<PAGE>

                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, 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 June 30, 2001.
     or

     [_]  Transition Report Pursuant to Section 13 or 15(d) of the Securities
          Exchange Act of 1934
          For the transition period from ____________ to____________.

                      Commission File Number (000-25865)


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


     Delaware                                               33-0702004
     (State or other jurisdiction of                        (I.R.S. Employer
     incorporation or organization)                         Identification No.)




               1850 Embarcadero Way, 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[_]

     The number of shares outstanding of the issuer's common stock, $.001 par
value, as of July 31, 2001 was 53,231,887.
<PAGE>

                        COPPER MOUNTAIN NETWORKS, INC.
                                     INDEX

<TABLE>
<CAPTION>
<S>                                                                        <C>
                                                                            Page
Part I.  Financial Information

         Item 1. Financial Statements

                 Condensed Balance Sheets at June 30, 2001 and
                     December 31, 2000                                        2

                 Condensed Statements of Operations for the three and six
                     months ended June 30, 2001 and 2000                      3

                 Condensed Statement of Stockholders' Equity for the six
                     months ended June 30, 2001                               4

                 Condensed Statements of Cash Flows for the six months
                     ended June 30, 2001 and 2000                             5

                 Notes to Condensed Financial Statements                      6

         Item 2. Management's Discussion and Analysis of Financial
                 Condition and Results of Operations                         11

         Item 3. Quantitative and Qualitative Disclosures About Market
                 Risk                                                        33

Part II. Other Information


         Item 1. Legal Proceedings                                           34

         Item 4. Submission of Matters to a Vote of Security Holders         34

         Item 5. Other Information                                           34

         Item 6. Exhibits and Reports on Form 8-K                            34
</TABLE>
<PAGE>

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


<TABLE>
<CAPTION>
                                                                    June 30,            December 31,
                                                                      2001                  2000
                                                                   ---------            ------------
                                                                  (Unaudited)
<S>                                                             <C>                     <C>
ASSETS
------

Current assets:
   Cash and cash equivalents                                       $  45,447               $  65,838
   Short-term marketable investments                                  58,220                  96,778
   Accounts receivable, net                                            1,709                  19,496
   Inventory, net                                                     15,803                  26,405
   Other current assets                                                2,247                   7,961
                                                                   ---------               ---------
Total current assets                                                 123,426                 216,478
Marketable investments                                                    --                   6,161
Property and equipment, net                                           22,231                  24,961
Other assets                                                           2,166                  11,126
Purchased intangibles, net                                                --                  46,159
                                                                   ---------               ---------
                                                                   $ 147,823               $ 304,885
Total assets                                                       =========               =========

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------

Current liabilities:
   Accounts payable                                                $  30,222               $  23,963
   Adverse purchase commitment                                        12,173                  28,600
   Accrued liabilities                                                10,324                  17,351
   Current portion of obligations under capital leases
       and equipment notes payable                                     3,162                   3,177
                                                                   ---------               ---------
Total current liabilities                                             55,881                  73,091
Obligations under capital leases and equipment
    notes payable, less current portion                                5,092                   6,654
Other accrued                                                            453                     314

Stockholders' equity:
   Common stock                                                           53                      52
   Additional paid in capital                                        240,407                 236,675
   Deferred compensation                                              (3,731)                 (2,283)
   Accumulated deficit                                              (150,332)                 (9,618)
                                                                   ---------               ---------
Total stockholders' equity                                            86,397                 224,826
                                                                   ---------               ---------

                                                                   $ 147,823               $ 304,885
Total liabilities and stockholders' equity                         =========               =========
</TABLE>



           See accompanying notes to condensed financial statements

                                       2
<PAGE>

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



<TABLE>
<CAPTION>
                                                   Three Months Ended                           Six Months Ended
                                                        June 30,                                    June 30,
                                       ---------------------------------------     ----------------------------------------
                                               2001                  2000                  2001                   2000
                                       -----------------     -----------------     -----------------      -----------------
<S>                                  <C>                   <C>                   <C>                   <C>
Net revenue                            $           6,054     $          80,185     $          14,215      $         141,009
Cost of revenue                                   20,182                36,079                59,710                 64,180
                                       -----------------     -----------------     -----------------      -----------------
  Gross margin                                   (14,128)               44,106               (45,495)                76,829
Operating expenses:
  Research and development                        10,781                 8,400                22,448                 15,172
  Sales and marketing                              4,876                 9,370                11,886                 15,033
  General and administrative                       3,232                 3,917                11,028                  6,580
  Amortization of purchased intangibles             ----                 5,246                 5,326                  7,099
  Amortization of deferred stock
   compensation*                                     828                 1,164                 1,384                  2,196
  Restructuring costs                               ----                  ----                 4,382                   ----
  Write-off of purchased intangibles              40,833                  ----                40,833                   ----
  Write-off of in-process research and
   development                                      ----                  ----                  ----                  6,300
                                       -----------------     -----------------     -----------------      -----------------
      Total operating expenses                    60,550                28,097                97,287                 52,380
                                       -----------------     -----------------     -----------------      -----------------
Income (loss) from operations                    (74,678)               16,009              (142,782)                24,449

Other income (expense):
     Interest and other income                     1,093                 2,278                 2,518                  4,229
     Interest expense                               (232)                 (145)                 (450)                  (296)
                                       -----------------     -----------------     -----------------      -----------------
Income (loss) before income taxes                (73,817)               18,142              (140,714)                28,382
Provision  for income taxes                         ----                 7,811                  ----                  4,378
                                       -----------------     -----------------     -----------------      -----------------
Net income (loss)                      $         (73,817)    $          10,331     $        (140,714)     $          24,004
                                       =================     =================     =================      =================

Basic net income (loss) per share      $           (1.39)    $            0.20     $           (2.67)     $            0.48
                                       =================     =================     =================      =================

Diluted net income (loss) per share    $           (1.39)    $            0.18     $           (2.67)     $            0.41
                                       =================     =================     =================      =================

Basic common equivalent shares                    52,959                50,561                52,766                 49,568
                                       =================     =================     =================      =================

Diluted common equivalent shares                  52,959                58,503                52,766                 57,961
                                       =================     =================     =================      =================
</TABLE>

* The following table shows how the Company's deferred stock compensation would
 be allocated to cost of revenue and the respective expense categories:

<TABLE>
<S>                                   <C>                  <C>                   <C>                    <C>
  Cost of revenue                      $              28     $              52     $              47      $              95
  Research and development                           308                   412                   451                    831
  Sales and marketing                                174                   193                   266                    350
  General and administrative                         318                   507                   620                    920
                                       -----------------     -----------------     -----------------      -----------------
     Total                             $             828     $           1,164     $           1,384      $           2,196
                                       =================     =================     =================      =================
</TABLE>

           See accompanying notes to condensed financial statements.

