<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 the year ended December 31, 2000

                                      or

[_] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
    Act of 1934.

         For the transition period from ____________ to ____________.

                     Commission File Number ( 000-25865 )

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

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


               1850 Embarcadero Way, Palo Alto, California 94303
                                (650) 687-3300
 (Address, including zip code, and telephone number, including area code, of
                         principal executive offices)

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

          Securities registered pursuant to Section 12(g) of the Act:
                         Common Stock, $.001 par value

     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. [X]

     The aggregate market value of the voting stock held by non-affiliates of
the registrant, as of January 31, 2001 was approximately $435,419,000 (based on
the closing price for shares of the registrant's Common Stock as reported by the
Nasdaq National Market for the last trading day prior to that date). Shares of
Common Stock held by each officer, director and holder of 5% or more of the
outstanding Common Stock have been excluded in that such persons may be deemed
affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes.

The number of shares outstanding of the registrant's Common Stock, $.001 par
value, as of February 28, 2001 was 52,653,768.
<PAGE>

                      DOCUMENTS INCORPORATED BY REFERENCE


      Portions of the registrant's definitive Proxy Statement to be filed with
the Securities and Exchange Commission pursuant to Regulation 14A in connection
with the 2001 Annual Meeting are incorporated herein by reference into Part III
of this Report. Such Proxy Statement will be filed with the Securities and
Exchange Commission not later than 120 days after the registrant's year ended
December 31, 2000.

Certain exhibits filed with the registrant's (i) Registration Statement on Form
S-1 (File No. 333-73153), as amended, (ii) Form 10-Q for the quarter ended
September 30, 1999, (iii) Form 10-K for the year ended December 31, 1999, (iv)
Current Report on Form 8-K filed with the Commission on March 15, 2000, (v)
Registration Statement on Form S-1 subsequently converted to Form S-3 (File No.
333-32846), (vi) Notice of Annual Meeting and Definitive Proxy Statement for
the 2000 Annual Meeting of Stockholders filed with the Commission on April 10,
2000 and (vii) Registration Statement on Form S-8 filed with the Commission on
June 7, 2000 (File No. 333-38798) are incorporated by reference into Part IV of
this Report.

<PAGE>

                        COPPER MOUNTAIN NETWORKS, INC.

                                   FORM 10-K

                     For the Year Ended December 31, 2000

                                     INDEX

<TABLE>
<CAPTION>
Part I                                                                                                Page
                                                                                                      ----
<S>                                                                                                   <C>
    Item 1.        Business                                                                            1
    Item 2.        Properties                                                                          30
    Item 3.        Legal Proceedings                                                                   30
    Item 4.        Submission of Matters to a Vote of Security Holders                                 31

Part II
    Item 5.        Market for the Registrant's Common Stock and Related  Stockholder Matters           32
    Item 6.        Selected Financial Data                                                             33
    Item 7.        Management's Discussion and Analysis of Financial Condition and Results of
                   Operations                                                                          34
    Item 7A.       Quantitative and Qualitative Disclosures About Market Risk                          41
    Item 8.        Financial Statements and Supplementary Data                                         42
    Item 9.        Changes in and Disagreements with Accountants on Accounting and Financial
                   Disclosures                                                                         42
Part III
    Item 10.       Directors and Executive Officers of the Registrant                                  43
    Item 11.       Executive Compensation                                                              43
    Item 12.       Security Ownership of Certain Beneficial Owners and Management                      43
    Item 13.       Certain Relationships and Related Transactions                                      43
Part IV
    Item 14.       Exhibits, Financial Statement Schedules and Reports on Form 8-K                     44
    Signatures                                                                                         47
</TABLE>
<PAGE>

                                    PART I

Item 1.  Business

Forward Looking Statements

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

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

      Readers are also urged to carefully review and consider the various
disclosures made by us which attempt to advise interested parties of the factors
which affect our business, including without limitation the disclosures made
under the caption "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and under the caption "Risk Factors" included herein
and in the Company's Registration Statements on Form S-1 (No. 333-73153) and on
Form S-3 (No. 333-32846).

Overview

      Copper Mountain Networks, Inc. (Nasdaq: CMTN) supplies Digital Subscriber
Line (DSL) communications products to telecommunications service providers
allowing them to effectively utilize the existing copper infrastructure to
deliver high-speed data and voice services to their customers. Copper Mountain
Networks designs, manufactures, sells, and supports these products and believes
the long-term demand for high speed access solutions which are enabled by such
products will grow with the use of the Internet, the proliferation of
data-intensive applications and the proliferation of corporate networking
applications.

     Our revenue is generated primarily from sales of our central office based
equipment: our CopperEdge 200 DSL Concentrators (CE200), the related wide area
network cards, line cards and, to a lesser extent, from sales of our DSL CPE.
Additionally, we sell network management software which provides monitoring and
management capabilities for the CE200, revenues from which have not been
material to date. Copper Mountain also sells the CopperEdge 150 DSL Concentrator
(CE150) and the OnPrem(TM) 2400 Concentrator to support applications for users
in the Multi-Tenant Unit (MTU) market where our equipment is deployed within
buildings which house multiple small to medium-sized businesses or tenants. For
the year ended December 31, 2000, sales to our three largest customers accounted
for approximately 58% of our revenue. While the level of sales to any specific
customer is anticipated to vary from period to period, we expect that we will
continue to have significant customer concentration for the foreseeable future.

     Copper Mountain markets and sells its products directly to
telecommunications service providers, through strategic original equipment
manufacturers and through distributors. Currently, we derive approximately 78%
of our revenue from sales made directly to telecommunications service providers
with the balance of our sales made to original equipment manufacturers and
through distributors.

                                       1
<PAGE>

Industry Background

     Over the past few years, the volume of data traffic across public
communications networks has increased significantly due to the use of the
Internet as a communications and transaction medium. According to International
Data Corporation, the number of Internet users worldwide will grow from
approximately 196 million by the end of 1999 to approximately 502 million by
2003. International Data Corporation also estimates that the value of goods and
services sold worldwide through the Internet will exceed $1.6 trillion in 2003.
In addition to electronic commerce, business usage of Web-based communications,
remote access for teleworkers, applications hosting and other services have
generated enormous traffic for the existing communications infrastructure. To
meet this demand, service providers have installed high-bandwidth fiber optic
transmission equipment, high-speed switches, and core routers in backbone and
interoffice networks.

     In contrast to these core networks, which support digital transmission
speeds exceeding 9 gigabits per second, or Gbps, most access networks, or
connections between subscribers and central offices, often called the "last
mile," are made through the copper infrastructure originally built to transmit
analog voice signals. In fact, over 140 million businesses and homes in the
United States are served by this copper infrastructure, and the worldwide
installed base of copper lines exceeds 700 million. We believe most business and
residential users have found narrowband access, using dial-up analog modems with
connection speeds up to 56.6 kilobits per second, or kbps, inadequate to meet
their high-bandwidth requirements.

     Until the Telecommunications Reform Act of 1996 (the "Telecom Act"), local
telephone companies such as the Regional Bell Operating Companies and GTE
Corporation, collectively the incumbent local exchange carriers, or ILECs, were
the exclusive operators of this last-mile, copper wire-based infrastructure and
primarily offered ISDN and T1 services to address the need for high-speed
connectivity. These service offerings enable symmetrical data transmission at
rates up to 128 kbps and 1.5 megabits per second, or Mbps, respectively. ISDN,
which requires the installation of special equipment at each end of the copper
access line, has achieved limited success due to complexity and high cost of
deployment. T1 services provide many times the bandwidth of ISDN, but require
expensive infrastructure modification and investment. While there are various
transmission media alternatives for providing broadband connectivity, such as
coaxial cable and wireless, we believe none have the cost and coverage
advantages of using the existing copper infrastructure.

     Digital Subscriber Line technology was developed to address the last-mile
bottleneck. While there are several variants of DSL, they all share several
important advantages over traditional high-speed services delivered over the
copper infrastructure and over cable and wireless broadband alternatives.

     .    Guaranteed, Dedicated Bandwidth. DSL is a point-to-point technology
          that allows for guaranteed levels of bandwidth. Because DSL
          connections are dedicated to each user, DSL does not suffer from
          service degradation as other subscribers are added to the system, and,
          in addition, allows a higher level of security. Alternative broadcast
          solutions, such as cable and wireless, are shared systems that suffer
          service degradation and increase the risk of security breaches as
          additional users share bandwidth.

     .    Low Cost. Because DSL uses the existing copper-based last-mile
          connection, it can be significantly less expensive to deploy to
          businesses and homes than other broadband solutions which require
          incremental investments in infrastructure. In addition, recent
          advances in semiconductor technology and industry standardization have
          made the widespread deployment of DSL somewhat more economical to both
          service providers and subscribers.

                                       2
<PAGE>

     .    Universal Coverage. Since virtually all businesses and homes in the
          United States already have installed copper wire connections, DSL
          technologies can be made available to a large percentage of these
          businesses and homes. In addition, certain variants of DSL can enable
          data transmission up to and beyond 20,000 feet without requiring
          repeaters.

     Despite the advantages of deploying DSL over existing copper
infrastructure, ILECs historically have largely sought to protect their existing
T1 and ISDN businesses. In the mid-1990s, however, the prospect of greater
competition from cable operators deploying cable modems to deliver
high-bandwidth services prompted the ILECs to accelerate their investments in
those DSL technologies that appeared most appropriate for residential
subscribers. The ILECs promoted a DSL variant called asymmetrical DSL, or ADSL,
that prioritizes one-way, down-stream broadband access. Most DSL vendors focused
on ADSL solutions for the residential market because consumers typically
download large quantities of data-intensive content from the Internet, while the
amount of data sent upstream by consumers is typically limited.

     Beginning in 1997 and 1998, DSL transmission technology was embraced by a
new set of telecommunications service providers that emerged as a result of the
Telecom Act. The Telecom Act redefined the competitive landscape in the
telecommunications industry by creating a legal framework for new service
providers to provide competing local telecommunications services. The Telecom
Act also eliminated a substantial barrier to entry for these competitive local
exchange carriers, or CLECs, by allowing them to use the existing copper-based
network infrastructure built by the ILECs.

     The realization of all of the objectives of the Telecom Act, however, is
still subject to certain uncertainties, including:

     .    ongoing legal proceedings that will further define rights and duties
          under the Telecom Act;

     .    actions or inactions by telephone companies or other carriers that
          affect the pace at which changes contemplated by the Telecom Act will
          occur;

     .    resolution of questions concerning which parties will finance such
          changes; and

     .    other regulatory, economic, and political factors.

     Since the passage of the Telecom Act, some of the new competitive local
exchange carriers ("CLECs") have focused on providing competitively priced,
high-bandwidth connectivity for business customers who typically had used T1
lines from the ILECs to meet their bandwidth needs or who used dial-up modems
but are currently seeking cost-effective broadband services. These CLECs are
focused on providing DSL solutions that meet the current needs of business
subscribers and provide flexibility for future services.

     While many DSL equipment vendors focus on the needs of the residential
market, few focus on the unique needs of business subscribers. In particular,
CLECs are seeking equipment solutions that enable the deployment of
cost-effective, full-coverage, high-bandwidth data-access services. Moreover, as
the demands of high-bandwidth users and technology mature, other
telecommunications service providers are also looking for vendors that can
effectively incorporate DSL into communications equipment solutions. Finally,
telecommunications service providers generally want their equipment providers to
support a variety of end-user devices. As the DSL market evolves from business
to residential users, telecommunications service providers will require
equipment that enables them to provide high-speed services across their entire
customer base.

                                       3
<PAGE>

The Copper Mountain Solution

     We provide broadband access solutions based on DSL technology to
telecommunication service providers. Our solutions enable CLECs, ILECs, and
other telecommunications service providers to provide high-speed,
cost-effective, last-mile connectivity over the existing copper wire telephone
infrastructure to the business, multi-tenant unit and residential markets. Our
DSL solutions provide the following key benefits:

     Multi-Service DSL Platform. Our products enable CLECs, ILECs, and other
telecommunications service providers to deliver business services such as
high-speed Internet access, corporate networking, teleworking, and packet-based
voice solutions, as well as residential consumer services such as Internet
access and POTS voice on a single phone line. The CopperEdge platform allows
service providers to concurrently operate any combination of Asymmetric DSL
(ADSL), G.lite, ISDN DSL (IDSL), Symmetric DSL (SDSL), and T1 line cards in a
single CopperEdge chassis. With one platform, the provider can offer a
compilation of data, voice, and video services that run concurrently, maximizing
potential revenue per copper pair.

     Proven Solution. Copper Mountain is a leading provider of DSL solutions for
business and residential users. The CopperEdge platform is proven in many of the
world's largest DSL deployments.

     IP IQ(TM). Dynamically recognizing user profiles and services at the IP
layer and allocating network resources appropriately, IP IQ(TM)--Copper
Mountain's Internet Protocol intelligence--assists with the efficient routing
and processing of packets, enabling providers to deliver a wide range of voice
and data services to millions of users, while avoiding costly virtual circuit
proliferation problems.

