<PAGE>

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

                                    FORM 10-K

   (Mark One)

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

                     For fiscal year ended December 31, 1999
                                       OR

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

     For the transition period from __________________ to __________________

Commission file number: 000-24597
                        ---------

                           CARRIER ACCESS CORPORATION
             (Exact name of registrant as specified in its charter)

           DELAWARE                                       84-1208770
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
 incorporation or organization)

                      5395 PEARL PARKWAY, BOULDER, CO 80301
               (Address of principal executive offices) (Zip Code)

                                 (303) 442-5455
              (Registrant's telephone number, including area code)

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

            Securities registered pursuant to 12(b) of the Act: NONE

           Securities registered pursuant to Section 12(g) of the Act:

                    COMMON STOCK, PAR VALUE $0.001 PER SHARE
                                (Title of Class)

      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 [ ]

      Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ] Any delinquent filings.

      As of March 1, 2000, there were 24,269,923 shares of the Registrant's
common stock outstanding, and the aggregate market value of such shares held by
non-affiliates of the Registrant (based upon the closing sale price of such
shares on the Nasdaq National Market on March 1, 2000) was approximately
$555,371,290. Shares of the Registrant's common stock held by each executive
officer and director and by each entity that owns 10% or more of the
Registrant's outstanding common stock have been excluded in that such persons or
entities may be deemed to be affiliates. This determination of affiliate status
is not necessarily a conclusive determination for other purposes.

                       DOCUMENTS INCORPORATED BY REFERENCE

      Certain sections of the Registrant's definitive Proxy Statement for the
2000 Annual Meeting of Stockholders are incorporated by reference in Part III of
this Form 10-K to the extent stated herein.
<PAGE>

                          CARRIER ACCESS CORPORATION(R)

                       INDEX TO ANNUAL REPORT ON FORM 10-K
                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

                                                                        Page No.
                                                                        --------

                                     PART I

Item 1.  Business..........................................................  4

Item 2.  Properties........................................................ 20

Item 3.  Legal Proceedings................................................. 20

Item 4.  Submission of Matters to a Vote of Security Holders............... 21


                                     PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholder
         Matters........................................................... 21

Item 6.  Selected Financial Data........................................... 22

Item 7.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations............................................. 23

Item 7A. Quantitative and Qualitative Disclosures About Market Risk........ 28

Item 8.  Consolidated Financial Statements and Supplementary Data.......... 28

Item 9.  Changes in and Disagreements With Accountants on Accounting and
         Financial Disclosure.............................................. 41


                                    PART III

Item 10. Executive Officers of the Registrant.............................. 42

Item 11. Executive Compensation............................................ 42

Item 12. Security Ownership of Certain Beneficial Owners and Management.... 42

Item 13. Certain Relationships and Related Transactions.................... 42


                                     PART IV

Item 14. Exhibits, Consolidated Financial Statement Schedules, and Reports
         on Form 8-K....................................................... 43


                                                                    Page 2 of 47
<PAGE>

      The information contained in this report contains certain forward-looking
statements. When used in this report, the words "anticipates," "believes,"
"expects," "intends," "will," "forecasts," "plans," "future," "strategy," or
similar expressions may identify forward-looking statements. These statements
are based on current expectations and projections about our industry and
assumptions made by the management and are not guarantees of future performance.
Our actual results, performance or achievements may differ materially from those
anticipated or implied by forward-looking statements. Factors that could cause
or contribute to material differences include the disclosure in the "Risk
Factors" section in this report, as well as our other periodic reports on Form
10-Q filed with the Securities and Exchange Commission. We undertake no
obligation to update any forward looking statements in this Report on Form 10-K.

      Unless otherwise indicated, references in this report to specific years
and quarters are to our fiscal year and fiscal quarters.

      We were incorporated in Colorado in September 1992 and reincorporated in
Delaware in June 1998. Our principal executive offices are located at 5395 Pearl
Parkway, Boulder, Colorado 80301; our telephone number is (303) 442-5455 and our
web site is http://www.carrieraccess.com. The information on our web site is not
incorporated in this report.


                                                                    Page 3 of 47
<PAGE>

                                     PART I.

ITEM 1.  BUSINESS

GENERAL

         We are a leading provider of broadband digital equipment solutions to
communications service providers. These service providers include competitive
local exchange carriers , incumbent local exchange carriers, independent
operating companies, interexchange carriers, Internet service providers, and
wireless mobility carriers. Our products are used by our customers to provide
services including local and long distance voice, high-speed data and Internet
services to businesses, government and enterprise end users. Our Access Bank(R),
Wide Bank(R), Access Navigator(TM), In-Loop(TM) and CACTUS(TM) family products
are connected to T1, digital subscriber line, digital radio, T3 and optical
access networks.

     Our digital equipment provides a "last mile" solution for the distribution
and management of high bandwidth services from service providers. Reaching large
numbers of consumers using voice and high speed Internet access requires
connectivity from service provider networks to end user locations. Installation
of our central office communications and customer-located voice and data
communications equipment enables this connectivity. Our products allow service
providers to cost-effectively connect end users to their network products,
decrease ongoing transmission equipment and maintenance expenses, while enabling
new service delivery, such as integrated voice and high speed Internet access.
Our products enable high bandwidth digital deployments targeted at end users
requiring between four and 2800 telephone and data line equivalents of
bandwidth. We believe that over 300 service providers and 500 other end users
have purchased our products directly or through our distributors.

PRODUCTS.

      Our products currently include the Access Bank, Wide Bank, Access
Navigator, and CACTUS product families. The Access Bank I offers digital
connectivity for local and long distance voice service, and converts a single T1
digital network access line into 24 telephone circuits for voice, facsimile and
modem connections. The Access Bank II expands on the voice functions of the
Access Bank I by adding high-speed data ports for computer connectivity and dual
T1 line interfaces for increasing data speeds and connecting end user phone
systems. The Access Exchange is a customer-located access switch that enables
long distance service providers to offer local services from their embedded base
switching equipment. The Wide Bank 28 is a highly-integrated M1-3 standard
multiplexer designed to connect T1 equipment to high-bandwidth T3 and STS1
digital circuits, providing up to 28 T1 connections for enhanced voice and high-
speed data services. The Access Navigator/DCS Service Manager provides a
complete solution for managing four to 32 access connections in a highly
integrated package. With the functions of a 1/0 digital cross connect system,
plus demarcation testing, service providers are able to decrease maintenance
costs and labor while increasing service availability. The Access Navigator/GR-
303 offers a highly integrated solution for combining multi-line local voice and
data services on customer T1 access lines. In addition to the concentration and
management of CLASS(R) voice services the Access Navigator/GR-303 grooms and
optimally concentrates fractional T1 data connections from customer locations.
The In-Loop-RT offers a full 24 channels of telephone service to customers, over
Carrier Service Area loop ranges using only the power provided by two high-bit-
rate digital subscriber line network pairs. Local service providers can
economically re-use copper pairs to achieve 12 times the number of telephone
lines on copper feeder circuits, without the construction and installation costs
of conventional digital loop carrier systems. The CACTUS.lite integrates high-
speed data and business-class voice services, including POTS, DID, Tie Line and
CLASS, in a compact 2RU, modular and cost-effective platform suitable for wall
or rack mounting. An integrated 1/0 digital cross connect enables data and voice
traffic to be groomed across up to 16 T1-E1 interfaces. In addition to business-
voice and data service interfaces, CACTUS.lite is also designed to support,
asynchronous transfer mode, Internet Protocol routing, Frame Relay, Office
Channel Unit Data Port, sub-rate data multiplexing and Integrated Services
Digital Network Basic Rate services. We differentiate our products on their
ability to enable multiple service offerings, facilitate the rapid deployment of
new services, reduce cost of ownership, provide programmable software-based
functionality, scale cost-effectively at service provider and end user
locations, and satisfy the safety and regulatory requirements of service
providers and end users. The retail list prices of our products range from $995
to $20,000, depending upon product configuration.

      THE ACCESS BANK FAMILY OF PRODUCTS

      The Access Bank family of products was our first product designed to
deliver carrier-class voice and data services in a one rack-unit (1.75") sized
unit. Coupled with a price that enables economical T1 service delivery for
communications service providers and patented technologies to deliver business
quality voice and data services and typical installation times of one-third that
of traditional solutions, we believe the Access Bank product family has helped
fuel the growth of competitive local exchange carriers. The Access Bank product
family provides a solution for major services, including voice only, voice and
data over T1, voice and data over high-bit-rate digital subscriber line, and
data over symmetrical digital subscriber line. While proving their ability in
the competitive local exchange carriers and enterprise markets, the Access Bank
products are equally


                                                                    Page 4 of 47
<PAGE>

adept at delivering quality services for regional bell operating company,
independent local exchange carriers, interexchange carriers, and Internet
service providers.

      ACCESS BANK I-RELEASED: JUNE 1995

      Our Access Bank I provides an economical, compact, and reliable solution
for converting T1 digital access services from communications service providers
including independent local exchange carriers and competitive local exchange
carriers to 12 or 24 individual analog telephone circuits at end user locations.
The unit consists of a controller, called the line interface unit and one or two
telephone line interface cards. The Access Bank I incorporates an integrated T1
Channel Service Unit, which allows customers to plug in a T1 line without having
to connect other external devices to perform service termination. Six different
types of 12-channel telephone line interface circuit cards provide most popular
voice service options while also delivering enhanced local services such as
Caller ID and distinctive ringing. The Access Bank I supports data services such
as fax and high-speed modem traffic by automatically adjusting to line
conditions in order to provide a clean, high-quality transmission path. The
Access Bank I is principally used by service providers for economical local
service delivery, long distance service delivery using T1 access, digital
service interconnection to PBXs and key systems, Internet modem pool connections
to T1, branch office connectivity to T1, and rapid deployment of temporary
telephone services. Systems integrators use the Access Bank I to convert T1
connections to a variety of analog service connections for applications such as
remote access router interfaces, frame relay and Internet Protocol voice
telephone system connectivity, and computer telephony interfaces.

      ACCESS BANK I TR-08-RELEASED: NOVEMBER 1996

      The Access Bank I TR-08 provides a Bellcore Standard TR-08 digital loop
carrier software protocol in addition to the basic features of the Access Bank
I. TR-08 signaling delivers T1 connections directly to the line side T1 ports of
local switches and is widely deployed in local exchange carrier, competitive
local exchange carrier, and independent local exchange carrier networks. Service
providers use the Access Bank I TR-08 for economical local service delivery and
expansion of line capacity for local switches. The Access Bank I TR-08 provides
low-cost, compact, wiring closet deployment of carrier-class enhanced voice
features such as Caller ID and distinctive ringing to service providers using
Lucent, Nortel, Siemens and other local exchange switches. Access Bank I TR-08
enables inexpensive provisioning of physically separate single shelf groups for
12 or 24 managed telephone lines from a T1.

      ACCESS BANK II-RELEASED: NOVEMBER 1996

      Our Access Bank II delivers twice the T1 capacity of the Access Bank I in
the same size package, enabling service providers to integrate high-speed
Internet service with multi-line voice service in a single unit. The Access Bank
II includes two T1 interfaces with fully integrated channel service unit and
data service unit functionality and uses the same 12-channel telephone line
interface circuit cards as the Access Bank I. Each of the two T1 interfaces can
accommodate current and future bandwidth requirements for a combination of
facsimile, modem, high-speed Internet, voice, and PBX user services. The T1s can
also be configured to provide redundant protection for end users' mission
critical voice and Internet applications. The integral V.35 data interface and
T1 interfaces offer connectivity for Internet access routers, enterprise
routers, frame relay devices, video and other high-speed data applications.
Service providers rely on the flexibility of the Access Bank II to deliver
multi-line voice plus high-speed Internet connections to enterprise branch
offices, small business customers, and medium-sized business locations. By
combining digital data with voice over one or two T1 lines, bandwidth can be
utilized more efficiently, saving on communication access costs. The Access Bank
II also includes sophisticated management capabilities such as an optional
Ethernet simple network management protocol local area network management
connection for configuration and monitoring.

      ACCESS BANK II/HDSL-RELEASED: MAY 1998

      Service providers use the Access Bank II/HDSL (sold by ADC
Telecommunications as the EZT1/DI/HDSL) to provide multi-line voice and
high-speed Internet access over existing copper infrastructure. Access Bank
II/HDSL represents the integration of ADC's high-bit-rate digital subscriber
line technology into the Access Bank II, creating an end-to-end digital
deployment solution for service providers from the wiring center to the end-user
customer site. This solution enables service providers to decrease their monthly
access costs while providing T1 quality digital service delivery over low-cost
unbundled copper access loops.

      ACCESS EXCHANGE-RELEASED: APRIL 1998.

      The Access Exchange performs the functions of the Access Bank II and
integrates software and digital signal processing capability to provide
automatic call routing and number translation on a call-by-call basis. This
product allows long distance service providers to combine local voice services
with long distance and high-speed Internet access on their existing switch
infrastructure while routing calls to the Local Exchange Carrier for local
calling, directory, 911, and other lifeline services.


                                                                    Page 5 of 47
<PAGE>

      ACCESS BANK II/SDSL-RELEASED: MAY 1999.

      The Access Bank II/SDSL provides an innovative method for deploying data
services from the Access Bank II. Using a symmetrical digital subscriber line
interface in place of one of the T1s on the Access Bank II, the Access Bank
II/SDSL allows service providers to deploy high speed data services over
symmetrical digital subscriber line. Ordinary unshielded copper wiring can be
used to transport data from the Access Bank II/SDSL to a variety of symmetrical
digital subscriber line Internet access routers or modems located up to 12,000
feet from the unit. Service providers can easily deploy service in buildings
using symmetrical digital subscriber line without rewiring a building for
traditional Ethernet-based data services.

      INLOOP-RT

      Our InLoop-RT allows communications service providers to significantly
reduce held orders for phone service and maximize the revenue potential of their
most valuable asset - the existing copper plant. InLoop-RT supports up to 12
times the number of voice lines without the need for new construction or the
installation cost of conventional digital loop carrier systems. InLoop-RT
enables provisioning of up to 24 business-quality voice lines with full
line-side CLASS(R) service using TR-57 and GR-303 digital switch and host
terminal connections, over high-bit-rate digital subscriber line. Fully powered
over the high-bit-rate digital subscriber line network pairs, InLoop-RT provides
full-power ringing and line voltages, and supports V.90 modem throughput.
Enclosed in an integral compact Outside Plant certified enclosure, InLoop-RT can
mount easily on telephone poles, wiring pedestals, or buildings.

      WIDE BANK FAMILY OF PRODUCTS

      We designed the Wide Bank family of DS3 and STS-1 access products to
replace a rack full of bulky, old-generation equipment in a dramatically reduced
single rack-unit (1.75") sized unit. In addition, the Wide Bank product family
utilizes new levels of software integration over older equipment to provide a
feature-rich and cost-effective platform supporting full high and low-speed
redundancy, hitless DS3 and STS-1 network protection, built-in Network Interface
Units and Bit Error Rate Test capabilities. The Wide Bank product family also
conforms to the most popular management schemes including simple network
management protocol via Ethernet, local or remote Command Line Interface and
Transaction Language 1 (TL1). Certification to Network Equipment Building
Systems enables installation in a wide-array of service provider environments
including central offices and co-location facilities while the modular design
permits a platform cost and configuration to be matched exactly to the service
provider needs.

      WIDE BANK 28/DS3 MULTIPLEXER-RELEASED: NOVEMBER 1997

      Our Wide Bank 28/DS3 Multiplexer connects a high bandwidth digital T3
network access line to 28 T1 or 21 E1 service connections. The Wide Bank 28
allows communications service providers (wireline and wireless), Internet
Service Providers, Enterprise, and Government customers to consolidate multiple
T1s or E1s into T3 services to reduce monthly access costs. The Wide Bank 28
also provides redundant T3 service distribution from digital radio connections
T1 service expansion from fiber multiplexers and connects T3 incumbent local
exchange carrier services to Internet service providers remote access servers.
The Wide Bank 28 is used by wireless service providers to provide T3 to 28 T1
conversion, T1 circuit grooming, network protection, and remote management using
the C-Bit T3 overhead of their high-bandwidth digital wireline and digital radio
connections. These connections typically provide the backbone links between
mobile radio (cellular or PCS) transmission sites. Up to seven quad Digital
Signal Cross-Connect Level 1 (T1) interface cards support up to 28 T1
connections or up to seven tri-port E1 interface cards support up to 21 E1
connections. Cards can therefore be quickly and easily added to meet bandwidth
requirements. An identical spare quad T1 or tri-port E1 provides
software-controlled low-speed redundancy for Automatic Protection Switching
(APS) that is compliant with the FCC guidelines for service availability as
outlined in Telcordia Technologies GR-499-CORE. The Wide Bank 28 also
incorporates T1 Network Interface Unit functionality to eliminate additional
equipment and installation labor costs for service providers. Redundancy options
on the Wide Bank 28 include programmable T1 and T3 software-based functionality
and electronics protection through the use of an additional quad T1 card,
tri-port E1 card, or T3 controller card, respectively. The unit incorporates
solid-state fuseless protection, hot swappable cards, multiple T1 and T3 line
tests for fault isolation and built-in bit error rate testing. The Wide Bank 28
is housed in a compact, single rack-unit case. A Maintenance Service Option
(MSO) is available for providing testing and maintenance capabilities without
disruption of services by field technicians. Also, a Fan Face Plate Option will
be available for high-density, high-capacity rack applications in Central
Offices in order to increase overall rack capacity.

      Our Wide Bank 28 is Network Equipment Building Systems Level 3 certified
and offers the features and performance in compliance with Network Equipment
Building Systems Level 3 criteria as outlined by Telcordia Technologies for
Central Office equipment. The Network Equipment Building Systems certification
allows service providers to install the Wide Bank 28 in central office locations
where the product is designed to operate under electrical and physical
environmental stresses such as electromagnetic interference, high and low
temperature range and earthquake and vibration conditions. Finally, the Wide
Bank 28 offers TL-1 Management Control, a Java-based Graphical User Interface
for ease of operations and management on the service providers' network, as well
as a simple network management protocol systems enterprise MIB providing ease of
integration with existing Network Management Systems.


                                                                    Page 6 of 47
<PAGE>

      WIDE BANK 28/STS-1 MULTIPLEXER-RELEASED JUNE 1999

      The Wide Bank 28/STS-1 Multiplexer cost-effectively delivers T1 service
connections from SONET STS-1 electrical interfaces. This addition to our widely
accepted and deployed Wide Bank 28 product family offers new capabilities for
high-bandwidth network access technology, building on the advanced features,
proven technology and deployment of the Wide Bank 28 DS3 multiplexer as a
"Carrier-Class" product.