                                       3
<PAGE>

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


<TABLE>
<CAPTION>
                                                          Common  Stock
                                                       ------------------
                                                                              Additional                                   Total
                                                         Number of             Paid in      Deferred     Accumulated   Stockholders'
                                                          Shares     Amount    Capital    Compensation     Deficit         Equity
                                                         ---------  --------  ----------  ------------   ------------  -------------
<S>                                                      <C>        <C>       <C>         <C>            <C>           <C>
Balance at December 31,  2000                             52,053    $    52   $  236,675  $     (2,283)  $     (9,618) $    224,826

  Options to purchase common stock for consulting           ----       ----            4            (4)          ----          ----
   services

  Deferred compensation related to the grant of stock       ----       ----           99           (99)          ----          ----
   options

  Deferred compensation related to the Exchange             ----       ----        2,729        (2,729)          ----          ----
   Program

  Amortization related to deferred stock compensation       ----       ----         ----         1,384           ----         1,384

  Common stock issued under Employee Stock Purchase Plan      80       ----          521          ----           ----           521

  Exercise of options to purchase common stock               590          1          379          ----           ----           380

  Net exercise of warrants to purchase common stock          354       ----         ----          ----           ----          ----

  Net loss                                                  ----       ----         ----          ----       (140,714)     (140,714)
                                                         -------    -------   ----------  ------------   ------------  ------------
Balance at June 30, 2001                                  53,077    $    53   $  240,407  $     (3,731)  $   (150,332) $     86,397
                                                         =======    =======   ==========  ============   ============  ============
</TABLE>



           See accompanying notes to condensed financial statements

                                       4
<PAGE>

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


<TABLE>
<CAPTION>
                                                                      Six Months Ended June 30,
                                                        -------------------------------------------------
                                                                     2001                2000
                                                        ----------------------     ----------------------
<S>                                                     <C>                        <C>
Cash flows from operating activities:
  Net income (loss)                                          $        (140,714)      $      24,004
  Adjustments to reconcile net income (loss)
     to net cash provided by (used in) operating activities:
       Write-off of purchased intangibles                               40,833                ----
       Depreciation and amortization                                    10,918              10,105
       Non-cash restructuring costs                                      1,900                ----
       Non-cash compensation                                             1,384               2,196
       Write-off of in-process research and development                   ----               6,300
       Tax benefit from the sale of stock options                         ----               1,250
       Deferred income taxes                                              ----             (11,268)
       Changes in operating assets and liabilities:
          Accounts receivable                                           17,787             (30,996)
          Inventory                                                     10,602               3,580
          Other current assets and other assets                         14,674              (2,197)
          Adverse purchase commitment                                  (16,427)               ----
          Accounts payable and accrued liabilities                        (629)             33,093
                                                             -----------------       -------------
Net cash provided by (used in) operating activities                    (59,672)             36,067
                                                             -----------------       -------------

Cash flows from investing activities:
  Maturities of marketable investments, net                             44,719              31,200
  Purchases of property and equipment                                   (4,762)             (8,396)
  Cash received for purchase of OnPREM                                    ----                 844
                                                             -----------------       -------------
Net cash provided by investing activities                               39,957              23,648
                                                             -----------------       -------------

Cash flows from financing activities:
  Proceeds from equipment notes payable                                   ----                 316
  Payments on capital leases and equipment notes payable                (1,577)               (855)
  Proceeds from issuance of common stock                                   901               3,489
                                                             -----------------       -------------
Net cash provided by (used in) financing activities                       (676)              2,950
                                                             -----------------       -------------

Net increase (decrease) in cash and cash equivalents                   (20,391)             62,665

Cash and cash equivalents at beginning of period                        65,838              25,405
                                                             -----------------       -------------
Cash and cash equivalents at end of period                   $          45,447       $      88,070
                                                             =================       =============

Supplemental information:
  Interest paid                                              $             450       $         270
                                                             =================       ==============
</TABLE>

           See accompanying notes to condensed financial statements

                                       5
<PAGE>

NOTE 1 - General

In management's opinion, the accompanying unaudited financial statements for
Copper Mountain Networks, Inc. (the "Company") for the three and six month
periods ended June 30, 2001 and 2000 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 charge to write-off certain intangible assets of $40.8 million, a charge
related to excess inventory on hand of $16.0 million, a charge related to the
investment in commercial paper of Southern California Edison of $0.4 million for
the three months ended June 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 $4.4 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 six months ended June 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, 2000 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 and Amendment No. 1 on Form
10-K/A for the year ended December 31, 2000 (the "2000 Annual Report").
Footnotes which would substantially duplicate the disclosures in the Company's
audited financial statements for the year ended December 31, 2000 contained in
the 2000 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, 2001.

Investments In Marketable Securities

At June 30, 2001, the Company held investments in investment grade debt and
money market securities with various maturities through January 2002. Management
determines the appropriate classification of its 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 June 30,
2001 totaled $93.7 million. The Company has included $35.5 million of these
securities in cash and cash equivalents at June 30, 2001, as they have original
maturities of less than 90 days. The remaining debt securities totaling $58.2
million at June 30, 2001 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 June 30,
2001 approximated the carrying value. The Company has designated all of its
investments as held-to-maturity, except for an investment with a cost basis of
$3.4 million in commercial paper issued by Southern California Edison, which was
transferred from being classified as held-to-maturity to available-for-sale
during the first three months of 2001 because the security had matured.

During the three months ended June 30, 2001, the Company reduced the carrying
value of the investment in commercial paper issued by Southern California Edison
Company to its indicated fair market value of approximately $2.4 million.
Included in other income, net for the three and six months ended June 30, 2001
is a loss adjustment of $395,000 and $1.0 million, respectively, to adjust the
carrying value of the investment to fair market value. The ultimate net
realizable value of this investment is not practicably determinable.

Investments In Sales-Type Leases

During the year ended December 31, 2000, the Company entered into a $10.0
million credit facility with a customer for the purchase of the Company's
equipment under a capital lease agreement. During the three months ended March
31, 2001, this investment was sold at an amount that approximated the carrying
value.

During the year ended December 31, 2000, the Company entered into an $8.6
million credit facility with another 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 six months
ended June 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

                                       6
<PAGE>

charge to reduce the carrying value of the lease receivable. This charge is
included in bad debt expense for the six months ended June 30, 2001.

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 June 30, 2001 include revenue recognized from significant customers
totaling $1.9 million or 32%, $1.1 million or 18%, $0.6 million or 11% and one
international customer totaling $0.7 million or 11% of net revenue. The
Company's revenues for the six months ended June 30, 2001 include revenue
recognized from significant customers totaling $2.4 million or 17%, $1.6 million
or 12% and one international customer totaling $3.1 million or 22% 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 two customers individually representing 52% and 25% of total accounts
receivable at June 30, 2001.

