan, the Company had reduced its non-temporary work force by approximately 100 positions.  Substantially all workforce reductions related to this plan occurred
during 2001.

On August 2, 2001, the Company announced that it had adopted a business plan to again re-size its business to reflect current and expected business conditions.  This restructuring
plan is expected to largely be completed during 2002.  As a result of the adoption of this plan, the Company recorded charges of $16.0 million during the three months ended September 30, 2001.  These charges primarily relate to:
consolidation of the Companys continuing operations resulting in impairment of assets, anticipated losses on disposition of assets and excess lease costs; and the elimination of job responsibilities, resulting in costs incurred for employee
severance.  Employee reductions occurred in all areas of the Company.  As a result of this plan, the Company reduced its non-temporary work force by approximately 150 additional positions.  Substantially all workforce reductions
occurred during 2001.

As a part of these plans, the carrying values of certain assets were written down.  The impaired assets include furniture, leasehold improvements, computers and other
assets used in certain of the areas of the Company impacted by the reduction in force.  The projected future cash flows from these assets were less than the carrying values of the assets.  The carrying values of the assets held for sale
and the assets to be held and used were reduced to their estimated fair values based on the present value of the estimated expected future cash flows.  Estimated expected future cash flows for the impaired assets are not significant.  In
the year ended December 31, 2001, the Company recorded losses from impairment of assets of $9.2 million, which were recorded as restructuring costs.  The cost of these losses was previously estimated to be $10.9 million.  This estimate was
reduced by the utilization of assets, primarily laboratory equipment, previously estimated to be held for disposition.  Substantially all of the impaired assets are being held for disposition and will not continue to be depreciated. 
Depreciation expense for the year ended December 31, 2001 was reduced by $1.9 million as a result of this charge.  The Company estimates that depreciation expense will be reduced by $2.7 million, $2.4 million, $1.8 million and $0.4 million for
the years ending December 31, 2002, 2003, 2004 and 2005, respectively, as a result of this charge.

Also as part of these plans, the Company elected to consolidate its operations and attempt to
sublease certain of its facilities, which housed portions of its operations, marketing, sales and administrative activities.  In the year ended December 31, 2001, the Company recorded estimated excess lease costs of $7.6 million which were
recorded as restructuring costs.  Estimated excess lease costs are based on assumptions of differences between lease payments and sublease receipts that could be realized on potential subleases and assumed carrying terms.  These
assumptions are based on reasonably possible rates and terms from other recent leases of comparable properties.  The excess lease costs were previously estimated to be $5.9 million.  The increase in this estimate is attributable to an
increase in the estimated holding periods for the remaining leases and decreased estimated sublease receipts based on continuing deterioration in the market for comparable rental office space.  The rates and terms of the actual sub-leases may
differ materially from these estimates which could result in changes in the restructuring charge recognized during the year ended December 31, 2001.  Future cash outlays related to these plans are expected to be completed in 2007.  During
the year ended December 31, 2001, charges totaling $20.4 million were recorded and activities costing $13.2 million were completed.

On July 11, 2002, the Company announced that it had adopted a
business plan to re-size its business to reflect current and expected business conditions.  This restructuring plan will be largely completed during 2002.  As a result of the adoption of this plan, the Company recorded charges of
approximately $1.4 million during the three and nine months ending September 30, 2002.  These charges primarily relate to: consolidation of the Companys continuing operations resulting in impairment of assets; anticipated losses on
disposition of assets and excess lease costs; and the elimination of job responsibilities, resulting in costs incurred for employee severance.  Employee reductions occurred in almost all areas of the Company, including engineering, operations,
marketing, sales and administrative areas.  As a result of this plan, the Company reduced its non-temporary work force by approximately 47 positions.

9



---

##### Table of Contents

Details of the restructuring charges are as follows (in 000s):

|                                    |  | Cash/ Non-cash |          | Balance At December 31, 2001 |   | Activity |  | Balance  at September 30, 2002 |       
|----------------------------------- |  | -------------- | -------- | ---------------------------- | - | -------- |  | ------------------------------ | ------
|                                    |  |                |          |                              |   |          |  |                                |       
|Impairment of assets                |  |                | Non-cash |                              | $ | 113      |  | $                              | 100   
|Excess lease costs                  |  |                | Cash     |                              |   | 6,454    |  |                                | (1,072
|Elimination of job responsibilities |  |                | Cash     |                              |   | 635      |  |                                | (447  
|                                    |  |                |          |                              |   |          |  |                                |       
|                                    |  |                |          |                              | $ | 7,202    |  | $                              | (1,419
|                                    |  |                |          |                              |   |          |  |                                |       

At September 30, 2002, the portion of the balance related to the impairment of assets is included in
property and equipment, net.  Future cash outlays for obligations under facility leases are expected to be completed in 2007.

NOTE 6   Litigation and Claims

During the nine months ended September 30, 2002, the Company resolved disputes with four vendors.  The terms of each of these settlements are confidential.  In the aggregate, these four settlements resulted in
a non-recurring gain of approximately $14.9 million in the three months ended June 30, 2002 and a reduction in current liabilities of approximately $22.1 million during the same period.

Since October
2000, approximately twenty-four complaints have been filed in the United States District Court for the Northern District of California against the Company and two of its officers (the Northern District Lawsuits), along with two related
derivative actions against the Company and its directors in Delaware and California, alleging violations of the federal securities laws arising out of recent declines in the Companys stock price.  Specifically, the complaints allege
claims in connection with various alleged statements and omissions to the public and to the securities markets.  The Northern District Lawsuits have been consolidated for pretrial purposes before United States Judge Vaughn Walker of the
Northern District of California.  The Company filed a motion to dismiss the Northern District Lawsuits, which was heard on November 29, 2001.  The Court has taken the motion to dismiss off calendar pending finalresolution of
an appeal involving the selection of plaintiffs counsel.  The derivative actions have been stayed.  No assurances can be made that we will be successful in our defense of such claims.  If we are not successful in our defense of
such claims, we could be forced to make significant payments to our stockholders and their lawyers, and such payments could have a material adverse effect on our business, financial condition and results of operations if not covered by our insurance
carrier.  Even if such claims are not successful, the litigation could result in substantial costs and divert managements attention and resources, which could adversely affect our business, results of operations and financial
position.

In December 2001, the Company and certain of its officers and directors were named as defendants in a class action shareholder complaint filed in the United States District Court for the
Southern District of New York and captioned Lowlicht v. Copper Mountain Networks, Inc., et al.,Case No. 01-CV-10943.  In the complaint, the plaintiffs allege that the Company, certain of its officers and directors and its IPO
underwriters violated the federal securities laws because the Companys IPO registration statement and prospectus contained untrue statements of material fact or omitted material facts regarding the compensation to be received by, and the stock
allocation practices of, the IPO underwriters.  The plaintiffs seek unspecified monetary damages and other relief.  Similar complaints were filed in the same Court against numerous public companies that conducted initial public offerings
(IPOs) of their common stock since the mid-1990s (the IPO Cases).

Lowlicht v. Copper Mountain Networks, Inc., et al.,and the IPO Cases were consolidated for pretrial
purposes before United States Judge Shira Scheindlin of the Southern District of New York.  Judge Scheindlin held an initial case management conference on September 7, 2001, at which time she ordered, among other things, that the time for all
defendants to respond to any complaint be postponed until further order of the Court.  On April 19, 2002, the plaintiffs filed an amended complaint against the Company and certain of its officers and directors.  The allegations in the
amended complaint are similar to the allegations

10



---

##### Table of Contents

in the original complaint.  On July 15, 2002, the Issuer defendants in the IPO Cases, including the Company and its named officers and directors , filed a motion to
dismiss the claims against them.  Judge Scheindlin heard oral argument on the motion on November 1, 2002.  Also, on October 8, 2002, the claims against the named officers and directors were dismissed without prejudice pursuant to a
stipulation providing for a tolling of the statutes of limitations against those defendants.  No discovery has been served on the Company.

In April 1999, the Company entered into a Manufacturing
Contract (the Contract) with Flextronics International Fremont, Inc. (Flextronics), whereby Flextronics purchased components for the Company and manufactured equipment that the Company sold to customers.  On or about
December 12, 2001, pursuant to the dispute resolution procedures in the Contract, the Company filed a demand for arbitration against Flextronics with the American Arbitration Association in San Diego County, California, seeking a declaration that
the Company does not owe Flextronics certain amounts Flextronics claimed the Company owed under the Contract and seeking, among other relief, reimbursement for an alleged overpayment, payment of an outstanding invoice, and an accounting of the
Contract from its inception.

On or about January 30, 2002, Flextronics filed a civil action against the Company in the Superior Court of the state of California, county of Santa Clara seeking, among
other relief, payment of certain amounts allegedly owed under the Contract, interest, attorneys fees and costs, and a writ of attachment to secure its claims pending the outcome of the arbitration.  This action was transferred to the
Superior Court of the State of California, county of San Diego, on or about March 20, 2002.

On or about June 28, 2002, the Company and Flextronics reached a confidential settlement and all pending
actions were dismissed with prejudice.  This matter has been resolved.

The Company, incident to its business activities, is party to other legal proceedings or claims.   
Management believes that the final resolution of these matters, individually and in the aggregate, will not have a material adverse impact upon the Companys financial position, results of operations or cash flows.

11



---

##### Table of Contents

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

Forward Looking Statements

This document contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify
forward-looking statements by terminology such as may, will, should, expect, plan, anticipate, believe, estimate, predict,
potential or continue, the negative of such terms or other comparable terminology. These statements are only predictions.  Actual events or results may differ materially.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity,
performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We are under no duty to update any of the forward-looking statements after the date of
this report to conform such statements to actual results or to changes in our expectations.

Readers are also urged to carefully review and
consider the various disclosures made by us which attempt to advise interested parties of the factors which affect our business, including without limitation the disclosures made under the caption Managements Discussion and Analysis of
Financial Condition and Results of Operations and under the caption Risk Factors included herein and in the Companys Annual Report on Form 10-K for the year ended December 31, 2001 and other reports and filings made with the
Securities and Exchange Commission.

Overview

Copper Mountains current operating activities relate primarily to developing, building and
testing prototype products and establishing relationships with its target customers.

Our revenue is generated primarily from sales of and
service on our central office-based equipment: our CopperEdge 200 DSL  concentrators, or CE200, the related wide area network cards, line cards and, to a lesser extent, from sales of our DSL customer premises equipment or CPE. 
Additionally, we license  network management software which provides monitoring and management capabilities for the CE200, revenues from which have not been material to date.  We also sell our VantEdge 3000 and 3300 broadband services
concentrators and CopperEdge 150 DSL concentrators, or CE150, in the multiple tenant unit, or MTU, market.