     Multi-Vendor Interoperability. We have partnered with third-party DSL
customer premise equipment manufacturers through the CopperCompatible(TM)
program to develop a broad line of customer premise equipment, or CPE, which are
compatible with our CopperEdge DSL concentrators. At the end of 2000, the
CopperEdge 200 was certified as interoperable with over 100 DSL CPE devices, as
well as voice products and routers and switches in the network core.
Additionally, the company has a compatibility program, known as CopperVIP(TM)
(Voice in Packets), which tests and validates compatibility between the
CopperEdge family of products and the leading providers of voice gateways, which
facilitates the simultaneous delivery of voice and data over our product
platform. Another compatibility program, known as CopperWireless(TM), tests and
validates compatibility between CopperEdge concentrators, CopperRocket CPE and
third-party CopperCompatible CPE and wireless equipment such as indoor units,
outdoor units, and antennas, and central site equipment such as routers and
voice gateways, to facilitate interoperability between wireless backhaul
technology and multi-tenant unit (MTU) DSL networking solutions. A Copper
Mountain compatibility program with leading semiconductor companies known as
CopperSilicon(TM), facilitates the integration of Copper Mountain technology
into chips for next-generation Voice over DSL (VoDSL) integrated access devices.

         Carrier-class product. NEBS Level 3 certified, the CopperEdge 200
features hot-swappable modules and offers wide area network (WAN) redundancy.
CopperView(TM) management tools ensure services and interfaces are manageable
from a single point. The CopperEdge 200 supports up to 192 DSL ports, delivering
the scalability needed to satisfy market demands. Our products are designed to
reduce installation time and support requirements for our telecommunications
service provider customers. Our CopperEdge 200 DSL Concentrator is designed to
meet the stringent requirements of the telephone company central office
environment. It supports full redundancy and is designed for easy support and
service. In addition, our products and management software are designed for and
proven in large-scale national deployments. Finally, we have reduced CPE
deployment complexity with a zero-installation "plug-and-play" CPE procedure
that eliminates end-user configuration, removes the need to send a technician to
the customer premise and provides centralized management and control.

      Support for Multiple Services. Our platform is a highly scalable and
cost-effective platform that addresses the strong demand for Internet access
services. In addition, the CopperEdge products support multiple value-added
services such as Frame Relay, VPN, and voice services. Unlike most DSL access

                                       4
<PAGE>

platforms, the CopperEdge solution delivers advanced packet processing, class of
service using weighted fair queuing, and subscriber aggregation to support these
multiple service offerings.

     Strategy

     Our objective is to be the leading supplier of DSL solutions to
telecommunications service providers. The key elements of our strategy include:

     Extend Position in the U.S. DSL Market. Since our inception, we have
focused on providing cost-effective telecommunications solutions for service
providers. We are targeting telecommunications service providers focused on the
business-subscriber market, the multi-tenant unit market, and the residential-
consumer market, including Competitive Local Exchange Carriers (CLECs),
Incumbent Local Exchange Carriers (ILECs), Inter-Exchange Carriers (IXCs), In-
Building service providers, and other telecommunications service providers. To
date, we have sold substantially all of our products to CLEC customers. In
recent months many CLECs have experienced difficulties continuing to finance
their businesses. As a result, these CLECs have been forced to scale back their
operations, and some, including our largest customer Northpoint Communications,
Inc., have filed for bankruptcy protection. In response to the financial
difficulties experienced by our CLEC customers and the resulting reduction in
the demand for our products, we are in the process of shifting our marketing
strategy in the United States to focus more on ILECs as potential customers.
Thus far, we have not sold a significant amount of our products to ILECs. The
future success of our business may substantially depend on our ability to
successfully penetrate the ILEC market. We will continue to focus on supporting
the requirements of our existing CLEC customers as well as providing solutions
targeted to ILECs and other telecommunications service providers.

         Target International Service Providers. In addition to targeting
U.S.-based telecommunications service provider customers, we have expanded our
addressable markets to include multiple nations worldwide. In 2000, Copper
Mountain expanded its international reach by opening sales offices in Singapore
(serving Asia/Pacific) and in Amsterdam (serving Europe, the Middle East, and
Africa). International Standard Association 9001 certification and product
development efforts to ensure compliance with international specifications
assure customers worldwide that the company's products meet the highest
standards for design and manufacturing quality.

     Expand Service Offerings Supported by Our Platform. We intend to continue
to add functionality and support for the multiple data and voice services to
increase the usefulness and performance of our products. We believe that we have
enhanced our core product offerings to support a variety of services which offer
better value to service providers and their end-user customers. Our products are
designed to support future services and technology. In addition, we are
developing new offerings with DSL, T1, and voice technologies, and plan to
enhance our offerings as needed by subscribers and service providers.

     Leverage Original Equipment Manufacturer and Development Relationships.
Copper Mountain has formed original equipment manufacturer (OEM) relationships
with 3Com Corporation and Marconi Communications. Under the original equipment
manufacturer and development agreement with 3Com, they may sell our full line of
products branded for 3Com directly or through their distribution channels.
Marconi co-brands and resells our product line through its worldwide sales
channel. We believe that our current OEM relationships enhance our market
position domestically and we believe these relationships will aid us in
addressing international markets.

     Target Multi-Tenant Unit, in Building Deployments. In addition to deploying
DSL equipment in ILEC central offices for our CLEC and other telecommunications
service provider customers, we have deployed our CopperEdge 150 DSL
Concentrators and OnPrem 2400 Concentrators in commercial office buildings and
apartment and condominium buildings. In February 2000, we completed the purchase
of OnPREM Networks Corporation, which became the nucleus of our multi-tenant
unit or MTU Business Unit based in Fremont, California. In addition, we are
working with service providers who are targeting

                                       5
<PAGE>

multi-tenant property managers to focus on this emerging market. We believe that
this market will significantly expand the deployment of DSL technology. Our MTU
Business Unit will continue to focus exclusively on developing new products that
will allow carriers to reduce the cost of high-speed data access to tenants in
this type of deployment environment. However, although we believe that the MTU
market will significantly expand the deployment of DSL technology, if this does
not occur, or if MTU service providers do not select our products, our business
may be adversely affected.

     Drive Interoperability. We actively support the interoperability of DSL
technology to facilitate faster and broader market acceptance. We have formed
the CopperCompatible program through which we offer licenses of our DSL CPE
technology to a number of third-party manufacturers of CPE equipment.
Additionally, we support the interoperability of DSL technology with voice-
related equipment through our CopperVIP program and CopperSilicon
interoperability program. Our efforts in the area of interoperability also
enables our technology to be combined with other networking products such as
routers, access and aggregation devices, and voice switches.

     Address Emerging Opportunities in Residential Market. We believe that with
the continued deployment of alternative data-based networks, telecommunications
service providers will seek to offer DSL-based services beyond the market for
business subscribers. Specifically, telecommunications service providers are
targeting residential subscribers seeking high-speed access to public
communications networks. As this trend toward broad deployment of DSL services
continues, we anticipate opportunities for us to deploy our products, such as
our consumer-oriented ADSL and G.Lite line cards, with service providers.

Copper Mountain Products

     We provide end-to-end DSL solutions that enable service providers to deploy
high-bandwidth services over traditional copper wire telephone infrastructure.
Our product family is designed to offer telecommunication service providers
flexibility in network implementation as well as a wide range of subscriber
equipment offerings. Telecommunications service providers using our products can
allow subscribers access to a full range of DSL services at rates up to 25 times
faster than the current speed (56.6 kbps) of existing analog modems. Our
products are scalable to enable carriers to cost-effectively deploy DSL services
on a regional or on a national level addressing thousands of subscribers. Our
products are designed to support the various network architectures, wide area
network (WAN) interfaces and deployment models of our service provider
customers. Our solution consists of the following product lines:

     .    CopperEdge(R) DSL Concentrators: Telecommunications service providers
          install CopperEdge products in their collocation areas within ILEC
          central offices, environmentally hardened digital loop carrier
          cabinets, and in multi-tenant buildings to deliver services to their
          end user customers.

     .    OnPrem(TM) Concentrators: Telecommunications service providers install
          OnPrem multi-tenant unit concentrators in small- and medium-sized MTU
          office buildings, multi-dwelling unit (MDU) residential complexes, and
          hotel facilities.

     .    CopperRocket(R) DSL CPE: Subscriber connection to the service-provider
          network is provided at the subscriber's premises with CopperRocket DSL
          CPE.

     .    CopperView(TM) Network Management Software Tools: Our network
          management tools enable telecommunications service providers to manage
          their Copper Mountain DSL equipment and configure and provision
          subscriber services.

                                       6
<PAGE>

     Because of the large-scale deployment of DSL equipment by our CLEC
customers, our shipments of the CopperEdge DSL concentrators and the related
line and WAN interface cards have accounted for substantially all of our revenue
to date.

     CopperEdge 200 DSL Concentrators

     Our 192-port, high density DSL concentrator, the CopperEdge 200 (CE200) is
a carrier-class platform designed specifically for ILEC central office
environments, and meets or exceeds industry standards, and applicable regulatory
requirements. The CE200 can also be deployed within multi-tenant buildings. A
companion model, the CE200RT, is designed for deployment in remote cabinets and
neighborhood broadband gateways. The CE200 and CE200RT consist of a modular
chassis containing power supplies, control system, wide area network interface
modules and DSL line cards. The following are characteristics of the
CE200/CE200RT:

     .    contains redundant power supplies that can be replaced without
          interrupting power to the chassis;

     .    supports a range of interfaces for wide area network connections;

     .    supports multiple advanced networking models implemented in the
          control system, including Frame Relay Multiplexing, Frame Relay to ATM
          interworking, Layer 3 IP multiplexing and Layer 2 Ethernet frame
          multiplexing, which can be used concurrently;

     .    contains up to eight line cards containing DSL and T1 interfaces which
          connect to the subscriber DSL CPE equipment, including:

          ADSL Line Card. The 24-port CopperEdge Asymmetric Digital Subscriber
          Line (ADSL) line card enables service providers to offer consumer
          converged voice and data services using any of four ADSL
          variants--G.dmt, ANSI T1.413, and G.lite, which are based on Discrete
          Multi-Tone (DMT), plus CAP/RADSL--all from a single module. This
          multi-mode line card confirms to all deployed ADSL and G.lite
          standards from the ITU and ANSI, ensuring that a wide range of CPE
          interoperate seamlessly to serve end-user consumers and teleworkers.
          ADSL delivers maximum line speeds of 8.064 Mbps downstream to the user
          and 1.024 Mbps upstream and maximum reach of 28,000 feet.

          G.lite Line Card. G.lite is part of Copper Mountain's complete
          solution for delivering consumer broadband services. G.lite (ITU
          standard G.992.2) enables simultaneous data and voice service over
          existing copper phone lines, without splitters or new inside wiring at
          the customer premise, eliminating costly installation truck rolls. The
          CopperEdge 24-port G.lite line card delivers speeds up to 3.0 Mbps
          downstream to the end user and 512 kbps upstream, and a reach of up to
          26,200 feet. The G.lite line card also dissipates significantly less
          power than full-rate ADSL technologies, reducing ongoing operating
          constraints.

          IDSL Line Card. For subscribers who can only be served over
          ISDN-capable copper lines, Copper Mountain provides 24-port ISDN
          Digital Subscriber Line (IDSL) line cards. The IDSL line card delivers
          service at speeds between 64 kbps and 144 kbps up to a distance of
          18,000 feet from the central office. The use of repeaters will
          increase the reach to over 30,000 feet.

          SDSL Line Card. The 24-port SDSL line card supports speeds from 128
          kbps to 1.5 Mbps and up to 12.0 Mbps using IMUX technology, at loop
          distances as far as 28,000 feet from the central office. SDSL uses
          2B1Q line coding to ensure spectral compatibility with other existing
          services. SDSL supports a wide range of high-speed data and
          toll-quality Voice over DSL (VoDSL) services, including Internet
          access, Frame Relay, virtual private networking (VPN), T1 replacement,
          private branch exchange (PBX), and multi-line voice--all from a single
          line card.

                                       7
<PAGE>

          T1 Line Card. The CopperEdge 12-port T1 line card offers service
          providers wide market coverage, extending the addressable market for
          broadband services to include customers previously unable to benefit
          from DSL service due to geographic location. The T1 line card utilizes
          a 1.544 Mbps point-to-point dedicated, digital circuit and operates
          concurrently with any combination of Copper Mountain ADSL, G.lite,
          IDSL, and SDSL line cards in a single CopperEdge chassis.


     CopperEdge 150 DSL Concentrators

     Copper Mountain's mid-density DSL concentrator, the CopperEdge 150 (CE150)
is a DSL concentrator optimized for use in medium to large MTU buildings. The
CopperEdge 150, available in configurations supporting 24 or 48 end-user
customers, and supports all five of the line cards listed above (ADSL, G.lite,
IDSL, SDSL, and T1). Service providers use the CopperEdge 150 to deliver
multiple high-bandwidth services concurrently, including Internet access,
corporate virtual private networks (VPNs), and Frame Relay services, as well as
PBX extension and other voice services.