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
three months ended June 30, 2001, the Company recorded a charge of $16.0 million
related to finished products and raw materials in excess of anticipated
requirements. During the six months ended June 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.

New Accounting Standards

On January 1, 2001 the Company adopted Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended ("FAS 133"). This statement establishes accounting and
reporting standards for derivative instruments and hedging activities and
requires that an entity recognize all derivatives as either assets or
liabilities in the balance sheet and measure those instruments at fair value.
Changes in the fair value of derivatives are recorded each period in income or
other comprehensive income, depending on whether the derivatives are designated
as hedges and, if so, the types of hedges. The Company did not use any
derivatives in the six months ended June 30, 2001 and there was no cumulative
effect adjustment upon adoption.

In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141, "Business Combinations" ("FAS 141").
This statement supercedes Accounting Principles Board Opinion No. 16, "Business
Combinations" ("APB 16") and amends or supercedes a number of interpretations of
APB 16. FAS 141 eliminates the pooling-of-interests method of accounting for
business combinations, except certain transactions initiated prior to July 1,
2001 and changes the criteria to recognize intangible assets apart from
goodwill. FAS 141 is effective for any business combination completed after June
30, 2001. Adoption of FAS 141 is not currently expected to have a material
impact on results of operations.

In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets"
("FAS 142"). This statement supercedes Accounting Principles Board Opinion No.
17, "Intangible Assets." FAS 142 stipulates that goodwill and indefinite lived
intangible assets are no longer amortized but are reviewed annually, or under
certain circumstances more frequently, for impairment. FAS 142 is effective for
any goodwill and intangible assets

                                       7
<PAGE>

acquired after June 30, 2001 and upon adoption for such assets acquired before
July 1, 2001. Companies are required to adopt FAS 142 in the first fiscal year
beginning after December 15, 2001. Adoption of FAS 142 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. Examples include provisions for returns, bad debts, excess
inventory and adverse purchase commitments, restructuring; the ultimate
realizability of investments and intangible assets and the ultimate outcome of
litigation. Actual results could differ from those estimates.

NOTE 3 - Net Income Per Share

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 2.0 million and 3.0 million for the three and six
month periods ended June 30, 2001, respectively, were excluded from the
calculation because of their anti-dilutive effect. Common stock equivalents used
to calculate diluted earnings per share totaled 7.9 million and 8.4 million for
the three and six month periods ended June 30, 2000, respectively.

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

<TABLE>
<CAPTION>
                                                              June 30,                  December 31,
                                                                2001                        2000
                                                        ----------------------     ----------------------
                                                              (Unaudited)
     <S>                                                <C>                        <C>
     Inventory:
       Raw materials                                          $ 76,224                   $ 22,635
       Work in process                                           1,216                      1,529
       Finished goods                                           15,873                     14,569
       Allowance for excess and obsolescence                   (77,510)                   (12,328)
                                                              --------                   --------
                                                              $ 15,803                   $ 26,405
                                                              ========                   ========

     Accrued liabilities:
       Accrued compensation                                   $  2,605                   $  4,126
       Accrued warranty                                          1,267                      3,714
       Accrued vacation                                          1,992                      2,203
       Accrued restructuring costs                                 517                        ---
       Deferred revenue                                          1,226                      2,554
       Other                                                     2,717                      4,754
                                                              --------                   --------
                                                              $ 10,324                   $ 17,351
                                                              ========                   ========
</TABLE>

NOTE 5 - Commitments

In April 1999, the Company entered into an agreement with a contract
manufacturer whereby the contract manufacturer was authorized to procure
inventory on behalf of the Company. Due to the sudden slowdown in the capital
equipment requirements of the telecommunications industry as a whole and more
specifically the Company's significant customers, the Company and its contract
manufacturer had procured inventory in excess of current requirements. As a
result in May 2001 the Company and its contract manufacturer entered into an
agreement that outlines payment terms for inventory purchased by the contract
manufacturer on behalf of the Company. Upon execution of the agreement, the
Company paid the contract manufacturer $7.6 million. The remaining balance of
$22.7 million, which is subject to an audit by the Company, is included in
accounts payable and is due in three equal quarterly installments beginning in
July 2001.

                                       8
<PAGE>

NOTE 6 - 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 is expected to largely be completed during 2001. As a result
of the adoption of this plan, the Company recorded charges of $4.4 million
during the first three months of 2001. These charges (shown below in tabular
format) primarily relate to: consolidation of the Company's continuing
operations resulting in impairment of assets, anticipated losses on disposition
of assets as well as 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. At March 31, 2001, the Company had
reduced its non-temporary work force by approximately 100 positions.
Substantially all reductions related to this plan occurred prior to March 31,
2001.

As a part of this plan, 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 first three months of 2001, the Company recorded losses from
impairment of assets of $1.9 million, which were recorded as restructuring
costs. Substantially all of the impaired assets are being held for disposition
and will not continue to be depreciated. The Company does not expect that the
effect on depreciation will materially impact future results of operations.

Also as part of this plan, the Company elected to consolidate its operations and
attempt to sub-lease certain of its facilities, which housed portions of its
operations, marketing, sales and administrative activities. In the first three
months of 2001, the Company recorded estimated excess lease costs of $886,000
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 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 three months ended March 31, 2001.
Future cash outlays are expected to be completed in 2001.

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

<TABLE>
<CAPTION>
                                                Cash/                                               Reserve Balance
                                               Non-cash         Charge            Activity          At June 30, 2001
                                             -------------  ---------------    --------------   ----------------------
<S>                                          <C>            <C>                <C>              <C>
Impairment of assets                           Non-cash        $  1,900        $   (1,900)            $          ---
Excess lease costs                             Cash                 886              (369)                       517
Elimination of job responsibilities            Cash               1,596            (1,596)                       ---
                                                               --------        ----------             --------------
                                                               $  4,382        $   (3,865)            $          517
</TABLE>

NOTE 7  - Litigation

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, along with two related derivative actions
against the Company and its directors, alleging violations of the federal
securities laws arising out of 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.  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

                                       9
<PAGE>

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.

NOTE 8 - Equity

Stock Option Cancel and Re-grant Program

In November 2000, the Company allowed employees holding options to purchase the
Company's common stock to cancel certain stock option grants in exchange for a
commitment that options to purchase the same number of common shares would be
granted in May 2001 with an exercise price equal to the fair market value on the
date of the new grant, provided that the participant had not terminated
employment prior to such time (the "Cancel and Re-grant Program").  Options to
purchase shares of common stock granted under the Cancel and Re-grant Program
vest ratably over a period of 36 months.  All other terms of options granted
under the Cancel and Re-grant Program are substantially the same as the
cancelled options.  Options to purchase 4.8 million shares of common stock were
cancelled under the Cancel and Re-grant Program.  In May 2001, the Company
granted options to purchase 3.3 million shares of common stock in conjunction
with the Cancel and Re-grant Program at an exercise price of $3.19 per share.