For the three months ended
September 30, 2002, revenue recognized from our largest three customers, Versatel, AT&T, and Mpower accounted for approximately 29%, 14%, and 12% of our revenue, respectively.   While the level of sales to any specific customer is
anticipated to vary from period to period, we expect that we will continue to have significant customer concentration for the foreseeable future.  Future sales, if any, to historically significant customers may be substantially less than
historical sales.  The loss of any one of our historically major customers or the delay of significant orders from such customers, even if only temporary, could among other things reduce or delay our net revenue, adversely impact our ability to
achieve annual or quarterly profitability and adversely impact our ability to generate positive cash flow, and, as a consequence, could materially adversely affect our business, financial condition and results of operations.

In the future, we expect that revenue growth, if any, will be substantially dependent on sales of our new VantEdge product.  The VantEdge product
is generally available for sale; however, we may not be successful generating material revenues from the sale of the VantEdge product line.

We market and sell our products directly to telecommunications service providers and through distributors.  No revenue is recognized on products shipped on a
trial basis.  Estimated sales returns, based on historical experience by product, are recorded at the time the product revenue is recognized.  To date, significant revenues generated from international sources are entirely comprised of
sales to Versatel.

12



---

##### Table of Contents

We expect our gross margin to be affected by many factors including our estimates for excess inventory,
competitive pricing pressures, fluctuations in manufacturing volumes, costs of components and sub-assemblies, costs from our contract manufacturers, the mix of products or system configurations sold and the volume and timing of sales of follow-on
line cards for systems shipped in prior periods.

We outsource most of our manufacturing and supply chain management operations, and we
conduct manufacturing engineering, quality assurance, program management, documentation control and product repairs at our  facility in San Diego, California.    Accordingly, a significant portion of our cost of revenue during
the periods presented consists of payments to our current contract manufacturer Plexus Corporation and our former contract manufacturer Flextronics International Ltd.   We selected our manufacturing partners with the goal of lowering per
unit product costs as a result of manufacturing economies of scale.   However, we cannot assure you that we will maintain the volumes required to realize these economies of scale or when or if such cost reductions will occur.  
The failure to obtain such cost reductions could materially adversely affect our gross margins and operating results.

Research and
development expenses consist principally of salaries and related personnel expenses, consultant fees and prototype expenses related to the design, development and testing of our products and enhancement of our network management software.  We
believe that continued investment in research and development is critical to attaining our strategic product objectives and, as a result, we expect these costs to comprise a substantial portion of our operating results in the future.

Sales and marketing expenses consist of salaries, commissions, travel costs and related expenses for personnel engaged in marketing, sales
and field service support functions, as well as trade shows and promotional expenses.

General and administrative expenses consist
primarily of salaries and related expenses for executive, finance, human resources, management information systems and administrative personnel, recruiting expenses, professional fees, bad debt expenses and other general corporate expenses.

Prior to the year ended December 31, 2000, amortization of deferred stock compensation resulted from the granting of stock options to
employees with exercise prices per share determined to be below the fair values per share for financial reporting purposes of our common stock at dates of grant.  During the year ended December 31, 2000, additional deferred compensation was
recorded as part of the purchase price of OnPREM Networks Corporation.  During the second quarter of 2001, additional deferred compensation was recorded in conjunction with a stock option exchange program.  During the third and fourth
quarter of 2001, additional deferred compensation was recorded in conjunction with a grant of restricted stock to employees.  During the third quarter of 2002, additional deferred compensation was recorded in conjunction with a stock option
re-pricing program.  The intrinsic value of the options to purchase common stock granted under the exchange program will be re-measured at the end of each period for the life of the option.  We expect that the total amount of deferred
compensation expense that will be recognized under the exchange program could vary from period to period and the ultimate amount of deferred compensation expense that will be recognized is not currently determinable.  The deferred compensation
is being amortized to expense in accordance with FASB Interpretation No. 28 over the vesting period of the individual options.  Deferred stock compensation and amortization of deferred stock compensation could materially increase or decrease in
future periods.

On March 7, 2001, the Company announced that it had adopted a business plan to re-size its business to reflect
current and expected business conditions.  This restructuring plan was largely completed during 2001.  As a result of the adoption of this plan, the Company recorded charges of $4.4 million during the three months ended March 31,
2001.  These charges primarily relate to: consolidation of the Companys continuing operations resulting in impairment of assets, anticipated losses on disposition of assets and excess lease costs; and the elimination of job
responsibilities, resulting in costs incurred for employee severance.  Employee reductions occurred in almost all areas of the Company, including operations, marketing, sales and administrative areas.  As a result of this plan, the Company
had reduced its non-temporary work force by approximately 100 positions.  Substantially all workforce reductions related to this plan occurred during 2001.

13



---

##### Table of Contents

On August 2, 2001, the Company announced that it had adopted a business plan to again re-size its business to
reflect current and expected business conditions.  This restructuring plan is expected to largely be completed during 2002.  As a result of the adoption of this plan, the Company recorded charges of $16.0 million during the three months
ended September 30, 2001.  These charges primarily relate to: consolidation of the Companys continuing operations resulting in impairment of assets, anticipated losses on disposition of assets and excess lease costs; and the elimination
of job responsibilities, resulting in costs incurred for employee severance.  Employee reductions occurred in all areas of the Company.  As a result of this plan, the Company reduced its non-temporary work force by approximately 150
additional positions.  Substantially all workforce reductions occurred during 2001.

As a part of these plans, the carrying values of
certain assets were written down.  The impaired assets include furniture, leasehold improvements, computers and other assets used in certain of the areas of the Company impacted by the reduction in force.  The projected future cash flows
from these assets were less than the carrying values of the assets.  The carrying values of the assets held for sale and the assets to be held and used were reduced to their estimated fair values based on the present value of the estimated
expected future cash flows.  Estimated expected future cash flows for the impaired assets are not significant.  In the year ended December 31, 2001, the Company recorded losses from impairment of assets of $9.2 million, which were recorded
as restructuring costs.  The cost of these losses was previously estimated to be $10.9 million.  This estimate was reduced by the utilization of assets, primarily laboratory equipment, previously estimated to be held for disposition. 
Substantially all of the impaired assets are being held for disposition and will not continue to be depreciated.  Depreciation expense for the year ended December 31, 2001 was reduced by $1.9 million as a result of this charge.  The
Company estimates that depreciation expense will be reduced by $2.7 million, $2.4 million, $1.8 million and $0.4 million for the years ending December 31, 2002, 2003, 2004 and 2005, respectively, as a result of this charge.

Also as part of these plans, the Company elected to consolidate its operations and attempt to sublease certain of its facilities, which housed portions of its
operations, marketing, sales and administrative activities.  In the year ended December 31, 2001, the Company recorded estimated excess lease costs of $7.6 million which were recorded as restructuring costs.  Estimated excess lease costs
are based on assumptions of differences between lease payments and sublease receipts that could be realized on potential subleases and assumed carrying terms.  These assumptions are based on reasonably possible rates and terms from other recent
leases of comparable properties.  The excess lease costs were previously estimated to be $5.9 million.  The increase in this estimate is attributable to an increase in the estimated holding periods for the remaining leases and decreased
estimated sublease receipts based on continuing deterioration in the market for comparable rental office space.  The rates and terms of the actual sub-leases may differ materially from these estimates which could result in changes in the
restructuring charge recognized during the year ended December 31, 2001.  Future cash outlays related to these plans are expected to be completed in 2007.  During the year ended December 31, 2001, charges totaling $20.4 million were
recorded and activities costing $13.2 million were completed.

On July 11, 2002, the Company announced that it had adopted a business plan
to re-size its business to reflect current and expected business conditions.  This restructuring plan will be largely completed during 2002.  As a result of the adoption of this plan, the Company recorded charges of approximately $1.4
million during the three and nine months ending September 30, 2002.  These charges primarily relate to: consolidation of the Companys continuing operations resulting in impairment of assets, anticipated losses on disposition of assets and
excess lease costs; and the elimination of job responsibilities, resulting in costs incurred for employee severance.  Employee reductions occurred in almost all areas of the Company, including engineering, operations, research and development,
marketing, sales and administrative areas.  As a result of this plan, the Company reduced its non-temporary work force by approximately 47 positions.

14



---

##### Table of Contents

Details of the restructuring charges are as follows (in 000s):

|                                    |  | Cash/ Non-cash |          | Balance At December 31, 2001 |   | Activity |  | Balance at Sept. 30, 2002 |       
|----------------------------------- |  | -------------- | -------- | ---------------------------- | - | -------- |  | ------------------------- | ------
|                                    |  |                |          |                              |   |          |  |                           |       
|Impairment of assets                |  |                | Non-cash |                              | $ | 113      |  | $                         | 100   
|Excess lease costs                  |  |                | Cash     |                              |   | 6,454    |  |                           | (1,072
|Elimination of job responsibilities |  |                | Cash     |                              |   | 635      |  |                           | (447  
|                                    |  |                |          |                              |   |          |  |                           |       
|                                    |  |                |          |                              | $ | 7,202    |  | $                         | (1,419
|                                    |  |                |          |                              |   |          |  |                           |       

At September 30, 2002, the portion of
the balance related to the impairment of assets is included in property and equipment, net.  Future cash outlays for obligations under facility leases are expected to be completed in 2007.

Results of Operations

The following table sets forth, as a percentage of net revenue, certain statement of operations data for the periods indicated.

|                                  |                                             | Three Months Ended September 30, |        | Nine Months Ended September 30, |  
|--------------------------------- | ------------------------------------------- | -------------------------------- | ------ | ------------------------------- | -
|                                  |                                             |                                  |        |                                 |  
|                                  |                                             | 2002                             |        | 2001                            |  
|                                  |                                             |                                  |        |                                 |  
|Net revenue                       |                                             |                                  | 100.0  | %                               |  
|Cost of revenue                   |                                             |                                  | 79.0   |                                 |  
|                                  |                                             |                                  |        |                                 |  
|                                  | Gross margin                                |                                  |        | 21.0                            |  
|Operating expenses:               |                                             |                                  |        |                                 |  
|                                  | Research and development                    |                                  |        | 128.4                           |  
|                                  | Sales and marketing                         |                                  |        | 52.9                            |  
|                                  | General and administrative                  |                                  |        | 62.9                            |  
|                                  | Amortization of purchased intangibles       |                                  |        |                                |  
|                                  | Amortization of deferred stock Compensation |                                  |        | 4.0                             |  
|                                  | Recovery of bad debt                        |                                  |        | (20.8                           | )
|                                  | Restructuring costs                         |                                  |        | 41.1                            |  
|                                  | Write-off of purchased intangibles          |                                  |        |                                |  
|                                  |                                             |                                  |        |                                 |  
|                                  | Total operating expenses                    |                                  |        | 268.5                           |  
|                                  |                                             |                                  |        |                                 |  
|Income (loss) from operations     |                                             |                                  | (247.5 | )                               |  
|Interest and other income, net    |                                             |                                  | 1.9    |                                 |  
|                                  |                                             |                                  |        |                                 |  
|Income (loss) before income taxes |                                             |                                  | (245.6 | )                               |  
|Provision for income taxes        |                                             |                                  |       |                                 |  
|                                  |                                             |                                  |        |                                 |  
|Net income (loss)                 |                                             |                                  | (245.6 | )                               |  
|                                  |                                             |                                  |        |                                 |  
|                                  |                                             |                                  |        |                                 |  

Three Months Ended September 30, 2002 vs. Three Months Ended September 30, 2001

Net Revenue.Net revenue decreased from $5.1 million for the three months ended September 30, 2001 to $3.3 million for the three months ended
September 30, 2002.  This decrease was due to a significant decrease in average selling prices on our CE200 access concentrators and related line cards.  Sales to our three largest customers for the three months ended September 30, 2002,
Versatel, AT&T, and Mpower Communications were $1.0 million, $0.5 million and $0.4 million.  Sales to our four largest customers for the three months ended September 30, 2001, Mpower Communications, Versatel, Network Telephone and Verizon
were $1.3 million, $0.9 million, $0.8 million, and $0.5 million, respectively.