      The Wide Bank 28/STS-1 Multiplexer reduces the overall cost of deploying
T1 services at service provider Local Digital Switch (LDS), collocation,
Point-of-Presence (POP), Service Access Point (SAP) and on-network building
locations. Communications service providers deploying OC-3 and OC-12 SONET fiber
collector rings or high-capacity OC-48 and OC-192 SONET metropolitan rings
indicate that its not cost-effective to fill high-capacity SONET Add/Drop
Multiplexers (ADMs) with low-speed T1 interfaces because it wastes precious
bandwidth. Our Wide Bank 28/STS-1 Multiplexer is designed to eliminate the
additional expense of transmultiplexing DS3 signals over SONET for fiber
transport and reduce the amount of stranded bandwidth within the SONET shelf,
while greatly decreasing the cost per T1 connection provided to service provider
customers. High-capacity SONET add/drop multiplexers and digital radios can be
more economically deployed to provide high-capacity T1 services.

      Using only one rack unit of space, the Wide Bank 28/STS-1 Multiplexer
optimizes valuable space in central offices, co-location, or digital loop
carrier cabinets. Services can be added in scalable quad T1 increments, suiting
applications from small outside cabinets to large switching centers.

      The Wide Bank 28/STS-1 Multiplexer offers simple network management
protocol, Telnet, and TL-1 management options as well as alarm reporting and
performance monitoring to the Virtual Tributary 1.5 (VT1.5) tributary-based
DSX-1 services, enabling service providers to gain the cost and management
advantages of STS-1 interconnections in a very compact, scalable network
product.

      ACCESS NAVIGATOR FAMILY OF PRODUCTS

      The Access Navigator Product Family contains three members: the Access
Navigator/ DCS Service Manager, providing a cost effective 1/0 cross-connect
solution; the Access Navigator/ GR-303 + Data Host, providing an easy to manage
and install GR-303 host solution; and the most recent addition to the family,
the Navigator Pilot Graphical User Interface configuration tool.

      With both Network Equipment Building Systems and customer premises
certifications, we designed the Access Navigator Product Family to be located in
service provider racks or on end user customer walls. The Navigator Product
Family combines the power of a 32 port digital cross connect system with
remotely managed demarcation and occupies only one and one half rack units of
space. Integrated testing and optional common equipment redundancy ensure
carrier-class service availability. The Access Navigator Product family was
designed to significantly reduce space, power and installation labor as compared
to old generation digital cross connect and channel service unit or NIU shelves.
Additional quad T1 Cards can be installed while the Access Navigator is in
service to provide from four to 32 T1/channel service unit connection ports.

      Access Navigator products provide management access via Ethernet simple
network management protocol, Telnet CLI, RS-232 CLI, Navigator Pilot Graphical
User Interface, and GR-303 EOC (for the GR-303 + Data Host version).
Flow-through provisioning and testing control over ESF T1 connections, from the
Access Navigator to our Access Bank II and CACTUS.lite units, are designed to
reduce service provider truck rolls and improve voice and Internet service
availability at customer premise locations.

      ACCESS NAVIGATOR/DCS SERVICE MANAGER-RELEASED: JANUARY 1999

      The Access Navigator/DCS Service Manager provides a complete solution for
managing four to 32 T1 access connections in a highly integrated package. With
the functions of a 1/0 digital cross connect system, plus demarcation testing,
service providers are able to decrease maintenance costs and labor, while
increasing service availability.

      ACCESS NAVIGATOR/GR-303 + DATA HOST -RELEASED: JANUARY 1999

      The Access Navigator/GR-303 offers a highly integrated solution for
combining multi-line local voice and data services on customer T1 access lines.
In addition to the concentration and management of CLASS voice services, the
Access Navigator/GR-303 grooms fractional T1 data connections, including
Internet traffic, from customer locations. Fractional voice and data services
from multiple customers and applications are concentrated by the Access
Navigator to save recurring transmission costs, and capital costs on switch or
router ports.

      NAVIGATOR PILOT: - RELEASED: JANUARY 2000

      A new addition to the Access Navigator family, the Navigator Pilot,
provides a Graphical User Interface that eases the configuration of system
parameters and cross connection mappings. The Navigator Pilot can be used in a
standalone configuration or in conjunction with a customer's upper level Network
Management System.


                                                                    Page 7 of 47
<PAGE>

      CACTUS FAMILY OF PRODUCTS

      CACTUS is an innovative family of Broadband Digital Access devices
designed to enable carriers to offer existing and new broadband services at a
low-cost per network and service port. The CACTUS family will use TDM,
asynchronous transfer mode and Internet Protocol technologies and span a
wide-range of platforms scaling from single T1 or digital subscriber line-fed
devices to broadband.

      CACTUS.LITE-RELEASED DECEMBER 1999

      CACTUS.lite builds on Access Bank concepts, doubling voice circuit
density, and is designed to add digital subscriber line transport, ISDN BRI,
LAN/WAN router, OCU DataPort, Subrate Data Multiplexer DCE interfaces, and
expandable V.35 port capacity. Data and voice traffic can be groomed directly
across 16 T1/E1s (up to 512 DS0s) with the integrated 1/0 digital cross connect
at a fraction of the cost and size of previous solutions.

      A unique feature of CACTUS.lite is its ability to support TDM, designed
with a migration path for asynchronous transfer mode, or inverse multiplexing
over asynchronous transfer mode network connections. Selection of a network
connection technology is simply a matter of choosing the appropriate controller
card and software options. No changes to the chassis or service cards are
required. Bandwidth can grow seamlessly as end-user customer service needs
increase. The product architecture is designed for scalability for
communications service providers, allowing them to deliver additional services
to end users and grow their access solution set as their business grows, without
costly replacement of customer located equipment.

CUSTOMERS

      To date, a large portion of our sales are made through third-party
distributors to communications service providers, such as competitive local
exchange carriers, Internet service providers, independent operating carriers,
independent local exchange carriers, utilities and wireless service providers
who provide enhanced voice and high-speed data and Internet services to end user
businesses. In addition, we are selling a significant portion of our products
through direct sales. Listed below are our third-party distributors and a
partial list of communications service providers who we believe have purchased
our products based on information from our distributors and direct product
sales. We believe that all of these service provider customers are currently
using our products and are representative of our overall Customer base.

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
                                                          DISTRIBUTORS
-------------------------------------------------------------------------------------------------------------------------------
<S>                                                            <C>
ADC Telecommunications, Inc. (OEM)                             Power & Telephone Supply Co.
Advantage Telcom                                               Solunet, Inc.
ALLTEL Supply, Inc.                                            Somera Communications, Inc.
C&L Communications                                             Sprint North Supply
Graybar Electric Company, Inc.                                 Telsource Corporation
Phillips Communications and Equipment Co.                      Walker & Associates

<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
                                                   SERVICE PROVIDER CUSTOMERS
--------------------------------------------------------------------------------------------------------------------------------
<S>                                         <C>                                       <C>
ACC Long Distance Corporation               Electric Lightwave, Inc.                  PSI Net, Inc.
Adelphia Communications Corporation         Facilicom International, Inc.             QWEST Communications International, Inc.
Airtouch Cellular                           Florida Digital Network                   RCN Corporation
Allegiance Telecom, Inc.                    Frontier Communications, Inc.             Rochester Telephone
Alltel Affiliates                           Gabriel Communications, Inc.              Southwestern Bell
AT&T Corp.                                  Graybar Electric Company, Inc.            Sprint Corporation
Avista Communications                       GTE Services Corporation                  TDS Metrocom
Broadview Networks Holdings, Inc.           Harris Corporation                        Tech Data Corporation
Bell Atlantic Corporation                   ICG Communications                        Teligent, Inc.
BellSouth Corporation                       Integra Telecom                           Tharaldson Communications, Inc.
Birch Telecom, Inc.                         Intermedia Communications, Inc.           Thrifty Call, Inc.
CenturyTel, Inc.                            Logix Communications Enterprises, Inc.    Transaction Network Services, Inc.
Choice One Communications                   MCI Worldcom, Inc.                        US LEC Corp
Conectiv Communications                     MGC Communications, Inc.                  US Unwired LLC
Covad Communications Co.                    Nextlink Communications, Inc.             US WEST, Inc.
Cox Communications, Inc.                    Optel Communications Corporation          Vitts Networks
Dynetrix Corporation                        Pacific Bell Network Integration          Winstar Wireless, Inc.
e.spire Communications, Inc.                Project Interface Connections, Inc.       Ziplink, Inc.
East Ascension Telephone Company            Pontio Communications Company, Inc.
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                                                    Page 8 of 47
<PAGE>

      Our customer base is distributed over 800 end users, however sales are
concentrated among a small number of distributors that have historically
accounted for a majority of our net revenue. For year ended December 31, 1999,
Walker & Associates and ADC Telecommunications accounted for 27% and 14%,
respectively, of net revenue. In 1998, Walker & Associates, Phillips
Communications and Equipment and Telsource Corporation accounted for 40%, 17%
and 15%, respectively, of net revenue. In addition to being dependent on a small
number of distributors for a majority of our net revenue, we believe our
products are distributed to a limited number of service provider customers who
are primarily competitive local service providers. We believe that in 1998,
thirty-five (35) service provider customers were the end users representing
approximately 83% of our net revenue and that in 1999, seventy-five (75) service
provider customers were the end users representing approximately 85% of our net
revenue.

SALES, MARKETING AND CUSTOMER SUPPORT

      Sales. We currently employ a leveraged sales model consisting of a direct
sales force and a regional sales engineering support group, which works with
strategic accounts and with our 12 third-party distributors to identify
potential customers and provide pre- and post-sales support to our service
provider customers and other end users. Sales from third-party distributors
accounted for the majority of our revenues for the years ended December 31, 1998
and December 31, 1999.

      Third-Party Distributors. Our distributors are responsible for fulfilling
product orders and warehousing product as well as identifying potential
customers. We establish relationships with distributors through written
agreements that provide prices, discounts and other material terms and
conditions under which the distributor is eligible to purchase our products for
resale. Such agreements generally do not grant exclusivity to the distributors,
do not prevent the distributors from carrying competing product lines, and do
not require the distributors to sell any particular dollar amount of our
products, although the contracts may be terminated at our discretion if
specified sales targets and end user satisfaction goals are not attained. We
generally provide our distributors with limited stock rotation and price
protection rights. Other than limited stock rotation rights, we do not provide
our distributors with general product return rights. We have limited knowledge
of the financial condition of certain of our distributors however, we are aware
that some of our distributors have limited financial and other resources which
could impair their ability to pay us. Although the financial instability of
these certain distributors has not limited any distributor's ability to pay us
for our products to date, we cannot assure you that any bad debt we incur will
not exceed our bad debt reserves or that the financial instability of one or
more of our distributors will not harm our business, financial condition or
results of operations. We have limited knowledge of the inventory levels of our
products carried by our original equipment manufacturers and distributors, and
our original equipment manufacturers and distributors have in the past reduced,
and may in the future reduce, planned purchases of our products due to
overstocking. Moreover, distributors who have overstocked our products have in
the past reduced, and may in the future reduce, their inventories of our
products by selling such products at significantly reduced prices. Any such
reduction in planned purchases or sales at reduced prices by distributors or
original equipment manufacturers in the future could reduce the demand for our
products, create conflicts with other distributors or harm our business. In
addition, three times a year, some of our distributors are allowed to return a
maximum of fifteen percent of our unsold products held in stock by such
distributor, which were purchased within the four month period prior to such
return date, for an equal dollar amount of new equipment.

      While to date these returns have not had a material impact on our results
of operations, these returns through stock rotation could harm our future
operations. We believe we have made adequate allowances to provide for these
returns. We are generally required to give our distributors a 60-day notice of
price increases or decreases. In addition, we grant certain of our distributors
"most favored customer" terms, pursuant to which we have agreed to not knowingly
grant another distributor the right to resell our products on terms more
favorable than those granted to the existing distributor, without offering
equally favorable terms to the existing distributor. These price protection and
"most favored customer" clauses could cause a material decrease in the average
selling prices and gross margins of our products. Although, we believe that
price protection will not harm our business we cannot assure you that price
protection will not harm our business in the future.

      Direct Sales. Currently, a significant portion of the sales of our
products are being made through direct sales efforts. As a result, our continued
success depends on building and maintaining good relations with our direct
customers. We have limited knowledge of the financial condition of certain of
our direct customers; however, we are aware that some of our direct customers
have limited financial and other resources which could impair their ability to
pay us, although the financial instability of these direct customers has not
limited any direct customer's ability to pay us for our products to date. We
cannot assure you that any bad debts that we incur will not exceed our reserves
or that the financial instability of one or more of our direct customers will
not harm our business, financial condition or results of operations. Any
reduction in planned purchases by direct customers in the future could harm our
business. In addition, we grant certain of our direct customers "most favored
customer" terms, pursuant to which we have agreed to not knowingly provide
another direct customer with similar terms and conditions a better price than
those provided to the existing direct customer, without offering the more
favorable prices to the existing direct customer. It is possible that these
price protection and "most favored customer" clauses could cause a material
decrease in the average selling prices and gross margins of our products, which
could harm our business, financial condition or results of operations.
Currently, our direct customers do not have any obligation to purchase
additional products. Accordingly,


                                                                    Page 9 of 47
<PAGE>

we cannot assure you that present or future direct customers will not terminate
their purchasing arrangements with us, or that they will not significantly
reduce or delay the amount of our products that they order. Any such
termination, change, reduction or delay in orders could harm our business.

      Sales Engineering Support. Our sales engineering support group is
responsible for product configuration, evaluation, installation and telephone
sales support activities. Our sales support and sales engineering strategy
focuses on assisting service providers and end users in rapidly integrating our
products into their networks. The sales engineering support group identifies
service provider and end user leads and, based on initial presentations,
provides evaluation units for trial in communication service provider and end
user networks. After successful trial and approval, the service provider or end
user is provided with product installation and maintenance training. The sale of
our products averages between four and twelve months in the case of certain
service providers (including competitive local exchange carriers and service
providers), but can take significantly longer in the case of independent local
exchange carriers and certain distributors and other end users. Initially, our
sales engineering support group is involved in educating service providers and
end users on the functionality and benefits that may be derived from using our
products. Subsequently, members of both our sales engineering and research and
development organizations are involved in providing the service provider or end
user with the required training and technical support to integrate our products
into a new application or service.

      Marketing. Our marketing organization develops strategies for product
families and, along with the sales force, develops key account strategies and
defines product and service functions and features. Marketing is responsible for
sales support, request for information, request for quotes and request for
proposals, in-depth product presentations, interfacing with operations, setting
price levels to achieve targeted margins, developing new services/business
opportunities and writing proposals in response to customer requests for
information or quotations. We engage in a number of marketing activities that
include exhibiting products and customer applications at industry trade shows,
advertising in selected publications aimed at targeted markets, public relations
activities with trade and business press, publication of technical articles and
the distribution of sales literature, technical specifications and
documentation, in order to create awareness, market demand and sales
opportunities for our products.

      Customer Service and Support. Based on customer support calls, we believe
that ongoing customer support is critical to maintaining and enhancing
relationships with service providers, end users and distributors. The service
provider and end user support group has five functions: new product development,
that provides for product ideas and enhancements based on customer requirements
through the pre- and post-sales support effort; inbound technical support, that
focuses on pre- and post-sales calls made to us from our customers; outbound
application support and response to request for proposals and request for
quotations; training, including installation and application development
training for customers, sales engineers and employees; and reporting and
analysis based on the automated trouble ticket and returned material systems.

COMPETITION

      There is intense competition in the telecommunications equipment market
with a large number of suppliers providing a variety of products to diverse
market segments. We believe that the principal competitive factors in our
markets include: performance and reliability; flexibility, scalability and
ease-of-use; breadth of features and benefits; end-to-end management systems,
and a lower initial and lifetime cost. We believe our product solutions compete
favorably with respect to each of these factors.

      Our existing and potential competitors include many large domestic and
international companies, including certain companies that have substantially
greater financial, manufacturing, technological, sales and marketing,
distribution and other resources. Our principal competitors for our Access Bank,
InLoop and CACTUS.lite product family include Adtran, Inc. ("Adtran"), Advanced
Fibre Communications, Inc. ("AFC"), Cisco Systems, Inc. ("Cisco"), General
DataCom Industries, Inc. ("General DataCom"), Lucent Technologies, Inc.
("Lucent"), NEC USA, Inc. ("NEC"), Newbridge Networks Corporation ("Newbridge"),
Northern Telecom Limited ("Nortel"), PairGain Technologies, Inc. ("Pairgain"),
Paradyne Corporation ("Paradyne"), and other small private companies. Our
principal competitors for our Wide Bank product family include Adtran, Alcatel
Alsthom Compagnie Generale d'Electricite ("Alcatel"), NEC, Nortel, and other
small private companies. Our principal competitors for our Access Navigator
product family include Advanced Fibre Communications, Inc. ("AFC"), Alcatel
Alsthom Compagnie Generale d'Electricite ("Alcatel"), Cisco Systems, Lucent
Technologies, Inc. ("Lucent"), Newbridge Networks Corporation ("Newbridge"),
Northern Telecom Limited ("Nortel"), Telect, Inc. ("Telect"), Tellabs, Inc.
("Tellabs") and other small private companies. We expect that many of our
competitors who currently offer products competitive with only one of our
product lines will eventually offer products competitive with all of our product
lines. In addition, many start-up companies have recently begun to manufacture
products similar to those offered by us. Due to the rapidly evolving markets in
which we compete, additional competitors with significant market presence and
financial resources, including large telecommunications equipment manufacturers
and computer hardware and software companies, may enter those markets, thereby
further intensifying competition. Additionally, one of our distributors is
currently competing with us, and there can be no assurance that additional
distributors will not begin to develop or market products in competition with
us.