Stock Option Exchange Program

In May 2001, the Company allowed employees holding options to purchase the
Company's common stock to cancel certain stock option grants in exchange for
options to purchase the same number of common shares which were granted in May
2001 with an exercise price equal to the fair market value on the date of the
new grant (the "Exchange Program").  Options to purchase shares of common stock
granted under the Exchange Program vest ratably over a period of 36 months and
have a life of five years from the date of grant.  All other terms of options
granted under the Exchange Program are substantially the same as the cancelled
options.  In May 2001, the Company cancelled and immediately granted replacement
options to purchase 3.1 million shares of common stock in conjunction with the
Exchange Program at an exercise price of $3.19 per share.  The intrinsic value
of the options to purchase common stock will be re-measured at the end of each
period for the life of the option and be amortized over the vesting period in
accordance with FASB Interpretation No. 28, "Accounting for Stock Appreciation
Rights and Other Variable Stock Option or Award Plans."  During the three months
ended June 30, 2001, the Company recognized compensation expense of $316,000
related to the Exchange Program.

NOTE 9 - Recent Events

Restructuring

On August 2, 2001, the Company announced that it had adopted a business plan to
re-size its business to reflect current and expected business conditions.  The
restructuring plan is expected to largely be completed during 2001.  As a result
of the adoption of this plan, the Company expects to record charges of $15
million to $18 million during the third quarter of 2001.  These charges
primarily relate to: consolidation of the Company's continuing operations
resulting in impairment of assets, anticipated losses on disposition of assets
as well as excess lease costs; and the elimination of job responsibilities,
resulting in costs incurred for employee severance.  Employee reductions will
occur in all areas of the Company.  As a result of this restructuring, the
Company expects to reduce its non-temporary work force by approximately 150
positions.  Substantially all reductions will occur prior to September 30, 2001.

In connection with this plan, management determined that the estimated future
cash flows from certain intangible assets acquired in the purchase of OnPREM
Networks Corporation would likely not be sufficient to recover the carrying
value of such assets.  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 in the three and six months ended June 30, 2001. 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.

Restricted Common Stock

In August 2001, the Company granted 3,550,000 shares of restricted common stock
to employees. The shares, which are restricted as to sale or transfer until
vesting, will vest 50% one year from the date of grant and ratably each month
thereafter for a period of 12 months. The related net compensation expense of
approximately $7.2 million will be amortized in accordance with FASB
Interpretation No. 28 over the vesting period of two years. Also in August 2001,
the Company's board of directors approved the future grant of 1,550,000 shares
of restricted common stock to employees.


                                       10
<PAGE>

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,
2000 and other reports and filings made with the Securities and Exchange
Commission.

Overview

   From Copper Mountain's inception in March 1996 through December 1997, its
operating activities related primarily to developing, building and testing
prototype products; building its technical support infrastructure; commencing
the staffing of its marketing, sales and customer service organizations; and
establishing relationships with its customers.  We commenced shipments of our
CopperEdge product family in September 1997, including line cards for these
Copper Edge systems and our CopperRocket DSL customer premise equipment, or DSL
CPE.

   Our revenue is generated primarily from sales of our central office-based
equipment: our CopperEdge 200 DSL  concentrators, or CE200, the related wide
area network cards, line cards, from sales of our DSL CPE and from sales of
service contracts.  Additionally, we sell 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 CopperEdge 150 DSL
concentrators, or CE 150, and the OnPrem(TM) 2400 Concentrator, or OP2400 to
customers in the multiple tenant unit, or MTU, market.

   For the three months ended June 30, 2001, revenue recognized from our largest
customers, Mpower Communications, Rhythms Netconnections, Versatel and Network
Telephone accounted for approximately 32%, 18%, 11% and 11%, respectively, of
our revenue.   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 significant 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 cashflow, and, as a consequence, could materially
adversely affect our business, financial condition and results of operations.

   We market and sell our products directly to telecommunications service
providers and through strategic original equipment manufacturers and
distributors.  We generally recognize revenue from product sales or sales type
leases upon shipment if collection of the resulting receivable is probable and
product returns are reasonably estimated and the sales-type lease criteria are
met.  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.

                                       11
<PAGE>

   We expect our gross margin to be affected by many factors including
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.

   To date, gross margin on sales of our CE200, CE150 and OP2400 systems and
related wide area network and line cards, typically sold as combined systems,
have been higher than gross margin on sales of DSL CPE.  Furthermore, combined
systems are not generally fully-populated (i.e., less than the total number of
line cards which each system can support) when sold.  When our customers add
more subscribers than are supported in the initial configuration, we expect that
these customers will purchase additional line cards from us to increase
subscriber capacity.  The sale of additional line cards generally generates
higher gross margin than the initial sale of combined systems.  We expect
pricing competition will continue in the future which may result in lower
average selling prices for our current products and as a result our gross
margins may continue to decline.

   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 facilities in San
Diego, California. Accordingly, a significant portion of our cost of revenue
could consist of payments to our current contract manufacturer, Flextronics
International Ltd.

   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.

   Sales and marketing expenses consist of salaries, commissions 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 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 the Exchange Program (see Note 8 to Condensed Financial Statements) and
from the granting of stock options to an employee with an exercise price per
share below the fair market value per share of our common stock at the date of
grant. 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 will 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. We recorded total deferred stock
compensation of $17.0 million from inception to December 31, 2000 and $2.8
million in the six months ended June 30, 2001 and amortized $14.7 million from
inception to December 31, 2000 and $1.4 million for the six months ended June
30, 2001, respectively. In August 2001, the Company granted 3,550,000 shares of
restricted common stock to employees. The shares, which are restricted as to
sale or transfer until vesting, will vest 50% one year from the date of grant
and ratably each month thereafter for a period of 12 months. The related net
compensation expense of approximately $7.2 million will be amortized over the
vesting period for two years. As a result of the Exchange Program, 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 is expected to largely be completed during 2001. As a
result of the adoption of this plan, the Company recorded charges of $4.4
million during the first quarter of 2001. These charges (shown below in tabular
format) primarily relate to:

                                       12
<PAGE>

consolidation of the Company's continuing operations resulting in impairment of
assets, anticipated losses on disposition of assets as well as 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. At
March 31, 2001, the Company had reduced its non-temporary work force by
approximately 100 positions. Substantially all reductions related to this plan
occurred prior to March 31, 2001.