     OnPrem(TM) 2400 Concentrators

     Copper Mountain's low-density platform, the OnPrem 2400 Concentrator, is
optimized for use in small to medium-sized MTU buildings. Offering 8, 16, or 24
ports of SDSL technology, the OnPrem 2400 delivers up to 2.3 Mbps connectivity
that scales easily as subscribers increase. With a low entry investment and
per-connection cost, providers can profitably deliver high-bandwidth service to
tenants located in any building. This concentrator also offers small form factor
that utilizes minimum space in the MTU wiring closet or basement.


     CopperRocket Customer Premise Equipment

     The CopperRocket family of CPE products consists of SDSL and IDSL modems,
SDSL and IDSL inverse mutiplexers (IMUX), and integrated access devices (IADs),
including:

     CopperRocket 408 Integrated Access Device (IAD). With connectivity for up
to eight voice ports, the CopperRocket 408 IAD provides customers with
plug-and-play, toll-quality voice plus data service at speeds from 128 kbps to
1.5 Mbps.

     CopperRocket 202 and 212 Inverse Multiplexers (IMUX). These units deliver
affordable, business-class Internet and data connectivity using existing network
and router infrastructures via SDSL or IDSL. With IMUX technology, they bond
multiple copper pair telephone lines to offer transmission rates up to 3.0 Mbps.

     CopperRocket 201 and 203 CPE. These customer premise devices are simple to
install and offer high-performance Internet and local area network (LAN) access
at several selectable speeds from 64 kbps to 2.3 Mbps.

     CopperRocket CPE products can operate at multiple transmission speeds and
distances to satisfy the price and performance needs of each subscriber. The
CopperRocket is a "plug-and-play" device. Unlike ISDN modems, there are no
hardware switches, configuration parameters or end-user software configuration
required. Copper Mountain's ZIP! (Zero Installation Procedure) feature enables
the CopperRocket to communicate with a CopperEdge or OnPrem DSL concentrator and
automatically download all the necessary configuration parameters to immediately
begin full operation.

                                       8
<PAGE>

     CopperRocket devices operate over standard copper telephone wire and
provide dedicated, full-duplex throughput at multiple speeds to support network
activities such as file transfers, intranet access and Internet Web browsing.
The CopperRocket's multi-speed DSL feature enables service providers to remotely
adjust line speed based upon subscriber requirements with no additional
investment or software upgrade by the service provider.

     CopperCompatible(TM) CPE: In addition to offering our own CPE products,
Copper Mountain works with over two dozen leading third-party equipment
manufacturers to offer a broad range of interoperable customer premise equipment
through our CopperCompatible program. To be certified as CopperCompatible, the
third party CPE devices must pass a series of stringent interoperability tests
with Copper Mountain's DSL solutions. This gives service providers and their
subscribers multiple competitive sources for CPE, delivering more innovation
than any single vendor could on its own, as well as a wide array of choices in
cost and functionality, ranging from simple bridges and routers, IADs, and data
service units (DSUs) with advanced features. By the end of 2000, more than 100
CPE devices were certified as interoperable with Copper Mountain's platform.


CopperView Network Management Tools

     Our CopperView suite of network management tools is used to configure and
manage our DSL solutions. This set of software tools provides user interfaces
necessary to manage large, geographically separated DSL concentrator networks,
individual concentrators, and simple on-site or remote management. Because the
CopperEdge DSL concentrator also manages CopperRocket modems by proxy,
CopperView allows carriers to centrally manage their DSL networks.

     .    The CopperView DSL Management System provides management of large
          networks of CopperEdge DSL concentrators with a simple, intuitive user
          interface.

     .    The CopperView Element Management System provides a simple, intuitive
          user interface that allows configuration and management of a single
          CopperEdge DSL concentrator and its CPE.

     .    The CopperCraft text-based interface provides a simple interface for
          on-site technicians and for remote access to a DSL concentrator.


Product Deployment

     We sell our products for deployment into central offices, multi-tenant
buildings, and remote terminals. Telecommunications service providers may deploy
in any or all of these environments to reach their target market in the most
effective manner.

     Central Office-Based DSL Service Deployment. Telecommunications Service
Providers may install our CopperEdge DSL concentrators in an ILEC central office
to offer service to any subscriber served by that central office (within the
distance limitations of DSL service). Typically, a CLEC leases from the ILEC a
high-bandwidth trunk, usually a 45 Mbps DS-3 circuit, to connect the DSL
concentrator to the CLEC's regional switching office. The CLEC then leases an
individual copper loop to a subscriber from the ILEC, for a monthly fee. The
copper loop is provisioned through the ILEC's distribution facilities out to the
subscriber premise. The CLEC then provisions the wiring inside the subscriber
premise and installs the CPE.

     CLECs or ILECs deploying DSL from central offices may elect do so in select
central offices where the number of potential subscribers is highest, or they
may choose to cover a region by installing in all central offices in that
region. A carrier may also choose a regional deployment strategy or a nationwide
deployment strategy.

                                       9
<PAGE>

     Multi-Tenant Building DSL Service Deployment. A telecommunications service
provider can deploy our CopperEdge or OnPrem concentrators in multi-tenant
buildings to provide Internet access and other data and voice services to the
tenants of that building. Inside the building, the service provider can utilize
the existing telephone wiring to deliver high-bandwidth connections to tenants
on a targeted basis. Tenants in the building can use a single, high-bandwidth
connection from the building to the service provider's switching office,
providing good application performance at a lower cost than the same bandwidth
dedicated to a single subscriber.

     Remote Terminal/Neighborhood Gateway-Based DSL Service Deployment. A
telecommunications service provider may also install our CopperEdge DSL
concentrator product in an environmentally hardened, remote digital loop carrier
(DLC) cabinet or a neighborhood broadband gateway to offer service to
subscribers who are too far from a central office to receive DSL service. An
ILEC can deploy the CopperEdge DSL concentrator alongside a DLC and a Plain Old
Telephone Service (POTS) splitter in a hardened cabinet, delivering POTS and DSL
services to business and residential subscribers whose access lines connect to
digital loops.


Customers

     In 2000, sales to our top four largest customers accounted for
approximately 68% of our revenue, of which sales accounted for approximately
22%, 19%, 17% and 10%, of our revenue, respectively. While the level of sales to
any specific customer is anticipated to vary from period to period, we expect
that we will continue to have significant customer concentration for the
foreseeable future. In January 2001, Northpoint filed a petition for Chapter 11
protection with the U.S. Bankruptcy Court. Future sales to Northpoint, if any,
are not expected to be significant. In addition, our customers' buying patterns
have become unpredictable. Future sales, if any, to the significant customers
mentioned above may be substantially less than historical sales. The loss of
another significant customer could have a material adverse effect on our
business.

     To date, most of our customers have been CLECs, including three of our top
four largest customers listed above. In response to the financial difficulties
experienced by many of our CLEC customers and the resulting reduction in the
demand for our products, we have modified our business plan to increasingly
target international markets and ILECs as potential customers. The future
success of our business may substantially depend on our ability to successfully
penetrate international markets and domestic ILEC customers.


Strategic Relationships

     Copper Mountain has established several strategic distribution partnerships
and licensing agreements with leading telecom manufacturers to strengthen our
channels and facilitate the deployment and acceptance of our products and
technology.

     .    3Com Corporation. 3Com and Copper Mountain entered into a 3-year OEM
          agreement in March 2000, in which 3Com will co-brand and market our
          complete line of DSL equipment under its Total Control(R) brand.
          Additionally, this agreement calls for both companies to co-market
          their DSL products. 3Com has a strong value added reseller (VAR)
          channel.

     .    Marconi Communications. Marconi and Copper Mountain entered into a
          3-year OEM agreement in June 2000, in which Marconi will co-brand and
          market our complete line of DSL equipment. Additionally, this
          agreement calls for both companies to co-market their DSL products.
          Marconi has a strong worldwide sales channel, which will be helpful to
          Copper Mountain as we continue to expand our addressable markets to
          Europe, the Asia/Pacific, and other global markets.

                                       10
<PAGE>

     .    Lucent Technologies. Under an original equipment manufacturer (OEM)
          agreement signed in December 1999, Lucent co-brands and markets our
          DSL equipment directly to its telecommunications service provider
          customers. We have agreed to manufacture, co-brand and sell our
          products to Lucent and to provide Lucent with training, installation
          and technical support for these products. Lucent also offers our DSL
          equipment in combination with some of its existing data networking,
          switching and access products to enable service providers to create
          broader voice and data network solutions for their business. In June
          1999, Lucent completed the acquisition of Ascend Communications, Inc.,
          a competitor of ours, which offers a competing DSL solution.
          Subsequently, in September 1999, Lucent announced a new DSL product
          based on technology acquired from Ascend. As a result, Lucent may seek
          to reduce the marketing and/or sales of our products in favor of their
          own competitive products. Due to the availability to Lucent of these
          alternative products Copper Mountain has been exposed to increased
          competition from Lucent. Because of this competition, we expect sales
          to Lucent, both in terms of dollars and as a percent of sales, will
          decline over time. Additionally, sales to customers through Lucent may
          be adversely impacted by a decline in sales financing programs offered
          by Lucent to these customers. Alternatively, other customers may elect
          to purchase products from Lucent and reduce their future purchases of
          Copper Mountain products.


Interoperability Partnerships

     Copper Mountain has established several CPE licensing relationships with
certain vendors through our CopperCompatible interoperability program to promote
the interoperability of our DSL concentrators with such equipment. Under this
interoperability program, licensees are allowed access to our technology which
can be used in the design of their CPE. These CPE licensing relationships have
been established with ADC Kentrox, Netopia, 3Com, Cayman Systems, FlowPoint
Corporation and Ramp Networks, among others.

     Our CopperVIP initiative, which falls under the CopperCompatible umbrella,
facilitates interoperability of customer premise equipment (CPE), Integrated
Access Devices (IADs), and Integrated Communications Platforms (ICPs) with voice
gateways from Copper Mountain's voice partners and Copper Mountain's widely
deployed DSL platform. Our voice partners include CopperCom, Inc., JetStream
Communications, and Tollbridge Technologies.

     Copper Mountain has initiated its CopperWireless(TM) initiative in 2000 to
ensure that wireless backhaul technology interoperates with multi-tenant unit
DSL networking solutions. Under this initiative, Copper Mountain and its
partners have undertaken end-to-end interoperability testing of network
components for delivery of multiple services, including data (Internet access,
Frame Relay over DSL, network- and premise-based corporate VPNs), voice (analog
voice, PBX extension) and video. The testing incorporates Copper Mountain's
OnPrem and CopperEdge DSL concentrator families and CopperRocket CPE, along with
equipment from CopperWireless partners who manufacture DSL CPE; IADs; wireless
equipment such as indoor units, outdoor units, and antennas; and central site
equipment such as routers and voice gateways.

     Copper Mountain has also licensed intellectual property to a number of
semiconductor technology suppliers under its CopperSilicon(TM) initiative. Our
CopperSilicon partners, including BRECIS Communications, Centillium
Communications, Conextant Systems, GlopeSpan, ishoni Networks, Metalink, and
Virata Corporation, are developing new chipsets that will reduce the costs of
VoDSL IADs by combining the functionality of previously separate components.


Copper Mountain Sales Organization

                                       11
<PAGE>

     Copper Mountain sells and markets its products primarily through our direct
sales organization. Additionally, we have relationships with selected original
equipment manufacturers and distributors to expand our distribution
capabilities.

     Direct Sales (United States). Our U.S.-based direct sales responsibilities
are divided into three North American geographic regions: West, Central and
East. Our national sales effort is overseen by the Company's vice president of
worldwide sales, and day-to-day sales management falls under regional directors
and sales managers who are responsible for relationships with targeted
customers. Direct sales teams are also divided by target customer--with specific
teams dedicated solely to Competitive Local Exchange Carriers (CLECs), Incumbent
Local Exchange Carries (ILECs) and Inter-Exchange Carriers (IXCs), and MTU
service providers. The sales management team for each customer is responsible
for maintaining contact with key individuals who have planning and policy
responsibility within the customer's organization. At the same time, our sales
engineers work with customers to support our products and our sales efforts.
Direct sales accounted for approximately 78% of our revenue in 2000.

     Direct Sales (Internationally). Copper Mountain's global direct sales also
fall under the responsibility of our vice president of worldwide sales, and his
teams of in-country sales organizations. In March 2000, Copper Mountain expanded
its sales efforts into Asia/Pacific markets and opened its first international
office in Singapore. In October 2000, we expanded our international reach and
opened a second international office in Amsterdam serving Europe, the Middle
East, and Africa. Copper Mountain is targeting global markets that are
undergoing deregulation, such as Canada, the European Union, selected markets in
Asia including Korea, Japan, China, Singapore, and Hong Kong, and to a lesser
extent the Middle East, South Africa, and South American markets such as Brazil,
Argentina, and Chile.

     Original Equipment Manufacturer Sales. We have established key original
equipment manufacturer relationships with leaders in the telecommunications
equipment and customer premise equipment markets, including 3Com Corporation,
Marconi Communications and Lucent Technologies. We intend to maintain a limited
number of relationships with key strategic original equipment manufacturers that
may offer products or have existing customer relationships that may complement
ours. In line with our strategy to offer our telecommunications service provider
customers and their subscribers a broad line of CPE, we have entered into
several original equipment manufacturer relationships for our CopperRocket CPE
product line and a number of interoperability partnerships with CPE providers.
We receive sales revenues from our original equipment manufacturer partners, but
do not currently receive royalty revenue from interoperability arrangements.