                                                                   Page 10 of 47
<PAGE>

      Many of our current and potential competitors are substantially larger
than us and have significantly greater financial, sales and marketing,
technical, manufacturing and other resources and more established channels of
distribution. As a result, these competitors may be able to respond more rapidly
to new or emerging technologies and changes in customer requirements, or to
devote greater resources to the development, promotion and sale of their
products than we can. These competitors may enter our existing or future markets
with solutions that may be less costly, provide higher performance or additional
features or be introduced earlier than our solutions. Many communications
companies have large internal development organizations that develop software
solutions and provide services similar to our products and services. These
communications companies also make a regular practice of acquiring smaller
technology companies to gain entrance into our markets, further accelerating
their product development efforts. Some of our competitors currently offer more
lucrative financing alternatives to their customers than we provide at this
time. Although we are currently offering third party financing alternatives to
our service provider customers, there can be no assurance that we will be able
to secure financing for all of our service provider customers. We expect our
competitors to continue to improve the performance of their current products and
to introduce new products or technologies that provide added functionality and
other features. Successful new product introductions or enhancements by our
competitors could cause a significant decline in sales or loss of market
acceptance of our products and services, which could result in continued intense
price competition or could make our products and services or technologies
obsolete or noncompetitive. To be competitive, we will be required to continue
investing significant resources in research and development and sales and
marketing. There can be no assurance that we will have sufficient resources to
make such investments or that we will be able to make the technological advances
necessary to be competitive. In addition, current and potential competitors have
established or may establish cooperative relationships among themselves or with
third-parties to increase the ability of their products to address the needs of
our prospective customers. Accordingly, it is possible that new competitors or
alliances among competitors may emerge and rapidly acquire significant market
share. Increased competition is likely to result in price reductions, reduced
gross margins and loss of market share, any of which would have a material
adverse effect on our business. We cannot assure you that we will be able to
compete successfully against current or future competitors or that competitive
pressures will not have a material adverse effect on our business.

MANUFACTURING

      Our manufacturing operations consist of materials planning and
procurement, final assembly, product assurance testing, quality control, and
packaging and shipping. We currently use several independent manufacturers to
provide certain printed circuit boards, chassis and subassemblies. We have
developed a manufacturing process that enables us to configure our products to
be adapted to different customer hardware and software applications at the final
assembly stage. This flexibility is designed to reduce both our manufacturing
cycle time and our need to maintain a large inventory of finished goods. We
believe that the efficiency of our manufacturing process to date is largely due
to our product architecture and our commitment to manufacturing process design.

      We spend significant engineering resources producing customized software
and hardware to assure consistently high product quality. We test every product
both during and after the assembly process using internally developed automated
product assurance testing procedures. These procedures consist of automated
board and automated system testing as well as environmental testing. Through
December 31, 1999, we had experienced a return rate for defective products of
less than one percent. Although we generally use standard parts and components
for our products, many key components are purchased from sole or single source
vendors for that alternative sources are not currently available. We cannot
assure you that we will not experience supply problems in the future from any of
our manufacturers or vendors. Any such difficulties could harm our business.

RESEARCH AND PRODUCT DEVELOPMENT

      We focus our development efforts on providing enhanced functionality to
our existing products, including total network solutions and performance and the
development of additional software-based features and functionality. Extensive
product development input is obtained from customers and our monitoring of end
user needs and changes in the marketplace. Our current product development focus
has been on developing digital broadband access solutions and completing new
products such as the recently introduced CACTUS.lite and Access Navigator
product families. We believe that our success will depend, in part, on our
ability to develop and introduce in a timely fashion new products and
enhancements to our existing products. We have in the past made, and intend to
continue to make, significant investments in product and technological
development. Our engineering, research and development expenditures totaled
approximately $2.8 million, $5.6 million and $13.6 million in 1997, 1998 and
1999, respectively. We perform our research and product development activities
at our principal offices in Boulder, Colorado and we recently added an
additional research and product development center in Tulsa, Oklahoma. Our
inability to develop on a timely basis new products or enhancements to existing
products, or the failure of these new products or enhancements to achieve market
acceptance, could have a material adverse effect on our business.


                                                                   Page 11 of 47
<PAGE>

PATENTS, LICENSES AND PROPRIETARY INFORMATION

      We rely upon a combination of patent, copyright and trademark and trade
secret laws as well as confidentiality procedures and contractual restrictions
to establish and protect our proprietary rights. We have also entered into
confidentiality agreements with our employees and consultants and we enter into
non-disclosure agreements with our suppliers and distributors so as to limit
access to and disclosure of our proprietary information. We cannot assure you
that such measures will be adequate to deter and prevent misappropriation of our
technologies or independent third-party development of similar technologies. The
laws of certain foreign countries in which our products are or may be developed,
manufactured or sold may not protect our products or intellectual property
rights to the same extent as do the laws of the United States and thus make the
possibility of piracy of our technology and products more likely.

      As of March 1, 2000, we had been issued a total of six U.S. patents and we
had a total of nine U.S. patent applications pending. The issued patents cover
various aspects of: voice and data circuits; switching technologies and
redundancy. The U.S. patents begin to expire commencing in the year 2015. We
also have eight U.S. trademark applications pending, five international
trademark applications pending, and four trademarks registered. A large number
of patents and frequent litigation based on allegations of patent infringement
exist within the telecommunications industry. From time to time, third parties
may assert patent, copyright, trademark and other intellectual property rights
to technologies that are important to us. Although we have not received
communications from third parties asserting that our products infringe or may
infringe proprietary rights of third parties, we have no assurance that any
future claims, if determined adversely to us, would not have a material adverse
effect on our business, financial condition or results of operations.

EMPLOYEES

      At March 31, 2000, we employed 349 full-time employees in twenty states.
Additionally, we employ a number of engineering and other employees on a
part-time basis. No employees are covered by any collective bargaining
agreements. We believe that our relationships with our employees are good. The
loss of any of our key management or technical personnel could harm us.

      Many of our employees are highly skilled, and our continued success
depends in part upon our ability to attract and retain such employees. In an
effort to attract and retain such employees, we continue to offer employee
benefit programs that we believe are at least equivalent to those offered by our
competitors. Despite these programs, we along with most of our competitors, have
experienced difficulties at times in hiring and retaining certain skilled
personnel. In critical areas, we have utilized consultants and contract
personnel to fill these needs until full-time employees could be recruited. We
have never experienced a work stoppage, none of our domestic employees are
represented by a labor organization, and we believe our employee relations to be
good.

      There are no family relationships between any of our executive officers,
other than that between Mr. Koenig and Ms. Pierce.

                                  RISK FACTORS

      Investors should carefully consider the risks described below before
making an investment decision. The risks described below are not the only ones
facing our company. Additional risks not presently known to us or that we
currently believe are immaterial may also impair our business operations. Our
business could be harmed by any of these risks. The trading price of our common
stock could decline due to any of these risks and investors may lose all or part
of their investment. In assessing these risks, investors should also refer to
the other information contained or incorporated by reference in this Form 10-K
Report, including our consolidated financial statements and related notes.

WE HAVE A LIMITED OPERATING HISTORY.

      We have a limited operating history. We did not begin commercial
deployment of our broadband digital access equipment until the summer of 1995.
Prior to 1997, we recorded only nominal product revenue, and we have been
profitable on an annual basis for only three years. Accordingly, an investor in
our common stock must evaluate the risks, uncertainties and difficulties
frequently encountered by early stage companies in rapidly evolving markets such
as the communications equipment industry. Some of these risks, in addition to
those risks disclosed elsewhere in this "Risk Factors" section, include:

      o     significant fluctuations in quarterly operating results;

      o     the intensely competitive market for communications equipment;

      o     the expenses and challenges encountered in expanding our sales,
            marketing and research and development infrastructure;


                                                                   Page 12 of 47
<PAGE>

      o     the risks related to our timely introduction of new packet based
            products and product enhancements; and

      o     the risks associated with increased business development and
            expansion of our operations.

      Due to our limited operating history and experience with respect to these
issues, we may not successfully implement any of our strategies or successfully
address these risks and uncertainties.

OUR QUARTERLY RESULTS FLUCTUATE SIGNIFICANTLY, AND WE MAY NOT BE ABLE TO
MAINTAIN OUR EXISTING GROWTH RATES.

      Although our revenues have grown significantly in recent quarters, these
growth rates may not be sustainable, as is evidenced by our Access Bank revenue,
and you should not use these past results to predict future revenue or operating
results. Our quarterly and annual operating results have fluctuated in the past
and may vary significantly in the future. Our future operating results will
depend on many factors, many of which are outside of our control, including the
following:

      o     the size of the orders for our products, and the timing of such
            orders;

      o     the commercial success of our products, and our ability to ship
            enough products to meet customer demand;

      o     changes in the financial stability of our distributors, customers or
            suppliers;

      o     changes in our pricing policies or the pricing policies of our
            competitors;

      o     fluctuations in ordering due to increased direct sales to customers;
            o potential bad debt due to increased direct sales;

      o     inability to obtain third party financing for our service provider
            customers;

      o     seasonal fluctuations in the placement of orders;

      o     changes in our distribution channels;

      o     potential delays or deferrals in our product implementation at
            customer sites;

      o     technical problems in customizing or integrating our products with
            end users' systems, and potential product failures or errors;

      o     certain government regulations; and

      o     general economic conditions as well as those specific to the
            communications equipment industry.

      A significant portion of our net revenue has been derived from a limited
number of large orders, and we believe that this trend will continue in the
future, especially if the percentage of direct sales to end users increases as
we anticipate. The timing of these orders and our ability to fulfill them can
cause material fluctuations in our operating results, and we anticipate that
such fluctuations will occur. Also, our distribution and purchase agreements
generally allow our distributors and direct customers to postpone or cancel
orders without penalty until a relatively short period of time prior to
shipment. In the past, we have occasionally experienced cancellations and delays
of orders, and we expect to continue to experience order cancellations and
delays from time to time in the future. Any shortfall in orders would harm our
operating income for a quarter or series of quarters, especially since operating
expenses in a quarter are relatively fixed, and these fluctuations could affect
the market price of our common stock.

      Because most all of our sales have historically been through indirect
distribution channels, our ability to judge the timing and size of individual
orders is more limited than for manufacturers who have been selling directly to
the end users of their products for longer periods of time. Moreover, any
downturn in general economic conditions could lead to significant reductions in
customer spending for telecommunications equipment, which could result in delays
or cancellations of orders for our products. Our operating expenses are based on
our expectations of future revenues and are relatively fixed in the short term.
Due to these and other factors, if our quarterly or annual revenues fall below
the expectations of securities analysts and investors, the trading price our
common stock could significantly decline.

WE DEPEND ON EMERGING SERVICE PROVIDERS FOR SUBSTANTIALLY ALL OF OUR BUSINESS.

      Up until now, our customers have consisted primarily of competitive local
exchange carriers and, to a lesser extent, long distance service providers,
Internet service providers, independent operating carriers and wireless service
providers. The market for the services provided by the majority of these service
providers has only begun to emerge since the passage of the Telecommunications
Act of 1996 (the "1996 Act"), and many new and existing service providers are
continuing to build their networks and infrastructure and rolling out their
services in new geographical areas. These new service providers require
substantial capital for the development, construction and expansion of their
networks and the introduction of their services.


                                                                   Page 13 of 47
<PAGE>

The ability of these emerging service providers to fund such expenditures often
depends on their ability to obtain sufficient financing. This financing may not
be available to many of these emerging service providers on favorable terms, if
at all. If our current or potential emerging service provider customers cannot
successfully raise the needed funds, or if they experience any other trends
adversely affecting their operating results or profitability, these service
providers' capital spending programs may be adversely impacted. If our current
or potential service provider customers are forced to defer or curtail their
capital spending programs, our sales and operating results will likely be
harmed.

      In addition, many of the industries in which the service providers operate
have recently experienced consolidation. In particular, many telecommunication
service providers have recently acquired, been acquired or merged with Internet
service providers or other service providers. The loss of one or more of our
service provider customers, through industry consolidation or otherwise, could
have a material adverse effect on our sales and operating results.

OUR CUSTOMERS ARE SUBJECT TO HEAVY GOVERNMENT REGULATION IN THE
      TELECOMMUNICATIONS INDUSTRY, AND REGULATORY UNCERTAINTY MAY HAVE A
      MATERIAL ADVERSE EFFECT ON OUR BUSINESS.

      Competitive local exchange carriers are allowed to compete with
independent local exchange carriers in the provisioning of local exchange
services primarily as a result of the adoption of regulations under the 1996 Act
that impose new duties on independent local exchange carriers to open their
local telephone markets to competition. Although the 1996 Act was designed to
expand competition in the telecommunications industry, the realization of the
objectives of the 1996 Act is subject to many uncertainties. Such uncertainties
include judicial and administrative proceedings designed to define rights and
obligations pursuant to the 1996 Act, actions or inaction by independent local
exchange carriers or other service providers that affect the pace at which
changes contemplated by the 1996 Act occur, resolution of questions concerning
which parties will finance such changes, and other regulatory, economic and
political factors. Any changes to the 1996 Act or the regulations adopted
thereunder, the adoption of new regulations by federal or state regulatory
authorities under the 1996 Act or any legal challenges to the 1996 Act could
have a material adverse impact upon the market for our products.

      We are aware of certain litigation challenging the validity of the 1996
Act and local telephone competition rules adopted by the Federal Communications
Commission ("FCC") for the purpose of implementing the 1996 Act. Furthermore,
Congress has indicated that it may hold hearings to gauge the competitive impact
of the 1996 Act, and we cannot assure you that Congress will not propose changes
to the Act. This litigation and potential regulatory changes may delay further
implementation of the 1996 Act, which could hurt demand for our products.
Moreover, our distributors or service provider customers may require that we
modify our products to address actual or anticipated changes in the regulatory
environment. Further, we may decide to modify our products to meet these
anticipated changes. Our inability to modify our products in a timely manner or
address such regulatory changes could harm our business.

OUR MARKETS ARE HIGHLY COMPETITIVE AND HAVE MANY MORE ESTABLISHED COMPETITORS.

      The market for our products is intensely competitive, with a large number
of equipment suppliers providing a variety of products to diverse market
segments within the telecommunications industry. Our existing and potential
competitors include many large domestic and international companies, including
certain companies that have substantially greater financial, manufacturing,
technological, sales and marketing, distribution and other resources. Our
principal competitors for our Access Bank product family include Adtran, General
Datacom, Lucent, Newbridge, Nortel, Pairgain, Paradyne and other small private
companies. Our principal competitors for our Wide Bank product family include
Adtran, Alcatel, Fujitsu, NEC other small private companies. Our principal
competitors for our Access Navigator product family include AFC, Alcatel, Cisco,
DSC, Lucent, Nortel, Telect, Tellabs and other small private companies. We
expect that many of our competitors who currently offer products competitive
with only one of our product lines will eventually offer products competitive
with all of our product lines. In addition, many start-up companies have
recently begun to manufacture products similar to ours. Due to the rapidly
evolving markets in which we compete, additional competitors with significant
market presence and financial resources, including large telecommunications
equipment manufacturers and computer hardware and software companies, may enter
these markets through acquisition, thereby further intensifying competition.
Additionally, one of our distributors is currently competing with us, and
additional distributors may begin to develop or market products that compete
with our products.

      Many of our current and potential competitors are substantially larger
than us and have significantly greater financial, sales and marketing,
technical, manufacturing and other resources and more established channels of
distribution. As a result, such competitors may be able to respond more rapidly
to new or emerging technologies and changes in customer requirements, or to
devote greater resources than we can devote to the development, promotion and
sale of their products. Such competitors may enter our existing or future
markets with solutions that may be less costly, provide higher performance or
additional features or be introduced earlier than our solutions. Many
telecommunications companies have large internal development organizations that
develop software solutions and provide services similar to our products and
services. We expect our competitors to continue to improve the performance of
their current products and to introduce new products or technologies that
provide added functionality and other features. Successful new product
introductions or enhancements by our competitors


                                                                   Page 14 of 47
<PAGE>

could cause a significant decline in sales or loss of market acceptance of our
products. Competitive products may also cause continued intense price
competition or render our products or technologies obsolete or noncompetitive.

      To be competitive, we will have to continue to invest significant
resources in research and development and sales and marketing. We cannot assure
you that we will have sufficient resources to make such investments or that we
will be able to make the technological advances necessary to be competitive. In
addition, our current and potential competitors have established or may
establish cooperative relationships among themselves or with third parties to
increase the ability of their products to address the needs of our prospective
customers. Accordingly, it is possible that new competitors or alliances among
competitors may emerge and rapidly acquire significant market share. Increased
competition is likely to result in price reductions, reduced gross margins and
loss of market share, any of which would harm our business.

WE ARE SUBSTANTIALLY DEPENDENT ON OUR DISTRIBUTION CHANNELS.

      To date, a large portion of the sales of our products has been made
through distributors. Our distributors are responsible for warehousing product
and fulfilling product orders as well as servicing potential competitive service
provider customers and, in some cases, customizing and integrating our products
at end users' sites. As a result, our success depends on maintaining good
relations with our distributors. Sales of our products historically have been
made to a limited number of distributors and other direct customers, as follows:

      o     In 1998, Walker, Phillips and Telsource accounted for 40%, 17% and
            15% of net revenue, respectively.

      o     In 1999, Walker and ADC accounted for 27% and 14% of net revenue,
            respectively.

      We expect that a significant portion of sales of our products will
continue to be made to a small number of distributors. Accordingly, if we lose
any of our key distributors, or experience reduced sales to such distributors,
our business would likely be harmed.

      We have limited knowledge of the financial condition of certain of our
distributors, however, we are aware that some of our distributors have limited
financial and other resources which could impair their ability to pay us,
although the financial instability of these certain distributors has not limited
any distributor's ability to pay us for our products to date. We cannot assure
you that any bad debts that we incur will not exceed our reserves or that the
financial instability of one or more of our distributors will not harm our
business, financial condition or results of operations.

      We generally provide our distributors with limited stock rotation and
price protection rights. Other than limited stock rotation rights, we do not
provide our distributors with general product return rights. We have limited
knowledge of the inventory levels of our products carried by our original
equipment manufacturers and distributors, and our original equipment
manufacturers and distributors have in the past reduced planned purchases of our
products due to overstocking. Such reductions in purchases due to overstocking
may occur again in the future. Moreover, distributors who have overstocked our
products have in the past reduced their inventories of our products by selling
such products at significantly reduced prices, and this may occur again in the
future. Any reduction in planned purchases or sales at reduced prices by
distributors or original equipment manufacturers in the future, could reduce the
demand for our products, create conflicts with other distributors or otherwise
harm our business. In addition, three times a year certain distributors are
allowed to return a maximum of fifteen percent of our unsold products for an
equal dollar amount of new equipment. The products must have been held in stock
by such distributor and have been purchased within the four month period prior
to the return date. While to date these returns have not had a material impact
on our results of operations, we cannot assure you that we will not experience
significant returns in the future or that we will make adequate allowances to
offset these returns. We believe it has made adequate allowances for these
returns to date.