15



---

##### Table of Contents

Gross Margin.Our gross margin decreased from $1.6 million for the three months ended
September 30, 2001 to $0.7 million for the three months ended September 30, 2002.  The decrease in gross margin was primarily due to average lower selling prices on our CE200 access concentrators and related line cards.

Research and Development.Our research and development expenses decreased from $8.0 million for the three months ended September 30, 2001 to
$4.3 million for the three months ended September 30, 2002. This decrease was due to a decrease in personnel expenses related to a decrease in our engineering staff and quality and technical support costs including outside services and decreased
spending on prototype materials.  Research and development expenses as a percentage of net revenue decreased from 157.2% for the quarter ended September 30, 2001 to 128.4% for the three months ended September 30, 2002.  This decrease in
research and development expense as a percentage of net revenue was primarily the result of a decrease in costs associated with our research and development efforts.

Sales and Marketing.Our sales and marketing expenses decreased from $2.8 million for the three months ended September 30, 2001 to $1.8 million for
the three months ended September 30, 2002.  This decrease was due to a decrease in personnel expenses for sales and marketing staff, decreased travel costs and decreased product marketing costs during the stated periods.  Sales and
marketing expenses as a percentage of net revenue decreased from 53.9% of net revenue for the three months ended September 30, 2001 to 52.9% for the three months ended September 30, 2002.

General and Administrative.Our general and administrative expenses decreased from $3.0 million for the three months ended September 30, 2001 to
$2.1 million for the three months ended September 30, 2002.  This decrease was due to a decrease in personnel costs, outside service costs, facility costs and depreciation.  General and administrative expenses as a percentage of net
revenue increased from 57.8% for the three months ended September 30, 2001 to 62.9% for the three months ended September 30, 2002.  This increase in general and administration expense as a percentage of net revenue was primarily the result of a
decrease in our net revenue for the three months ended September 30, 2002.

Recovery of bad debt.Recovery of bad debt expense
increased from zero for the three months ended September 30, 2001 to $0.7 million for the three months ended September 30, 2002.  This increase was the result of the collection of receivables that had been written off in prior
periods.

Interest and Other Income.Interest and other income decreased from $1.0 million for the three months ended September
30, 2001 to $0.2 million for the three months ended September 30, 2002. This decrease was primarily due to decreased average cash balances and investment yields during the three months ended September 30, 2002.

Interest Expense.Our interest expense decreased from $212,000 for the three months ended September 30, 2001 to $129,000 for the quarter ended
September 30, 2002.  This decrease was primarily due to a decrease in the amounts outstanding under capital lease and equipment notes payable facilities as a result of payments made under such facilities.

Nine Months Ended September 30, 2002 vs. Nine Months Ended September 30, 2001

Net Revenue.Net revenue decreased from $19.3 million for the nine months ended September 30, 2001 to $8.8 million for the nine months ended September 30, 2002.  This decrease was due to lower average selling prices on our CE200 DSL access concentrators
and related line cards.  Sales to our three largest customers for the nine months ended September 30, 2002, Versatel, Mpower Communications and Network Telephone were $1.9 million, $1.3 million and $0.7 million, respectively.  Sales to our
three largest customers for the nine months ended September 30, 2001, Versatel, Mpower Communications and Rhythms Netconnections were $4.0 million, $3.7 million and $2.0 million, respectively.

Gross Margin.Our gross margin increased from $(43.9) million for the nine months ended September 30, 2001 to $17.1 million for the nine months ended
September 30, 2002.  The increase in gross margin was primarily due to: a one-time gain of $14.9 million during the nine months ended September 30, 2002, which resulted from vendor settlements during that period; and an excess inventory charge
of $51.0

16



---

##### Table of Contents

million related to inventory on hand and to future inventory purchase commitments of finished products and raw materials in excess of anticipated requirements during the
nine months ended September 30, 2001.  Before the impact of these charges, gross margin as a percentage of sales for the nine months ended September 30, 2002 was adversely impacted by decreased average selling prices and sales mix.

Research and Development.Our research and development expenses decreased from $30.5 million for the nine months ended September 30, 2001
to $18.2 million for the nine months ended September 30, 2002.  This decrease was due to a decrease in personnel expenses related to a decrease in our engineering staff and quality and technical support costs including outside services and
decreased spending on prototype material.  Research and development expenses as a percentage of net revenue increased from 157.7% for the nine months ended September 30, 2001 to 207.3% for the nine months ended September 30, 2002.  This
increase in research and development expense as a percentage of net revenue was primarily the result of a decrease in our net revenue for the nine months ended September 30, 2002.

Sales and Marketing.Our sales and marketing expenses decreased from $14.6 million for the nine months ended September 30, 2001 to $5.1 million for the
nine months ended September 30, 2002.  This decrease was due to a decrease in personnel expenses for sales and marketing staff, decreased sales compensation associated with decreased net revenue, decreased travel costs and decreased promotional
and product marketing costs during the stated periods.  Sales and marketing expenses as a percentage of net revenue decreased from 75.7% of net revenue for the nine months ended September 30, 2001 to 58.6% for the nine months ended September
30, 2002.  This decrease was primarily the result of the decreased costs described above.

General and Administrative.Our general and administrative expenses decreased from $11.4 million for the nine months ended September 30, 2001 to $6.9 million for the nine months ended September 30, 2002. This decrease was due to a decrease in personnel costs, outside
service costs, facility costs, supplies and depreciation.  General and administrative expenses as a percentage of net revenue increased from 72.3% for the nine months ended September 30, 2001 to 78.7% for the nine months ended September 30,
2002.  This increase was primarily the result of a decrease in our net revenue for the nine months ended September 30, 2002.

Amortization of Purchased Intangibles. Amortization of purchased intangibles decreased from $5.3 million for the nine months ended September 30, 2001 to zero for the
nine months ended September 30, 2002.  During the second quarter of 2001, the Company calculated the present value of expected future cash flows to determine the fair value of the assets.  This evaluation resulted in a write-off of $40.8
million of goodwill and other intangible assets.  The underlying factors contributing to the decline in expected financial results included changes in the Companys strategic focus in the marketplace and an overall decline in the
telecommunications equipment market.

Recovery of bad debt.Recovery of bad debt expense increased from zero for the nine
months ended September 30, 2001 to $3.7 million for the nine months ended September 30, 2002.  This increase was the result of the collection and sale of receivables that had been written off in prior periods.

Interest and Other Income.Interest and other income decreased from $3.5 million for the nine months ended September 30, 2001 to $1.9 million for the nine
months ended September 30, 2002.  This decrease was primarily due to decreased average cash balances during the nine months ended September 30, 2002, which is partially offset by a gain on a marketable investment of $1.0.

Interest Expense.Our interest expense decreased from $661,000 for the nine months ended September 30, 2001 to $470,000 for the nine months ended
September 30, 2002.  This decrease was primarily due to a decrease in the amounts outstanding under capital lease and equipment notes payable facilities as a result of payments made under such facilities.

17



---

##### Table of Contents

Liquidity and Capital Resources

From our inception
through April 1999, we financed our operations primarily through the sale of preferred equity securities.  In total, we raised approximately $44.5 million, net of fees and expenses, through the sale of preferred equity during that
period.   In May 1999, we closed our initial public offering with proceeds, net of underwriting fees, of approximately $89.9 million.  We have also utilized available financing for the purchase of capital equipment.

At September 30, 2002, we had cash and cash equivalents of  $30.5 million and short-term marketable investments of $14.2 million.

Cash used in operating activities for the nine months ended September 30, 2002 and 2001 was $25.3 million and $81.5 million, respectively.  The
relative decrease in cash used in operating activities for the nine months ended September 30, 2002 compared to the same period in the prior year was primarily the result of a change in net loss of $155.8 million partially off set by a decrease in
non-cash charges and changes in working capital.

Cash provided by investing activities for the nine months ended September 30, 2002 and
2001 was $31.4 million and $52.6 million, respectively.   The relative decrease in cash provided by investing activities for the nine months ended September 30, 2002 compared to the same period in the prior year was the result of a
decrease in net maturities of marketable investments and a decrease in purchases of property and equipment.

Cash used in financing
activities for the nine months ended September 30, 2002 and 2001 was $2.2 million and $1.3 million, respectively.  The increase in cash used in financing activities for the nine months ended September 30, 2002 compared to the same period in the
prior year was primarily due to a decrease in proceeds from the issuance of common stock.

We have no material commitments other than
obligations under our credit facilities and operating and capital leases.  Our future capital requirements will depend upon many factors, including the timing of research and product development efforts and marketing efforts.  We expect to
continue to expend amounts on research and development laboratory and test equipment to support on-going research and development operations.

On July 11, 2002, the Company adopted a business plan to re-size its business to reflect current and expected business conditions.  This restructuring plan will
be largely completed during 2002.  As a result of the adoption of this plan, the Company recorded charges of $1.4 million during the three and nine months ending September 30, 2002.  These charges primarily relate to: consolidation of the
Companys continuing operations resulting in impairment of assets, anticipated losses on disposition of assets and excess lease costs; and the elimination of job responsibilities, resulting in costs incurred for employee severance. 
Employee reductions occurred in almost all areas of the Company, including engineering, operations, marketing, sales and administrative areas.  As a result of this plan, the Company reduced its non-temporary work force by approximately 47
positions.

We currently believe that our existing cash and cash equivalents balances and short-term marketable investments will be
sufficient to fund our operating losses, capital expenditures, lease payments and working capital requirements for at least the next 12 months.  However, our capital requirements may vary based upon the timing and the success of implementation
of our business plan and as a result of regulatory, technological and competitive developments or if:

| | demand for our products and services or our cash flow from operations is less than or more than expected;                          
|- | -----------------------------------------------------------------------------------------------------------------------------------
| | our plans or projections change or prove to be inaccurate;                                                                         
| | we make acquisitions; or                                                                                                           
| | we accelerate or delay availability of new products or otherwise alter the schedule or targets of our business plan implementation.

18



---

##### Table of Contents

We intend to use these cash resources for working capital and other general corporate purposes. We may also use
a portion of these cash resources to acquire complementary businesses or other assets. The amounts actually expended for these purposes will vary significantly depending on a number of factors, including revenue growth, if any, planned capital
expenditures, and the extent and timing of our entry into target markets.  Our management intends to invest our cash in excess of current operating requirements in interest-bearing, investment-grade securities.