   As a part of this plan, 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 first quarter of 2001, the Company recorded losses from
impairment of assets of $1.9 million, which were recorded as restructuring
costs.  Substantially all of the impaired assets are being held for disposition
and will not continue to be depreciated.  The Company does not expect that the
effect on depreciation will materially impact future results of operations.

   Also as part of this plan, the Company elected to consolidate its operations
and attempt to sub-lease certain of its facilities, which housed portions of its
operations, marketing, sales and administrative activities.  In the first
quarter of 2001, the Company recorded estimated excess lease costs of $886,000
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 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 three months ended March 31, 2001.
Future cash outlays are expected to be completed in 2001.

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

<TABLE>
<CAPTION>
                                             Cash/                                                  Reserve Balance
                                           Non-cash           Charge           Activity             At June 30, 2001
                                        -------------    ---------------    --------------     ------------------------
<S>                                     <C>              <C>                <C>                <C>
Impairment of assets                      Non-cash          $      1,900         $  (1,900)                $        ---
Excess lease costs                        Cash                       886              (369)                         517
Elimination of job responsibilities       Cash                     1,596            (1,596)                         ---
                                                            ------------         ---------                 ------------
                                                            $      4,382         $  (3,865)                $        517
</TABLE>

   On August 2, 2001, the Company announced that it had adopted a second
business plan to re-size its business to reflect current and expected business
conditions. This restructuring plan is expected to largely be completed during
2001. As a result of the adoption of this plan, the Company expects to record
charges of $15 million to $18 million during the third quarter of 2001. These
charges primarily relate to: consolidation of the Company's continuing
operations resulting in impairment of assets, anticipated losses on disposition
of assets as well as excess lease costs; and the elimination of job
responsibilities, resulting in costs incurred for employee severance. Employee
reductions will occur in all areas of the Company. As a result of this
restructuring, the Company expects to reduce its non-temporary work force by
approximately 150 positions. Substantially all reductions will occur prior to
September 30, 2001.

                                       13
<PAGE>

Results of Operations

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

<TABLE>
<CAPTION>
                                                   Three Months Ended                     Six Months Ended
                                                        June 30,                              June 30,
                                          ---------------------------------     ---------------------------------
                                               2001               2000               2001               2000
                                          --------------     --------------     --------------     --------------
<S>                                       <C>                <C>                <C>                <C>
Net revenue                                        100.0%             100.0%             100.0%             100.0%
Cost of revenue                                    333.4               45.0              420.0               45.5
                                          --------------     --------------     --------------     --------------
  Gross margin                                    (233.4)              55.0             (320.0)              54.5
Operating expenses:
  Research and development                         178.0               10.5              157.9               10.8
  Sales and marketing                               80.5               11.7               77.9               10.7
  General and administrative                        53.4                4.9               77.6                4.7
  Amortization of purchased intangibles             ----                6.5               37.5                5.0
  Amortization of deferred stock
      compensation                                  13.7                1.4                9.7                1.6
  Restructuring costs                               ----               ----               30.8               ----
  Write-off of purchased intangibles               674.4               ----              287.3               ----
  Write-off of in-process research and
      development                                   ----               ----               ----                4.4
                                          --------------     --------------     --------------     --------------
      Total operating expenses                   1,000.0               35.0              678.7               37.2
                                          --------------     --------------     --------------     --------------
Income (loss) from operations                   (1,233.4)              20.0             (998.7)              17.3
Interest and other income, net                      14.2                2.6               14.6                2.8
                                          --------------     --------------     --------------     --------------
Income (loss) before income taxes               (1,219.2)              22.6             (984.1)              20.1
Provision for income taxes                          ----                9.7               ----                3.1
                                          --------------     --------------     --------------     --------------
Net income (loss)                               (1,219.2)              12.9             (984.1)              17.0
                                          ==============     ==============     ==============     ==============
</TABLE>


Three Months Ended June 30, 2001 vs. Three Months Ended June 30, 2000

   Net Revenue.   Net revenue decreased from $80.2 million for the three months
ended June 30, 2000 to $6.1 million for the three months ended June 30, 2001.
This decrease was due to significantly fewer sales of our CE200 and CE150 DSL
access concentrators and related line cards. Sales to our four largest customers
for the three months ended June 30, 2000, NorthPoint, Rhythms Netconnections,
Lucent, and Mpower Communications decreased from $11.5 million, $15.2 million,
$23.4 million, and $12.4 million, respectively, to an aggregate of $3.0 million
for the three months ended June 30, 2001. Net revenue for the three months ended
June 30, 2001 includes $0.6 million of revenue deferred from prior periods as
during this period the criteria for revenue recognition had been met. Sales to
our four largest customers for the three months ended June 30, 2001, Mpower
Communications, Rhythms Netconnections, Versatel, and Network Telephone were
$1.9 million, $1.1 million, $0.7 million, and $0.6 million, respectively.

   Gross Margin.   Our gross margin decreased from $44.1 million for the three
months ended June 30, 2000 to $(14.1) million for the three months ended June
30, 2001.  The decrease in gross margin occurred primarily because of a decrease
in net revenue and an excess inventory charge of $16.0 million related to
inventory on hand at June 30, 2001 in excess of anticipated requirements. Before
the impact of these charges, gross margin as a percentage of sales for the three
months ended June 30, 2001 was adversely impacted by decreased average selling
prices, sales mix and decreased production volumes.

   Research and Development.   Our research and development expenses increased
from $8.4 million for the quarter ended June 30, 2000 to $10.8 million for the
quarter ended June 30, 2001. This increase was due to an increase in personnel
expenses related to an increase in our engineering staff and quality and
technical

                                       14
<PAGE>

support costs including outside services.  Research and development
expenses as a percentage of net revenue increased from 10.5% for the quarter
ended June 30, 2000 to 178.0% for the quarter ended June 30, 2001.  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 quarter ended June
30, 2001.

     Sales and Marketing.   Our sales and marketing expenses decreased from $9.4
million for the quarter ended June 30, 2000 to $4.9 million for the quarter
ended June 30, 2001. This decrease was due to a decrease in personnel expenses
for sales and marketing staff, decreased sales compensation associated with
decreased net revenue, and decreased promotional and product marketing expenses
during the stated periods.  Sales and marketing expenses as a percentage of net
revenue increased from 11.7% of net revenue for the quarter ended June 30, 2000
to 80.5% for the quarter ended June 30, 2001.  This increase was primarily the
result of a decrease in our net revenue for the quarter ended June 30, 2001.