     Channel Sales. In 2000, Copper Mountain also established its
CopperChannel(TM) program to accelerate expansion into new DSL markets
worldwide. The program targets value-added resellers in North American,
European, and Asian markets and enables selected channel partners to resell
Copper Mountain's complete product line of CopperEdge(R) and OnPrem(TM) DSL
concentrators, CopperRocket(R) customer premise equipment (CPE) and integrated
access devices (IADs), as well as Copper Mountain's CopperView(TM) network
management system and its customer-support services such as project management
and installation. Sales through this program have not been significant.


Copper Mountain Marketing Organization

     Marketing is structured along product and distribution channel lines for
each of the company's major product areas. For each major product area, we
employ product marketing and marketing program management specialists. The
corporate marketing staff coordinates activities among our Public Network and
Multi-Tenant Unit business units and provides marketing support services,
including marketing communications and marketing research. Our product marketing
organizations perform the following functions:

     .    define the functions and features of our product and service
          offerings;

                                       12
<PAGE>

     .    develop specific marketing strategies for each product line; and

     .    work with our direct sales force to develop key account and segmented
          market strategies.


Customer Service and Support

     A high level of continuing service and support is critical to our objective
of developing long-term customer relationships. The majority of our service and
support activities are related to installation support and network configuration
issues. These services are provided by telephone and directly at customer
installations with resources from our customer support group based in San Diego,
California. To date, our revenues from on-site installation and technical
assistance have not been significant.

     We offer various training courses for our third-party resellers and
telecommunications service provider customers. We provide technical support for
our hardware products, which have a standard warranty of 12 months, both
directly and through our selected service subcontractors. We also have a variety
of post-warranty hardware, software maintenance and support programs. To date,
revenues attributable to customer service and support services have not been
significant.


Research and Development

     We believe that our future success depends on our ability to adapt to the
rapidly changing telecommunications environment, to maintain our significant
expertise in core technologies, and to continue meeting and anticipating our
customers' needs. We continually review and evaluate technological changes
affecting the telecommunications market and invest substantially in
applications-based research and development. In the future our new product
development strategy may combine internal development efforts with acquisitions,
joint ventures and licensing or marketing arrangements relating to new products
and technologies to meet market demands.


Competition

     The telecommunications equipment industry is highly competitive, and we
believe that competition may increase substantially as the introduction of new
technologies, deployment of broadband networks and potential regulatory changes
create new opportunities for established and emerging companies in the industry.
In addition, a number of our competitors have significantly greater financial
and other resources than us to meet new competitive opportunities. We compete
directly with other providers of DSL concentrators including, Cisco Systems,
Inc., Lucent Technologies, Inc., Alcatel S.A., Nokia Corporation and Paradyne
Corporation, among others. In addition, DSL as a technology for deploying
broadband connections is competing with alternative technologies including ISDN,
T1, coaxial cable and wireless solutions.

     The principal competitive factors in our market include:

     .    brand recognition;

     .    pre-existing relations with telecomm service providers;

     .    key product features;

     .    system reliability and performance;

                                       13
<PAGE>

     .    price and aggressive discounting;

     .    ease of installation and use;

     .    technical support and customer service; and

     .    size and stability of operations.

     We believe our success in competing with other manufacturers of
telecommunications products depends primarily on our engineering, manufacturing
and marketing skills, the price, quality and reliability of our products and our
delivery and service capabilities. We may face increasing pricing pressures from
current and future competitors in certain or all of the markets for our products
and services.

     We believe that technological change, the increasing addition of voice,
video and other services to networks, continuing regulatory change and industry
consolidation or new entrants will continue to cause rapid evolution in the
competitive environment of the telecommunications equipment market, the full
scope and nature of which is difficult to predict. Increased competition could
result in price reductions, reduced margins and loss of market share by us. We
believe regulatory change in the industry may create new opportunities for
suppliers of telecommunications equipment; however, we expect that such
opportunities may attract increased competition from others as well. We also
believe that the rapid technological changes which characterize the data
communications industry will continue to make the markets in which we compete
attractive to new entrants. There can be no assurance that we will be able to
compete successfully with our existing or new competitors or that competitive
pressures faced by us will not materially and adversely affect our business,
financial condition and results of operations.


Manufacturing

     Our manufacturing operations consist primarily of supporting prototype
development, materials planning and procurement, final assembly, testing and
quality control. We use several independent suppliers to provide certain printed
circuit boards, chassis and subassemblies. We subcontract substantially all of
our manufacturing to one company, Flextronics International Ltd. located in
Fremont, California.

     Our manufacturing process enables us to configure our products to meet a
wide variety of individual customer requirements. We have achieved International
Standard Organization 9001 registration for quality assurance in design, sale,
production, installation and service. We plan to strengthen manufacturing
capability both in our existing facilities and through expansion of activities
with independent suppliers and manufacturers. Our future growth will require an
extension of existing internal and external manufacturing resources, hiring of
additional technical personnel, improved coordination of supplier relationships
with our inventory ordering and management practices, and expansion of
information systems to accommodate planned growth across these areas.

     We use a combination of standard parts and components, which are generally
available from more than one vendor, and three key components that are purchased
from sole or single source vendors for which alternative sources are not
currently available: two semi-conductor chips and a system control module. If
supply of these key components should cease, we would be required to redesign
our products. We are evaluating alternate source vendors for each of these key
components but these vendors may not meet our quality standards for component
vendors. While we work closely with some well-established vendors, we have no
supply commitments from our vendors and we generally purchase components on a
purchase order basis, as opposed to entering into long term procurement
agreements with vendors. To date, we have generally been able to obtain adequate
supplies in a timely manner from vendors or, when necessary, to meet production
needs from alternative vendors. We believe that, in most cases, alternative
supplies of standard parts and components can be identified if current vendors
are unable to fulfill our

                                       14
<PAGE>

needs. However, delays or failure to identify an alternate vendor, if required,
or a reduction or interruption in supply, or a significant increase in the price
of components would materially and adversely affect our business, financial
condition and results of operations and could impact customer relationships.


Intellectual Property

     We rely on a combination of copyright, trademark, trade secret and other
intellectual property law, nondisclosure agreements and other protective
measures to protect our proprietary rights. We also utilize unpatented
proprietary know-how and trade secrets and employ various methods to protect our
trade secrets and know-how. Although we employ a variety of intellectual
property in the development and manufacturing of our products, we believe that
none of such intellectual property is individually critical to our current
operations. Taken as a whole, we believe our intellectual property rights are
significant and that the loss of all or a substantial portion of such rights
could have a material adverse effect on our results of operations. There can be
no assurance that our intellectual property protection measures will be
sufficient to prevent misappropriation of our technology. In addition, the laws
of many foreign countries do not protect our intellectual properties to the same
extent as the laws of the United States. From time to time, we may desire or be
required to renew or to obtain licenses from others in order to further develop
and market commercially viable products effectively. There can be no assurance
that any necessary licenses will be available on reasonable terms.


Employees

     As of December 31, 2000 we employed 458 employees, including 97 in sales
and marketing, 43 in manufacturing, 208 in engineering, 70 in finance, human
resources, information systems and administration and 40 in customer service.
Eight of our employees are located at our international offices. None of our
employees is represented by collective bargaining agreements, and management
considers relations with its employees to be good.


Risk Factors

      You should carefully consider the following risk factors and the other
information included herein as well as the information included in our
Registration Statement on Form S-1 (No. 333-73153) before investing in our
common stock. Our business and results of operations could be seriously harmed
by any of the following risks. The trading price of our common stock could
decline due to any of these risks, and you may lose part or all of your
investment.

         The difficulties experienced by many of Copper Mountain's current
customers and the challenges associated with penetrating new markets have had
and are expected to continue to have an adverse effect on Copper Mountain's
business.

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

     The failure of our CLEC customers to raise sufficient capital to fund their
operations and continue to order and pay for our products has impaired and may
continue to impair Copper Mountain's revenues and

                                       15
<PAGE>

profitability. In recent months, we have had increased difficulty collecting
outstanding accounts receivable from some of our customers. To the extent we
ship products to customers who become unable to pay for the products, we may be
required to write-off significant amounts of our accounts receivable. Similarly,
to the extent that our customers order products and then suspend or cancel the
orders prior to shipping, we will not generate revenues from the products we
build, our inventories may increase and our expenses will increase.
Specifically, we may incur substantially higher inventory carrying costs, as
well as be faced with the risk of the excess inventory that could become
obsolete over time.

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

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


     Copper Mountain May Not Sustain or Achieve Quarterly or Annual
Profitability

     Copper Mountain anticipates a decline in its revenues in 2001 and also
expects to continue incurring significant sales and marketing, research and
development and general and administrative expenses and, as a result, we may
have difficulty sustaining or acheiving profitibility. We cannot be certain that
we will realize sufficient revenues in the future to sustain or achieve
profitability on an annual or quarterly basis.

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

     Copper Mountain sells its products predominantly to CLECs. Aggregate sales
to our four largest customers accounted for approximately 68% of our net revenue
for the year ended December 31, 2000. Sales to our most significant customers,
NorthPoint Communications, Inc. ("Northpoint"), Lucent Technologies, Inc.,
McLeodUSA, Inc. and Rythms Netconnections accounted for approximately 22%, 19%,
17% and 10% of Copper Mountain's net revenue, respectively, for the year ended
December 31, 2000. In January 2001, Northpoint filed a petition for Chapter 11
protection with the U.S. Bankruptcy Court. Future sales to Northpoint, if any,
are not expected to be significant. Unless and until we diversify and expand our
customer base, our future success will significantly depend upon the timing and
size of future purchase orders, if any, from our larger CLEC customers and, in
particular:

     .     the product requirements of these customers;

     .     the financial and operational success of these customers; and

     .     the success of these customers' services deployed using our products.

     Our revenue declined on a sequential basis from the third to the fourth
quarter of the year ended December 31, 2000, and we expect a further substantial
decline of our revenue from the fourth quarter of

                                       16
<PAGE>

last year to the first quarter of this year. Furthermore, in light of the market
dynamics of the telecommunication service provider industry, it has become
extremely difficult for us to forecast our revenues. Future sales, if any, to
the significant customers mentioned above may be less than historical sales. The
loss of another major customer or the delay of significant orders from any
significant customer, even if only temporary, could among other things reduce or
delay our net revenue, adversely impact our ability to sustain or achieve annual
or quarterly profitability and adversely impact our ability to generate positive
cashflow, and, as a consequence, could materially adversely affect our business,
financial condition and results of operations.

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


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

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

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

     .    install new management information and telecommunications systems; and

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

     As of December 31, 2000 we operated our business from facilities in Palo
Alto, California, Fremont, California and San Diego, California. We face
challenges related to effectively and efficiently coordinating our operations
between these facilities. If we are unsuccessful in meeting these challenges,
our business and operating results may be adversely affected.

     Copper Mountain Has a Limited Operating History

                                       17
<PAGE>

     Copper Mountain has a very limited operating history as we were
incorporated in March 1996. Due to our limited operating history, it is
difficult or impossible for us to predict future results of operations and you
should not expect future revenue to be comparable to our recent revenue on a
quarterly or annual basis. In addition, we believe that comparing different
periods of our operating results is not meaningful, and you should not rely on
the results for any period as an indication of our future performance. Investors
in our common stock must consider our business and prospects in light of the
risks and difficulties typically encountered by companies in their early stages
of development, particularly those in rapidly evolving markets such as the
telecommunications equipment industry. Some of the specific risks include
whether we are able:

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

     .    to attract new customers;

     .    to maintain a stable, sustainable customer base;

     .    to successfully penetrate international markets;

     .    to expand our addressable market by selling into the incumbent or ILEC
          market;

     .    to introduce new products and product enhancements in a timely and
          competitive fashion; and

     .    to expand our operational infrastructure.

We discuss these and other risks in more detail below.


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

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

     .     telecommunications and DSL market conditions and economic conditions
           generally;

     .     the financial viability of our major customers;

     .     our ability to penetrate the ILEC and international markets;

     .     the loss of any one of our major customers or a significant reduction
           in orders from those customers;

     .     fluctuations in demand for our products and services;

     .     the timing and amount of, or cancellation or rescheduling of, orders
           for our products and services, particularly large orders from our key
           customers and our strategic distribution partners;

     .     our ability to develop, introduce, ship and support new products and
           product enhancements and manage product transitions;

     .     new product introductions or announcements and price reductions of
           products offered by our competitors;

                                       18
<PAGE>

     .     a decrease in the average selling prices of our products;

     .     our ability to achieve cost reductions;

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

     .     changes in the prices of our components;

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

     .     the volume and mix of products sold and the mix of distribution
           channels through which they are sold;

     .     increased competition, particularly from larger, better capitalized
           competitors; and

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


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

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


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

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

                                       19
<PAGE>

we market our products adopt technologies other than the DSL technologies
offered by Copper Mountain or choose not to purchase Copper Mountain's DSL
product offerings, we may not be able to sustain or grow our business.
Furthermore, while we believe that the MTU market will significantly expand the
deployment of DSL technology, if this does not occur, or if MTU service
providers do not select our products, our business may be adversely affected.