Currently, the Company is not generating sufficient revenue to fund its operations.  We expect our operating losses, net operating cash outflows and capital
expenditures to continue if we are unable to increase sales.  The Company has recently adopted a business plan to re-size its business to reflect current and expected business conditions.  We cannot assure you that we will be able to
sufficiently decrease our operating expenses.  If we are unable to realize sufficient savings from re-sizing our business, and/or sufficiently increase our revenues, our ability to deploy and service our products, fund our operations or respond
to competitive pressures could be significantly impaired.

Risk Factors That May Affect Results of Operations and Financial Condition

You should carefully consider the following risk factors and the other information included herein as well as the information included in our Annual Report on Form
10-K for the year ended December 31, 2001 before investing in our common stock.  Our business and results of operations could be seriously harmed by any of the following risks.  The trading price of our common stock could decline due to
any of these risks, and you may lose part or all of your investment.

The Difficulties Experienced By Many of Copper Mountains
Current Customers And The Challenges Associated With Penetrating New Markets Have Had And Are Expected To Continue To Have an Adverse Effect On Copper Mountains Business.

To date, Copper Mountain has sold the majority of its products to competitive local exchange carrier or CLEC customers.  Many CLECs have experienced
difficulties continuing to finance their businesses.  As a result, these CLECs have been forced to scale back their operations, and some, including our historically two largest customers Northpoint Communications, Inc. and Rhythms
Netconnections, Inc., have filed for bankruptcy protection.  Our business, financial condition and results of operations have been materially and adversely affected by these difficulties in the CLEC industry.  We expect that our business
will continue to suffer unless and until we are able to diversify our customer base to derive a substantially greater percentage of our revenues from other types of telecommunication service providers, such as ILECs, who are not experiencing the
same level of financial difficulties.

The failure of our CLEC customers to raise sufficient capital to fund their operations and
continue to order and pay for our products has impaired and may continue to impair Copper Mountains revenues and profitability.  To the extent we ship products to customers who become unable to pay for the products, we may be required to
write-off significant amounts of our accounts receivable.  Similarly, to the extent that our customers order products and then suspend or cancel the orders prior to shipping, we will not generate revenues from the products we build, our
inventories may increase and our expenses will increase.  Specifically, we may incur substantially higher inventory carrying costs, as well as be faced with the risk of the excess inventory that could become obsolete over time.

The uncertainties in the CLEC industry in general and among our CLEC customers in particular, and the resulting impact on our business, has made it
increasingly difficult for us to reliably forecast our revenues and profitability.  We expect that we will continue to be faced with these challenges for as long as the CLEC industry experiences financial difficulties, or until we can
successfully shift our business away from reliance on our CLEC customers and add customers with stronger financial positions.

19



---

##### Table of Contents

If Copper Mountain Does Not Successfully Introduce and Commercialize the VantEdge Product, Our Business Will Be
Materially Adversely Impacted

In response to the financial difficulties experienced by our CLEC customers and the resulting reduction
in the demand for our products, we have focused our sales and marketing strategy on targeting ILECs, IXCs and international PTTs as potential customers. The future success of our business will substantially depend on our ability to successfully sell
our VantEdge product to such customers. These customers have traditionally been characterized by longer sales cycles and have historically been slow to adopt new products.  Accordingly, we anticipate that we may continue to face challenges in
connection with our plan to more aggressively pursue this market, and our failure to successfully do so could materially adversely affect our business, financial condition and results of operations.

Sales of our existing products and services, which were primarily aimed at the CLEC market, have been decreasing for seven out of the last eight quarters.  Such
sales could continue to decrease, if they continue at all.  As a result, our future success is substantially dependant upon our ability to successfully market and commercialize our new VantEdge product on a timely basis.  We began
development of the VantEdge product in 1999, and formally announced the product in 2001.  We may not be able to finish the commercialization of the VantEdge product, for various reasons, including those set forth in these risk factors. 
Sales of the VantEdge product may not be sufficient to allow us to continue to operate our business.  Our business will be materially adversely impacted if we do not successfully commercialize the VantEdge product.

Copper Mountain May Not Be Able to Obtain Additional Capital to Fund Its Operations When Needed, and Without Additional Capital Copper Mountain May Not Be Able to
Sustain Its Operations

We currently require approximately $6 to $7 million in cash per quarter to fund our operations, and this rate
of quarterly cash use could continue through 2003.  As a result, we believe that we have sufficient cash and cash equivalents to fund our operations for at least the next twelve months.  These estimates reflect various assumptions,
including the assumption that sales of our existing products will continue at approximately the same levels as in the third quarter of 2002, that testing, continued development and commercialization of our new VantEdge product proceeds as planned,
that we do not incur significant additional expense related to litigation, including any adverse determination in the litigation described elsewhere in this Form 10-Q under the heading Legal Proceedings.  Any of these assumptions
may prove to be incorrect.  In future quarters, it is unclear whether we will continue to generate revenue from sales of our current products at the same levels, if at all.  Also, the commercialization of our VantEdge product might be
delayed or might require the expenditure of significantly more funds than currently anticipated, in which case our liquidity and capital resources would be adversely affected.

We currently fund our operations with our cash, cash equivalents and marketable investments.  In order to fund our operations beyond the first quarter of 2004,
we expect that we may have to further reduce our expenses and or raise additional funds.  Moreover, we may require such financing sooner than anticipated.  We anticipate that we may have to seek equity or long-term debt financing in the
private or public capital markets to obtain the funds we need to continue operations.  Such capital raising may be made more difficult if we are no longer listed on the NASDAQ stock market as a result of our failure to continue to meet the
listing requirements required by NASDAQ, which is a risk we could face.

If additional funds are raised through the issuance of equity
securities, the percentage ownership of our stockholders will be reduced, stockholders may experience additional dilution, or such equity securities may have rights, preferences or privileges senior to or more favorable than those of the holders of
our common stock.  If additional funds are raised through the issuance of debt securities, such securities would have rights, preferences and privileges senior to or more favorable than those of the holders of common stock and the terms and
conditions relating to such debt could impose restrictions on our operations.

Additional financing may not be available when needed on
terms and conditions favorable to us or at all.  If adequate funds are not available or are not available on acceptable terms and conditions, we may be unable to fund our ongoing operations.  In addition, our inability to obtain cash
may:

20



---

##### Table of Contents

| | make us unable to successfully commercialize our VantEdge product;                                            
|- | --------------------------------------------------------------------------------------------------------------
|  |                                                                                                               
| | damage our customers perceptions of us and our management team;                                              
|  |                                                                                                               
| | inhibit our ability to sell our products to a customer base which values financial strength and stability; and
|  |                                                                                                               
| | decrease our stock price.                                                                                     

Any or all of these consequences would materially adversely affect our business,
financial condition or results of operations.

Copper Mountain May Not Achieve Quarterly or Annual Profitability

Copper Mountain has experienced a significant decline in revenues in almost every quarter since the third quarter of 2000 and expects to continue incurring
significant sales and marketing, research and development and general and administrative expenses and, as a result, we may have difficulty achieving profitability.  We cannot be certain that we will realize sufficient revenues in the future to
achieve profitability on an annual or quarterly basis.

Copper Mountain Derives Almost All of Its Revenues From a Small Number of
Customers and Copper Mountains Revenues May Decline Significantly if Any Major Customer Cancels or Delays a Purchase of Copper Mountains DSL Products

Copper Mountain sells its products predominantly to CLECs.  Sales to our largest three customers accounted for approximately 55% of our net revenue for the
three months ended September 30, 2002.  Unless and until we diversify and expand our customer base, our future success will significantly depend upon the timing and size of future purchase orders, if any, from our CLEC customers and, in
particular:

         the product requirements of these customers;

         the financial and operational success of these customers;

         the success of these customers services deployed using our products; and

         the attractiveness of our products compared to our competitors products.

Our revenue has declined on a sequential basis almost every quarter since the third quarter of the year ended December 31, 2000.  In light of the market
dynamics of the telecommunication service provider industry, it has become extremely difficult for us to forecast our revenues.  Future sales, if any, to our historically significant customers may be substantially less than historical
sales.  The loss of another major customer or the delay of significant orders from any significant customer, even if only temporary, could among other things reduce or delay our net revenue, adversely impact our ability to achieve annual or
quarterly profitability and adversely impact our ability to generate positive cashflow, and, as a consequence, could materially adversely affect our business, financial condition and results of operations.

Historically, our backlog at the beginning of each quarter has not been equal to expected revenue for that quarter.  Accordingly, we are dependent upon
obtaining orders in a quarter for shipment in that quarter to achieve our revenue objectives.  In addition, due in part to factors such as the timing of product release dates, purchase orders and product availability, significant volume
shipments of product could occur at the end of any given quarter.  Failure to ship products by the end of a quarter may adversely affect our operating results.  Furthermore, our customers may delay delivery schedules, cancel their orders
without notice or be unable to pay for delivered product.  Due to these and other factors, quarterly revenue, expenses and results of operations could vary significantly in the future, and period-to-period comparisons should not be relied upon
as indications of future performance.

21



---

##### Table of Contents

Failure to Effectively Manage Operations in Light of Copper Mountains Changing Revenue Base Will Adversely
Affect Its Business

In the past, Copper Mountain has rapidly and significantly expanded and contracted its operations and anticipates
that in the future, expansion or contraction in certain areas of its business may be required to address potential changes in its client base and market opportunities.  In particular, we expect to face numerous challenges in the execution of
our new business strategy to focus more on the domestic ILEC and IXC market.  In connection with this endeavor, we may not be able to implement management information and control systems in an efficient and timely manner, and our current or
planned personnel, systems, procedures and controls may not be adequate to support our future operations.  If we are unable to manage growth or reduction in growth effectively, our business, financial condition and results of operations will be
materially adversely affected.  The volatility in our business has placed a significant strain on our managerial and operational resources. To maintain the level of our operations and personnel, we may be required to:

         improve existing and implement new operational, financial and management controls, reporting
systems and procedures;

         install new management information and
telecommunications systems; and

         train, motivate and manage our sales and
marketing, engineering, technical and customer support employees.

As of September 30, 2002 we operated our business from facilities in
Palo Alto, California and San Diego, California.  We expect to continue to face challenges related to effectively and efficiently coordinating our operations between our facilities.  If we are unsuccessful in meeting these challenges, our
business and operating results may be adversely affected.

We have excess facilities in Fremont, San Diego and Palo Alto, some of which
are subleased.  We are obligated to continue making payments on the leases associated with each of these excess facilities.  Rent associated with these excess facilities has adversely effected our financial condition. If we are unable to
sublease these properties to financially viable sub-lessees at rates comparable to those we are obligated to pay, it could further adversely impact our financial condition.

We cannot assure you that we will be able to sufficiently decrease our operating expenses.  If we are unable to realize sufficient savings from re-sizing our
business, and/or sufficiently increase our revenues, our ability to deploy and service our products, fund our operations or respond to competitive pressures could be significantly impaired.