      We are generally required to give our distributors a 60-day notice of
price increases. Orders entered by distributors within the 60-day period are
filled at the lower product price. In the event of a price decrease, we are
sometimes required to credit distributors the difference in price for any stock
they have in their inventory. In addition, we grant certain of our distributors
"most favored customer" terms, pursuant to which we have agreed to, not
knowingly, grant another distributor the right to resell our products on terms
more favorable than those granted to the existing distributor, without offering
the more favorable terms to the existing distributor. It is possible that these
price protection and "most favored customer" clauses could cause a material
decrease in the average selling prices and gross margins of our products, which
could in turn have a material adverse effect on distributor inventories, our
business, financial condition or results of operations.

      In addition to being dependent on a small number of distributors for a
majority of our net revenue, we believe our products are distributed to a
limited number of service provider customers who are primarily competitive local
exchange carriers. None of these service provider customers has any obligation
to purchase additional products. Accordingly, we cannot assure you that present
or future customers will not terminate their purchasing arrangements with either
us or our distributors, or that they will not significantly reduce or delay the
amount of our products that they order. Any such termination, change, reduction
or delay in orders could harm our business.


                                                                   Page 15 of 47
<PAGE>

WE ARE SUBSTANTIALLY DEPENDANT ON OUR DIRECT SALES AND DIRECT CUSTOMERS.

      Currently, a significant portion of the sales of our products are being
made through direct sales. As a result, our continued success depends on
building and maintaining good relations with our direct customers.

      We have limited knowledge of the financial condition of certain of our
direct customers, however, we are aware that some of our direct customers have
limited financial and other resources which could impair their ability to pay
us, although the financial instability of these direct customers has not limited
any direct customer's ability to pay us for our products to date. We cannot
assure you that any bad debts that we incur will not exceed our reserves or that
the financial instability of one or more of our direct customers will not harm
our business, financial condition or results of operations.

      Any reduction in planned purchases by direct customers in the future could
harm our business. In addition, we grant certain of our direct customers "most
favored customer" terms, pursuant to which we have agreed to not knowingly
provide another direct customer with similar terms and conditions a better price
than those provided to the existing direct customer, without offering the more
favorable prices to the existing direct customer. It is possible that these
price protection and "most favored customer" clauses could cause a material
decrease in the average selling prices and gross margins of our products, which
could, in turn, harm our business.

      Currently, our direct customers do not have any obligation to purchase
additional products. Accordingly, we cannot assure you that present or future
direct customers will not terminate their purchasing arrangements with us, or
that they will not significantly reduce or delay the amount of our products that
they order. Any such termination, change, reduction or delay in orders could
harm our business.

OUR GROWTH IS DEPENDENT UPON SUCCESSFULLY MAINTAINING AND EXPANDING OUR
      DISTRIBUTION CHANNELS AND DIRECT SALES.

      Our future net revenue growth will depend in large part on the following
factors:

      o     our success in maintaining our current distributor and direct
            relationships; and

      o     diversifying our distribution channels by selling to new
            distributors and to new direct customers.

MAINTAINING AND EXPANDING OUR CURRENT SERVICE PROVIDER CUSTOMER BASE

      Most of our existing distributors currently distribute and use the product
lines of our competitors. Some of our existing distributors may in the future
distribute or use other competitive product lines. We cannot assure you that we
will be able to attract and retain a sufficient number of our existing or future
distributors and direct customers or that they will recommend, or continue to
use, our products or that our distributors will devote sufficient resources to
market and provide the necessary customer support for such products. In the
event that any of our current distributors or direct customers reduce their
purchases of our products, or that we fail to obtain future distributors or
direct customers, our business could be harmed.

      In addition, it is possible that our distributors will give a higher
priority to the marketing and customer support of competitive products or
alternative solutions than to our products. Further, we cannot assure you that
our distributors will continue to offer our products. Our distributor
relationships are established through formal agreements that generally (1) do
not grant exclusivity, (2) do not prevent the distributor from carrying
competing product lines and (3) do not require the distributor to purchase any
minimum dollar amount of our products. Additionally, our distribution agreements
do not attempt to allocate certain territories for our products among our
distributors. To the extent that different distributors target the same end
users of our products, distributors may come into conflict with one another,
which could damage our relationship with, and sales to, such distributors.

OUR OPERATING RESULTS ARE SUBSTANTIALLY DEPENDENT ON SOLE AND SINGLE SOURCE
      SUPPLIERS.

      Although we generally use standard parts and components for our products,
many key parts and components are purchased from sole source vendors that
alternative sources are not currently available. We currently purchase over 25
key components from vendors that there is currently no substitute, and we
purchase over 150 key components from single vendors. In addition, we rely on
several independent manufacturers to provide certain printed circuit boards,
chassis and subassemblies for our products. Our inability to obtain sufficient
quantities of these components has in the past resulted in, and may in the
future result in, delays or reductions in product shipments, which could harm
our business, financial condition or results of operations. In the event of a
reduction or interruption of supply, we may need as much as six months before we
would begin receiving adequate supplies from alternative suppliers, if any. We
cannot assure you that any such source would become available to us or that any
such source would be in a position to satisfy our production requirements on a
timely basis, if at all. In such event, our business would be materially harmed.

      In addition, manufacturing certain of these single or sole source
components is extremely complex, and our reliance on the suppliers of these
components, especially for newly designed components, exposes us to potential
production difficulties and quality variations that they experience, which has
negatively impacted cost and timely delivery of our products. Any


                                                                   Page 16 of 47
<PAGE>

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

OUR ABILITY TO MEET CUSTOMER DEMAND DEPENDS ON THE AVAILABILITY OF OUR
      COMPONENTS.

      Our distributors and direct customers frequently require rapid delivery
after placing an order. Because we do not maintain significant component
inventories, delays in shipment by one of our suppliers have lead to lost sales
and sales opportunities. Lead times for materials and components vary
significantly and depend on many factors, some of which are beyond our control,
such as specific supplier performance, contract terms and general market demand
for components. If distributor orders vary significantly from forecasts, we may
not have enough inventory of certain materials and components to fill orders.
Any shortages in the future, including those occasioned by increased sales,
could result in delays in fulfillment of customer orders. Such delays could harm
our business.

OUR DEPENDENCE ON INDEPENDENT MANUFACTURERS COULD RESULT IN PRODUCT DELIVERY
      DELAYS.

      We currently use several independent manufacturers to provide certain
components, printed circuit boards, chassis and subassemblies. Our reliance on
independent manufacturers involves a number of risks, including the potential
for inadequate capacity, the unavailability of, or interruptions in access to
certain process technologies, and reduced control over delivery schedules,
manufacturing yields and costs. Some of our manufacturers and suppliers are
undercapitalized, and such manufacturers or suppliers may be unable in the
future to continue to provide manufacturing services or components to us. If
these manufacturers are unable to manufacture our components in required
volumes, we will have to identify and qualify acceptable additional or
alternative manufacturers, which could take in excess of nine months. We cannot
assure you that any such source would become available to us or that any such
source would be in a position to satisfy our production requirements on a timely
basis, if available. Any significant interruption in our supply of these
components would result in delays or in the allocation of products to customers,
which in turn could have a material adverse effect on our business, financial
condition or results of operations. Moreover, since all of our final assembly
and test operations are performed in one location, any fire or other disaster at
our assembly facility would harm our business.

OUR EXECUTIVE OFFICERS AND CERTAIN KEY PERSONNEL ARE CRITICAL TO OUR BUSINESS,
      AND THESE OFFICERS AND KEY PERSONNEL MAY NOT REMAIN WITH US IN THE FUTURE.

      Our success depends to a significant degree upon the continued
contributions of our Chief Executive Officer, Chief Financial Officer and our
key management, sales, engineering, customer support and product development
personnel, many of whom would be difficult to replace. In particular, the loss
of Roger Koenig, President and Chief Executive Officer, who co-founded us, could
harm us. We believe that our future success will depend in large part upon our
ability to attract and retain highly skilled managerial, sales, customer support
and product development personnel. Competition for qualified personnel in our
industry and geographic location is intense, and we cannot assure you that we
will be successful in attracting and retaining such personnel. We do not have
employment contracts with any of our key personnel. The loss of the services of
any such persons, the inability to attract or retain qualified personnel in the
future or delays in hiring required personnel, particularly engineering
personnel and qualified sales personnel, could harm our business.

OUR ABILITY TO MANAGE OUR GROWTH WILL AFFECT OUR BUSINESS.

      We have experienced rapid growth in net revenue and expansion of our
operations, and we anticipate that further significant expansion will be
required to address potential growth in our customer base and market
opportunities. Such growth continues to place significant strain on our
management, information systems, operations and resources. For example, in the
past we have experienced minor shipping errors primarily as a result of training
new personnel in the face of a period of rapid growth. Our ability to manage any
future growth will continue to depend upon the successful expansion of our
sales, marketing, research and development, customer support, manufacturing and
administrative infrastructure and the ongoing implementation and improvement of
a variety of internal management systems, procedures and controls. Continued
growth will also require us to hire more engineering, sales and marketing and
administrative personnel, expand customer support capabilities, expand
management information systems and improve our inventory management practices.

      Recruiting qualified personnel is an intensely competitive and
time-consuming process. We cannot assure you that we will be able to attract and
retain the necessary personnel to accomplish our growth strategies or that we
will not experience constraints that will harm our ability to satisfy customer
demand in a timely fashion or to satisfactorily support our customers and
operations. We cannot assure you that we will not experience significant
problems with respect to any infrastructure expansion or the attempted
implementation of systems, procedures and controls. If our management is unable
to manage growth effectively, our business could be harmed.


                                                                   Page 17 of 47
<PAGE>

OUR GROWTH IS DEPENDENT ON OUR INTRODUCTION OF NEW PRODUCTS AND ENHANCEMENTS
      TO EXISTING PRODUCTS, AND ANY DELAY IN CUSTOMERS' TRANSITION TO OUR NEW
      PRODUCTS COULD ADVERSELY AFFECT OUR BUSINESS.

      Our success depends on our ability to enhance our existing products and to
timely and cost-effectively develop new products including features that meet
changing end user requirements and emerging industry standards. However, we
cannot assure you that we will be successful in identifying, developing,
manufacturing, and marketing product enhancements or new products that will
respond to technological change or evolving industry standards. We intend to
continue to invest significantly in product and technology development. We have
in the recent past experienced delays in the development and commencement of
commercial shipment of new products and enhancements, resulting in distributor
and end user frustration and delay or loss of net revenue. It is possible that
we will experience similar or other difficulties in the future that could delay
or prevent the successful development, production or shipment of such new
products or enhancements, or that our new products and enhancements will not
adequately meet the requirements of the marketplace and achieve market
acceptance. Announcements of currently planned or other new product offerings by
us or our competitors have in the past caused, and may in the future cause,
distributors or end users to defer or cancel the purchase of our existing
products. 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 harm our business.

      The development of new, technologically advanced products is a complex and
uncertain process requiring high levels of innovation, as well as the accurate
anticipation of technological and market trends. Our introduction of new or
enhanced products will also require us to manage the transition from older
products in order to minimize disruption in customer ordering patterns, avoid
excessive levels of older product inventories and ensure that adequate supplies
of new products can be delivered to meet customer demand. We have historically
reworked certain of our products, previously sold, in order to add new features
which were included in subsequent release of such product. We can give no
assurance that these historical practices will not occur in the future and cause
us to record lower revenue or negatively affect our gross margins.

      We believe that average selling prices and gross margins for our products
will decline as such products mature and as competition intensifies. To offset
declining selling prices, we believe that we must successfully reduce the costs
of production of our existing products and introduce and sell new products and
product enhancements on a timely basis at a lower cost or sell products and
product enhancements that incorporate features that enable them to be sold at
higher average selling prices. We may not be able to achieve the desired cost
savings. To the extent that we are unable to reduce costs sufficiently to offset
any declining average selling prices or we are unable to introduce enhanced
products with higher selling prices, our gross margins will decline, and such
decline would harm our business.

OUR PRODUCTS MAY SUFFER FROM DEFECTS OR ERRORS THAT MAY SUBJECT US TO PRODUCT
      RETURNS AND PRODUCT LIABILITY CLAIMS.

      Our 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 our extensive testing, errors, defects or failures are
possible in our current or future products or enhancements. If such defects
occur after commencement of commercial shipments, the following may happen:

      o     delay in or loss of market acceptance and sales;

      o     product returns;

      o     diversion of development resources resulting in new product
            development delay;

      o     injury to our reputation; or

      o     increased service and warranty costs.

      Any of these results could have a material adverse effect on our business.
Significant delays in meeting deadlines for announced product introductions or
enhancements or performance problems with such products could result in an
undermining of customer confidence in our products, which would harm our
customer relationships as well.

      Although we have not experienced any product liability claims to date, the
sale and support of our products entails the risk of such claims, and it is
possible that we will be subject to such claims in the future. A successful
product liability claim brought against us could harm our business. Our
agreements with our distributors and direct customers typically contain
provisions designed to limit our exposure to potential product liability claims.
However, it is possible that the limitation of liability provisions contained in
our agreements may not be effective or adequate under the laws of certain
jurisdictions.


                                                                   Page 18 of 47
<PAGE>

A LONGER THAN EXPECTED SALES CYCLE MAY AFFECT OUR REVENUES AND OPERATING
      RESULTS.

      The sale of our broadband digital access products averages approximately
four to nine months in the case of service providers, but can take significantly
longer in the case of incumbent local exchange carriers and other end users.
This process is often subject to delays over which we have little or no control,
including (1) a distributor's or a service provider's budgetary constraints, (2)
distributor or service provider internal acceptance reviews, (3) the success and
continued internal support of service provider's own development efforts, and
(4) the possibility of cancellation or delay of projects by distributors or
service providers. In addition, as service providers have matured and grown
larger, their purchase process may become more institutionalized, and it will
become increasingly difficult, and requires more of our time and effort, to gain
the initial acceptance and final adoption of our products by these end users.
Although we attempt to develop our products with the goal of facilitating the
time to market of our service provider's products, the timing of the
commercialization of a new distributor or service provider applications or
services based on our products is primarily dependent on the success and timing
of a service provider's own internal deployment program. Delays in purchases of
our products can also be caused by late deliveries by other vendors, changes in
implementation priorities and slower than anticipated growth in demand for our
products. A delay in, or a cancellation of, the sale of our products could harm
our business and cause our results of operations to vary significantly from
quarter to quarter.

WE MUST KEEP PACE WITH RAPID TECHNOLOGICAL CHANGE TO REMAIN COMPETITIVE.

      The communications marketplace is characterized by (1) rapidly changing
technology, (2) evolving industry standards, (3) changes in end user
requirements and (4) frequent new product introductions and enhancements that
may render our existing products obsolete. We expect that new packet based
technologies will emerge as competition in the communications industry increases
and the need for higher volume and more cost efficient transmission equipment
expands. Industry standards for MDA equipment and technology are still evolving.
The introduction of products embodying new technologies or the emergence of new
industry standards can render existing products obsolete or unmarketable. For
example, if the business market were to broadly adopt telecommunications
equipment based on cable modems or cable telephony, sales of our existing or
future products could be significantly diminished. As standards and technologies
evolve, we will be required to modify our products or develop and support new
versions of our products. The failure of our products to comply, or delays in
achieving compliance, with the various existing and evolving industry standards
could harm sales of our current products or delay introduction of our future
products.

FAILURE TO MEET FUTURE CAPITAL NEEDS MAY ADVERSELY AFFECT OUR BUSINESS.

      We require substantial working capital to fund our business. As of
December 31, 1999, we had approximately $65.3 million in cash and short-term
investments. We believe that such cash and cash equivalents, together with cash
generated by operations, if any, will be sufficient to meet our capital
requirements for at least the next twelve months. However, our capital
requirements depend on several factors, including the rate of market acceptance
of our products, the ability to expand our client base, the growth of sales and
marketing 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 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.
Additional financing may not be available when needed on terms favorable to us
or at all. If adequate funds are not available or are not available on
acceptable terms, we may be unable to develop or enhance our services, take
advantage of future opportunities or respond to competitive pressures, which
could harm our business.

CONTINUED EXPANSION OF THE MARKET FOR COMMUNICATIONS SERVICES IS NECESSARY FOR
      OUR FUTURE GROWTH.

      Our success will also depend on continued growth in the market for
communications services. The global communications marketplace is evolving, and
it is difficult to predict our potential size or future growth rate. We cannot
assure you that this market will continue to grow. Moreover, increased
regulation may present barriers to the sales of existing or future products. If
this market fails to grow or grows more slowly or in a different direction than
we currently anticipate, our business would be harmed.

OUR FAILURE TO ADEQUATELY PROTECT OUR PROPRIETARY RIGHTS MAY ADVERSELY
      AFFECT US.

      We rely primarily on a combination of patent, copyright, trademark and
trade secret laws, as well as confidentiality procedures and contractual
restrictions, to establish and protect our proprietary rights. As of March 1
2000, we have been issued a total of six U.S. patents, we have nine additional
patent that are pending issuance, of which one is allowable. We also have four
U.S. registered trademarks, eight U.S. trademark application pending and five
international trademark applications pending. We have also entered into
confidentiality agreements with all of our employees and consultants and entered
into non-disclosure agreements with our suppliers, customers and distributors in
order to limit access to and disclosure of our proprietary information. However,
such measures may not be adequate to deter and prevent misappropriation of our
technologies or independent third-party development of similar technologies.


                                                                   Page 19 of 47
<PAGE>

      Despite our efforts to protect our proprietary rights, unauthorized
parties may attempt to copy aspects of our products or to obtain and use trade
secrets or other information that we regard as proprietary. Further, we may be
subject to additional risks as we enter into transactions in foreign countries
where intellectual property laws do not protect our proprietary rights as fully
as do the laws of the U.S. We cannot assure you that our competitors will not
independently develop similar or superior technologies or duplicate any
technology that we have. Any such events could harm our business.

      The telecommunications industry is characterized by the existence of a
large number of patents and frequent litigation based on allegations of patent
infringement. As the number of entrants in our markets 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. From time to
time, third parties may assert patent, copyright, trademark and other
intellectual property rights to technologies that are important to us. We have
no assurance that any future claims, if determined adversely to us, would not
harm our business. In our distribution agreements, we agree to indemnify
distributors and service provider customers for any expenses or liabilities
resulting from claimed infringements of patents, trademarks or copyrights of
third-parties. In certain limited instances, the amount of such indemnities may
be greater than the net revenue we may have received from the distributor.