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

     Since October 2000, approximately twenty-four complaints have been filed in
the United States District Court for the Northern District of California against
the Company and two of its officers, along with one related derivative action
against the Company and its directors in Delaware, alleging violations of the
federal securities laws arising out of recent declines in the Company's stock
price. Specifically, the complaints allege claims in connection with various
alleged statements and omissions to the public and to the securities markets. No
assurances can be made that we will be successful in our defense of such claims.
If we are not successful in our defense of such claims, we could be forced to
make significant payments to our stockholders and their lawyers, and such
payments could have a material adverse effect on our business, financial
condition and results of operations if these payments are not entirely covered
by our insurance. Even if our defense against such claims is successful, the
litigation could result in substantial costs and divert management's attention
and resources, which could adversely affect our business.


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

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


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

     In the rapidly changing technology environment in which we operate, product
cycles tend to be short. Therefore, the resources we devote to product sales and
marketing may not generate revenues for us and from time to time we may need to
write-off excess and obsolete inventory. In the past, we have experienced such
write-offs attributed to the obsolescence of certain printed circuit boards and
product sub-assemblies. If we incur substantial sales, marketing and inventory
expenses in the future that we are not able to recover, it could have a material
adverse effect on our business, financial condition and results of operations.


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

     Copper Mountain's success will be substantially dependent upon its
strategic distribution partnerships, including its original equipment
manufacturer agreements with Lucent Technologies, Inc., 3Com Corporation, and
Marconi Communications, Inc. under which we have agreed to manufacture, and sell
our products to these distribution partners. The amount and timing of resources
which our strategic partners

                                       20
<PAGE>

devote to our business is not within our control. Our strategic partners may not
perform their obligations as expected. In some cases, agreements with our
strategic partners are relatively new, and we cannot be certain that we will be
able to sustain the level of revenue generated thus far under these strategic
arrangements. If any of our strategic partners breaches or terminates its
agreement or fails to perform its obligations under its agreement, we may not be
able to sustain or grow our business. In the event that these relationships are
terminated, we may not be able to continue to maintain or develop strategic
relationships or to replace strategic partners. In addition, any strategic
agreements we enter into in the future may not be successful.

     In June 1999, Lucent completed the acquisition of Ascend Communications,
Inc., a competitor of ours, which offers a competing DSL solution. Subsequently,
in September 1999, Lucent announced a new DSL product based on technology
acquired from Ascend. As a result, Lucent may seek to reduce the marketing
and/or sales of our products in favor of their own competitive products. Due to
the availability to Lucent of these alternative products Copper Mountain has
been exposed to increased competition from Lucent. Because of this competition,
we expect sales to Lucent, both in terms of dollars and as a percent of sales,
will decline over time. Additionally, sales to customers through Lucent may be
adversely impacted by a decline in sales financing programs offered by Lucent to
these customers. Alternatively, other customers may elect to purchase products
from Lucent and reduce their future purchases of Copper Mountain products.


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

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


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

     The markets in which Copper Mountain competes are characterized by
increasing consolidation both within the data communications sector and by
companies combining or acquiring data communications assets and assets for
delivering voice-related services. We cannot predict with certainty how industry

                                       21
<PAGE>

consolidation will affect our competitors. We may not be able to compete
successfully in an increasingly consolidated industry. Increased competition and
consolidation in our industry, including the future effects of Lucent's
acquisition of Ascend, could require that we reduce the prices of our products
and result in our loss of market share, which would materially adversely affect
our business, financial condition and results of operations. Additionally,
because we are now, and may in the future be, dependent on certain strategic
relationships with third parties in our industry, any additional consolidation
involving these parties could reduce the demand for our products and otherwise
harm our business prospects.


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

     Copper Mountain intends to continue to invest in product and technology
development. The development of new or enhanced products is a complex and
uncertain process requiring the accurate anticipation of technological and
market trends. We may experience design, manufacturing, marketing and other
difficulties that could delay or prevent our development, introduction or
marketing of new products and enhancements. The introduction of new or enhanced
products also requires that we manage the transition from older products in
order to minimize disruption in customer ordering patterns and ensure that
adequate supplies of new products can be delivered to meet anticipated customer
demand. In the future, we expect to develop certain new products, such as new
DSL Concentrators, line cards for different DSL variants and new types of
customer premise equipment. We may not successfully develop, introduce or manage
the transition of these new products. Furthermore, products such as those we
currently offer may contain undetected or unresolved errors when they are first
introduced or as new versions are released. Despite testing, errors may be found
in new products or upgrades after commencement of commercial shipments. These
errors could result in:

     .    delays in or loss of market acceptance and sales;

     .    diversion of development resources;

     .    injury to our reputation; and

     .    increased service and warranty costs.

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


     Copper Mountain Is Dependent on Widespread Market Acceptance of Its
Products

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


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

                                       22
<PAGE>

     Copper Mountain currently derives substantially all of its revenues from
its product family of DSL solutions and expects that this concentration will
continue in the foreseeable future. The market may not continue to accept or
order our current products, and we may not be successful in marketing any new or
enhanced products. Any reduction in the demand for our current products or our
failure to successfully develop or market and introduce new or enhanced products
could materially adversely affect our operating results and cause the price of
our common stock to decline. We have already experienced these effects as a
result of the financial troubles facing many of our CLEC customers, including
the filing of a petition for Chapter 11 protection by our largest customer
Northpoint Communications, Inc. Factors that could, in the future, affect sales
of our current or new or enhanced products include:

     .    the demand for DSL solutions;

     .    our successful development, introduction and market acceptance of new
          and enhanced products that address customer requirements;

     .    product introductions or announcements by our competitors;

     .    price competition in our industry and between DSL and competing
          technologies; and

     .    technological change.


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

     Copper Mountain's success and ability to compete is dependent in part upon
its proprietary technology. Any infringement of our proprietary rights could
result in significant litigation costs, and any failure to adequately protect
our proprietary rights could result in our competitors offering similar
products, potentially resulting in loss of a competitive advantage and decreased
revenues. We rely on a combination of copyright, trademark and trade secret
laws, as well as confidentiality agreements and licensing arrangements, to
establish and protect our proprietary rights. Despite our efforts to protect our
proprietary rights, existing copyright, trademark and trade secret laws afford
only limited protection. In addition, the laws of certain foreign countries do
not protect our proprietary rights to the same extent as do the laws of the
United States. Attempts may be made to copy or reverse engineer aspects of our
products or to obtain and use information that we regard as proprietary.
Accordingly, we may not be able to protect our proprietary rights against
unauthorized third-party copying or use. Furthermore, policing the unauthorized
use of our products is difficult. Litigation may be necessary in the future to
enforce our intellectual property rights, to protect our trade secrets or to
determine the validity and scope of the proprietary rights of others. Such
litigation could result in substantial costs and diversion of resources and
could have a material adverse effect on our future operating results.


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

     The telecommunications industry is characterized by the existence of a
large number of patents and frequent litigation based on allegations of patent
infringement. From time to time, third parties may assert patent, copyright,
trademark and other intellectual property rights to technologies that are
important to our business. Any claims asserting that our products infringe or
may infringe proprietary rights of third parties, if determined adversely to us,
could have a material adverse effect on our business, financial condition or
results of operations. In addition, in our agreements, we agree to indemnify our
customers for any expenses or liabilities resulting from claimed infringements
of patents, trademarks or copyrights of third parties. As the number of entrants
in our market increases and the functionality of our products is enhanced and
overlaps with the products of other companies, we may become subject to claims
of

                                       23
<PAGE>

infringement or misappropriation of the intellectual property rights of others.
Any claims, with or without merit, could be time-consuming, result in costly
litigation, divert the efforts of our technical and management personnel, cause
product shipment delays or require us to enter into royalty or licensing
agreements, any of which could have a material adverse effect upon our operating
results. Such royalty or licensing agreements, if required, may not be available
on terms acceptable to us, if at all. Legal action claiming patent infringement
may be commenced against us. We cannot assure you that we would prevail in such
litigation given the complex technical issues and inherent uncertainties in
patent litigation. In the event a claim against us was successful and we could
not obtain a license to the relevant technology on acceptable terms or license a
substitute technology or redesign our products to avoid infringement, our
business, financial condition and results of operations would be materially
adversely affected.


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

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


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

     Copper Mountain has experienced growth in revenues and expansion of its
operations which have placed significant demands on its management, engineering
staff and facilities. We have recently hired additional engineering, sales,
marketing, customer support and administrative personnel. Continued growth and
expansion of our product lines will also require us to hire more engineering,
sales and administrative personnel. We may not be able to attract and retain the
necessary personnel to accomplish our business objectives and we may experience
constraints that will adversely affect our ability to satisfy customer demand in
a timely fashion or to support our customers and operations. We have at times
experienced, and continue to experience, difficulty in recruiting qualified
personnel. Recruiting qualified personnel is an intensely competitive and time-
consuming process.

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


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

     Although Copper Mountain generally uses standard parts and components for
its products, certain key components are purchased from sole or single source
vendors for which alternative sources are not currently available. The inability
to obtain sufficient quantities of these components may in the future result in
delays or reductions in product shipments which could materially adversely
affect our business, financial condition and results of operations. We presently
purchase three key components from vendors for which there are currently no
substitutes: two semiconductor chips, and a system control module. We

                                       24
<PAGE>

are evaluating alternate source vendors for each of these key components, but
any alternate vendors may not meet our quality standards for component vendors.
In the event of a reduction or interruption of supply of any such components, as
much as nine months could be required before we would begin receiving adequate
supplies from alternative suppliers, if any. It is possible that a source may
not be available for us or be in a position to satisfy our production
requirements at acceptable prices and on a timely basis, if at all.
Alternatively, as a result of the long lead times associated with ordering
certain materials or components, we may not be able to accurately forecast our
need for materials and components and this could result in excess inventory and
related write-offs, which could have a material adverse effect on our business.

     In addition, the manufacture of certain of these single or sole source
components is extremely complex, and our reliance on the suppliers of these
components exposes us to potential production difficulties and quality
variations, which could negatively impact cost and timely delivery of our
products. Any significant interruption in the supply, or degradation in the
quality, of any component could have a material adverse effect on our business,
financial condition and results of operations.


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

     Copper Mountain currently uses a small number of independent manufacturers
to provide certain printed circuit boards, chassis and subassemblies and, in
certain cases, to complete final assembly and testing of our products. Our
reliance on independent manufacturers involves a number of risks, including the
absence of adequate capacity, the unavailability of or interruptions in access
to certain process technologies and reduced control over delivery schedules,
manufacturing yields and costs. We have entered into a formal manufacturing
agreement with Flextronics International, Ltd. located in Fremont, California.
Flextronics is our main source of independent manufacturing. If our current
manufacturers, including Flextronics, are unable or unwilling to continue
manufacturing our components in required volumes, it could take up to eight
months for an alternative manufacturer to supply the needed components in
sufficient volumes. It is possible that a source may not be available to us when
needed or be in a position to satisfy our production requirements at acceptable
prices and on a timely basis, if at all. Any significant interruption in supply
would result in the allocation of products to customers, which in turn could
have a material adverse effect on our business, financial condition and results
of operations. Moreover, since all of the manufacturing by Flextronics and all
of our final assembly and tests are each performed in one location, any fire or
other disaster at either Flextronics manufacturing facility or at our assembly
facility would have a material adverse effect on our business, financial
condition and results of operations.


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

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

                                       25
<PAGE>

     Copper Mountain's Customers May Demand Preferential Terms or Delay Copper
Mountain's Sales Cycle, Which May Result in Operating Losses for Copper Mountain

     In certain cases, Copper Mountain's customers are larger than Copper
Mountain and are able to exert a high degree of influence over Copper Mountain.
These customers may have sufficient bargaining power to demand low prices and
other terms and conditions that may materially adversely affect our business,
financial condition and results of operations. In addition, prior to selling our
products to such customers, we must typically undergo lengthy product approval
processes, often taking up to one year. Accordingly, we are continually
submitting successive versions of our products as well as new products to our
customers for approval. The length of the approval process can vary and is
affected by a number of factors, including customer priorities, customer budgets
and regulatory issues affecting telecommunication service providers. Delays in
the product approval process could materially adversely affect our business,
financial condition and results of operations. While we have been successful in
the past in obtaining product approvals from our customers, such approvals and
the ensuing sales of such products may not continue to occur. Delays can also be
caused by late deliveries by other vendors, changes in implementation priorities
and slower than anticipated growth in demand for the services that our products
support. A delay in, or cancellation of, the sale of our products could result
in operating losses and cause our results of operations to vary significantly
from quarter to quarter.


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

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


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

     The market for Copper Mountain's products is characterized by the need to
meet a significant number of communications regulations and standards, some of
which are evolving as new technologies are deployed. In order to meet the
requirements of our customers, our products may be required to comply with
various regulations including those promulgated by the Federal Communications
Commission, or FCC, and standards established by Underwriters Laboratories and
Bell Communications Research. Failure of our products to comply, or delays in
compliance, with the various existing and evolving industry regulations and
standards could delay the introduction of our products. Moreover, enactment by
federal, state or foreign governments of new laws or regulations, changes in the
interpretation of existing laws or regulations or a reversal of the trend toward
deregulation in the telecommunications industry could have a material adverse
effect on our customers, and thereby materially adversely affect our business,
financial condition and results of operations.