     General and Administrative.   Our general and administrative expenses
decreased from $3.9 million for the quarter ended June 30, 2000 to $3.2 million
for the quarter ended June 30, 2001.  This decrease was due to a decrease in bad
debt expense and personnel expenses, which are partially offset by increases in
supplies and depreciation expense.  General and administrative expenses as a
percentage of net revenue increased from 4.9% for the quarter ended June 30,
2000 to 53.4% for the quarter ended June 30, 2001.  This increase was primarily
the result of a decrease in our net revenue for the quarter ended June 30, 2001.

     Amortization of Purchased Intangibles. Amortization of purchased
intangibles decreased from $5.2 million for the quarter ended June 30, 2000 to
zero for the quarter ended June 30, 2001. 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.

     Interest and Other Income.  Interest and other income decreased from $2.3
million for the quarter ended June 30, 2000 to $1.1 million for the quarter
ended June 30, 2001. This decrease was primarily due to higher average cash
balances during the quarter ended June 30, 2000 and a loss in the investment in
commercial paper of Southern California Edison of $0.4 million.

     Interest Expense.   Our interest expense increased from $145,000 for the
quarter ended June 30, 2000 to $232,000 for the quarter ended June 30, 2001.
This increase was primarily due to an increase in the amounts outstanding under
capital lease and equipment notes payable facilities as a result of additional
financing of computers, equipment for research and development and for other
equipment.

     Provision for Income Taxes.  Our effective income tax rate for the three
months ended June 30, 2001 was 0% compared to 43% for the same period in the
prior year.  The provision for income taxes for the three months ended June 30,
2001 and 2000 are based on estimates of the effective income tax rate for the
entire year.

Six Months Ended June 30, 2001 vs. Six Months Ended June 30, 2000

     Net Revenue.   Net revenue decreased from $141.0 million for the six months
ended June 30, 2000 to $14.2 million for the six months ended June 30, 2001.
This decrease was due to significantly fewer sales of our CE200 and CE150 DSL
access concentrators and related line cards.  Sales to our four largest
customers for the six months ended June 30, 2000, NorthPoint, Rhythms
Netconnections, Lucent, and Mpower Communications decreased from $29.4 million,
$23.0 million, $40.9 million and $18.3 million, respectively, for the six months
ended June 30, 2000 to an aggregate of $4.5 million for the six months ended
June 30, 2001.  Net revenue for the six months ended June 30, 2001 includes $3.1
million of revenue deferred from prior periods as during this period the
criteria for revenue recognition had been met.  Sales to our three largest
customers for the six months ended June 30, 2001, Versatel, Mpower
Communications and Rhythms Netconnections were $3.1 million, $2.4 million and
$1.6 million, respectively, for the six months ended June 30, 2001.

                                       15
<PAGE>

     Gross Margin.   Our gross margin decreased from $76.8 million for the six
months ended June 30, 2000 to $(45.5) million for the six months ended June 30,
2001.  The decrease in gross margin occurred primarily because of a decrease in
net revenue and an excess inventory charge of $51.0 million related to inventory
on hand and to future inventory purchase commitments of finished products and
raw materials in excess of anticipated requirements.  Before the impact of these
charges, gross margin as a percentage of sales for the six months ended June 30,
2001 was adversely impacted by decreased average selling prices, sales mix and
decreased production volumes.

     Research and Development.   Our research and development expenses increased
from $15.2 million for the six months ended June 30, 2000 to $22.4 million for
the six months ended June 30, 2001. This increase was due to an increase in
personnel expenses related to an increase in our engineering staff and quality
and technical support costs including outside services.  Research and
development expenses as a percentage of net revenue increased from 10.8% for the
six months ended June 30, 2000 to 157.9% for the six months ended June 30, 2001.
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 six months
ended June 30, 2001.

     Sales and Marketing.   Our sales and marketing expenses decreased from
$15.0 million for the six months ended June 30, 2000 to $11.9 million for the
six months ended June 30, 2001. This decrease was due to a decrease in personnel
expenses for sales and marketing staff, decreased sales compensation associated
with decreased net revenue, and decreased promotional and product marketing
expenses during the stated periods. Sales and marketing expenses as a percentage
of net revenue increased from 10.7% of net revenue for the six months ended June
30, 2000 to 77.9% for the six months ended June 30, 2001. This increase was
primarily the result of a decrease in our net revenue for the six months ended
June 30, 2001.

     General and Administrative.   Our general and administrative expenses
increased from $6.6 million for the six months ended June 30, 2000 to $11.0
million for the six months ended June 30, 2001.  This increase was due to
increased staffing for management information systems and administrative
personnel and increases in facilities costs and outside services.  General and
administrative expenses as a percentage of net revenue increased from 4.7% for
the six months ended June 30, 2000 to 77.6% for the six months ended June 30,
2001.  This increase was primarily the result of a decrease in our net revenue
for the six months ended June 30, 2001.

     Amortization of Purchased Intangibles.   Amortization of purchased
intangibles decreased from $7.1 million for the six months ended June 30, 2000
to $5.3 million for the six months ended June 30, 2001. 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.

     Interest and Other Income.  Interest and other income decreased from $4.2
million for the six months ended June 30, 2000 to $2.5 million for the six
months ended June 30, 2001. This decrease was primarily due to a loss in the
investment in commercial paper of Southern California Edison of $1.0 million.

     Interest Expense.   Our interest expense increased from $296,000 for the
six months ended June 30, 2000 to $450,000 for the six months ended June 30,
2001. This increase was primarily due to an increase in the amounts outstanding
under capital lease and equipment notes payable facilities as a result of
additional financing of computers, equipment for research and development and
for other equipment.

     Provision  for Income Taxes.  The provision for income taxes for the six
months ended June 30, 2001 and 2000 are based on an estimate of the effective
income tax rate for the entire year offset in 2000 by the elimination of the
valuation allowance related to its deferred tax assets as the realization of
such assets became probable.  The reduction of the valuation allowance decreased
the tax provision by approximately $7.8 million.

                                       16
<PAGE>

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 June 30, 2001, we had cash and cash equivalents of $45.4 million and
short-term marketable investments of $58.2 million.

     Cash provided by/(used in) operating activities for the six months ended
June 30, 2001 and 2000 was $(59.7) million and $36.1 million, respectively. The
relative increase in cash used in operating activities for the six months ended
June 30, 2001 compared to cash provided by operating activities in the same
period in the prior year was primarily the result of a net change in net income
(loss) of $164.7 million partially offset by an increase in non-cash charges, a
decrease in accounts receivable, a decrease in other current assets and other
assets and an increase in accounts payable and accrued liabilities.

     Cash provided by investing activities for the six months ended June 30,
2001 and 2000 was $40.0 million and $23.6 million, respectively. The relative
increase in cash provided by investing activities for the six months ended June
30, 2001 compared to the same period in the prior year was the result of an
increase in net maturities of marketable investments and a decrease in purchases
of property and equipment.