      In the event litigation is required to determine the validity of any
third-party claims, such litigation, whether or not determined in our favor,
could result in significant expense to us, divert the efforts of our technical
and management personnel or cause product shipment delays. In the event of an
adverse ruling in any litigation, we might be required to discontinue the use
and sale of infringing products, expend significant resources to develop
non-infringing technology or obtain licenses from third parties. In the event of
a claim or litigation against or by us or our failure to develop or license a
substitute technology on commercially reasonable terms, our business could be
harmed.

OUR STOCK PRICE HAS BEEN HIGHLY VOLATILE.

      The market price of our common stock has been and is likely to continue to
be subject to fluctuations in response to variations in operating results,
announcements of technological innovations or new products by us or our
competitors, changes in financial estimates or recommendations by securities
analysts, regulatory developments and other events or factors. In addition, the
stock market in general and the market prices of equity securities of many high
technology companies in particular, have experienced extreme price fluctuations,
which often have been unrelated to the operating performance of such companies.
These broad market fluctuations may harm the market price of our common stock.

WE ARE CONTROLLED BY A SMALL NUMBER OF STOCKHOLDERS.

      Our members of the Board of Directors and executive officers, together
with members of their families and entities that may be deemed affiliates of or
related to such persons or entities, beneficially own approximately 59.2% of our
outstanding shares of common stock. In particular, Mr. Koenig and Ms. Pierce,
our Chief Executive Officer and Chief Financial Officer, respectively, are
married and together beneficially own approximately 57.0 % of our outstanding
shares of common stock. Accordingly, these stockholders are able to elect all
members of our Board of Directors and determine the outcome of all corporate
actions requiring stockholder approval, such as mergers and acquisitions. This
level of ownership by such persons and entities may delay, defer or prevent a
change in control and may harm the voting and other rights of other holders of
our common stock.

ITEM 2.       PROPERTIES

      Our principal administrative, sales and marketing, research and
development and support facilities consist of approximately 60,000 square feet
of office space in Boulder, Colorado. We occupy these premises under a lease
expiring December 31, 2009. As of December 31, 1999, the annual base rent for
this facility was approximately $476,112. We also have a research and
development facility consisting of approximately 12,000 square feet of office
space in Tulsa, Oklahoma.

      Our principal manufacturing facility consists of approximately 39,000
square feet of space in Boulder, Colorado. We occupy these premises under a
lease expiring November 13, 2005. As of December 31, 1999, the annual base rent
for this facility was approximately $310,512.

      In addition to our principal office space in Boulder, Colorado, we lease
approximately 9,550 square feet of additional office space in Boulder, which is
currently subleased. We also lease facilities and offices in Tulsa, OK and
Greensboro, NC, Miami, FL and Leawood, KS for our field sales and support
organization. We believe that our current facilities and planned expansions are
adequate to meet our needs through the next 12 months. See "Business-Risk
Factors" "Our Quarterly Results Fluctuate Significantly and We May Not be Able
to Maintain Our Existing Growth Rates" and "Management's Discussion and Analysis
of Financial Conditions and Results of Operations" --"Liquidity and Capital
Resources."

ITEM 3.       LEGAL PROCEEDINGS

      We are not a party to any material legal proceedings.


                                                                   Page 20 of 47
<PAGE>

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

      No matters were submitted to a vote of security holders during the fourth
quarter of 1999.

EXECUTIVE OFFICERS OF THE REGISTRANT

The names, ages and positions of all our executive officers as of March 1, 2000
are listed below, followed by a brief account of their business experience
during the past five years. Executive officers are normally appointed annually
by the Board of Directors at a meeting of the directors immediately following
the Annual Meeting of the Stockholders. There are no family relationships among
these officers, other than between Mr. Koenig and Ms. Pierce, who are married,
nor any arrangements or understandings between any officer and any other person
pursuant to which an officer was selected.

         Name            Age                  Position
----------------------  -----  -------------------------------------------------
Roger L. Koenig.......    44    President and Chief Executive Officer
Nancy Pierce..........    42    Chief Financial Officer, Treasurer and Secretary
Barry Kantner.........    39    Vice President, Marketing
Tim Anderson..........    40    Vice President, Finance and Administration

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

      Roger L. Koenig. Mr. Koenig has served as President, Chief Executive
Officer and Chairman of the Board of Directors of the Company since our
inception in September 1992. Prior to co-founding the Company, Mr. Koenig served
as the President and Chief Executive Officer of Koenig Communications, an
equipment systems integration and consulting firm. Prior to founding Koenig
Communications, Mr. Koenig held a number of positions with IBM/ROLM Europe, a
telecommunications equipment manufacturer, including Engineering Section Manager
for Europe. Mr. Koenig received a B.S. in Electrical Engineering from Michigan
State University and an M.S. in Engineering Management from Stanford University.

      Nancy Pierce. Ms. Pierce has served as our Vice President-Finance and
Administration, Chief Financial Officer, Treasurer, Secretary and Director since
our inception in September 1992. Prior to co-founding the Company, Ms. Pierce
served as the Controller of Koenig Communications, an equipment systems
integration and consulting firm. Prior to joining Koenig Communications, Ms.
Pierce was a systems analyst at IBM Corporation and an internal auditor at ROLM
Corporation. Ms. Pierce received a B.S. from Colorado State University and an
M.B.A. from California State University, Chico.

      Barry Kantner. Mr. Kantner joined us in September 1999, as Vice President,
Marketing. Prior to joining us, Mr. Kantner served as the Director Marketing and
Engineering for the Access Products Division of ADC Telecommunications from
August 1998 to September 1999; Director of Marketing for the Access Products
Division of ADC Telecommunications from November 1997 to August 1998, Program
Market Manager for the Access Products Division of ADC Telecommunications from
November 1996 to November 1997; Group Market Manager of High Performance
Networks for Digital Equipment Corporation from July 1996 to November 1996; and
previous to July 1996 was the Director of System and Channel Marketing for Ascom
Nexion.

      Tim Anderson. Mr. Anderson joined us in February, 1996 as the corporate
controller and became the Vice President, Finance in July, 1999. Prior to
joining us, Mr. Anderson served as the controller of RIK Medical LLC from
September, 1994 to February, 1996.

                                    PART II.

ITEM 5.       MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
              MATTERS

      (a) Market Price of and Dividends on the Registrant's Common Equity.

      We made our initial public offering on July 30, 1998 at a price of $12.00
per share. Our common stock is listed on the Nasdaq National Market under the
symbol "CACS." The table below sets forth the high and the low closing sales
prices per share as reported on the Nasdaq National Market for the periods
indicated.

      YEAR ENDED DECEMBER 31, 1999                             HIGH       LOW
      ----------------------------                             ----       ---
         First quarter ended March 31, 1999................   $80.375   $31.375
         Second quarter ended June 30, 1999................   $76.750   $29.250
         Third quarter ended September 30, 1999............   $57.125   $30.000
         Fourth quarter ended December 31, 1999............   $71.500   $41.250


                                                                   Page 21 of 47
<PAGE>

      On March 1, 2000, the last reported sale price of the Registrant's common
stock was $55.75 per share. As of March 1, 2000, there were approximately 2,000
record holders of our common stock. Because many of our shares of common stock
are held by brokers and other institutions on behalf of stockholders, we are
unable to accurately estimate the total number of stockholders represented by
these record holders. We have never declared cash dividends on our common stock.
We currently intend to retain any earnings for use in our business and do not
anticipate paying any cash dividends in the foreseeable future.

      (b) Recent Sales of Securities

      In reliance on Rule 701 promulgated under the Securities Act of 1933,
during the year ended December 31, 1999, we issued an aggregate of 9,237
shares of common stock pursuant to the exercise of stock option grants under our
1995 Stock Option Plan.

ITEM 6.       SELECTED FINANCIAL DATA

      The selected financial data for the years ended December 31, 1995, 1996,
1997, 1998 and 1999 have been derived from our audited consolidated financial
statements. The information set forth below should be read in connection with
our audited consolidated financial statements and the notes thereto and
"Management's Discussion and Analysis of the Financial Condition and Results of
Operations" included elsewhere in this Annual Report.

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
                                                        As of or for the Years Ended
                                                                 December 31
                                           -----------------------------------------------------
                                                   (in thousands, except per share data)
                                             1995       1996        1997       1998       1999
                                           --------   --------    --------   --------   --------
<S>                                        <C>        <C>         <C>        <C>        <C>
    Revenue, net .......................   $  2,058   $  5,809    $ 18,719   $ 48,133   $108,815
    Gross profit .......................        771      2,525       9,250     25,066   $ 63,316
    Operating income (loss) ............        135       (100)      2,346      9,437   $ 33,106
    Net income (loss) (1) ..............   $    181   $    (76)   $  1,735   $  6,949   $ 23,565
    Net income (loss) available
        to common stockholders .........   $    181   $   (361)   $    614   $  5,363   $ 23,565
    Income (loss) per share:
        Basic ..........................   $   0.01   $  (0.03)   $   0.04   $   0.29   $   0.98

        Diluted ........................   $   0.01   $  (0.03)   $   0.04   $   0.28   $   0.93

    Working capital ....................   $    121   $  2,941    $ 16,615   $ 60,571   $ 90,153
    Total assets .......................   $  1,045   $  4,822    $ 21,680   $ 72,313   $108,345
    Redeemable preferred stock .........   $     --   $  3,722    $ 17,358   $     --   $     --
    Stockholders' equity ...............   $    222       (158)        560     63,358   $ 97,234
</TABLE>

     (1)  We were a Subchapter S Corporation for income tax purposes prior to
          January 1, 1996 and accordingly, taxable income was reported in the
          individual returns of the stockholders. Pro forma net income,
          calculated as if we had been a taxable entity during 1995 would have
          been $113,000.

     (2)  No cash dividends were paid for any of the years presented. We paid
          distributions to shareholders while a Subchapter S Corporation
          totaling $25,000 and $48,000 in 1995 and 1996, respectively.


                                                                   Page 22 of 47
<PAGE>

ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS NOTICE CONCERNING FORWARD-LOOKING STATEMENTS

NOTICE CONCERNING FORWARD-LOOKING STATEMENTS

      This Management's Discussion and Analysis contains forward-looking
statements that have been made pursuant to the provisions of the Private
Securities Litigation Reform Act of 1995. These forward-looking statements are
based on current expectations, estimates and projections about our industry,
management's beliefs, and assumptions made by management. Words such as
"anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates,"
variations of these words and similar expressions are intended to identify such
forward-looking statements. These statements are not guarantees of future
performance and are subject to certain risks, uncertainties and assumptions that
are difficult to predict; therefore, actual results and outcomes may differ
materially from what is expressed or forecasted in any such forward-looking
statements. Such risks and uncertainties include those set forth herein under
Item 1 - "Business-Risk Factors." Particular attention should be paid to the
cautionary language in Item 1 - "Business-Risk Factors" under the headings "Our
Quarterly Results Fluctuate Significantly, and We May Not Be Able to Maintain
Our Existing Growth Rates," "We Depend on Emerging Telecommunications Service
Providers for Substantially All of Our Business," "Our Markets are Highly
Competitive and Have Many More Established Competitors," "We are Substantially
Dependent on Our Distribution Channels," and "Our Dependence on Independent
Manufacturers Could Result in Product Delivery Delays". Unless required by law,
we undertake no obligation to update publicly any forward-looking statements,
whether as a result of new information, future events or otherwise.

OVERVIEW

      We are a leading provider of broadband digital access equipment solutions
to communications service providers, including competitive local exchange
carriers , incumbent local exchange carriers, independent operating companies,
Internet service providers, interexchange carriers and wireless mobility service
providers. Carrier Access products are used for the provisioning of enhanced
voice and high-speed data and Internet services by service providers to
businesses, government and enterprise end users. Carrier Access Corporation's
Access Bank, Wide Bank, Access Navigator and CACTUS family products are
connected to T1, high-bit-rate digital subscriber line, digital radio, T3 and
optical access and transport networks.

     Our digital equipment provides a "last mile" solution for the distribution
and management of high bandwidth services from carriers throughout the United
States. Reaching large numbers of consumers using voice and high speed Internet
access requires connectivity from service providers to end users. Installation
of our central office communications and customer-located voice and data
communications equipment enables this connectivity. Our products allow service
providers to cost-effectively connect end users to their network products,
decrease ongoing transmission equipment and maintenance expenses, while enabling
new service delivery, such as integrated voice and high speed Internet access.
Our products enable high bandwidth digital deployments targeted at end users
requiring between four and 2800 telephone and data line equivalents of
bandwidth. We believe that over 300 service providers and 500 other end users
have purchased our products directly or through our distributors.

      We were incorporated in September 1992 as a successor company to Koenig
Communications, an equipment systems integration and consulting company which
had been in operation since 1986. In the summer of 1995, we ceased our systems
integration and consulting business and commenced our main product sales with
the introduction of the Access Bank Product Family. In the fourth quarter of
1997, we began commercial deployment of our Wide Bank Product Family and in
January of 1999, we began commercial deployment of our Access Navigator product
family. In December 1999 we began deployment of the CACTUS family of products.
Accordingly, we have only a limited operating history on which to base an
evaluation of our business and prospects. Our prospects must be considered in
light of the risks, uncertainties and difficulties frequently encountered by
companies in an early stage of development, particularly companies in new and
rapidly evolving markets.

      Our net revenue is derived from the sales of broadband digital access
equipment and accessories. We recognize revenue upon shipment of product from
our factory to our distributors' warehouses and direct customers. See Note 1 of
Notes to Consolidated Financial Statements. In 1997, our Access Bank product
family and the Wide Bank product family accounted for approximately 68% and 27%,
respectively, of our net revenue. In 1999, our Access Bank product family, Wide
Bank product family and Access Navigator product family accounted for
approximately 41%, 46% and 9%, respectively, of our net revenue.

      Most of the sales of our products have historically been through
distributors. Our distributors are responsible for warehousing product and
fulfilling product orders as well as identifying potential service provider
customers and, in some cases, customizing and integrating our products at end
users' sites. As a result, our success depends on maintaining good relations
with our distributors. Sales of our products historically have been made to a
limited number of distributors. In 1997, Walker, ADC and Phillips accounted for
37%, 20% and 14% of net revenue, respectively. In 1998, Walker, Phillips and
Telsource accounted for 43%, 15% and 13% of net revenue, respectively. In 1999,
Walker and ADC accounted for 27% and 14% of net revenue, respectively. We expect
that sales of our products will continue to be made to a small number of key


                                                                   Page 23 of 47
<PAGE>

distributors. Accordingly, the loss of, or reduction in sales to, any of our key
distributors could have a material adverse effect on our business. See Note 8 of
Notes to Consolidated Financial Statements.

      In addition, significant portions of the sales of our products are
currently being made through direct sales. As a result, our continued success
depends on building and maintaining good relations with our direct customers.

      We have limited knowledge of the financial condition of certain of our
customers. However, we are aware that some of our customers have limited
financial and other resources which could impair their ability to pay us,
although the financial instability of these customers has not limited any
customer's ability to pay us for our products to date. While we believe we have
adequately provided for uncollectable accounts, we cannot assure you that any
bad debts that we incur will not exceed our reserves or that the financial
instability of one or more of our customers will not harm our business,
financial condition or results of operations.

      Any reduction in planned purchases by our customers in the future could
harm our business. In addition, we grant certain of our customers "most favored
customer" terms, pursuant to which we have agreed to not knowingly provide
another customer with similar terms and conditions or a better price than those
provided to the existing customer, without offering the more favorable prices to
the existing customer. It is possible that these price protection and "most
favored customer" clauses could cause a material decrease in the average selling
prices and gross margins of our products, which could in turn have a material
adverse effect on our business, financial condition or results of operations.

      Currently, our customers do not have any obligation to purchase additional
products. Accordingly, we cannot assure you that present or future direct
customers will not terminate their purchasing arrangements with us, or that they
will not significantly reduce or delay the amount of our products that they
order. Any such termination, change, reduction or delay in orders could have a
material adverse effect on our business.

      In addition to being dependent on a small number of distributors and
direct customers for a majority of our net revenue, we believe our products are
distributed to a limited number of competitive service provider customers who
are primarily competitive local exchange carriers. We believe that in 1998,
thirty-five (35) service provider customers, indirectly, accounted for 83% of
our net revenue and that in 1999, approximately seventy-five (75) service
provider customers, indirectly, accounted for 85% of our net revenue. In
particular, we believe that two of these service provider customers each
accounted for more than 10% of our net revenue in 1999. None of these customers
has any obligation to purchase additional products or services. Accordingly,
there can be no assurance that present or future customers will not terminate
their purchasing arrangements with us or our distributors or significantly
reduce or delay the amount of our products that they order. Any such
termination, change, reduction or delay in orders could have a material adverse
effect on our business. We generally provide our distributors with limited stock
rotation and price protection rights, and we have granted certain of our
distributors "most favored customer" terms. There can be no assurance that these
stock rotation rights, price protection rights or most favored customer
provisions will not have a material adverse effect on our business, operating
results or financial condition.

      We believe that average selling prices and gross margins for our products
will decline as such products mature, as volume price discounts in distributor
contracts take effect and as competition intensifies, among other factors. In
1999, we reduced the price of our Access Bank products, and we expect to make
further price reductions in 2000 with respect to certain Access Bank and Wide
Bank products. In addition, discounts to distributors and direct customers vary
among product lines and are based on volume shipments, both of which affect
gross margins. We believe our gross margins are likely to fluctuate based on
product and channel mix. Margins will also likely be reduced from time to time
by new product introductions.

RESULTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                   Year Ended December 31,
                                                               --------------------------------
    (In thousands, except percentages and per share amounts)     1997        1998        1999
                                                               --------    --------    --------
<S>                                                            <C>         <C>         <C>
    Net revenue ............................................   $ 18,719    $ 48,133    $108,815
    Gross Margin as a percentage of revenue ................         49%         52%         58%
    Net income  available to common stockholders ...........        614       5,363      23,565
    Income per share (diluted) .............................   $   0.04    $   0.28    $   0.93
</TABLE>

      For 1999, our net revenue increased to $108.8 million compared to $48.1
million and $18.7 million for the years ended December 31, 1998 and 1997
respectively. For 1999, our net income available to common stockholders
increased to $23.6 million from $5.3 million and $614,000 for the years ended
December 31, 1998 and 1997 respectively. These increases in net revenue and net
income available to common stockholders were due to a significant increase in
the sale of all products, including the Access Navigator product family,
enhancements to existing products and increased acceptance of the Wide Bank
product family. Our gross margin was 58%, 52%, and 49% for the years ended
December 31, 1999, 1998, and 1997 respectively. Contributing to higher net
income for 1999 was a substantial increase in revenue, gross margin and other
income (primarily interest income), partially offset by increased operating
expenses.