Copper Mountain Has a Limited Operating History

Copper Mountain has a limited operating history as we were incorporated in March 1996.   Due to our limited operating history, it is difficult or
impossible for us to predict future results of operations and you should not expect future revenue to be comparable to our historic revenue, nor are recent quarterly revenues a reliable indicator of future quarterly revenues.  In addition, we
believe that comparing different periods of our operating results is not meaningful, and you should not rely on the results for any period as an indication of our future performance.  Investors in our common stock must consider our business and
prospects in light of the risks and difficulties typically encountered by companies in their early stages of development, particularly those in rapidly evolving markets such as the telecommunications equipment industry and particularly within our
volatile market segment.  Some of the specific risks include whether we are able:

| |  | to compete in the intensely competitive market for telecommunications equipment;
| | - | --------------------------------------------------------------------------------
| |   |                                                                                 
| |  | to attract new customers;                                                       

22



---

##### Table of Contents

| |  | to maintain a stable, sustainable customer base;                                                                        
| | - | ------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                         
| |  | to successfully penetrate international markets;                                                                        
| |   |                                                                                                                         
| |  | to expand our addressable market by selling into the incumbent or ILEC market, the IXC market and international markets;
| |   |                                                                                                                         
| |  | to introduce new products and product enhancements in a timely and competitive fashion; and                             
| |   |                                                                                                                         
| |  | to successfully manage the size of our operational infrastructure.                                                      

We discuss these and other risks in more
detail below.

A Number of Factors Could Cause Copper Mountains Operating Results to Fluctuate Significantly and Cause Its Stock
Price to be Volatile

Copper Mountains quarterly and annual 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 securities analysts and investors, 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 and DSL market conditions and economic conditions generally;                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                              
| |  | the financial viability and telecommunications equipment capital expenditure activities of our major customers and prospective customers;                                                    
| |   |                                                                                                                                                                                              
| |  | our ability to penetrate the ILEC, IXC and PTT markets;                                                                                                                                      
| |   |                                                                                                                                                                                              
| |  | our prospective customers confidence in our ability to remain financially viable and these customers willingness to purchase our products;                                                 
| |   |                                                                                                                                                                                              
| |  | the loss of any one or more of our major customers or a significant reduction in orders from those customers;                                                                                
| |   |                                                                                                                                                                                              
| |  | fluctuations in demand for our products and services;                                                                                                                                        
| |   |                                                                                                                                                                                              
| |  | the timing and amount of, or cancellation or rescheduling of, orders for our products and services, particularly large orders from our key customers and our strategic distribution
partners;
| |   |                                                                                                                                                                                              
| |  | our ability to develop, introduce, ship and support new products and product enhancements and manage product transitions;                                                                    
| |   |                                                                                                                                                                                              
| |  | new product introductions or announcements and price reductions of products offered by our competitors;                                                                                      
| |   |                                                                                                                                                                                              
| |  | a decrease in the average selling prices of our products;                                                                                                                                    
| |   |                                                                                                                                                                                              
| |  | our ability to achieve cost reductions;                                                                                                                                                      
| |   |                                                                                                                                                                                              
| |  | 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  maintain production volumes and quality levels for our products;                                                                                                             
| |   |                                                                                                                                                                                              

23



---

##### Table of Contents

| |  | the volume and mix of products sold and the mix of distribution channels through which they are sold;
| | - | -----------------------------------------------------------------------------------------------------
| |   |                                                                                                      
| |  | increased competition, particularly from larger, better capitalized competitors; and                 
| |   |                                                                                                      
| |  | costs relating to possible acquisitions and integration of technologies or businesses.               

Copper Mountain Sells the Majority of Its Products to Telecommunications Service Providers That May Reduce or Discontinue Their Purchase of Copper Mountains
Products At Any Time

The purchasers of Copper Mountains products to date have predominantly been the emerging
telecommunications service providers known as CLECs.  These telecommunications service providers require substantial capital for the development, construction and expansion of their networks and the introduction of their services. 
Financing may not be available to emerging telecommunications service providers on favorable terms, if at all.  The inability of our current or potential CLEC customers to acquire and keep customers, to successfully raise needed funds, or to
respond to any other trends such as price reductions for their services or diminished demand for telecommunications services generally, has adversely affected their operating results or caused them to reduce their capital spending programs.  If
our customers are unable to raise sufficient capital or forced to defer or curtail their capital spending programs, our sales to those telecommunication service providers may be adversely affected, which could have a material adverse effect on our
business, financial condition and results of operations.  In addition, many of our telecommunications service provider customers have recently experienced consolidation, reduced or eliminated access to the capital markets and in some cases
bankruptcy.  The loss of one or more of our telecommunications service provider customers due to the aforementioned factors could have a material adverse effect on our business, financial condition and results of operations.

If DSL Technology and Copper Mountains DSL-Related Product Offerings Are Not Accepted by Telecommunications Service Providers, Copper Mountain May
Not Be Able to Sustain or Grow Its Business

Copper Mountains future success is substantially dependent upon whether DSL
technology gains widespread market acceptance by financially viable telecommunications service providers, of which there are a limited number, and end users of their services.  We have invested substantial resources in the development of DSL
technology and related technologies, and all of our products are based on DSL technology or depend on the widespread acceptance and continued deployment of DSL technology.  Telecommunications service providers are continuously evaluating
alternative high-speed data access technologies and may, at any time, adopt technologies other than the DSL technologies offered by Copper Mountain.  Even if telecommunications service providers adopt policies favoring full-scale implementation
of DSL technology, they may defer purchases of our products or they may not choose to purchase our product offerings.  In addition, we have limited ability to influence or control decisions made by telecommunications service providers.  In
the event that the telecommunications service providers to whom we market our products adopt technologies other than the DSL technologies offered by Copper Mountain or choose not to purchase Copper Mountains DSL product offerings or Copper
Mountains other product offerings, we will not be able to sustain or grow our business.

We Have Been Named as a Defendant in Securities
Class Action Litigation That Could Result In Substantial Costs and Divert Managements Attention and Resources

Since October
2000, approximately twenty-four complaints have been filed in the United States District Court for the Northern District of California against the Company and two of its officers (the Northern District Lawsuits), along with two related
derivative actions against the Company and its directors in Delaware and California, alleging violations of the federal securities laws arising out of recent declines in the Companys stock price.  Specifically, the complaints allege
claims in connection with various alleged statements and omissions to the public and to the securities markets.  The Northern District Lawsuits have been consolidated for pretrial purposes before United States Judge Vaughn Walker of
the

24



---

##### Table of Contents

Northern District of California.  The Company filed a motion to dismiss the Northern District Lawsuits, which was heard on November 29, 2001.  The Court has
taken the motion to dismiss off calendar pending final resolution of an appeal involving the selection of plaintiffs counsel.  The derivative actions have been stayed.  No assurances can be made that we will be successful in our
defense of such claims.  If we are not successful in our defense of such claims, we could be forced to make significant payments to our stockholders and their lawyers, and such payments could have a material adverse effect on our business,
financial condition and results of operations if not covered by our insurance carrier.  Even if such claims are not successful, the litigation could result in substantial costs and divert managements attention and resources, which could
adversely affect our business, results of operations and financial position.

In December 2001, the Company and certain of its officers and
directors were named as defendants in a class action shareholder complaint filed in the United States District Court for the Southern District of New York and captioned Lowlicht v. Copper Mountain Networks, Inc., et al.,Case No.
01-CV-10943.  In the complaint, the plaintiffs allege that the Company, certain of its officers and directors and its IPO underwriters violated the federal securities laws because the Companys IPO registration statement and prospectus
contained untrue statements of material fact or omitted material facts regarding the compensation to be received by, and the stock allocation practices of, the IPO underwriters.  The plaintiffs seek unspecified monetary damages and other
relief.  Similar complaints were filed in the same Court against numerous public companies that conducted initial public offerings (IPOs) of their common stock since the mid-1990s (the IPO Cases).

Lowlicht v. Copper Mountain Networks, Inc., et al.,and the IPO Cases were consolidated for pretrial purposes before United States Judge Shira Scheindlin of
the Southern District of New York.  Judge Scheindlin held an initial case management conference on September 7, 2001, at which time she ordered, among other things, that the time for all defendants to respond to any complaint be postponed until
further order of the Court.  On April 19, 2002, the plaintiffs filed an amended complaint against the Company and certain of its officers and directors.  The allegations in the amended complaint are similar to the allegations in the
original complaint.  On July 15, 2002, the Issuer defendants in the IPO Cases, including the Company and its named officers and directors , filed a motion to dismiss the claims against them.  Judge Scheindlin heard oral argument on the
motion on November 1, 2002.  Also, on October 8, 2002, the claims against the named officers and directors were dismissed without prejudice pursuant to a stipulation providing for a tolling of the statutes of limitations against those
defendants.  No discovery has been served on the Company.

Unless Copper Mountain Is Able to Keep Pace With the Rapidly Changing Product
Requirements of Its Customers, It Will Not Be Able to Sustain or Grow Its Business

The telecommunications and data communications
markets are characterized by rapid technological advances, evolving industry standards, changes in end-user requirements, frequent new product introductions and evolving offerings by telecommunications service providers.  We believe our future
success will depend, in part, on our ability to anticipate or adapt to such changes and to offer, on a timely basis, hardware and software products which meet customer demands.  Our inability to develop on a timely basis new products or
enhancements to existing products, or the failure of such new products or enhancements to achieve market acceptance, could materially adversely affect our business, financial condition and results of operations.

Copper Mountains Product Cycles Tend to be Short and Copper Mountain May Incur Substantial Non-Recoverable Expenses or Devote Significant Resources to Sales That
Do Not Occur When Anticipated

In the rapidly changing technology environment in which we operate, product cycles tend to be
short.  Therefore, the resources we devote to product sales and marketing may not generate revenues for us and from time to time we may need to write-off excess and obsolete inventory.  In the past, we have experienced such write-offs
attributed to the obsolescence of certain printed circuit boards and product sub-assemblies and to an excess of raw materials and finished goods on hand and on order.   If we incur substantial sales,

25



---

##### Table of Contents

marketing and inventory expenses in the future that we are not able to recover, it would affect our liquidity and could have a material adverse effect on our business,
financial condition and results of operations.

Copper Mountains Ability to Sustain or Grow Its Business May Be Harmed if It Is
Unable to Develop and Maintain Certain Strategic Relationships with Third Parties to Market and Sell Copper Mountains Products

Copper Mountains success will depend in part upon its distribution partnerships, including agreements under which we agree to sell our products to certain
service provider customers through distribution partners.  The amount and timing of resources which our distribution partners devote to our business is not within our control.  Our distribution partners may not perform their obligations as
expected.  In some cases, agreements with our distribution partners may be relatively new, and we cannot be certain that we will be able to achieve expected revenues from such partners or sustain the level of revenue generated thus far under
similar arrangements.  If any of our distribution partners chooses not to renew, breaches or terminates its agreement or fails to perform its obligations under its agreement, we may not be able to sustain or grow our business.  In the
event that such relationships are terminated, we may not be able to continue to maintain or develop similar relationships or to replace distribution partners.  In addition, any such agreements we enter into in the future may not be
successful.