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

     Our capital requirements depend on several factors, including the rate of
market acceptance of our products, the rate of growth in our client base, the
growth of our product lines, our ability to manage our

                                   26

<PAGE>

inventory and accounts receivable and other factors. If capital requirements
vary materially from those currently planned, we may require additional
financing sooner than anticipated. If additional funds are raised through the
issuance of equity securities, the percentage ownership of our stockholders will
be reduced, stockholders may experience additional dilution, or such equity
securities may have rights, preferences or privileges senior to those of the
holders of our common stock. If additional funds are raised through the issuance
of debt securities, such securities would have rights, preferences and
privileges senior to holders of common stock and the terms and conditions
relating to such debt could impose restrictions on our operations. Additional
financing may not be available when needed on terms and conditions favorable to
us or at all. If adequate funds are not available or are not available on
acceptable terms and conditions, we may be unable to develop or enhance our
services, take advantage of future opportunities or respond to competitive
pressures, which could materially adversely affect our business, financial
condition or results of operations.

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

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

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

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

     .   issue equity securities which would dilute current stockholders'
         percentage ownership;

     .   incur substantial debt; or

     .   assume contingent liabilities.

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

     .   difficulties in assimilating acquired operations, technologies or
         products;

                                       27
<PAGE>

     .   unanticipated costs associated with the acquisition could materially
         adversely affect our results of operations;

     .   diversion of management's attention from other business concerns;

     .   adverse effects on existing business relationships with suppliers and
         customers;

     .   risks of entering markets in which we have no or limited prior
         experience; and

     .   potential loss of key employees of acquired organizations.

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

      In February 2000, we acquired OnPREM Networks Corporation. We operate in a
sector of the DSL equipment industry that is considerably different from the
sector for which OnPREM has developed its products. It may turn out that there
are no advantages or "synergies" to adding OnPREM's products to our product
line. Moreover, there is no assurance that OnPREM's operations can be
successfully integrated into our operations or that all of the benefits expected
from the acquisition of OnPREM will be realized. Furthermore, there can be no
assurance that the operations, management and personnel of the two companies
will be compatible or that we or OnPREM will not experience the loss of key
personnel following the merger.


     We Have Expanded and May Continue to Expand Our Operations into
International Markets. Our Failure to Effectively Manage Our International
Operations Could Harm Our Business.

     We believe that international market opportunities for our products may be
significant and we have begun to enter markets outside the United States in
2000. Entering new international markets may require significant management
attention and expenditures and could adversely affect our operating margins and
earnings. In order to commence and expand our international operations, we will
need to hire additional personnel and develop relationships with potential
international customers. To the extent that we are unable to do so on a timely
basis, our growth in international markets would be limited, and our business
could be harmed.

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

     .   difficulties in building and managing foreign operations;

     .   difficulties in enforcing agreements and collection receivables through
         foreign legal systems and addressing other legal issues;

     .   longer payment cycles;

     .   taxation issues;

     .   differences in international telecommunications standards and
         regulatory agencies;

     .   fluctuations in the value of foreign currencies; and

     .   unexpected domestic and international regulatory, economic or political
         changes.

                                       28
<PAGE>

     Copper Mountain's stock price has been and may continue to be extremely
volatile

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

     .    actual or anticipated variations in quarterly operating results;

     .    announcements of technological innovations;

     .    new products or services offered by us or our competitors;

     .    changes in financial estimates by securities analysts;

     .    announcements of significant acquisitions, strategic partnerships,
          joint ventures or capital commitments by us or our competitors;

     .    additions or departures of key personnel;

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

     .    sales of common stock; and

     .    other events or factors, many of which are beyond our control.

     In addition, the stock market in general, and the Nasdaq National Market
and technology companies in particular, have experienced extreme price and
volume fluctuations that have often been unrelated or disproportionate to the
operating performance of such companies. The trading prices of many technology
companies' stocks are at or near historical highs and these trading prices and
multiples are substantially above historical levels. These trading prices and
equity valuations may not be sustained. These broad market and industry factors
may materially adversely affect the market price of our common stock, regardless
of our actual operating performance. In the past, following periods of
volatility in the market price of a company's securities, securities
class-action litigation has often been instituted against such companies. We
have recently become the target of such litigation, and several class action
lawsuits have been filed against us and certain of our officers alleging
violation of Federal securities laws related to declines in our stock price.
Such litigation could result in substantial costs and a diversion of
management's attention and resources, which could materially adversely affect
our business, financial condition and results of operations.

     Substantial Future Sales of Copper Mountain's Common Stock in the Public
Market Could Cause Its Stock Price to Fall

     Sales of a large number of shares of Copper Mountain's common stock in the
public market or the perception that such sales could occur could cause the
market price of its common stock to drop. As of December 31, 2000, we had 52.1
million shares of common stock outstanding. We have filed three registration
statements on Form S-8 with the Securities and Exchange Commission covering the
16.4 million shares of common stock reserved for issuance under our 1996 Equity
Incentive Plan, 1999 Non-Employee Directors' Stock Option Plan, 1999 Employee
Stock Purchase Plan, the OnPREM 1998 Stock Option Plan, the 2000 Nonstatutory
Stock Option Plan and for options issued outside such plans. As of December 31,
2000, approximately 2.3 million shares are currently subject to exercisable
options. Sales of a large number of shares could have an adverse effect on the
market price for our common stock.

                                       29
<PAGE>

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

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

     .    the right of the board of directors to elect a director to fill a
          vacancy created by the expansion of the board of directors;

     .    the ability of the board of directors to alter our bylaws without
          getting stockholder approval;

     .    the ability of the board of directors to issue, without stockholder
          approval, up to 10,000,000 shares of preferred stock with terms set by
          the board of directors; and

     .    the requirement that at least 10% of the outstanding shares are needed
          to call a special meeting of stockholders.

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


Item 2.  Properties

     We lease one facility in Palo Alto, California for research and
development, administrative, sales and marketing purposes representing
approximately 22,000 square feet of space. The lease for this facility expires
in May 2007. We lease two facilities in San Diego, California, which are used
for manufacturing, engineering, customer support and administration representing
approximately 206,000 square feet of space. The leases for these facilities
expire in August 2005 and in June 2006. We also lease one facility in Fremont,
California for research and development and marketing purposes representing
approximately 21,000 square feet of space. The lease for this facility expires
in February 2005. In addition, the Company conducts certain international
operations outside of the United States, located in the Netherlands and
Singapore, in leased facilities. The Company also has other leased properties
that have been sub-leased. The Company believes that its facilities currently
are adequate to meet its requirements.

Item 3.  Legal Proceedings

     On October 20, 2000 plaintiff Ariel Hernandez, on behalf of herself and
purportedly on behalf of a class of Company stockholders, filed a complaint in
the United States District Court for the Northern District of California against
the Company and two of its officers alleging violations of the federal
securities laws arising out of recent declines in the Company's stock price.
Thereafter, approximately twenty-three similar complaints were filed in the same
court and on November 9, 2000 a related derivative action was filed in the Court
of Chancery of the State of Delaware. The complaints allege claims in connection
with various alleged statements and omissions to the public and to the
securities markets. No assurances can be made that we will be successful in our
defense of such claims. If we are not successful in our defense of such claims,
we could be forced to make significant payments to our stockholders and their
lawyers, and such payments could have a material adverse effect on our business,
financial condition and results of operations if not covered by our insurance
carrier. Even if our defense against such claims is successful, the litigation
could result in substantial costs and divert management's attention and
resources, which could adversely affect our business.

                                       30
<PAGE>

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

      No matters were submitted to a vote of security holders during the quarter
ended December 31, 2000.

                                       31
<PAGE>

                                    PART II

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

         The Common Stock of the Company is traded on the Nasdaq National Market
under the symbol "CMTN." The Common Stock was initially offered to the public on
May 13, 1999 at $10.50 per share. The following table sets forth the range of
high and low sales prices on the Nasdaq National Market of the Company's Common
Stock for the periods indicated, as reported by Nasdaq. All per share prices
have been adjusted for a 2 for 1 stock dividend which was effective December 10,
1999. Such quotations represent inter-dealer prices without retail markup,
markdown or commission and may not necessarily represent actual transactions.

         Fiscal 1999                                        High        Low
                                                         ----------  ---------
          Second Quarter (Subsequent to May 13, 1999)    $  39.75    $ 25.25
          Third Quarter                                     67.50      34.63
          Fourth Quarter                                    54.75      35.28


         Fiscal 2000
          First Quarter                                  $ 115.00    $ 46.50
          Second Quarter                                    99.00      48.88
          Third Quarter                                    125.72      36.00
          Fourth Quarter                                    39.44       4.03

     To date, the Company has neither declared nor paid any dividends on the
Common Stock. The Company currently intends to retain all future earnings, if
any, for use in the operation and development of its business and, therefore,
does not expect to declare or pay any cash dividends on the Common Stock in the
foreseeable future. As of February 27, 2001, there were 1,234 holders of record
of the Common Stock.

______________

                                       32
<PAGE>

Item 6.  Selected Financial Data

In the table below, we provide you with our summary historical financial data.
We have prepared this information using our financial statements, for the years
ended December 31, 2000, 1999, 1998, and 1997 and for the period March 11, 1996
(inception) to December 31, 1996. When you read this selected historical
financial data, it is important that you read the historical financial
statements and related notes as well as the section titled "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Form 10-K. Historical results are not necessarily
indicative of future results. Amounts below are in thousands, except per share
data.

<TABLE>
<CAPTION>
                                                                                                    Period From
                                                                                                  March 11, 1996
                                                             Year Ended                         (inception) through
                                                              December 31,                         December 31,
                                            --------------------------------------------------- --------------------
                                                2000           1999         1998        1997            1996
                                            -----------     ----------  ----------- ----------- -------------------
<S>                                         <C>             <C>         <C>         <C>         <C>
Statement of Operations Data:
  Net revenue                               $   281,576     $  112,723  $   21,821  $      211       $      ---
  Cost of revenue                               165,128 (1)     53,002      12,400       1,717              ---
                                            -----------     ----------  ----------  ----------       ----------
    Gross margin                                116,448         59,721       9,421      (1,506)             ---
  Operating expenses:
     Research and development                    37,494         15,523       7,225       4,753            1,483
     Sales and marketing                         34,868         16,158       5,363       1,510              ---
     General and administration                  21,823          5,998       3,428       1,928              553
     Amortization of purchased intangibles       17,753            ---         ---         ---              ---
     Amortization of deferred stock
       compensation                               3,664          5,431       3,929       1,490              189

     Write-off of in-process research and
       development                                6,300            ---         ---         ---              ---
                                            -----------     ----------  ---------- -----------       ----------
               Total operating expenses         121,902         43,110      19,945       9,681            2,225
                                            -----------     ----------  ----------  ----------       ----------
  Income (loss) from operations                  (5,454)        16,611     (10,524)    (11,187)          (2,225)
  Interest and other income                       9,618          4,385         406         268               47
  Interest expense                                 (611)          (289)       (213)        (97)              (3)
                                            -----------     ----------  ----------  ----------       ----------
  Income (loss) before income taxes               3,553         20,707     (10,331)    (11,016)          (2,181)
  Provision  for income taxes                     1,860          8,490         ---         ---              ---
                                            -----------     ----------  ----------  ----------       ----------
  Net income (loss)                         $     1,693     $   12,217  $  (10,331) $  (11,016)      $   (2,181)
                                            ===========     ==========  ==========  ==========       ==========

  Basic net income (loss) per share (2)     $       .03     $      .39  $    (3.87) $    (7.81)      $    (5.84)
                                            ===========     ==========  ==========  ==========       ==========
  Diluted net income (loss) per share (2)   $       .03     $      .23  $    (3.87) $    (7.81)      $    (5.84)
                                            ===========     ==========  ==========  ==========       ==========
  Shares used in basic per share
    calculations (2)                             50,584         31,289       2,666       1,410              374
                                            ===========     ==========  ==========  ==========       ==========
  Shares used in diluted per share
    calculations (2)                             58,217         52,282       2,666       1,410              374
                                            ===========     ==========  ==========  ==========       ==========
</TABLE>

<TABLE>
<CAPTION>
                                                                    As of December 31,
                                               -----------------------------------------------------------
                                                   2000        1999         1998        1997       1996
                                               -----------  ----------  ----------  -----------  ---------
     <S>                                       <C>          <C>         <C>         <C>          <C>
     Balance Sheet Data:
       Cash, cash equivalents and
         short-term marketable investments     $   162,616  $  117,169  $   18,529  $     9,517  $   3,406
       Working capital                             143,387     132,187      24,326        7,653        366
       Total assets                                304,885     165,775      36,209       12,332      4,056
       Long-term debt and capital lease
         obligation, less current portion            6,654       4,044       1,965          735        262
       Total stockholders' equity                  224,826     143,321      26,843        9,069        749
</TABLE>
_________________

(1) Includes a charge of $35 million recorded in the fourth quarter of which
$28.6 million relates to future inventory purchase commitments in excess of
anticipated requirements of finished products and raw materials and $6.4 million
relates to excess inventory on hand at December 31, 2000.