                                                                   Page 24 of 47
<PAGE>

NET REVENUE AND COST OF GOODS SOLD

                                             Year Ended December 31,
                                          ------------------------------
    (Dollars in thousands)                  1997       1998       1999
                                          --------   --------   --------
    Net revenue .......................   $ 18,719   $ 48,133   $108,815
    Cost of goods sold ................      9,469     23,067     45,499

      Net revenue for 1999 was $108.8 million. This represented an increase of
$60.7 million or 126% from the $48.1 million of net revenue in 1998. The
increase was due to the introduction of new products, primarily the Access
Navigator in January 1999, along with increases in the sale of existing products
to distributors and other direct customers. Net revenue increased to $48.1 in
1998 from $18.7 million in 1997, representing an increase of $29.4 million or
157%. These increases were attributable to the increased sales of existing
products and enhancements in the Access Bank and Wide Bank product families. We
anticipate that sales for the Wide Bank and Access Navigator product families
will increase at a greater rate than the Access Bank product family. The CACTUS
product family was introduced in December 1999 and we believe trial and
evaluations of this product will convert into customer sales in 2000. The timing
and quantities of orders for our products may vary from quarter to quarter in
the future. This is due to factors such as demand for the products and ordering
patterns of distributors and other direct customers. We believe that this trend
will continue in the future, especially if the percentage of direct sales to end
users increases. The timing of customer orders and our ability to fulfill them
can cause material fluctuations in our operating results; we anticipate that
such fluctuations will occur.

      During 1999, the majority of sales of our products were made through
distributors. Our success depends in part on the continued sales and customer
support efforts of our network of distributors and increasing our sales to our
direct customers. In 1999, Walker and ADC accounted for 27% and 14%
respectively, of net revenue. We expect that the sale of our products will
continue to be made to a small number of distributors and other direct
customers. Accordingly, the loss of, or a reduction in sales to, any of our key
distributors or key direct customers could have a material adverse effect on our
business, financial condition or results of operations. In addition to being
dependent on a small number of distributors for a majority of our net revenue,
we believe that our products are distributed to a limited number of service
provider customers who are primarily competitive local exchange carriers. In
1999, we believe, based on information provided to us by our distributors, that
two of these end user customers' purchases were in excess of 10% of our revenue.

      Costs of goods sold increased to $45.4 million for 1999 compared to $23.1
million for 1998 and $9.5 million in 1997. In each year, the increase was
primarily attributable to increased product shipments, partially offset by cost
reductions in existing product platforms.

                                             Year Ended December 31,
                                         -----------------------------
    (Dollars in thousands)                 1997       1998       1999
                                         -------    -------    -------
    Gross profit .....................   $ 9,250    $25,066    $63,316
    Gross margin .....................        49%        52%        58%

      Our gross profit for 1999 was $63.3 million. This represents an increase
of $38.3 million or 153% from the 1998 gross profit of $25.1 million. Gross
margin increased to 58% in 1999 from 52% in 1998. The increase in gross profit
was driven primarily by increased product shipments and cost reductions and
manufacturing efficiencies. The increase in gross margin percentage were
principally due to material cost reductions for the existing product lines in
addition to increases in manufacturing efficiencies generated by greater
production volumes. Gross profit was approximately $25.1 million in 1998, an
increase from $9.3 million in 1997. This 171% increase was caused by the
increased shipments of our products partially offset by cost reductions. Gross
margins for 1998 and 1997 were 52% and 49%, respectively. We believe that gross
margins will decline if pricing declines occur in our product families at a
greater rate than anticipated cost reductions. New product introductions could
also harm gross margins until production volumes increase. We believe that
average selling prices and gross margins for our products will decline as such
products mature, as volume price discounts in distributor contracts and direct
sales relationships take effect and as competition intensifies, among other
factors. In addition, discounts to distributors vary among product lines and are
based on volume shipments, both of which affect gross margins. Our gross margins
vary between product families. As a result, we believe that our gross margins
are likely to fluctuate in the future based on product mix and channel mix.
Margins will likely be reduced from time to time by new product introductions by
us and our competitors.


                                                                   Page 25 of 47
<PAGE>

RESEARCH AND DEVELOPMENT EXPENSES

                                                  Year Ended December 31,
                                             ---------------------------------
    (Dollars in thousands)                      1997        1998        1999
                                             ---------   ---------   ---------
    Research and development expenses ....   $   2,848   $   5,588   $  13,601
    As a percentage of net revenue .......        15.2%       11.6%       12.5%

      Research and development expenses increased to $13.6 million for 1999 from
$5.6 million for 1998. This increase of $8.0 million or 143% was primarily due
to an increase in the number of personnel engaged in the development of new
products, specifically the InLoop-RT and the CACTUS programs, the addition of a
research and development facility in Tulsa, Oklahoma and personnel added for
enhancing our existing products. Research and development expenses increased
from $2.8 million in 1997 to $5.6 million for 1998. This increase of $2.8
million or 100% was primarily attributable to an increase in the number of
personnel engaged in the development of new products, primarily the Access
Navigator as well as enhancements developed for the existing product families.
Expenditures for prototyping and regulatory compliance also contributed to the
increase, although to a much lesser extent. We expect the amount of research and
development will increase in 2000, especially the first half of 2000, to fund
the development of new products and enhancements for existing product platforms
and the possible additional new research and development facilities.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

<TABLE>
<CAPTION>
                                                                                    Year Ended December 31,
                                                                          --------------------------------------------
    (Dollars in thousands)                                                  1997              1998             1999
                                                                          ---------        ---------         ---------
<S>                                                                       <C>              <C>               <C>
    Sales and marketing expenses..................................        $   2,395        $   6,083         $  11,154
    General and administrative expenses...........................            1,578            3,270             4,637
                                                                          ---------        ---------         ---------
    Total selling, general and administrative expenses............            3,973            9,353            15,791
    As a percentage of net revenue................................            21.2%            19.4%             14.5%
</TABLE>

      Selling, general and administrative expenses increased to $15.8 million in
1999. For 1998 we had selling, general and administrative expenses totaling $9.4
million. This represented an increase of $6.4 million or 69%. Marketing expense
increases reflected increased hiring and marketing activity with respect to the
introduction of the Access Navigator, InLoop-RT and CACTUS product families,
customer support, advertising and trade shows. The increase in sales and
marketing expenses was the result of our expanded sales and marketing activities
and an increase in the size of the sales force and a corresponding increase in
sales salaries, bonuses and commissions.

      We have hired and intend to continue to hire additional sales and
marketing personnel and to continue to aggressively pursue sales and marketing
campaigns. We expect these expenses to increase in absolute dollars in the
future. We also expect general and administrative expenses to increase in
absolute dollars as we continue to add personnel and incur additional costs
related to the expansion of our business and incur increased costs in connection
with the administration of multiple facilities.

STOCK-BASED COMPENSATION

      As discussed in Note 1 to the Consolidated Financial Statements, we
account for our stock-based compensation plans in accordance with Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and
related interpretations. Since inception, we have generally granted stock
options with exercise prices equal to the fair value of the underlying Common
Stock, as determined by our Board of Directors and based on our other equity
transactions. During 1997 and the six months ended June 30, 1998, we granted
options to employees with exercise prices less than the fair value per share
based upon our previous preferred stock offerings and the estimated price per
share in the initial public offering. Accordingly, we have recorded deferred
compensation expense totaling approximately $3.1 million. Such compensation
expense will be recognized pro rata over the 48 month vesting period of the
options. This deferred compensation expense totaled approximately $83,000,
$688,000 and $818,000 for 1997, 1998 and 1999. Related compensation expense will
total approximately $818,000 for each of the years ended December 31, 2000 and
2001. It is our intention to generally grant future stock options with exercise
prices equal to the fair value of the underlying Common Stock on the date of
grant and account for such grants in accordance with generally accepted
accounting principles.

INTEREST AND OTHER INCOME

      Interest and other income increased to $2.3 million in 1999 from $1.2
million in 1998. This increase of $1.1 million was due to interest income earned
on higher cash and cash equivalent balances. Interest and other income increased
to $1.2 million in 1998 from $180,000 in 1997. The increase was primarily due
interest earned on the proceeds of the 1998 initial public offering and cash
reserves generated by operations.

                                                                   Page 26 of 47
<PAGE>

      INCOME TAXES

      For 1999, our effective combined federal and state income tax rate was
33.5%, compared to 34.8% for 1998. In both 1999 and 1998 we realized a benefit
from research and development tax credits and non-taxable interest income. We
had a combined income tax rate in 1997 of 31.3 %. We expect our effective tax
rate to remain in the 32% to 34% range in the future if tax laws and rates do
not materially change. See Note 5 of Notes to Consolidated Financial Statements.

LIQUIDITY AND CAPITAL RESOURCES

      We have funded our operations to date primarily through cash generated
from operations, sales of common and preferred stock and periodic borrowings
under our credit facilities.

                                                           as of December 31,
                                                         ----------------------
    (In thousands)                                          1998         1999
                                                         ---------    ---------
    Working capital...................................   $  60,571    $  90,153
    Cash, cash equivalents and securities.............      53,978       65,321
    Total assets......................................      72,313      108,345

                                                  Years Ended December 31,
                                             ---------------------------------
    (In thousands)                              1997        1998       1999
                                             ---------   ---------   ---------
    Net cash provided (used) by:
        Operating activities..............   $  (3,495)  $   9,553   $  14,176
        Investing activities..............      (3,617)    (22,063)    (22,387)
        Financing activities..............      12,287      37,607       2,470

      CASH FLOWS

      Net cash provided by operating activities for 1999 totaled approximately
$14.2 million, while operating activities in 1998 generated approximately $9.6
million of net cash. Cash provided by operating activities in 1999 was mainly
due to net income, the tax benefit relating to the exercise of stock options and
an increase in accounts payable, partially offset by increases in accounts
receivable, inventory and prepaid expenses. We anticipate that increased sales
to direct customers could increase Days Sales Outstanding and therefore accounts
receivable balances could increase in the future. Cash provided by operating
activities in 1998 was mainly due to net income and increases in accrued
liabilities, and was partially offset by increases in accounts receivable. Cash
used by operating activities in 1997 was primarily due to increases in inventory
and accounts receivable, partially offset by net income and increases in
accounts payable.

      Our inventory levels increased to approximately $9.4 million at December
31, 1999 from approximately $5.1 million at December 31, 1998. The increase was
due primarily to a decision to maintain higher inventory balances for finished
goods in order to fulfill potential customer requirements.

       Cash used by investing activities was approximately $22.4 million for
year ended December 31, 1999 and approximately $22.1 million for 1998. Cash used
by investing activities in both years was primarily the result of purchasing
U.S. Government Agency and corporate bonds with maturities greater than three
months. Our capital expenditures for 1999 were $5.3 million for additions to
facilities and equipment to support our research, development and manufacturing
activities, compared to $1.8 million for 1998. We anticipate that we will need
to expand our facilities in our current and other locations to accommodate
hiring additional personnel throughout the year 2000 to support ongoing
operations. Cash used by investing activities was approximately $3.6 million for
1997, related primarily to purchases of U.S. Government Agency and Corporate
bonds with maturities greater than three months and capital expenditures for
additions to facilities and equipment to support our research, development and
manufacturing activities. We intend to continue to significantly increase our
capital expenditures in 2000 and thereafter for additions to facilities and
equipment to support our research, development and manufacturing activities.

      Cash provided by financing activities was approximately $2.5 million for
1999 and $37.6 million for 1998. Cash provided by financing activities in 1999
was primarily due to the exercise of stock options. Cash provided by financing
activities in 1998 was primarily due to net proceeds from the issuance of Common
Stock in our initial public offering. Net proceeds from the issuance of
preferred stock resulted in the cash provided from financing activities in 1997.

      LIQUIDITY

      At December 31, 1999, our principal sources of liquidity included cash and
marketable securities available for sale of approximately $65.3 million and an
unsecured bank credit facility of $5.0 million, which bears interest either the
prime rate or at the libor rate plus 200 basis points. This working capital line
of credit is limited to a borrowing base determined by the balance of our
eligible receivables and inventory. At December 31, 1999, there was $1.0 million
outstanding under the working capital line. See Note 4 of Notes to Consolidated
Financial Statements.


                                                                   Page 27 of 47
<PAGE>

      At December 31, 1998, our working capital was approximately $60.6 million
and had increased to $90.2 million at December 31, 1999. We have no significant
capital spending or purchase commitments other than normal inventory purchase
commitments under facilities leases. See Note 10 of Notes to Consolidated
Financial Statements.

      We believe that our existing cash, investment balances, and our line of
credit are adequate to fund our projected working capital and capital
expenditure requirements for at least the next 12 months. Although operating
activities may provide cash in certain periods, to the extent we experience
growth in the future, we anticipate that our investing activities may use cash.
Should the need arise, we believe we would be able to borrow additional funds or
otherwise raise additional capital; however, there can be no assurance that
additional funds or capital will be available in adequate amounts and on terms
reasonably acceptable to us. We may consider using our capital to make strategic
investments or to acquire or license technology or products. We may also enter
into strategic alliances with third parties that could provide access to
additional capital. Any such activities could require us to obtain additional
financing. See "Business-Risk Factors-Potential Need for Additional Capital;
Risks Relating to Potential Acquisitions."

ITEM 7A.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

      Market risk represents the risk of loss that may impact the financial
position, results of operations or cash flows of we due to adverse changes in
financial and commodity market prices and rates. Historically, and as of
December 31, 1999, we have had little or no exposure to market risk.
Historically, and as of December 31, 1999, we have not used derivative
instruments or engaged in hedging activities.

ITEM 8.      FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

         INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE

                                                                         Page(s)
                                                                         -------
CONSOLIDATED FINANCIAL STATEMENTS:
   Independent Auditors' Report.............................................. 29
 Consolidated Balance Sheets
   December 31, 1998 and December 31, 1999................................... 31
 Consolidated Statements of Operations
   Years ended December 31, 1997, 1998 and 1999.............................. 32
 Consolidated Statements of Stockholders' Equity (Deficit)
   Years ended December 31, 1997,  1998 and 1999............................. 33
 Consolidated Statements of Cash Flows
   Years ended December 31, 1997, 1998 and 1999.............................. 34
   Notes to Consolidated Financial Statements................................ 35

FINANCIAL STATEMENT SCHEDULE:

    Independent Auditor's Report............................................. 44

SCHEDULE II - - VALUATION AND QUALIFYING ACCOUNTS............................ 45


                                                                   Page 28 of 47
<PAGE>

                          INDEPENDENT AUDITORS' REPORT

THE BOARD OF DIRECTORS
CARRIER ACCESS CORPORATION:

      We have audited the accompanying consolidated balance sheets of Carrier
Access Corporation and subsidiaries as of December 31, 1998 and 1999, and the
related consolidated statements of operations, stockholders' equity (deficit)
and cash flows for each of the years in the three-year period ended December 31,
1999. These consolidated financial statements are the responsibility of Carrier
Access Corporation's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.

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

      In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Carrier
Access Corporation and subsidiaries as of December 31, 1998 and 1999, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1999, in conformity with generally accepted
accounting principles.

                                    KPMG LLP

Boulder, Colorado
January 21, 2000


                                                                   Page 29 of 47
<PAGE>

                           CARRIER ACCESS CORPORATION
                           CONSOLIDATED BALANCE SHEETS
                                 (In Thousands)

                                                               December 31,
                                                          --------------------
                                                             1998       1999
                                                          ---------  ---------
ASSETS
Current assets:
    Cash and cash equivalents                             $  31,201   $  25,460
    Marketable securities available for sale                 22,777      39,861
    Accounts receivable, net of allowances for doubtful
         accounts and returns of $643 and $1,099 in
         1998 and 1999, respectively                          8,493      22,454
Inventory, net (note 2)                                       5,053       9,444
Deferred income taxes (note 5)                                1,198       2,182
Prepaid expenses and other                                      804       1,863
                                                          ---------   ---------
Total current assets                                         69,526     101,264
                                                          ---------   ---------
Property and equipment, net of accumulated depreciation
    and amortization (note 3)                                 2,599       6,890
Deferred income taxes (note 5)                                  118          60
Other assets                                                     70         131
                                                          ---------   ---------
    Total assets                                          $  72,313   $ 108,345
                                                          =========   =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:

    Accounts payable                                      $   3,630   $   4,140
    Accrued compensation payable                              1,838       2,339
    Accrued warranty costs payable                              594         981
    Line-of-credit (note 4)                                      --       1,000
    Cooperative advertising                                     467         271
    Deferred rent concessions (note 10)                         274         412
    Income taxes payable                                      2,000       1,399
    Other liabilities                                           152         569
                                                          ---------   ---------
    Total current liabilities                                 8,955      11,111
                                                          ---------   ---------

Stockholders' equity (note 7):
Common stock $0.001 par value, 60,000,000 authorized
    and 23,630,355 and 24,179,111 shares issued and
    outstanding for December 31, 1998 and 1999,
    respectively                                                 28          29
Additional paid-in-capital                                   59,955      69,447
Deferred compensation                                        (2,377)     (1,559)
Retained earnings                                             5,752      29,317
                                                          ---------   ---------
    Total stockholders' equity                               63,358      97,234
                                                          ---------   ---------
Commitments (note 10)
Total liabilities and stockholders' equity                $  72,313   $ 108,345
                                                          =========   =========

          See accompanying notes to consolidated financial statements.