Intense Competition in the Market for Telecommunications Equipment Could Prevent Copper Mountain From Increasing or
Sustaining Revenue and Prevent Copper Mountain From Achieving Annual Profitability

The market for telecommunications equipment is
highly competitive.  We compete directly with the following companies: Cisco Systems, Inc., Lucent Technologies, Inc., Alcatel S.A., Nokia Corporation and Paradyne Corporation, among others.  If we are unable to compete effectively in the
market for DSL telecommunications equipment, our revenue levels and future results from operations could be materially adversely affected.  Many of our current and potential competitors have significantly greater selling and marketing,
technical, manufacturing, financial, and other resources, including better access to the capital markets, larger cash reserves, higher market capitalizations, and vendor-sponsored lease financing programs.  Moreover, our competitors may foresee
the course of market developments more accurately than we do and could in the future develop new technologies that compete with our products or render our products obsolete.  Although we believe we may have certain technological and other
advantages over our competitors, realizing and maintaining such advantages will require a continued level of investment in research and development, marketing and customer service and support.  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 those markets, thereby further intensifying competition.  We may not have
sufficient resources to continue to make the investments or achieve the technological advances necessary to compete successfully with existing competitors or new competitors.  Also, to the extent we introduce new product offerings intended to
capitalize on the anticipated trend toward broad deployment of DSL services, including DSL services targeted at residential subscribers seeking high-speed access to public communications networks, we will encounter new competitors such as coaxial
cable and wireless equipment vendors.  Even if we are successful in competing in the business DSL market, we may not be able to compete successfully in the market for residential subscribers.

Future Consolidation in the Telecommunications Equipment Industry May Increase Competition That Could Harm Copper Mountains Business

The markets in which Copper Mountain competes are characterized by increasing consolidation both within the data communications sector and by companies
combining or acquiring data communications assets and assets for delivering voice-related services.  We cannot predict with certainty how industry consolidation will affect our competitors.  We may not be able to compete successfully in an
increasingly consolidated industry.  Increased competition and consolidation in our industry could require that we reduce

26



---

##### Table of Contents

the prices of our products and result in our loss of market share, which would materially adversely affect our business, financial condition and results of operations. 
Because we may be dependent on certain strategic relationships with third parties in our industry, any additional consolidation involving these parties could reduce the demand for our products and otherwise harm our business prospects.

Copper Mountain May Experience Difficulties in the Introduction of New Products That Could Result in Copper Mountain Having to Incur
Significant Unexpected Expenses or Delay the Launch of New Products

Copper Mountain intends to continue to invest in product and
technology development.  The development of new or enhanced products, including but not limited to the VantEdge line of products announced in 2001 and other new or enhanced DSL concentrator products and broadband services concentrator products,
is a complex and uncertain process requiring the accurate anticipation of technological and market trends.  We may 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 in order to minimize disruption in customer ordering patterns and ensure that adequate
supplies of new products can be delivered to meet anticipated customer demand.  In the future, we expect to develop certain new products, such as new broadband services concentrators and associated line cards, new DSL concentrators and line
cards for different DSL variants.  We may not successfully develop, introduce or manage the transition of these new products.  Furthermore, products such as those we currently offer may contain undetected or unresolved errors when they are
first introduced or as new versions are released.  Despite testing, errors may be found in new products or upgrades after commencement of commercial shipments.  These errors could result in:

| |  | delays in or loss of market acceptance and sales;
| | - | -------------------------------------------------
| |   |                                                  
| |  | diversion of development resources;              
| |   |                                                  
| |  | injury to our reputation; and                    
| |   |                                                  
| |  | increased service and warranty costs.            

Any of these could materially adversely affect our business, financial
condition and results of operations.

Copper Mountain Is Dependent on Widespread Market Acceptance of Its Products

Widespread market acceptance of Copper Mountains products is critical to its future success.  Factors that may affect the market
acceptance of our products include market acceptance of broadband services concentrators in general and Copper Mountains broadband services concentrator products in particular, market acceptance of DSL technology in particular, the
performance, price and total cost of ownership of our products, the availability and price of competing products and technologies and the success and development of our distribution partnerships and field sales channels.  Many of these factors
are beyond our control.  The introduction of new and enhanced products may cause certain customers to defer or return orders for existing products.  Although we maintain reserves against such returns, such reserves may not be
adequate.  We cannot be certain that we will not experience delays in product development in the future.  Failure of our existing or future products to maintain and achieve meaningful levels of market acceptance would materially adversely
affect our business, financial condition and results of operations.

Because Substantially All of Copper Mountains Revenue is
Derived From Sales of a Small Number of Products, Its Future Operating Results Will Be Dependent on Sales of These Products

Copper
Mountain currently derives substantially all of its revenues from its product family of DSL solutions and expects that this concentration will continue in the foreseeable future.  The market may not

27



---

##### Table of Contents

continue to accept or order our current products, and we may not be successful in marketing any new or enhanced products, including, but not limited to our broadband
services concentrator.  Any reduction in the demand for our current products or our failure to successfully develop or market and introduce new or enhanced products could materially adversely affect our operating results and cause the price of
our common stock to decline.  We have already experienced these effects as a result of the financial troubles facing many of our CLEC customers, including the filing of a petition for Chapter 11 protection by our two historically largest
customers Northpoint Communications, Inc and Rhythms Netconnections, Inc.  Factors that could, in the future, affect sales of our current or new or enhanced products include:

| |  | the demand for DSL solutions;                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                
| |  | our successful development, introduction and market acceptance of new and enhanced products that address customer requirements;
| |   |                                                                                                                                
| |  | product introductions or announcements by our competitors;                                                                     
| |   |                                                                                                                                
| |  | price competition in our industry and between DSL and competing technologies; and                                              
| |   |                                                                                                                                
| |  | technological change.                                                                                                          

Copper Mountains Limited
Ability to Protect Its Intellectual Property May Adversely Affect Its Ability to Compete

Copper Mountains success and ability to
compete is dependent in part upon its proprietary technology.  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 revenues.  We rely on a combination of copyright, trademark and trade secret laws, as well as confidentiality agreements and licensing
arrangements, to establish and protect our proprietary rights.  Despite our efforts to protect our proprietary rights, existing copyright, trademark and trade secret laws afford only limited protection.  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 future operating results.

Claims Against Copper Mountain Alleging Its Infringement of a
Third Partys Intellectual Property Could Result in Significant Expense to Copper Mountain and Result in Its Loss of Significant Rights

The telecommunications industry is characterized by the existence of a large number of patents and frequent litigation based on allegations of patent
infringement.  From time to time, third parties may assert patent, copyright, trademark and other intellectual property rights to technologies that are important to our business.  Any claims asserting that our products infringe or may
infringe proprietary rights of third parties, if determined adversely to us, could have a material adverse effect on our business, financial condition or results of operations.  In addition, in our agreements, we agree to indemnify our
customers for any expenses or liabilities resulting from claimed infringements of patents, trademarks or copyrights of third parties.  As the number of entrants in our market increases and the functionality of our products is enhanced and
overlaps with the products of other companies, we may become subject to claims of infringement or misappropriation of the intellectual property rights of others.  Any claims, with or without merit, could be time-consuming, result in costly
litigation, divert the efforts of our technical and management personnel, cause product shipment delays or require us to enter into royalty or licensing agreements, any of which could have a material adverse effect upon our operating results. 
Such royalty or licensing agreements, if

28



---

##### Table of Contents

required, may not be available on terms acceptable to us, if at all.  Legal action claiming patent infringement may be commenced against us.  We cannot assure you
that we would prevail in such litigation given the complex technical issues and inherent uncertainties in patent litigation.  In the event a claim against us was successful and we could not obtain a license to the relevant technology on
acceptable terms or license a substitute technology or redesign our products to avoid infringement, our business, financial condition and results of operations would be materially adversely affected.

If Copper Mountain Loses Key Personnel It May Not Be Able to Successfully Operate Its Business

Copper Mountains success depends to a significant degree upon the continued contributions of the principal members of its sales, marketing, engineering and
management personnel, many of whom perform important management functions and would be difficult to replace.  Specifically, we believe that our future success is highly dependent on our senior management.   Except for an agreement
with our Chairman and Chief Executive Officer, we do not have employment contracts with our key personnel.  In any event, employment contracts would not prevent key personnel from terminating their employment with Copper Mountain.  The
loss of the services of any key personnel, particularly senior management and engineers, could materially adversely affect our business, financial condition and results of operations.

If Copper Mountain is Unable to Retain and Hire Additional Qualified Personnel As Necessary, It May Not Be Able to Successfully Achieve Its Objectives

We may not be able to attract and retain the necessary personnel to accomplish our business objectives and we may experience constraints that will
adversely affect our ability to satisfy customer demand in a timely fashion or to support our customers and operations.  We have at times experienced, and continue to experience, difficulty in recruiting qualified personnel.  Recruiting
qualified personnel is an intensely competitive and time-consuming process.

In addition, companies in the telecommunications
industry whose employees accept positions with competitors frequently claim that such competitors have engaged in unfair hiring practices.  We may receive  notice of such claims as we seek to hire qualified personnel and such notices may
result in material litigation.  We could incur substantial costs in defending ourselves against any such litigation, regardless of the merits or outcome of such litigation.

Copper Mountains Dependence on Sole and Single Source Suppliers Exposes It to Supply Interruption

Although Copper Mountain generally uses standard parts and components for its products, certain key components are purchased from sole or single source vendors for
which alternative sources are not currently available or practical.  The inability to obtain sufficient quantities of these components may in the future result in delays or reductions in product shipments which could materially adversely affect
our business, financial condition and results of operations.  We have evaluated alternative source vendors in the past for these key components and will continue to do so as appropriate, but any alternative vendors may not meet our quality
standards for component vendors.  In the event of a reduction or interruption of supply of any such components, as much as nine months could be required before we would begin receiving adequate supplies from alternative suppliers, if any. 
It is 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.  Alternatively, as a result of the long lead times associated with
ordering certain materials or components, we may not be able to accurately forecast our need for materials and components and this could result in excess inventory and related write-offs, which could have a material adverse effect on our
business.

In addition, the manufacture of certain of these single or sole source components is extremely complex, and our reliance on the
suppliers of these components exposes us to potential production difficulties and quality variations, which could negatively impact cost and timely delivery of our products.  Any significant

29



---

##### Table of Contents

interruption in the supply, or degradation in the quality, of any component could have a material adverse effect on our business, financial condition and results of
operations.

Copper Mountains Dependence on Independent Manufacturers Could Result in Product Delivery Delays

Copper Mountain currently uses a small number of independent manufacturers to provide certain printed circuit boards, chassis and subassemblies and,
in certain cases, to complete final assembly and testing of our products.  Our reliance on independent 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 delivery schedules, manufacturing yields and costs.  If our current manufacturers are unable or unwilling to continue manufacturing our components in required volumes, it is possible that a
source may not be available to us when needed or be in a position to satisfy our production requirements at acceptable prices and on a timely basis, if at all.  Any significant interruption in supply would result in the allocation of products
to customers in volumes which do not meet some or all of the customers requirements, which in turn could have a material adverse effect on our business, financial condition and results of operations.