     Cash provided by/(used in) financing activities for the six months ended
June 30, 2001 and 2000 was $(0.7) million and $3.0 million, respectively. The
increase in cash used in financing activities for the six months ended June 30,
2001 compared to cash provided by financing activities for the same period in
the prior year was primarily due to an increase in payments on capital leases
and equipment notes payable and a decrease in proceeds from the issuance of
common stock.

     We have no material commitments other than an obligation to purchase
certain finished product and raw materials in excess of anticipated
requirements, 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 August 2, 2001, the Company announced that it had adopted a business
plan to re-size its business to reflect current and expected business
conditions. The restructuring plan is expected to largely be completed during
2001. As a result of the adoption of this plan, the Company expects to record
charges of $15 million to $18 million during the third quarter of 2001. These
charges primarily relate to: consolidation of the Company's continuing
operations resulting in impairment of assets, anticipated losses on disposition
of assets as well as excess lease costs; and the elimination of job
responsibilities, resulting in costs incurred for employee severance. Employee
reductions will occur in all areas of the Company. As a result of this
restructuring, the Company expects to reduce its non-temporary work force by
approximately 150 positions. Substantially all reductions will occur prior to
September 30, 2001.

     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

                                       17
<PAGE>

 .    we accelerate or delay availability of new products or otherwise alter the
     schedule or targets of our business plan implementation.

     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.  On August
2, 2001, the Company announced that it had adopted a business plan to re-size
its business to reflect current and expected business conditions.

                                       18
<PAGE>

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 and Amendment No. 1 on Form 10-K/A for the year ended
December 31, 2000, and other reports and filings made with the Securities and
Exchange Commission 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. In recent months, 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 as long as the CLEC industry is
characterized by difficult financing conditions and may continue to suffer even
when financing conditions improve, or 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 incumbent local
exchange carriers, or 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.

     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
marketing strategy on targeting ILECs as potential customers. The future success
of our business may substantially depend on our ability to successfully
penetrate ILEC 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.

     Copper Mountain May Not Achieve Quarterly or Annual Profitability

     Copper Mountain experienced a significant decline in revenues in the first
two quarters of 2001 and anticipates a decline in its revenues in the full year
2001 and also 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 profitibility.  We cannot be certain
that we will realize sufficient revenues in the future to achieve profitability
on an annual or quarterly basis.

                                       19
<PAGE>

     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 four customers accounted for approximately 72% of our net revenue for
the three months ended June 30, 2001.  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 larger 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 declined on a sequential basis from the third to the fourth
quarter of the year ended December 31, 2000, from the fourth quarter of the year
ended December 31, 2000 to the first quarter of the year ending December 31,
2001 and from the first quarter of the year ending December 31, 2001 to the
second quarter of the year ending December 31, 2001.  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 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.


     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 its
operations and anticipates that in the future, expansion in certain areas of its
business may be required to address potential growth 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
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

                                       20
<PAGE>

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

     As of June 30, 2001 we operated our business from facilities in Palo Alto,
California, Fremont, California and San Diego, California.  Although we plan to
close our Fremont office in the future and consolidate our Fremont products and
operations into our Palo Alto facility, 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.

     On August 2, 2001, the Company announced that it had adopted a business
plan to re-size its business to reflect current and expected business
conditions. The restructuring plan is expected to largely be completed during
2001. As a result of the adoption of this plan, the Company expects to record
charges of $15 million to $18 million during the third quarter of 2001. These
charges primarily relate to: consolidation of the Company's continuing
operations resulting in impairment of assets, anticipated losses on disposition
of assets as well as excess lease costs; and the elimination of job
responsibilities, resulting in costs incurred for employee severance. Employee
reductions will occur in all areas of the Company. As a result of this
restructuring, the Company expects to reduce its non-temporary work force by
approximately 150 positions. Substantially all reductions will occur prior to
September 30, 2001. 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 very 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 recent revenue on a
quarterly or annual basis. 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. Some of the specific risks include
whether we are able:

     .  to compete in the intensely competitive market for telecommunications
        equipment;

     .  to attract new customers;

     .  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;

     .  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:

                                       21
<PAGE>

     .  telecommunications and DSL market conditions and economic conditions
        generally;

     .  the financial viability of our major customers;

     .  our ability to penetrate the ILEC market;

     .  the loss of any one 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;

     .  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,
could adversely affect their operating results or cause 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 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 reduce or eliminate

                                       22
<PAGE>

our sales to such a customer and consequently could have a material adverse
effect on our business, financial condition and results of operations.


     If DSL Technology and Copper Mountain's DSL 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 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
all of our products are based on 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 DSL solutions or they may not choose to purchase
our DSL 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, we may 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, along with one related derivative action
against the Company and its directors in Delaware, alleging violations of the
federal securities laws arising out of 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.  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 these payments are not entirely covered
by our insurance.  Even if our defense against such claims is successful, the
litigation could result in substantial costs and divert management's attention
and resources, which could adversely affect our business.


     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

                                       23
<PAGE>

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, marketing and inventory
expenses in the future that we are not able to recover, it 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 strategic
distribution partnerships, including its original equipment manufacturer
agreements with 3Com Corporation and Marconi Communications, Inc. under which we
have agreed to manufacture, and sell our products to these distribution
partners. The amount and timing of resources which our strategic partners devote
to our business is not within our control. Our strategic partners may not
perform their obligations as expected. In some cases, agreements with our
strategic partners are relatively new, and we cannot be certain that we will be
able to sustain the level of revenue generated thus far under these strategic
arrangements. If any of our strategic partners 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 these relationships are
terminated, we may not be able to continue to maintain or develop strategic
relationships or to replace strategic partners. In addition, any strategic
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 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 even render our
products obsolete. Although we believe we presently 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

                                       24
<PAGE>

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 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.
Additionally, because we are now, and may in the future 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 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
DSL concentrators, line cards for different DSL variants and new types of
customer premise equipment.  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 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
resellers, original equipment manufacturers 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

                                       25
<PAGE>

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 continue to accept or
order our current products, and we may not be successful in marketing any new or
enhanced products.  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

                                       26
<PAGE>

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 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, 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 President
and Chief Executive Officer and our Senior Vice President of Engineering 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.  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 presently purchase two semiconductor chips from vendors for which there are
currently no substitutes.  We are evaluating alternative source vendors for
these key components, but any alternative vendors may not meet our quality
standards for component vendors.  In the event of a reduction

                                       27
<PAGE>

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 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.  We have entered into a formal manufacturing
agreement with Flextronics International, Ltd. located in San Jose, California.
Flextronics is our main source of independent manufacturing.   If our current
manufacturers, including Flextronics, are unable or unwilling to continue
manufacturing our components in required volumes, it could take up to six months
for an alternative manufacturer to supply the needed components in sufficient
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, which in turn could have a
material adverse effect on our business, financial condition and results of
operations.  Moreover, since all of the manufacturing by Flextronics and all of
our final assembly and tests are each performed in one location, any fire or
other disaster at either Flextronics manufacturing facility or at our assembly
facility would have a material adverse effect on our business, financial
condition and results of operations.