                                                                   Page 31 of 47
<PAGE>

                           CARRIER ACCESS CORPORATION
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                     (In Thousands, Except Per Share Data)

<TABLE>
<CAPTION>
                                                                      Year Ended December 31,
                                                                -----------------------------------
                                                                   1997         1998        1999
                                                                ---------    ---------    ---------
<S>                                                             <C>          <C>          <C>
Net revenue                                                     $  18,719    $  48,133    $ 108,815
Cost of sales                                                       9,469       23,067       45,499
                                                                ---------    ---------    ---------
    Gross profit                                                    9,250       25,066       63,316
                                                                ---------    ---------    ---------
Operating expenses:
    Sales and marketing                                             2,395        6,083       11,154
    Research and development                                        2,848        5,588       13,601
    General and administrative                                      1,578        3,270        4,637
         Amortization of deferred stock compensation (note 7)          83          688          818
                                                                ---------    ---------    ---------
    Total operating expenses                                        6,904       15,629       30,210
                                                                ---------    ---------    ---------
         Income from operations                                     2,346        9,437       33,106
Interest income                                                       174        1,213        2,354
Other income (expense), net                                             6           11          (24)
                                                                ---------    ---------    ---------
         Income before income taxes                                 2,526       10,661       35,436
Income tax expense (note 5)                                           791        3,712       11,871
                                                                ---------    ---------    ---------
   Net income                                                       1,735        6,949       23,565
Preferred stock dividend requirement (note 6)                      (1,121)      (1,586)          --
                                                                ---------    ---------    ---------
   Net income available to common stockholders                  $     614    $   5,363    $  23,565
                                                                =========    =========    =========
Income per share:
   Basic                                                        $    0.04    $    0.29    $    0.98
   Diluted                                                      $    0.04    $    0.28    $    0.93
Weighted average common shares outstanding:
   Basic                                                           14,132       18,253       23,939
   Diluted                                                         14,713       19,387       25,223
</TABLE>

          See accompanying notes to consolidated financial statements.


                                                                   Page 32 of 47
<PAGE>

                           CARRIER ACCESS CORPORATION
            CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
                  YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
                                 (In Thousands)

<TABLE>
<CAPTION>
                                                           Common Stock      Additional   Deferred                   Total
                                                       --------------------   Paid-in   Stock Option  Retained   Stockholders'
                                                        Shares      Amount    Capital   Compensation  Earnings  Equity (Deficit)
                                                       --------    --------   --------  ------------  --------  ----------------
<S>                                                    <C>         <C>         <C>        <C>         <C>         <C>
       BALANCES AT JANUARY 1, 1997 .................     14,025    $     19    $    --    $     --    $   (177)   $   (158)
Exercise of stock options ..........................        275          --         69          --          --          69
Deferred stock compensation related to stock options
  issued at less than fair value (note 7) ..........         --          --      1,227      (1,227)         --          --
Amortization of deferred stock compensation ........         --          --         --          83          --          83
  (note 7)
Preferred stock dividend requirement (note 6) ......         --          --         --          --      (1,121)     (1,121)
Distribution to stockholders .......................         --          --         --          --         (48)        (48)
Net income .........................................         --          --         --          --       1,735       1,735
                                                       --------    --------   --------    --------    --------    --------
       BALANCES AT DECEMBER 31, 1997 ...............     14,300          19      1,296      (1,144)        389         560
Exercise of stock options ..........................        299          --         64          --          --          64
Deferred stock compensation related to stock options
  issued at less than fair value (note 7) ..........         --          --      1,921      (1,921)         --          --
Amortization of deferred stock compensation
  (note 7) .........................................         --          --         --         688          --         688
Preferred stock dividend requirement (note 6) ......         --          --         --          --      (1,586)     (1,586)
Issuance of common stock in initial public offering,
  net of offering costs (note 6) ...................      3,450           3     37,599          --          --      37,602
Conversion of preferred stock to common stock
  (note 6) .........................................      5,593           6     18,939          --          --      18,945
Purchase and retirement of common stock ............        (12)         --        (59)         --          --         (59)
Tax benefit from exercise of stock options (note 5)          --          --        195          --          --         195
Net income .........................................         --          --         --          --       6,949       6,949
                                                       --------    --------   --------    --------    --------    --------
       BALANCES AT DECEMBER 31, 1998 ...............     23,630          28     59,955      (2,377)      5,752      63,358
Exercise of stock options ..........................        549           1      1,469          --          --       1,470
Amortization of deferred stock compensation
  (note 7) .........................................         --          --         --         818          --         818
Tax benefit from exercise of stock options (note 5)          --          --      8,023          --          --       8,023
Net income .........................................         --          --         --          --      23,565      23,565
                                                       --------    --------   --------    --------    --------    --------
       BALANCES AT DECEMBER 31, 1999 ...............   $ 24,179    $     29   $ 69,447    $ (1,559)   $ 29,317    $ 97,234
                                                       ========    ========   ========    ========    ========    ========
</TABLE>

          See accompanying notes to consolidated financial statements.


                                                                   Page 33 of 47
<PAGE>

                           CARRIER ACCESS CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In Thousands)

<TABLE>
<CAPTION>
                                                                                            Year Ended December 31,
                                                                                       --------------------------------
                                                                                         1997        1998        1999
                                                                                       --------    --------    --------
<S>                                                                                    <C>         <C>         <C>
Cash flows from operating activities:
    Net income .....................................................................   $  1,735    $  6,949    $ 23,565
    Adjustments to reconcile net income  to net cash
        provided (used) by operating activities:
    Depreciation and amortization expense ..........................................        421         470       1,012
    Provision for doubtful accounts and returns ....................................        382         246         456
    Provision for inventory obsolescence ...........................................         --         576          41
    Compensation expense related to stock options issued at less than fair value....         83         688         818
    Deferred income tax benefit ....................................................       (237)     (1,079)       (926)
    Tax benefit relating to exercise of stock options ..............................         --         195       8,023
    Changes in operating assets and liabilities:
      Accounts receivable ..........................................................     (4,000)     (4,093)    (14,417)
      Inventory ....................................................................     (4,573)      1,155      (4,432)
      Prepaid expenses and other ...................................................        (59)       (747)     (1,120)
      Accounts payable .............................................................      2,083         945         510
      Accrued warranty costs payable ...............................................        230         308         387
      Accrued compensation payable .................................................        203       1,457         501
      Cooperative advertising ......................................................        159         308        (196)
      Deferred rent concessions ....................................................         78          57         138
      Income taxes payable .........................................................         --       2,000        (601)
      Other liabilities ............................................................         --         118         417
                                                                                       --------    --------    --------
      Net cash provided (used by) operating activities .............................     (3,495)      9,553      14,176
                                                                                       --------    --------    --------
Cash flows from investing activities:
    Purchase of equipment ..........................................................     (1,065)     (1,802)     (5,303)
    Sales (purchases) of securities available for sale, net ........................     (2,514)    (20,261)    (17,084)
    Other ..........................................................................        (38)         --          --
                                                                                       --------    --------    --------
      Net cash used by investing activities ........................................     (3,617)    (22,063)    (22,387)
                                                                                       --------    --------    --------
Cash flows from financing activities:
    Proceeds from issuance of preferred stock, net .................................     12,514          --          --
    Proceeds from issuance of common stock, net ....................................         --      37,602          --
    Proceeds from exercise of stock options ........................................         69          64       1,470
    Purchase and retirement of common stock ........................................         --         (59)         --
    Distributions to stockholders ..................................................        (48)         --          --
    Proceeds from short-term borrowings ............................................      1,900          --       1,000
    Payments on short-term borrowings ..............................................     (2,148)         --          --
                                                                                       --------    --------    --------
      Net cash provided by financing activities ....................................     12,287      37,607       2,470
                                                                                       --------    --------    --------
      Net increase(decrease) in cash and cash equivalents ..........................      5,175      25,097      (5,741)
Cash and cash equivalents at beginning of year .....................................        929       6,104      31,201
                                                                                       ========    ========    ========
Cash and cash equivalents at end of year ...........................................   $  6,104    $ 31,201    $ 25,460
                                                                                       ========    ========    ========
Supplemental disclosure of cash flow and financing activities information:
    Cash paid for income taxes .....................................................   $    948    $  2,616    $  5,330
                                                                                       ========    ========    ========
    Conversion of debt and accrued interest payable into preferred stock ...........   $     --    $     --    $     --
                                                                                       ========    ========    ========
    Conversion of preferred stock to common stock ..................................   $     --    $ 18,945    $     --
                                                                                       ========    ========    ========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                                                   Page 34 of 47
<PAGE>

                           CARRIER ACCESS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1997, 1998 and 1999

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     a. Business and Basis of Presentation. Carrier Access Corporation ("CAC" or
the "Company") is a leading provider of broadband digital access equipment to
communications service providers, including competitive local exchange carriers
, Internet service providers, IOCs, IXEs and wireless service providers, which
is used for the provisioning of enhanced voice and high-speed Internet services
by service providers to end users such as small and medium-sized businesses and
government and educational institutions. The Company sells its products through
distributors and directly to end user customers. The Company operates in one
business segment and substantially all of its sales and operations are domestic.

     The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.

     The preparation of consolidated 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 consolidated financial statements and disclosures of contingent
assets and liabilities and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.

     b. Cash and Cash Equivalents and Marketable Securities Available for Sale.
Cash and cash equivalents include investments in highly liquid debt securities
with maturities or interest reset dates of three months or less at the time of
purchase.

     Marketable securities available for sale represent U.S. Government Agency
and Corporate bonds with maturities of greater than three months and are
recorded at the lower of amortized cost or market value. At December 31, 1998
and 1999, amortized cost approximates market value. Securities available for
sale consisted of the following as of December 31 (in thousands):

                         Amortized Cost and Market Value    1999 Interest Rates
                         -------------------------------    -------------------

                              1998        1999
                            --------    --------
Medium Term Notes           $  1,677    $  8,500               4.43% to 4.70%
Corporate Notes                5,943       4,622                        5.99%
Municipal Bonds               12,257      18,339               3.59% to 4.73%
Other                          2,900       8,400                        3.75%
                            --------    --------
                            $ 22,777    $ 39,861
Total                       ========    ========


      c. Inventory. Inventory is recorded at the lower of cost or market using
standard costs that approximate average costs. Costs include certain warehousing
costs and other allocable overhead.

      d. Property and equipment. Property, equipment and leasehold improvements
are recorded at cost and are depreciated and amortized using the straight-line
method over useful lives ranging from three to thirty years or the lease term.
Depreciation and amortization expense for the years ended December 31, 1997,
1998 and 1999 totaled $186,000, $470,000 and $1,012,000, respectively.

      e. Revenue Recognition. Revenue from sales of products is recognized upon
shipment. Reserves for estimated sales returns through stock rotation are
recorded when sales are made to customers with the right of return and are based
on management's estimate of expected returns and historical experience.

      The Company provides limited price protection to its distributors, whereby
increases in prices are subject to a 60-day notice period before becoming
effective. In addition, the distributor is also entitled to receive a credit for
subsequent price decreases to the extent of unsold distributor inventory at the
time of the price decrease. The Company also provides its distributors with
limited stock rotation rights, whereby products may be returned for an equal
dollar amount of new or different equipment. Customers are limited to three
exchanges per year and an amount equal to 15% of purchases in the preceding four
month period. Neither of these rights affect the total sales price or payment
obligations of the customer. In addition, the customers' obligation to the
Company is not contingent upon the ultimate resale of the products. The Company
provides for the estimated impact of price protection and stock rotation rights
in its allowance for estimated returns based on historical experience and
management's forecasts of price protection credits and returns.


                                                             Page 35 of 47
<PAGE>

      f. Advertising Costs. In addition to its own advertising activities, the
Company accrues a specified percentage of the previous quarter's sales over
certain contractual minimums to reimburse distributors for a portion of their
advertising costs. Any unused allowance expires if not used during the following
six months. Cooperative advertising expense for the years ended December 31,
1997, 1998 and 1999 totaled $217,687, $342,442 and $269,224, respectively, and
is included in sales and marketing expenses.

      g. Research and Development Costs. Research and development costs are
charged to operations as incurred.

      h. Long-Lived Assets. The Company accounts for long-lived assets under the
provisions of Statement of Financial Accounting Standards No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of (SFAS 121), which requires that long-lived assets and certain identifiable
intangibles held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying value of an asset
may not be recoverable. An impairment loss is generally recognized when
estimated undiscounted future cash flows expected to be generated by the asset
is less than its carrying value. Measurement of impairment loss is based on the
fair value of the asset, which is generally determined using valuation
techniques such as the discounted present value of expected future cash flows.

      i. Income Taxes. The Company accounts for income taxes under the
provisions of Statement of Financial Accounting Standards No. 109, Accounting
for Income Taxes (SFAS 109). Under the asset and liability method of SFAS 109,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the consolidated financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. Under SFAS
109, the effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment date. A
valuation allowance is required to the extent any deferred tax assets may not be
realizable.

      j. Income Per Share, Common Stock Split and Re-Incorporation. Income per
share (EPS) is presented in accordance with Statement of Financial Accounting
Standards (SFAS) No. 128, Earnings Per Share (SFAS 128). SFAS 128 requires the
presentation of basic and diluted EPS. Under SFAS 128, basic EPS excludes
dilution for potential common shares and is computed by dividing income or loss
available to common shareholders by the weighted average number of common shares
outstanding during the period. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted and resulted in the issuance of common stock. Diluted
income per share includes the impact of common stock options and excludes the
impact of redeemable preferred stock, as the effect of the assumed conversion of
the preferred stock and the elimination of the related dividend requirement
would be antidilutive.

      k. Stock-Based Compensation. The Company accounts for its stock-based
employee compensation plan using the intrinsic value based method prescribed by
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees (APB 25), and related interpretations. The Company has provided pro
forma disclosures of net income and income per share, as if the fair value based
method of accounting for the plan, as prescribed by Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS
123), had been applied.

      Stock options issued to consultants and others for services are recorded
at fair value as prescribed by SFAS 123. Charges to operations associated with
these option grants were not significant during the years ended December 31,
1997, 1998 and 1999.

      l. Warranty Costs. The Company provides limited warranty protection to
customers for a period of up to five years from the date of sale for parts and
labor. The Company has accrued for its warranty obligations based on historical
experience and management's estimate of future warranty costs to be incurred.


                                                                   Page 36 of 47
<PAGE>

2.   INVENTORY

     The components of inventory as of December 31, are summarized as follows
(in thousands):

                                                       1998           1999
                                                      ------         ------
Raw materials...............................          $3,327         $5,109
Work-in-process.............................              93             25
Finished goods..............................           2,209          4,927
Reserve for obsolescence....................            (576)          (617)
                                                      ------         ------
                                                      $5,053         $9,444
                                                      ======         ======

3.   PROPERTY AND EQUIPMENT

     Property and equipment as of December 31, consisted of the following (in
thousands):

                                                      1998           1999
                                                     ------         ------

Machinery and software......................         $2,706         $6,831

Real property...............................            270            270

Furniture, fixtures and other...............            295            478

Leasehold improvements......................            174          1,165
                                                     ------         ------

                                                      3,445          8,744

Less accumulated depreciation...............           (846)        (1,854)
                                                     ------         ------

                                                     $2,599         $6,890
                                                     ======         ======

4.   DEBT

     In 1999, the Company entered into a credit agreement with a bank that
provides for a $5.0 million revolving line of credit. The revolving line of
credit has two interest options, either prime rate or the libor rate plus 200
basis points, matures in 2000, and is secured by certain assets of the Company.
Borrowings of $1.0 million were outstanding under the revolving line of credit
at December 31, 1999.

     The above credit agreement contains certain restrictive covenants,
including the maintenance of various financial ratios and does not permit the
payment of any dividends without the prior written consent of the lender.

5.   INCOME TAXES

     Income tax expense consists of the following for the years ended December
31, (in thousands):

                                                  1997      1998       1999
                                                -------    -------    -------
Current                                         $ 1,028    $ 4,791    $12,797
Deferred....................................       (237)    (1,079)      (926)
                                                -------    -------    -------
     Income tax expense.....................    $   791    $ 3,712    $11,871
                                                =======    =======    =======

         A reconciliation of expected income tax expense calculated by applying
the statutory Federal tax rate to actual income tax expense for the years ended
December 31, is as follows (in thousands):

                                                       1997     1998     1999
                                                     -------  -------  -------
Expected income tax expense........................  $   859  $ 3,631  $12,403
State income taxes, net of federal tax benefit.....       64      386    1,160
Change in valuation allowance .....................      (67)      --       --
Research and development tax credit................     (112)    (286)  (1,232)
Other, net.........................................       47      (19)    (460)
                                                     -------  -------  -------
  Actual income tax expense........................  $   791  $ 3,712  $11,871
                                                     =======  =======  =======


                                                                   Page 37 of 47
<PAGE>

     The tax effects of significant temporary differences that result in
deferred tax assets and liabilities at December 31, are as follows (in
thousands):

                                                             1998       1999
                                                           --------   --------
Deferred tax assets:
     Allowance for doubtful accounts ...................   $    241   $    519
     Inventory reserves ................................        321        237
     Accrued warranty and co-operative advertising......        398        386
     Other accrued expenses ............................        111         --
     Compensation accruals .............................        361        907
     Research & experimentation credit..................         --        432
     Other, net ........................................         55        166
                                                           --------   --------
          Total deferred tax asset .....................   $  1,487   $  2,647
                                                           --------   --------
Deferred tax liabilities:
     Property and equipment ............................       (149)      (349)
     Other, net ........................................        (22)       (56)
                                                           --------   --------
          Total deferred tax liabilities ...............       (171)      (405)
                                                           --------   --------
          Net deferred tax asset .......................   $  1,316   $  2,242
                                                           ========   ========

For the years ended December 31, 1998 and 1999, the Company recognized $195,000
and $8,023,000 as a direct increase to paid-in capital for the income tax
benefit resulting from the exercise of non-qualified stock options by employees.

6.    REDEEMABLE PREFERRED STOCK AND INITIAL PUBLIC OFFERING

      During 1995, the Company authorized a new class of preferred stock,
consisting of 5,000,000 convertible Series A preferred shares with a par value
of $0.10 per share. The preferred shares were convertible, at the option of the
holder, into shares of common stock which was subject to the three-for-two
forward split. The preferred shares were redeemable at the option of a majority
of the preferred stockholders, any time after four years from the date of
issuance, provided that the Company had not achieved certain financial results
or completed a public offering of common stock, both as defined.

      On June 21, 1996, the Company completed a private placement of 1,210,861
shares of Series A preferred stock at a price of $2.86 per share, for net
proceeds of $3,049,406. The private placement included 135,678 preferred shares
issued to noteholders. In the event of the Company's liquidation, or redemption
of the preferred shares, the Series A preferred stockholders were entitled to
$2.86 per share plus unpaid dividends equal to 15% of the liquidation value per
annum.

      During 1997, the Company amended its articles of incorporation to
authorize a new class of preferred stock, consisting of 2,725,998 convertible
Series B preferred shares with a par value of $0.10 per share. On September 16,
1997, the Company completed a private placement of 2,517,894 shares of Series B
preferred stock at a price of $4.99 per share, for net proceeds of $12,514,291.
In the event of the Company's liquidation, or redemption of the preferred
shares, the Series B stockholders were entitled to $4.99 per share plus unpaid
dividends equal to 15% of the liquidation value per annum.