Intense Demand for Parts and Components May Create Allocations or Shortages Which May Expose Copper Mountain to Supply Interruption

From time to time, the demand for parts and components, including semiconductors, programmable devices and printed circuit boards, can be intense.  During these
periods manufacturers and suppliers who provide such components to us experience supply shortages which may in turn affect their ability to meet our production demands.  Moreover, the terms and conditions for purchase of such parts and
components, including order cancellation rights, may vary widely, may be onerous and may result in adverse purchase commitments and excess inventory.  While we seek to enter into contracts with our suppliers which guarantee adequate supplies of
components for the manufacturing of our products, we cannot be certain that suppliers will always be able to adequately meet our demands.  To date, we have not experienced any shortages of components or parts which have impacted our ability to
meet the shipment requirements of our customers.  However, in the event that we receive allocations of components from our suppliers or experience outright interruption in the supply of components we could experience an inability to ship or
deliver our products to our customers in a timely fashion.  Any significant allocation of or interruption in the supply of any component could have a material adverse effect on our business, financial condition and results of
operations.

Copper Mountains Customers May Demand Preferential Terms or Delay Copper Mountains Sales Cycle, Which Would Adversely
Affect Its Results of Operations

In certain cases, Copper Mountains current and prospective customers are able to exert a high
degree of influence over Copper Mountain.  These customers may have sufficient bargaining power to demand low prices and other terms and conditions that may materially adversely affect our business, financial condition and results of
operations.  In addition, prior to selling our products to such customers, we must typically undergo lengthy product approval processes.  Historically this product approval process has taken as long as one year; in the future we expect
this process to take two years or longer, especially for ILECs, IXCs and PTTs.  Accordingly, we believe we will be required to submit successive versions of our products as well as new products to our current and prospective customers for
approval.  The length of the approval process can vary and is affected by a number of factors, including customer priorities, customer budgets, customers evaluation of competing products and regulatory issues affecting telecommunication
service providers.  Delays in the product approval process or failure to gain any such approval could materially adversely affect our business, financial condition and results of operations.  While we have been successful in the past in
obtaining product approvals from our customers, future approvals, if any, and the ensuing sales of such products, if any, likely will take far longer to attain than in the past and may not continue to occur.  Delays can also be caused by late
deliveries by other vendors, changes in implementation priorities and slower than

30



---

##### Table of Contents

anticipated growth in demand for the services that our products support.  A delay in, or cancellation of, the sale of our products could adversely affect the
Companys results from operations or cause them to significantly vary from quarter to quarter.

Changes to Regulations Affecting
the Telecommunications Industry Could Reduce Demand for Copper Mountains Products or Adversely Affect Its Results of Operations

Any changes to legal requirements relating to the telecommunications industry, including the adoption of new regulations by federal or state regulatory authorities
under current laws or any legal challenges to existing laws or regulations relating to the telecommunications industry, could have a material adverse effect upon the market for Copper Mountains products.  Moreover, our distributors or
telecommunications service provider customers may 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.  Our inability to modify our
products or address any regulatory changes could have a material adverse effect on our business, financial condition or results of operations.

Copper Mountains Failure to Comply with Regulations and Evolving Industry Standards Could Delay or Prevent Its Introduction of New Products

The market for Copper Mountains products is characterized by the need to meet a significant number of communications regulations and standards,
some of which are evolving as new technologies are deployed.  In order to meet the requirements of our customers, our products may be required to comply with various industry standards and regulations including those promulgated by the Federal
Communications Commission, or FCC, and standards established by Underwriters Laboratories and Bell Communications Research.  Failure of our products to comply, or delays in compliance, with the various existing and evolving industry regulations
and standards could delay or prevent the introduction of our products or adversely impact product sales.  Moreover, enactment by federal, state or foreign governments 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.

If Copper Mountains Products Contain Defects, Copper Mountain May Be Subject to Significant Liability Claims from Its
Customers and the End-Users of Its Products and Incur Significant Unexpected Expenses and Lost Sales

Copper Mountains products
have in the past contained, and may in the future contain, undetected or unresolved errors when first introduced or as new versions are released.  Despite extensive testing, errors, defects or failures may be found in our current or future
products or enhancements after commencement of commercial shipments.  If this happens, we may experience delay in or loss of market acceptance and sales, product returns, diversion of development resources, injury to our reputation or increased
service and warranty costs, any of which could have a material adverse effect on our business, financial condition and results of operations.  Moreover, because our products are designed to provide critical communications services, we may
receive significant liability claims.  Our agreements with customers typically contain provisions intended to limit our exposure to liability claims.  These limitations may not, however, be effective in any or all cases or under any or all
scenarios, and they may not preclude all potential claims resulting from a defect in one of our products or from a defect related to the installation or operation of one of our products.  Although we maintain product liability insurance
covering certain damages arising from implementation and use of our products, our insurance may not cover any claims sought against us.  Liability claims could 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 our business.

Copper
Mountain May Engage in Future Acquisitions That Dilute Its Stockholders, Cause It to Incur Debt and Assume Contingent Liabilities

31



---

##### Table of Contents

As part of Copper Mountains business strategy, we expect to review acquisition prospects that would
complement our current product offerings, augment our market coverage or enhance our technical capabilities, or that may otherwise offer growth opportunities.  We may acquire businesses, products or technologies in the future.  In the
event of such future acquisitions, we could:

| |  | issue equity securities which would dilute current stockholders percentage ownership;
| | - | --------------------------------------------------------------------------------------
| |   |                                                                                       
| |  | incur substantial debt; or                                                            
| |   |                                                                                       
| |  | assume contingent liabilities.                                                        

Such actions by us
could materially adversely affect our results of operations and/or the price of our common stock.  Acquisitions also entail numerous risks, including:

| |  | difficulties in assimilating acquired operations, technologies or products;                                     
| | - | ----------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                 
| |  | unanticipated costs associated with the acquisition could materially adversely affect our results of operations;
| |   |                                                                                                                 
| |  | diversion of managements attention from other business concerns;                                               
| |   |                                                                                                                 
| |  | adverse effects on existing business relationships with suppliers and customers;                                
| |   |                                                                                                                 
| |  | risks of entering markets in which we have no or limited prior experience; and                                  
| |   |                                                                                                                 
| |  | potential loss of key employees of acquired organizations.                                                      

We may not be able to successfully integrate any businesses, products, technologies or personnel that we have acquired or might acquire in the future, and our
failure to do so could have a material adverse effect on our business, financial condition and results of operations.

We May Expand or
Reduce Our Operations in International Markets.  Our Failure to Effectively Manage Our International Operations Could Harm Our Business.

Entering new international markets may require significant management attention and expenditures and could adversely affect our operating margins and earnings. 
To date, we have not been able to successfully penetrate these markets.  To the extent that we are unable to do so, our growth in international markets would be limited, and our business could be harmed.

We expect that our international business operations will be subject to a number of material risks, including, but not limited to:

| |  | difficulties in managing foreign sales channels;                                                                                
| | - | --------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                 
| |  | difficulties in enforcing agreements and collecting receivables through foreign legal systems and addressing other legal issues;
| |   |                                                                                                                                 
| |  | longer payment cycles;                                                                                                          
| |   |                                                                                                                                 
| |  | taxation issues;                                                                                                                
| |   |                                                                                                                                 
| |  | differences in international telecommunications standards and regulatory agencies;                                              
| |   |                                                                                                                                 
| |  | product requirements different from those of our current customers;                                                             

32



---

##### Table of Contents

| |  | fluctuations in the value of foreign currencies; and                            
| | - | --------------------------------------------------------------------------------
| |   |                                                                                 
| |  | unexpected domestic and international regulatory, economic or political changes.

Copper Mountains Stock Price Has Been and May Continue to be Extremely Volatile

The trading price of our common stock has been and is likely to continue to be extremely volatile.  Our stock price could be subject to wide fluctuations in
response to a variety of factors, including the following:

| |  | actual or anticipated variations in quarterly operating results;                                                                                                                                                              
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                               
| |  | announcements of technological innovations;                                                                                                                                                                                   
| |   |                                                                                                                                                                                                                               
| |  | new products or services offered by us or our competitors;                                                                                                                                                                    
| |   |                                                                                                                                                                                                                               
| |  | changes in financial estimates by securities analysts;                                                                                                                                                                        
| |   |                                                                                                                                                                                                                               
| |  | announcements of significant acquisitions, strategic partnerships, joint ventures or capital commitments by us or our competitors;                                                                                            
| |   |                                                                                                                                                                                                                               
| |  | announcements related to our major customers or potential future customers, including announcements related to their financial condition, plans for network or service deployments and
equipment purchase plans and decisions;
| |   |                                                                                                                                                                                                                               
| |  | additions or departures of key personnel;                                                                                                                                                                                     
| |   |                                                                                                                                                                                                                               
| |  | announcements or loss of strategic relationships with third parties or telecommunications equipment providers by us or our competitors;                                                                                       
| |   |                                                                                                                                                                                                                               
| |  | sales of common stock;                                                                                                                                                                                                        
| |   |                                                                                                                                                                                                                               
| |  | failure to continue to meet the minimum listing requirements of the NASDAQ stock market, which is a risk we could face; and                                                                                                   
| |   |                                                                                                                                                                                                                               
| |  | other events or factors, many of which are beyond our control.                                                                                                                                                                

In addition, the stock market in general, and the Nasdaq National Market and technology companies in particular, have experienced extreme price and volume
fluctuations and the trading prices of many technology companies stocks, including Copper Mountains, have been and may continue to be highly volatile.  These broad market and industry factors may materially adversely affect the
market price of our common stock, regardless of our actual operating performance.  In the past, following periods of volatility in the market price of a companys securities, securities class-action litigation has often been instituted
against such companies.  We have become the target of such litigation, and several class action lawsuits have been filed against us and certain of our officers alleging violation of Federal securities laws related to declines in our stock
price.  Such litigation could result in substantial costs and a diversion of managements attention and resources, which could materially adversely affect our business, financial condition and results of operations.

Copper Mountain Presents Pro Forma Operating Results on a Periodic Basis.  Our Investors Should Understand That Such Presentation Is Not Intended to
Be a Presentation In Accordance With Generally Accepted Accounting Principles

Copper Mountain presents such financial information
because we believe that many of our investors find this information to be useful in analyzing and interpreting our results from operations for a period.

33



---

##### Table of Contents

Such information is presented for information purposes only and is not intended to be a substitute for financial statements presented in accordance with generally accepted
accounting principles.  We believe that this information is presented in a manner that sufficiently describes the differences between the pro forma presentation and a presentation in accordance with generally accepted accounting
principles.  Our pro forma results are not a presentation in accordance with generally accepted accounting principles and are not presented in accordance with the standards applied to financial statements filed with the Securities and Exchange
Commission.  For more information regarding pro forma financial statements, refer to the Investor Alert issued by the Securities and Exchange Commission (Release 2001-144, issued December 4, 2001).  For more information on how
Copper Mountains pro forma financial results are different from its financial results presented in accordance with generally accepted accounting principles, please refer to the footnotes accompanying such pro forma financial
statements.