(2) See Note 1 of the Notes to Financial Statements for a description of the
computation of basic and diluted net income (loss) per share and the number of
shares used to compute basic and diluted net income (loss) per share.

                                       33
<PAGE>

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

Overview

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

     Our revenue is generated primarily from sales of our central office-based
equipment: our CopperEdge 200 DSL concentrators, or CE200, the related wide area
network cards, line cards and, to a lesser extent, from sales of our DSL CPE.
Additionally, we sell network management software which provides monitoring and
management capabilities for the CE200, revenues from which have not been
material to date. We also sell our CopperEdge 150 DSL concentrators, or CE 150,
and the OnPrem(TM) 2400 Concentrator, or OP2400 to customers in the multiple
tenant unit, or MTU, market.

     For the year ended December 31, 2000, sales to our four largest customers
accounted for approximately 68% of our revenue, of which sales to NorthPoint
Communications, Inc. ("Northpoint"), Lucent Technologies, Inc., McLeodUSA, Inc.
and Rythms Netconnections accounted for approximately 22%, 19%, 17% and 10% of
our revenue, respectively. While the level of sales to any specific customer is
anticipated to vary from period to period, we expect that we will continue to
have significant customer concentration for the foreseeable future. In January
2001, Northpoint filed a petition for Chapter 11 protection with the U.S.
Bankruptcy Court. Future sales to Northpoint, if any, are not expected to be
significant. In addition, our customers buying patterns have become
unpredictable. Future sales, if any, to the significant customers mentioned
above may be substantially less than historical sales. The loss of any one of
our major customers or the delay of significant orders from such customers, even
if only temporary, could among other things reduce or delay our net revenue,
adversely impact our ability to sustain or achieve annual or quarterly
profitability and adversely impact our ability to generate positive cashflow,
and, as a consequence, could materially adversely affect our business, financial
condition and results of operations.

     We market and sell our products directly to telecommunications service
providers and through strategic original equipment manufacturers and
distributors. We generally recognize revenue from product sales or sales type
leases upon shipment if collection of the resulting receivable is probable and
product returns are reasonably estimated and the sales-type lease criteria are
met. No revenue is recognized on products shipped on a trial basis. Estimated
sales returns, based on historical experience by product, are recorded at the
time the product revenue is recognized. To date, we have not generated
significant revenues from international sources.

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

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

                                       34
<PAGE>

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

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

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

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

     Prior to the year ended December 31, 2000, amortization of deferred stock
compensation resulted from the granting of stock options to employees with
exercise prices per share determined to be below the fair values per share for
financial reporting purposes of our common stock at dates of grant. During the
year ended December 31, 2000, additional deferred compensation was recorded as
part of the purchase price of OnPREM Networks Corporation. The deferred
compensation is being amortized to expense in accordance with FASB
Interpretation No. 28 over the vesting period of the individual options,
generally four years. We recorded total deferred stock compensation of $1.8
million, $2.4 million, $11.1 million, $234,000 and $1.4 million in 1996, 1997,
1998, 1999 and 2000, respectively, and amortized $189,000, $1.5 million, $3.9
million, $5.4 million and $3.7 million in 1996, 1997, 1998, 1999 and 2000,
respectively, leaving approximately $2.3 million to be amortized in future
periods.

         For the first quarter of 2001, we anticipate a substantial decline in
revenues compared to both the first quarter of 2000 and the fourth quarter of
2000 and a substantial loss from continuing operations. This decline is
primarily attributable to continued weakness in the competitive local exchange
carrier (CLEC) market and an overall economic slowdown affecting capital
spending. As a result of this decline in our current revenue, we are in the
process of evaluating ways of reorganizing our business for greater efficiency.
This evaluation may result in a business restructuring charge in the quarter
ending March 31, 2001. Additionally, we expect to continue to review our
internal processes throughout 2001 and that this may result in additional
restructuring related charges.

                                       35
<PAGE>

Results of Operations

     The following table sets forth, as a percentage of total revenues, certain
income data for the periods indicated.

<TABLE>
<CAPTION>
                                                                     Years Ended
                                                                      December 31,
                                                          ----------------------------------
                                                             2000         1999       1998
                                                          ---------    ---------   ---------
<S>                                                       <C>          <C>         <C>
     Net revenue                                              100.0%       100.0%      100.0%
     Cost of revenue                                           58.6         47.0        56.8
                                                          ---------    ---------   ---------
      Gross margin                                             41.4         53.0        43.2
     Operating expenses:
       Research and development                                13.3         13.8        33.1
       Sales and marketing                                     12.4         14.3        24.6
       General and administration                               7.8          5.4        15.7
       Amortization of purchased intangibles                    1.3          ---         ---
       Amortization of deferred stock compensation              4.8          4.8        18.0
       Write-off of in-process research and
         development                                            2.2          ---         ---
                                                          ---------    ---------   ---------
         Total operating expenses                              43.3         38.3        91.4
                                                          ---------    ---------   ---------
     Income (loss) from operations                             (1.9)        14.7       (48.2)
     Interest and other income                                  3.4          3.9         1.9
     Interest expense                                           (.2)         (.3)       (1.0)
                                                          ---------    ---------   ---------
     Income (loss) before income taxes                          1.3         18.3       (47.3)
     Provision for income taxes                                  .7          7.5         ---
                                                          ---------    ---------   ---------
     Net income (loss)                                           .6%        10.8%      (47.3)%
                                                          ---------    ---------   ---------
</TABLE>

Years Ended December 31, 1999 and 2000

     Net Revenue. Our revenue increased from $112.7 million in 1999 to $281.6
million in 2000. This increase was primarily due to the increased commercial
acceptance of DSL technology, the commercial market acceptance of our products,
and investments made in our marketing and sales organization. Incremental sales
made to our established customers accounted for approximately $53.0 million of
the increase with the remaining $115.9 million of the increase being derived
from new customer relationships. Sales to our four largest customers of fiscal
2000, NorthPoint, Lucent, McLeodUSA and Rhythms Netconnections, were $42.2
million, $25.4 million, zero and $32.0 million, respectively, for the year ended
December 31, 1999 compared to $62.2 million, $53.5 million, $47.6 million and
$27.3 million, respectively, for the year ended December 31, 2000. In January
2001, Northpoint filed a petition for Chapter 11 protection with the U.S.
Bankruptcy Court. Future sales, if any, to Northpoint are not expected to be
significant. In addition, our customers buying patterns have become
unpredictable. Future sales, if any, to the significant customers mentioned
above may be substantially less than historical sales.

     Gross Margin. Our gross margin increased from $59.7 million in 1999 to
$116.4 million in 2000. The increase in gross margin was primarily the result of
an increase in net revenue for the period. Gross margin percentages also
decreased on a year-over-year basis, from 53.0% for the year ended December 31,
1999 to 41.4% for the year ended December 31, 2000. During the fourth quarter of
2000, the Company recorded a charge of $35 million of which $28.6 million
relates to future inventory purchase commitments of finished products and raw
materials in excess of anticipated requirements and $6.4 million relates to
excess inventory on hand at December 31, 2000. Before the impact of these
charges, gross margin as a percentage of sales for the year ended December 31,
2000 was consistent with the prior year.

     Research and Development. Our research and development expenses increased
from $15.5 million in 1999 to $37.5 million in 2000. This increase was primarily
due to an increase in personnel expenses

                                       36
<PAGE>

related to an increase in our engineering staff, increased prototype material
costs, increased facility related costs, and higher depreciation related to an
increase in capital equipment. Research and development expenses as a percentage
of net revenue decreased from 13.8% in 1999 to 13.3% in 2000. The decrease in
research and development expense as a percentage of net revenue was primarily
the result of an increase in our net revenue during 2000. We intend to continue
to invest in research and development programs in future periods for the purpose
of enhancing current products, reducing the cost of current products and
developing new products.

     Sales and Marketing. Our sales and marketing expenses increased from $16.2
million in 1999 to $34.9 million in 2000. This increase was primarily the result
of an increase in personnel expenses for sales and marketing staff, increased
expenses related to customer support, increased sales commissions associated
with higher net revenue, and increased promotional and product marketing
expenses. The decrease in sales and marketing expense as a percentage of net
revenue was primarily the result of an increase in our net revenue in 2000.

     General and Administrative. Our general and administrative expenses
increased from $6.0 million in 1999 to $21.8 million in 2000. General and
administrative expenses as a percentage of net revenue increased from 5.4% for
1999 to 7.8% for 2000. This increase was primarily the result of increased
staffing for finance, management information systems, and human resources, and
growth in recruiting and facility related expenses.

     Amortization of Purchased Intangibles. Amortization of purchased
intangibles increased from zero for the year ended December 31, 1999 to $17.8
million for the year ended December 31, 2000. We purchased OnPREM Networks
Corporation on February 29, 2000 for approximately $73.8 million. As a result of
the purchase we recorded purchased intangibles of approximately $71.6 million.
Immediately following the purchase we wrote-off $6.3 million of in-process
research and development for projects for which technological feasibility had
not been established and for which there was no alternative future use. Such
amount was determined with the assistance of a third party appraiser based upon
the present value of estimated future cash flow contributions from the
identified projects. The remaining purchased intangibles is being amortized over
a three-year period from the date of the acquisition.

     Interest and Other Income. Interest and other income increased from $4.4
million in 1999 to $9.6 million in 2000. This increase reflects an increase in
interest income generated from higher average cash balances and investments in
marketable securities in 2000, which included the proceeds from our initial
public offering completed in May of 1999 and cash generated from operating
activities during 2000.

         Income Taxes. Our effective income tax rate for 2000 was 52% compared
to 41% for 1999. The higher tax rate is primarily a result of nondeductible
charges for purchased in-process technology and amortization of goodwill. Prior
to the year ended December 31, 1999, we did not record a tax provision (benefit)
due to our historical net losses. During the first quarter of 2000, the
valuation allowance related to deferred tax assets was eliminated as the
realization of such assets became probable. The reduction of the valuation
allowance decreased the tax provision by approximately $7.8 million.

During the fourth quarter of 2000, the Company reestablished a valuation
allowance on its net deferred tax assets because of uncertainty regarding their
realizability due to deductions from employee stock option exercises. When
recognized, the tax benefit of these deferred assets will be accounted for as a
credit to stockholders' equity rather than as a reduction of the income tax
provision.

Years Ended December 31, 1998 and 1999

     Net Revenue. Our revenue increased from $21.8 million in 1998 to $112.7
million in 1999. This increase was primarily due to the increased commercial
acceptance of DSL technology, the commercial market acceptance of our products,
and investments made in our marketing and sales organization.

                                       37
<PAGE>

Incremental sales made to our established customers accounted for approximately
$56.4 million of the increase with the remaining $34.5 million of the increase
being derived from new customer relationships. Sales to our three largest
customers of fiscal 1999, NorthPoint, Rhythms and Lucent, increased from $13.2
million, $4.0 million and zero, respectively, for the year ended December 31,
1998 to $42.2 million, $32.0 million and $25.4 million, respectively, for the
year ended December 31, 1999.

     Gross Margin. Our gross margin increased from $9.4 million in 1998 to $59.7
million in 1999. The increase in gross margin was primarily the result of an
increase in net revenue for the period. Gross margin percentages also increased
on a year-over-year basis, from 43.2% for the year ended December 31, 1998 to
53.0% for the year ended December 31, 1999. The increase in gross margin as a
percentage of sales was primarily due to an increase in unit volumes, a
favorable product mix, and decreased unit costs associated with improved
overhead absorption.

     Research and Development. Our research and development expenses increased
from $7.2 million in 1998 to $15.5 million in 1999. This increase was primarily
due to an increase in personnel expenses related to an increase in our
engineering staff, increased prototype material costs, increased facility
related costs, and higher depreciation related to an increase in capital
equipment. Research and development expenses as a percentage of net revenue
decreased from 33.1% in 1998 to 13.8% in 1999. The decrease in research and
development expense as a percentage of net revenue was primarily the result of
an increase in our net revenue during 1999.

     Sales and Marketing. Our sales and marketing expenses increased from $5.4
million in 1998 to $16.2 million in 1999. This increase was primarily the result
of an increase in personnel expenses for sales and marketing staff, increased
expenses related to customer support, increased sales commissions associated
with higher net revenue, and increased promotional and product marketing
expenses. The decrease in sales and marketing expense as a percentage of net
revenue was primarily the result of an increase in our net revenue in 1999.

     General and Administrative. Our general and administrative expenses
increased from $3.4 million in 1998 to $6.0 million in 1999. This increase was
primarily the result of increased staffing for finance, management information
systems, and human resources, and growth in recruiting and facility related
expenses. General and administrative expenses as a percentage of net revenue
decreased from 15.7% for 1998 to 5.4% for 1999. This decrease was primarily the
result of an increase in our net revenue in 1999.