      In August 1998, the Company completed its initial public offering of
3,450,000 shares of common stock at $12.00 per share, for net proceeds of
approximately $37.6 million. Aggregate offering costs were approximately $3.8
million.

      In connection with the initial public offering, 1,210,861 shares of Series
A preferred stock and 2,517,894 shares of Series B preferred stock with a
liquidation value of $2.86 and $4.99 per share, respectively, were converted
into common stock, resulting in the issuance of 5,593,133 shares of common stock
to the preferred stockholders.

7.    STOCK OPTIONS

      Pursuant to the Company's 1995 stock option plan (the "Plan"), a committee
appointed by the Company's Board of Directors may grant incentive and
nonqualified options to employees, consultants and directors. The Plan currently
authorizes the grant of options up to 4,875,000 shares of authorized common
stock. Incentive stock options have a ten-year term and non-qualified stock
options have a five-year term. A majority of the stock options vest 25% on the
first anniversary date of the grant and 6.25% each quarter thereafter, with the
remaining stock options vesting 100% five years from the grant date. As of
December 31, 1999, an aggregate of 4,942,700 options had been granted under the
Plan of which 1,211,250 were incentive stock options and 3,731,450 were
non-qualified stock options.

                                                                  Page 37 of 46
<PAGE>

      The following summarizes stock option activity under the Plan:

<TABLE>
<CAPTION>
                                                                    Shares        Weighted Average
                                                                 Under Option      Exercise Price
                                                                 ------------      --------------
<S>                                                                  <C>                <C>
Options outstanding at January 1, 1997......................         764,250            $0.25
     Granted................................................         927,675             0.50
     Exercised..............................................        (274,689)            0.25
     Canceled...............................................         (73,284)            0.33
                                                                  ----------
Options outstanding at December 31, 1997....................       1,343,952             0.42
     Granted................................................       1,413,150             8.82
     Exercised..............................................        (298,856)            0.22
     Canceled...............................................        (658,906)            3.33
                                                                  ----------
Options outstanding at December 31, 1998....................       1,799,340             5.99
     Granted................................................       1,084,050            40.19
     Exercised..............................................        (548,847)            2.68
     Canceled...............................................        (414,427)           20.86
                                                                  ----------
Options outstanding at December 31, 1999 ...................       1,920,116            22.99
                                                                  ----------
Options available for grant at December 31, 1999 ...........       1,683,909
                                                                  ----------
</TABLE>

     The following summarizes information about outstanding options at December
31, 1999:

<TABLE>
<CAPTION>
                                              Weighted-
                                               average
    Range of Exercise          Number          remaining       Number vested and   Weighted-average
         Prices             outstanding    contractual life       exercisable       exercise price
-------------------------- --------------- ------------------ -------------------- -----------------
<S>                             <C>               <C>                   <C>                <C>
$ 0.00 - $ 6.00                 594,602           3.1                   591,977            $ 2.70
$ 6.00 - $12.00                 247,264           3.5                   225,606            $10.90
$12.00 - $18.00                  59,625           3.4                     5,963            $14.25
$18.00 - $24.00                  39,325           3.8                     7,375            $24.00
$24.00 - $30.00                  30,000           4.0                     7,500            $28.75
$30.00 - $36.00                 307,750           4.2                    31,750            $31.51
$36.00 - $42.00                 518,000           4.1                        --               $--
$42.00 - $54.00                  53,550           4.9                        --               $--
$54.00 - $60.00                  70,000           4.2                        --               $--
</TABLE>

      As discussed in Note 1, the Company applies APB 25 and related
interpretations in accounting for stock options issued to employees and
directors. As a result, for options issued with exercise prices below the
estimated fair market value on the date of grant, the Company recorded deferred
compensation expense totaling approximately $1,227,000 for options granted
during the year ended December 31, 1997, and $1,921,000 for options granted
during the year ended December 31, 1998. Such deferred compensation expense will
be amortized to operations pro rata over the forty-eight month option vesting
period. Such amortization expense totaled approximately $83,000, $688,000 and
$818,000 for the years ended December 31, 1997, 1998 and 1999, respectively.


                                                                   Page 39 of 47
<PAGE>

      The weighted average fair values of options granted during 1997, 1998 and
1999 were $0.30, $6.28 and $30.61 per share, respectively, using the
Black-Scholes option-pricing model with the following assumptions: no expected
dividends, no volatility in 1997, 89.5% volatility in 1998 and 99.4% volatility
in 1999, expected life of the options of three years in 1997, five years in 1998
and 1999 and a risk-free interest rate of 6.0% for all years. Had compensation
cost for the Company's stock-based compensation plan been determined based upon
the fair value of options on the grant dates, consistent with the provisions of
SFAS 123, the Company's 1997, 1998 and 1999 pro forma net income would have been
as follows (in thousands, except per share data):

                                                  Year Ended December 31,
                                               ---------------------------
                                                 1997      1998      1999
                                               -------   -------   -------
Net income available to common stockholders:
   As reported .............................   $   614   $ 5,363   $23,565
   Pro forma ...............................       577     5,039    14,779
Income per common share:
   As reported:
        Basic ..............................   $  0.04   $  0.29   $   .98
        Diluted ............................      0.04      0.28       .93
   Pro forma:
        Basic ..............................   $  0.04   $  0.28   $   .62
        Diluted ............................      0.04      0.26       .59

8.    SIGNIFICANT CUSTOMERS, SUPPLIERS AND CONCENTRATION OR CREDIT RISK

      Our customers are primarily distributors and an original equipment
manufacturer, who resell the Company's products to end users. The Company
recognized revenue from the following significant customers for the years ended
December 31:

   Company                                          1997       1998       1999
   -------                                        -------    -------    -------
        A.....................................    $ 6,840    $20,749    $29,877
        B.....................................      2,698      7,369      9,858
        C.....................................      1,253      6,360      3,660
        D.....................................      3,802      2,337     15,195

      Although the Company generally uses standard parts and components for its
products, many key components are purchased from sole or single source vendors
for which alternative sources may not currently be available. The identification
and utilization of new suppliers for such items could adversely effect the
Company's future operating results.

      The Company is exposed to potential concentrations of credit risk from its
accounts receivable with its various customers and receivables are concentrated
in customers in the telecommunications industry. To reduce this risk, the
Company has a policy of assessing the creditworthiness of its customers and
monitors the aging of its accounts receivable for potential uncollectable
accounts.

9.    EMPLOYEE BENEFIT PLAN

      In May 1996, the Company adopted a defined contribution employee benefit
plan (the Plan) under Section 401(k) of the Internal Revenue Code which is
available to all employees who meet the Plan's eligibility requirements.
Employees may contribute up to the maximum limits allowed by the Internal
Revenue Code. The Company may make discretionary employer matching contributions
to the Plan. The Company made no contributions to the Plan in 1997, 1998 or
1999.

                                                                   Page 40 of 47
<PAGE>

10.   COMMITMENTS

      The Company leases office space under various noncancelable operating
leases that expire through 2009. Future obligations under these leases are as
follows (in thousands):

            Year Ending December 31:
                  1999............................           $    896
                  2000............................              1,076
                  2001............................              1,064
                  2002............................              1,110
                  2003............................              1,159
                  Thereafter......................              5,526
                                                             --------
                                                             $ 10,831
                                                             ========

The Company records rent expense under noncancelable operating leases using the
straight-line method after consideration of increases in rental payments over
the lease term, and records the difference between actual payments and rent
expense as deferred rent concessions.

     Rent expense for the years ended December 31, 1997, 1998 and 1999 totaled
$547,130, $555,483 and $977,889, respectively.

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

         None.


                                                                   Page 41 of 47
<PAGE>

                                    PART III.

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

      The information required by this item concerning our directors and
executive officers is incorporated by reference to the information set forth in
the sections entitled "Proposal One--Election of Directors" and "Section 16(a)
Beneficial Ownership Reporting Compliance" in our Proxy Statement for the 2000
Annual Meeting of Stockholders to be filed with the Commission within 120 days
after the end of our fiscal year ended December 31, 2000 (the "2000 Proxy
Statement"), except that certain information required by this item concerning
our executive officers is incorporated by reference to the information set forth
in the section entitled "Executive Officers of the Company" at the end of Part I
of this Annual Report on Form 10-K.

ITEM 11.  EXECUTIVE COMPENSATION

      The information required by this item regarding executive compensation is
incorporated by reference to the information set forth in the sections entitled
"Proposal One--Election of Directors--Director Compensation" and "Executive
Officer Compensation" in our 2000 Proxy Statement.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      The information required by this item regarding security ownership of
certain beneficial owners and management is incorporated by reference to the
information set forth in the section entitled "Share Ownership of Principal
Stockholders and Management" in our 2000 Proxy Statement.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      The information required by this item regarding certain relationships and
related transactions is incorporated by reference to the information set forth
in the section entitled "Transactions with Management" in our 2000 Proxy
Statement.


                                                                   Page 42 of 47
<PAGE>

                                    PART IV.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

         (a)    The following documents are filed as part of this Form 10-K:

                1.    Consolidated Financial Statements. The following
                      consolidated financial statements of the Company and the
                      Independent Auditors' Report therein are filed as part of
                      this Form 10-K:

                                                                            Page
                                                                            ----

Independent Auditors' Report................................................. 29

Consolidated Balance Sheets as of December 31, 1998 and 1999................. 31

Consolidated Statements of Operations for the years ended December 31,
  1997, 1998 and 1999........................................................ 32

Consolidated Statements of Stockholders' Equity (Deficit) for the years
  ended December 31, 1997, 1998 and 1999..................................... 33

Consolidated Statements of Cash Flows for the years ended
  December 31, 1997, 1998 and 1999........................................... 34

Notes to Consolidated Financial Statements................................... 35

                2.    Consolidated Financial Statement Schedule. The following
                      consolidated financial statement schedule of the Company
                      for the years ended December 31, 1997, 1998 and 1999 filed
                      as part of this Form 10-K should be read in conjunction
                      with the Consolidated Financial Statements, and related
                      notes thereto, of the Company.

                      Schedule II - Valuation and Qualifying Accounts for the
                      years ended December 31, 1997, 1998 and 1999.

                      Schedules other than those listed above have been omitted
                      since they are either not required, not applicable, or the
                      information is otherwise included.

                3.    Exhibits. The exhibits listed on the accompanying index to
                      exhibits immediately following the consolidated financial
                      statement schedule are filed as part of, or incorporated
                      by reference into, this Form 10-K.

         (b)    Reports on Form 8-K. No Reports on Form 8-K were filed during
                the fourth quarter ended December 31, 1999.


                                                                   Page 43 of 47
<PAGE>

                          INDEPENDENT AUDITORS' REPORT

THE BOARD OF DIRECTORS
CARRIER ACCESS CORPORATION:

      Under date of January 21, 2000, we reported on the consolidated balance
sheets of Carrier Access Corporation and subsidiaries as of December 31, 1998
and 1999, and the related consolidated statements of operations, stockholders'
equity (deficit) and cash flows for each of the years in the three-year period
ended December 31, 1999, as contained in the Company's Annual Report on Form
10-K for 1999. In connection with our audits of the aforementioned consolidated
financial statements, we also audited the related consolidated financial
statement Schedule II-Valuation and Qualifying Accounts. This consolidated
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on this consolidated financial
statement schedule based on our audits.

      In our opinion, such consolidated financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.

                                    KPMG LLP

Boulder, Colorado
January 21, 2000


                                                                   Page 44 of 47
<PAGE>

                                                                     SCHEDULE II
                           CARRIER ACCESS CORPORATION
                        VALUATION AND QUALIFYING ACCOUNTS
                                 (In Thousands)

<TABLE>
<CAPTION>
                                                  Balance At         Additions        Bad Debts         Balance At
                                                  Beginning         Charged to     Write-offs, and         End
Allowance for doubtful accounts and returns:      of Period        Operations (1)     Returns (1)       of Period
                                               ----------------   ---------------   --------------    --------------
<S>                                            <C>                <C>               <C>               <C>
Year Ended:
December 31, 1997 ..........................   $             20   $           817   $         (439)   $          398
                                               ================   ===============   ==============    ==============
December 31, 1998 ..........................   $            398   $         2,305   $       (2,060)   $          643
                                               ================   ===============   ==============    ==============
December 31, 1999 ..........................   $            643   $         1,077   $         (621)   $        1,099
                                               ================   ===============   ==============    ==============


Inventory Obsolescence Reserve:
   Year Ended:
December 31, 1997 ..........................   $             --   $            --   $           --    $           --
                                               ================   ===============   ==============    ==============
December 31, 1998 ..........................   $             --   $           805   $         (229)   $          576
                                               ================   ===============   ==============    ==============
December 31, 1999 ..........................   $            576   $           794   $         (753)   $          617
                                               ================   ===============   ==============    ==============
</TABLE>

(1)   Includes provisions for stock rotations and other sales returns, and
      actual returns which were charged against revenue. (See note 1(e) to the
      Company's Consolidated Financial Statements included in Part II of this
      Annual Report).

      See accompanying independent auditors report.


                                                                   Page 45 of 47
<PAGE>

                                  EXHIBIT INDEX

Exhibit
 Number                           Description of Document
 ------                           -----------------------

   3.1           Registrant's Amended and Restated Certificate of Incorporation
                 as filed with the Secretary of State of Delaware on August 5,
                 1998 (which is incorporated herein by reference to Exhibit 3.1
                 to the Registrant's Registration Statement on Form S-1, Reg.
                 No. 333-53947 ("Registrant's 1998 S-1")).

   3.2           Registrant's Bylaws (which is incorporated herein by reference
                 to Exhibit 3.2 to the Registrant's 1998 S-1).

   4.1           Form of Registrant's Specimen Common Stock Certificate (which
                 is incorporated herein by reference to Exhibit 4.1 to the
                 Registrant's 1998 S-1).

   4.2           Amended and Restated Investor Rights Agreement, among the
                 Registrant and the investors and founders named therein, dated
                 September 16, 1997 (which is incorporated herein by reference
                 to Exhibit 4.2 to the Registrant's 1998 S-1).

  10.1           ?Form of Diamond Level Distributor Agreement (which is
                 incorporated herein by reference to Exhibit 10.1 to the
                 Registrant's 1998 S-1).

  10.2           Form of Platinum Level OEM Agreement (which is incorporated
                 herein by reference to Exhibit 10.2 to the Registrant's 1998
                 S-1).

  10.3           Line of Credit Agreement with Bank One for $5,000,000 dated
                 July 2, 1998 (which is incorporated herein by reference to
                 Exhibit 10.3 to the Registrant's 1998 S-1).

  10.4           Lease Agreement between Carrier Access Corporation and
                 Cottonwood Land and Farms Ltd. for facilities at 5395 Pearl
                 Parkway, Boulder, Colorado, dated June 1, 1995 (which is
                 incorporated herein by reference to Exhibit 10.4 to the
                 Registrant's 1998 S-1).

  10.5           Amendment to Lease Agreement between Carrier Access Corporation
                 and Cottonwood Land and Farms Ltd. Dated September 20, 1995
                 (which is incorporated herein by reference to Exhibit 10.5 to
                 the Registrant's 1998 S-1).

  10.6           Registrant's 1995 Stock Option Plan (which is incorporated
                 herein by reference to Exhibit 10.6 to the Registrant's 1998
                 S-1).

  10.7           Registrant's 1998 Stock Option Plan (which is incorporated
                 herein by reference to Exhibit 10.7 to the Registrant's 1998
                 S-1).

  10.8           Amendment to Lease Agreement between Carrier Access Corporation
                 and Cottonwood Land and Farms Ltd. Dated October 25, 1998.

  10.9           Form of Directors' and Officers' Indemnification Agreement
                 (which is incorporated herein by reference to Exhibit 10.9 to
                 the Registrant's 1998 S-1).

  10.10          Lease Agreement between Carrier Access Corporation and TC
                 Boulder Warehouse, LP, a Delaware limited partnership for
                 facilities at 6837 Winchester Circle, Boulder, Colorado, dated
                 November 13, 1998.

  10.11*         Line of Credit Agreement with Bank One for $5,000,000 dated
                 July 2, 1999

  23.1*          Consent of KPMG LLP, Independent Certified Public Accountants.

  24.1*          Power of Attorney. Reference is made to the following Signature
                 Page.

  27.1*          Financial Data Schedule. (In EDGAR format only)

------------------
* Filed herewith.


                                                                   Page 46 of 47
<PAGE>

                                    SIGNATURE

      Pursuant to the requirements of section 13 or 15(d) of the Securities Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Boulder, State of
Colorado, on this 30th day of March 1999.

                                      CARRIER ACCESS CORPORATION
                                             (Registrant)


                                 By:             /s/ Nancy Pierce
                                      ------------------------------------------
                                      Nancy Pierce
                                      Vice President-Finance and Administration,
                                      and Chief Financial Officer, Treasurer
                                      (Principal Financial and Accounting
                                      Officer), Secretary and Director


                                POWER OF ATTORNEY

      Know all men by these presents, that each person whose signature appears
below constitutes and appoints Nancy Pierce, his or her attorney-in-fact, with
power of substitution in any and all capacities, to sign any amendments to this
Annual Report on Form 10-K, and to file the same with exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that the attorney-in-fact or his
or her substitute or substitutes may do or cause to be done by virtue hereof.

      Pursuant to the requirements of the Securities Act of 1934, this report
has been signed by the persons whose signatures appear below, which persons have
signed such report on March 30, 1999 in the capacities indicated:

             Signature                             Title
             ---------                             -----

        /s/ Roger L. Koenig
----------------------------------
         (Roger L. Koenig)            President, Chief Executive Officer
                                      (Principal Executive Officer) and Chairman
                                      of the Board of Directors


         /s/ Nancy Pierce
----------------------------------
          (Nancy Pierce)              Vice President-Finance and Administration,
                                      Chief Financial Officer, Treasurer
                                      (Principal Financial and Accounting
                                      Officer), Secretary and Director


       /s/ Douglas Carlisle
----------------------------------
        (Douglas Carlisle)            Director


        /s/ Joseph Graziano
----------------------------------
         (Joseph Graziano)            Director


          /s/ Ryal Poppa
----------------------------------
           (Ryal Poppa)               Director


     /s/ John W. Barnett, Jr.
----------------------------------
      (John W. Barnett, Jr.)          Director


                                                                   Page 47 of 47