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

  From time to time, the demand in the telecommunications industry 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.  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.

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<PAGE>

   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 customers are larger than Copper Mountain
and 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, often taking up to one year.  Accordingly, we are
continually submitting successive versions of our products as well as new
products to our customers for approval.  The length of the approval process can
vary and is affected by a number of factors, including customer priorities,
customer budgets and regulatory issues affecting telecommunication service
providers.  Delays in the product approval process 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, such approvals and the ensuing sales of such products may not
continue to occur.  Delays can also be caused by late deliveries by other
vendors, changes in implementation priorities and slower than 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 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 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 the introduction of our products. 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.


   Copper Mountain May Not Be Able to Obtain Additional Capital to Fund Its
Operations When Needed

   Our capital requirements depend on several factors, including the rate of
market acceptance of our products, the rate of growth in our client base, the
growth of our product lines, our ability to manage our inventory and accounts
receivable and other factors.  If capital requirements vary materially from
those currently planned, we may require additional financing sooner than
anticipated.  If additional funds are raised through the issuance of equity
securities, the percentage ownership of our stockholders will be

                                       29
<PAGE>

reduced, stockholders may experience additional dilution, or such equity
securities may have rights, preferences or privileges senior to 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 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 develop or enhance our
services, take advantage of future opportunities or respond to competitive
pressures, which could materially adversely affect our business, financial
condition or 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, preclude all potential claims resulting from a
defect in 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

   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;

                                       30
<PAGE>

   .  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 Our Operations into 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. As part of our business plan announced August 2, 2001, we are in the
process of shifting from a direct to an indirect international sales and support
model. To the extent that we are unable to penetrate international markets, our
growth in international markets would be limited, and our business could be
harmed.

   If we are successful in penetrating international markets, 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;

   .  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;

   .  additions or departures of key personnel;

   .  announcements or loss of strategic relationships with third parties or
      telecommunications equipment providers by us or our competitors;

                                       31
<PAGE>

  .  sales of common stock; 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 that have often been unrelated or disproportionate to the operating
performance of such companies.  The trading prices of many technology companies'
stocks have been 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 recently
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.


   Substantial Future Sales of Copper Mountain's Common Stock 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 the
public market or the perception that such sales could occur could cause the
market price of its common stock to drop.  As of June 30, 2001, we had
approximately 53 million shares of common stock outstanding.  We have filed four
registration statements on Form S-8 with the Securities and Exchange Commission
covering the 19.1 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 June 30, 2001, approximately 2.8 million shares are currently subject to
exercisable options.  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.

                                       32
<PAGE>

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 June 30, 2001.

     At June 30, 2001, the Company held an investment in commercial paper issued
by Southern California Edison Company.  The investment which matured in February
2001 and is currently in default is included in short-term marketable
investments at its indicated fair market value as of June 30, 2001 of
approximately $2.4 million.  The ultimate amount of the decline in fair value
and the net realizable value of this investment is not currently practicably
determinable.

                                       33
<PAGE>

                          PART II - OTHER INFORMATION

Item 1.  Legal Proceedings

Reference is made to the description of the securities litigation included in
our Quarterly Report on Form 10-Q for the three months ended (the "First Quarter
10-Q"). On August 9, 2001, the Company filed a motion to dismiss the
consolidated complaint pending in the Northern District of California that is
referenced in the First Quarter 10-Q. That motion is scheduled to be heard on
October 18, 2001


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

The Annual Meeting of Stockholders of Copper Mountain Networks, Inc. was held on
May 9, 2001.  At this meeting, the Company solicited the vote of the
stockholders on the proposals set forth below and received for each proposal the
votes indicated below:

         (i)   To elect directors to serve for the ensuing year and until their
               successors are elected. Elected to serve as directors were
               Richard S. Gilbert, Joseph D. Markee, Robert L. Bailey, Tench
               Coxe, Roger Evans, Richard H. Kimball, Raymond V. Thomas and
               Andrew W. Verhalen. For each elected director the results of
               voting were: Richard S. Gilbert 41,266,865 for and 558,707
               withheld; Joseph D. Markee 41,304,527 for and 521,045 withheld;
               Robert L. Bailey 41,284,815 for and 540,757 withheld; Tench Coxe
               41,283,823 for and 541,749 withheld; Roger Evans 41,281,910 for
               and 543,662 withheld; Richard H. Kimball 41,302,820 for and
               522,752 withheld; Raymond V. Thomas 41,282,435 for and 543,137
               withheld; Andrew W. Verhalen 41,283,652 for and 541,920 withheld.
               Each of the nominees was re-elected to serve as a director of the
               Company.

         (ii)  To ratify the selection of Ernst & Young LLP as independent
               auditors of the Company for its year ending December 31, 2001.
               The selection of Ernst & Young LLP as independent auditors of the
               Company for its year ending December 31, 2001 was ratified with
               the following votes: 41,592,676 for, 166,830 against, 66,066
               abstained, and 10,906,226 broker non-votes.

Item 5.  Other Information

On August 2, 2001, the Company announced that it had adopted a business plan to
re-size its business to reflect current and expected business conditions.  The
restructuring plan is expected to largely be completed during 2001.  As a result
of the adoption of this plan, the Company expects to record charges of $15
million to $18 million during the third quarter of 2001.  These charges
primarily relate to: consolidation of the Company's continuing operations
resulting in impairment of assets, anticipated losses on disposition of assets
as well as excess lease costs; and the elimination of job responsibilities,
resulting in costs incurred for employee severance.  Employee reductions will
occur in all areas of the Company.  As a result of this restructuring, the
Company expects to reduce its non-temporary work force by approximately 150
positions.  Substantially all reductions will occur prior to September 30, 2001.


Item 6.  Exhibits and Reports on Form 8-K

(a)      Exhibits

         99.1 Press release issued on August 2, 2001 by Copper Mountain
         Networks, Inc.

(b)      Reports on Form 8-K.

         None

                                       34
<PAGE>

                                  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: August 13, 2001         /s/  Richard S. Gilbert
                                   -------------------------
                                   Richard S. Gilbert
                                   Chairman, President and
                                   Chief Executive Officer



                              /s/  Michael O. Staiger
                                   --------------------------
                                   Michael O. Staiger
                                   Chief Financial Officer
                                   Secretary


                                       35