Substantial Future Sales of Copper Mountains Common Stock in Private Placements or in the Public Market Could Cause Its
Stock Price to Fall

Sales of a large number of shares of Copper Mountains common stock in private placements or in the public
market or the perception that such sales could occur could cause the market price of its common stock to drop.  As of September 30, 2002, we had approximately 5.8 million shares of common stock outstanding.  We have filed four registration
statements on Form S-8 with the Securities and Exchange Commission covering the 1.9 million shares of common stock reserved for issuance under our 1996 Equity Incentive Plan, 1999 Non-Employee Directors Stock Option Plan, 1999 Employee Stock
Purchase Plan, the OnPREM 1998 Stock Option Plan, the 2000 Nonstatutory Stock Option Plan and for options issued outside such plans.   As of September 30, 2002, approximately 0.5 million shares are currently subject to exercisable options
and 0.3 million shares of restricted stock are scheduled to vest during the next 11 months.  Sales of a large number of shares could have an adverse effect on the market price for our common stock.

Certain Provisions in Copper Mountains Corporate Charter and Bylaws May Discourage Take-Over Attempts and Thus Depress the Market Price of Our Stock

Provisions in Copper Mountains certificate of incorporation, as amended and restated, may have the effect of delaying or
preventing a change of control or changes in its management.  These provisions include:

| |  | the right of the Board of Directors to elect a director to fill a vacancy created by the expansion of the Board of Directors;                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                       
| |  | the ability of the Board of Directors to alter our bylaws without getting stockholder approval;                                                                       
| |   |                                                                                                                                                                       
| |  | the ability of the Board of Directors to issue, without stockholder approval, up to 10,000,000 shares of preferred stock with terms set by the Board of Directors; and
| |   |                                                                                                                                                                       
| |  | the requirement that at least 10% of the outstanding shares are needed to call a special meeting of stockholders.                                                     

Each of these provisions could discourage potential take-over attempts and could adversely affect the market price of our common stock.

34



---

##### Table of Contents

Item 3.      
Quantitative and Qualitative Disclosures About Market Risk

We are exposed to changes in interest rates primarily
from our debt arrangements and our investments in certain marketable securities.  Under our current policies, we do not use interest rate derivative instruments to manage exposure to interest rate changes.  A hypothetical 100 basis point
adverse move in interest rates along the entire interest rate yield curve, which represents the Companys expectation for a reasonably possible near-term change in such rates, would not materially affect the fair value of its interest sensitive
financial instruments at September 30, 2002.

Item 4.      
Disclosure and Control Procedures

Our management, including our Chief Executive Officer and Chief Financial
Officer, within 90 days prior to the filing date of this Quarterly Report have conducted an evaluation of the effectiveness of disclosure controls and procedures pursuant to Rule 13a-14 promulgated under the Securities Exchange Act of 1934. 
Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures are effective in ensuring that all material information required to be filed in this quarterly report has been
made known to them in a timely fashion. There have been no significant changes in internal controls, or in factors that could significantly affect internal controls, subsequent to the date our Chief Executive Officer and Chief Financial Officer
completed their evaluation.

35



---

##### Table of Contents

PART II - OTHER INFORMATION

Item 1.      
Legal Proceedings

Since October 2000, approximately twenty-four complaints have been filed in the United States District Court for the Northern District of California
against the Company and two of its officers (the Northern District Lawsuits), along with two related derivative actions against the Company and its directors in Delaware and California, alleging violations of the federal securities laws
arising out of recent declines in the Companys stock price.  Specifically, the complaints allege claims in connection with various alleged statements and omissions to the public and to the securities markets.  The Northern District
Lawsuits have been consolidated for pretrial purposes before United States Judge Vaughn Walker of the Northern District of California.  The Company filed a motion to dismiss the Northern District Lawsuits, which was heard on November 29,
2001.  The Court has taken the motion to dismiss off calendar pending final resolution of an appeal involving the selection of plaintiffs counsel.  The derivative actions have been stayed.  No assurances can be made that we will
be successful in our defense of such claims.  If we are not successful in our defense of such claims, we could be forced to make significant payments to our stockholders and their lawyers, and such payments could have a material adverse effect
on our business, financial condition and results of operations if not covered by our insurance carrier.  Even if such claims are not successful, the litigation could result in substantial costs and divert managements attention and
resources, which could adversely affect our business, results of operations and financial position.

In December 2001, the Company and certain of its officers and directors were named as defendants in
a class action shareholder complaint filed in the United States District Court for the Southern District of New York and captioned Lowlicht v. Copper Mountain Networks, Inc., et al.,Case No. 01-CV-10943.  In the complaint, the
plaintiffs allege that the Company, certain of its officers and directors and its IPO underwriters violated the federal securities laws because the Companys IPO registration statement and prospectus contained untrue statements of material fact
or omitted material facts regarding the compensation to be received by, and the stock allocation practices of, the IPO underwriters.  The plaintiffs seek unspecified monetary damages and other relief.  Similar complaints were filed in the
same Court against numerous public companies that conducted initial public offerings (IPOs) of their common stock since the mid-1990s (the IPO Cases).

Lowlicht v. Copper
Mountain Networks, Inc., et al.,and the IPO Cases were consolidated for pretrial purposes before United States Judge Shira Scheindlin of the Southern District of New York.  Judge Scheindlin held an initial case management conference on
September 7, 2001, at which time she ordered, among other things, that the time for all defendants to respond to any complaint be postponed until further order of the Court.  On April 19, 2002, the plaintiffs filed an amended complaint against
the Company and certain of its officers and directors.  The allegations in the amended complaint are similar to the allegations in the original complaint.  On July 15, 2002, the Issuer defendants in the IPO Cases, including the Company and
its named officers and directors , filed a motion to dismiss the claims against them.  Judge Scheindlin heard oral argument on the motion on November 1, 2002.  Also, on October 8, 2002, the claims against the named officers and directors
were dismissed without prejudice pursuant to a stipulation providing for a tolling of the statutes of limitations against those defendants.  No discovery has been served on the Company.

Item
2.      
Changes in Securities and Use of Proceeds

On July 17, 2002 the Company filed a Certificate of Amendment of Second Amended and Restated Certificate of Incorporation to
effect a 1-for-10 reverse stock split of the Companys Common Stock.  As a result of the filing of the Certificate of Amendment, each ten shares of Common Stock of the Company outstanding on July 17, 2002 was automatically converted into 1
share of Common Stock.

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

A Special Meeting of Stockholders of Copper Mountain Networks, Inc. was held on July 17, 2002.  At this meeting,
the Company solicited the vote of the stockholders to approve a series of amendments to the Companys Second Amended and Restated Certificate of Incorporation, as amended, to effect a reverse

36



---

##### Table of Contents

stock split of the Companys Common Stock whereby each outstanding 5, 6, 7, 8, 9 or 10 shares would be combined, converted and changed into one share of Common Stock,
with the effectiveness of one of such amendments and the abandonment of the other amendments, or the abandonment of all amendments as permitted under Section 242(c) of the Delaware General Corporation Law, to be determined by the Board of
Directors.  The results of the voting were 51,292,852 votes for, 1,322,889 votes against, and 62,294 votes abstained.

|Item 5. | Other Information                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(a)     | Changes in Registrants Certifying Accountant                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        | Effective November 14, 2002, Copper Mountain Networks, Inc. (the Company) terminated the engagement of Ernst & Young LLP (Ernst & Young)
as the Companys independent auditor.                                                                                                                                                                                                                                                                                                                                                                                                                          
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        | The decision to terminate the engagement of Ernst & Young as the Companys independent auditor was recommended by the Companys Audit Committee and was
based in part on the results of a competitive bidding process.                                                                                                                                                                                                                                                                                                                                                                                      
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        | The reports of Ernst & Young on the Companys financial statements for the fiscal years ended December 31, 2001 and 2000 did not contain an adverse opinion or a
disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principles.                                                                                                                                                                                                                                                                                                                         
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        | During the fiscal years ended December 31, 2001 and 2000, and the interim period between December 31, 2001 and November 14, 2002, there was no disagreement between the
Company and Ernst & Young on any matters of accounting principles or practices, financial statement disclosure, or auditing scope and procedure which, if not resolved to the satisfaction of Ernst & Young would have caused it to make
reference to the subject matter of the disagreement in connection with its report; and there were no reportable events, as that term is described in Item 304(a)(1)(v) of Regulation S-K.
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        | The Company provided Ernst & Youngwith a copy of the foregoing disclosures and requested that Ernst & Young furnish the Company with a letter addressed to the
Securities and Exchange Commission stating whether it agrees with such disclosures.                                                                                                                                                                                                                                                                                                                                                          
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        | A copy of such letter from Ernst & Young, dated November 8, 2002, is filed as Exhibit 16.1 to this Form 10-Q.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        | Effective November 14, 2002, the Company engaged the firm of Deloitte & Touche as its new independent accountants.  During the fiscal years ended December 31,
2001 and 2000, and the interim period between December 31, 2001 and November 14, 2002, the Company has not consulted with Deloitte & Touche on any matters.                                                                                                                                                                                                                                                                                  
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|Item 6. | Exhibits and Reports on Form 8-K                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(a)     | Exhibits                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        | 3.1                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        | 16.1                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        | 99.1                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(b)     | Reports on Form 8-K                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        | None                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

37



---

##### Table of Contents

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.

|                        |  | COPPER MOUNTAIN NETWORKS, INC.                                    
|----------------------- |  | ------------------------------------------------------------------
|                        |  |                                                                   
|                        |  |                                                                   
|Date: November 14, 2002 |  | /s/ RICHARD S. GILBERT                                            
|                        |  |                                                                   
|                        |  | Richard S. Gilbert Chairman, President and Chief Executive Officer
|                        |  |                                                                   
|                        |  | /s/ MICHAEL O. STAIGER                                            
|                        |  |                                                                   
|                        |  | Michael O. Staiger  Chief Financial Officer  Secretary            

38



---

##### Table of Contents

I, Richard S. Gilbert, certify that:

1.  I have reviewed this quarterly report on Form 10-Q of Copper Mountain
Networks, Inc.;

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

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

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

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

b)  evaluated the
effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the Evaluation Date); and

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

5.  The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of registrants board of directors (or
persons performing the equivalent function):

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

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

6.  The registrants other certifying officers and I
have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material weaknesses.

|                       
|-----------------------
|Date: November 14, 2002
|                       
|                       

39



---

##### Table of Contents

I, Michael O. Staiger, certify that:

1.  I have reviewed this quarterly report on Form 10-Q of Copper Mountain
Networks, Inc.;

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

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

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

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

b)  evaluated the
effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the Evaluation Date); and

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

5.  The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of registrants board of directors (or
persons performing the equivalent function):

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

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

6.  The registrants other certifying officers and I
have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material weaknesses.

|                       
|-----------------------
|Date: November 14, 2002
|                       
|                       

40