     Interest and Other Income. Interest and other income increased from
$406,000 in 1998 to $4.4 million in 1999. This increase reflects an increase in
interest income generated from higher average cash balances and investments in
marketable securities in 1999, which included the proceeds from our initial
public offering completed in May of 1999.

     Income taxes. Our effective income tax rate for 1999 was 41%, which
approximates the combined federal and California (net of federal benefit)
statutory rate. During 1999, our utilization of net operating loss and tax
credit carryforwards was limited under sections 382 and 383 of the Internal
Revenue Code. We have previously not recorded a tax provision (benefit) due to
our historical net losses. Additionally, the realization of our carryforwards is
considered uncertain and as a result a full valuation allowance has been
established which offsets these deferred tax assets for all periods presented.


Liquidity and Capital Resources

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

                                       38
<PAGE>

     At December 31, 2000, we had cash and cash equivalents of $65.8 million,
short-term marketable investments of $96.8 million and long-term marketable
investments of $6.2 million. Included in short-term marketable investments is an
investment in commercial paper issued by Southern California Edison Company at a
carrying value of approximately $3.4 million which matured in February 2001 and
is currently in default. Management believes that the fair value of this
investment has declined since the balance sheet date, however, the ultimate
amount of the decline and the net realizable value of this investment is not
currently practicably determinable.

     In August 2000, the Company entered into an $800,000 credit facility with a
financing company for the purchase of equipment under a capital lease agreement.
As of December 31, 2000, the full amount of funds available under this credit
facility had been utilized.

     In June 2000, the Company secured a $5.0 million credit facility with a
financing company for the purchase of equipment under a capital lease agreement.
As of December 31, 2000, the full amount of funds available under this credit
facility had been utilized.

     Cash provided by or (used in) operating activities for the years ended
December 31, 2000, 1999 and 1998 was $57.2 million, $20.3 million and ($14.3)
million, respectively. The increase in cash provided by operating activities for
the year ended December 31, 2000 compared to the prior year was primarily the
result of increases in depreciation and amortization, a write-off of in-process
research and development and an increase in accounts payable and accrued
liabilities in excess of the decrease in net income from $12.2 million in 1999
compared to net income of $1.7 million in 2000. The relative increase in cash
provided by operating activities for the year ended December 31, 1999 compared
to the prior year was primarily the result of the change in net income to $12.2
million in 1999 compared to a net loss of loss of $10.3 million in 1998.
Additionally, the company's provision for income tax for 1999 does not include
$9.4 million of tax benefits generated in 1999 as a result of sales of Copper
Mountain stock by employees in disqualifying disposition transactions.

     Cash used in investing activities for the years ended December 31, 2000,
1999, and 1998 was $22.3 million, $92.6 million, and $12.1 million,
respectively. The decrease in cash used for investing activities for the year
ended December 31, 2000 compared to the prior period was the result of decreased
net purchases of marketable investments, partially off set by an increase in the
purchase of computers and other equipment. The relative increase in cash used
for investing activities for the year ended December 31, 1999 compared to the
prior period was the result of net purchases of marketable investments, and to a
lesser extent, the purchase of computers and other equipment.

     Cash provided by financing activities for the years ended December 31,
2000, 1999, and 1998 was $5.5 million, $90.0 million and $24.5 million,
respectively. The decrease in cash provided by financing activities for the year
ended December 31, 2000 compared to the prior year was primarily due to the
receipt of the proceeds from our initial public offering in 1999. The relative
increase in cash provided by financing activities for the year ended December
31, 1999 compared to the prior year was primarily due to the receipt of the
proceeds from our initial public offering.

     We have no material commitments other than an obligation to purchase
certain finished product and raw materials in excess of anticipated
requirements, obligations under our credit facilities and operating and capital
leases. See Notes 1, 6 and 7 of Notes to Financial Statements. Our future
capital requirements will depend upon many factors, including the timing of
research and product development efforts and marketing efforts. We expect to
continue to expend amounts on property and equipment related to facility
infrastructure, computer equipment and for research and development laboratory
and test equipment to support on-going research and development operations.

     We believe that our cash and cash equivalents balances, short-term
marketable investments and funds available under our existing credit facilities
will be sufficient to satisfy our cash requirements for at least

                                       39
<PAGE>

the next 12 months. Our management intends to invest our cash in excess of
current operating requirements in interest-bearing, investment-grade securities.

                                       40
<PAGE>

Summarized Quarterly Data (Unaudited)

     The following tables present unaudited quarterly financial information, for
the eight quarters ended December 31, 2000. We believe this information reflects
all adjustments (consisting only of normal recurring adjustments) that we
consider necessary for a fair presentation of such information in accordance
with generally accepted accounting principles. The results for any quarter are
not necessarily indicative of results for any future period. (in thousands,
except per share data):

<TABLE>
<CAPTION>
                                             1st Quarter      2nd Quarter      3rd Quarter      4th Quarter
                                             -----------      -----------      -----------      ----------
<S>                                          <C>              <C>              <C>              <C>
2000
Net revenues                                 $   60,824       $   80,185       $   93,522       $   47,045
Gross margin                                     32,722           44,106           49,439           (9,820) (1)
Income (loss) from operations                     8,440           16,009           18,612          (48,515)
Net income (loss)                                13,673           10,331           12,075          (34,386)
Basic net income (loss) per share (2)              0.28             0.20             0.24            (0.66)
Diluted net income (loss) per share (2)            0.24             0.18             0.21            (0.66)


1999
Net revenues                                 $   13,217       $   22,890       $   32,016       $   44,601
Gross margin                                      6,833           12,075           16,999           23,815
Income (loss) from operations                    (1,135)           2,545            6,189            9,011
Net income (loss)                                (1,036)           2,343            4,646            6,264
Basic net income (loss) per share (2)             (0.24)            0.09             0.10             0.13
Diluted net income (loss) per share (2)           (0.24)            0.05             0.08             0.11
</TABLE>

_______________

(1)  Includes a charge of $35 million recorded in the fourth quarter of which
     $28.6 million relates to future inventory purchase commitments in excess of
     anticipated requirements of finished products and raw materials and $6.4
     million relates to excess inventory on hand at December 31, 2000.

(2)  Basic and diluted net income (loss) per share computations for each quarter
     are independent and may not add up to the net income (loss) per share
     computation for the respective year. Net income (loss) per share data for
     all periods presented has been adjusted to reflect the two-for-one stock
     dividend that was effective December 10, 1999. See Note 1 of Notes to the
     Financial Statements for an explanation of the determination of basic and
     diluted net income (loss) per share.


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

      We are exposed to changes in interest rates primarily from our long-term
debt arrangements and our investments in certain held-to-maturity securities.
Under our current policies, we do not use interest rate derivative instruments
to manage exposure to interest rate changes. A hypothetical 100 basis point
adverse move in interest rates along the entire interest rate yield curve would
not materially affect the fair value of interest sensitive financial instruments
at December 31, 2000.

     At December 31, 2000, the Company held an investment in commercial paper
issued by Southern California Edison Company. The investment is included in
short-term marketable investments at a carrying value of approximately $3.4
million which matured in February 2001 and is currently in default. Management
believes that the fair value of this investment has declined since the balance
sheet date,

                                       41
<PAGE>

however, the ultimate amount of the decline and the net realizable value of this
investment is not currently practicably determinable.

Item 8.  Financial Statements

      The Company's financial statements at December 31, 2000 and 1999, and for
each of the three years in the period ended December 31, 2000, and the Report of
Ernst & Young LLP, Independent Auditors, are included in this Report on pages
F-1 through F-24.


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

     None.

                                       42
<PAGE>

                                   PART III

Item 10.  Directors and Executive Officers of the Registrant

      The information required by this item will be set forth under the captions
"Election of Directors" and "Executive Officers" in our definitive Proxy
Statement to be filed with the Securities and Exchange Commission in connection
with the 2001 Annual Meeting of Stockholders (the "Proxy Statement"), which is
incorporated by reference herein.

Item 11. Executive Compensation

      The information required by this item is incorporated by reference to the
Proxy Statement under the heading "Executive Compensation."

Item 12. Security Ownership of Certain Beneficial Owners and Management

      The information required by this item is incorporated by reference to the
Proxy Statement under the heading "Security Ownership of Certain Beneficial
Owners and Management."

Item 13. Certain Relationships and Related Transactions

      The information required by this item is incorporated by reference to the
Proxy Statement under the heading "Certain Transactions."

                                       43
<PAGE>

                                     PART IV

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

<TABLE>
<CAPTION>
                                                                                  Page
                                                                                 Number
                                                                                 ------
          <S>                                                                    <C>
          (a)  Documents filed as part of the report:
               (1)       Report of Ernst & Young LLP,  Independent Auditors        F-1
                         Balance Sheets at December 31, 2000 and 1999              F-2
                         Statements of Operations for 2000, 1999 and 1998          F-3
                         Statements of Stockholders' Equity for 2000, 1999 and
                         1998                                                      F-4
                         Statements of Cash Flows for 2000, 1999 and 1998          F-6
                         Notes to Financial Statements                             F-7
                         Schedule II Valuation and Qualifying Accounts            II-1
</TABLE>

          All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable and therefore have been
omitted.

               (2)   Exhibits

Exhibit
Number                              Description of Document
------                              -----------------------
  2.1        Agreement and Plan of Merger and Reorganization among the Company,
             Copper Mountain Acquisition Corp. and OnPREM Networks Corporation
             dated January 25, 2000.(4)

  3.1        Bylaws of the Company.(1)

  3.2        Amended and Restated Certificate of Incorporation of the
             Company.(1) (6)

  4.1        Reference is made to Exhibits 3.1 and 3.2.

  4.2        Specimen Stock Certificate.(1)

 10.1        Amended and Restated 1996 Equity Incentive Plan (the
             1996 Plan").(6)

 10.2        Form of Stock Option Agreement pursuant to the 1996 Plan.(1)

 10.3        1999 Employee Stock Purchase Plan and related offering
             documents.(1)

 10.4        Employment Agreement between the Company and Steve Hunt, dated July
             31, 1996.(1)

 10.5        Employment Agreement between the Company and Richard Gilbert, dated
             March 22, 1998.(1)

 10.6        Master Equipment Lease between the Company and Comdisco, Inc.,
             dated September 30, 1997.(1)

 10.7        Loan and Security Agreement between the Company and Silicon Valley
             Bank, dated August 14, 1998.(1)

 10.8        Loan and Security Agreement between the Company and Silicon Valley
             Bank and MMC/GATX Partnership No. 1, dated October 4, 1996.(1)

 10.9        Office Lease between the Company and Public Storage Properties
             XVIII, Inc., dated June 14, 1996.(1)

 10.10       Office Lease between the Company and R.G. Harris & Company, dated
             August 12, 1997.(1)

 10.11       Office Sublease between the Company and Stuart Leeb and Associates,
             dated May 1, 1998.(1)

 10.12       Office Lease between the Company and Palomar Enterprises, Inc.,
             dated July 20, 1998.(1)

 10.13       Warrant Agreement between the Company and MMC/GATX Partnership No.
             1, dated October 4, 1996.(1)

 10.14       Warrant Agreement between the Company and Silicon Valley Bank,
             dated October 4, 1996.(1)

 10.15       Warrant Agreement between the Company and Intel Corporation, dated
             January 14, 1997.(1)

                                       44
<PAGE>

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

+10.16       General Agreement for the Procurement of Products and Services and
             the Licensing of Software between the Company and Lucent
             Technologies Inc., dated November 17, 1998.(1)

+10.17       OEM Purchase and Development Agreement between the Company an 3COM
             Corporation, dated November 24, 1998.(1)

+10.18       Development, Manufacturing and Supply Agreement between the Company
             and Netopia, Inc., dated May 19, 1998.(1)

10.19        1999 Non-Employee Directors' Stock Option Plan.(1)

10.20        Form of Nonqualified Stock Option for use with 1999 Non-Employee
             Directors' Stock Option Plan.(1)

10.21        Form of Indemnification Agreement(1)

+10.22       Equipment Purchase Agreement between the Company and NorthPoint
             Communications, Inc. dated April 8, 1999.(1)

+10.23       Standard Full Service Gross Office Lease among the Company, Pacific
             Sorrento Mesa Holdings, L.P., and Pacific Stonecrest Holdings,
             L.P., dated March 31, 1999.(1)

+10.24       Equipment Purchase Agreement between the Company and NorthPoint
             Communications, Inc. dated July 21, 1999.(2)

+10.25       Equipment Purchase Agreement between the Company and Rhythms
             NetConnections, Inc. dated December 10, 1999.(3)

10.26        Software License Agreement between the Company and Rhythms
             NetConnections, Inc. dated December 10, 1999.(3)

+10.27       Customer Technical Support Services Agreement between the Company
             and Rhythms NetConnections, Inc. dated December 10, 1999.(3)

10.28        Employment Agreement between the Company and Joseph D. Markee,
             dated March 12, 1999.(1)

10.29        OnPREM Networks Corporation 1998 Stock Option Plan(3).

10.30        Form of Stock Option Agreement pursuant to the OnPREM Networks
             Corporation 1998 Stock Option Plan.(3)

10.31        Employment Agreement between the Company and Wilson O. Cochran, II,
             dated February 29, 2000.(5)

10.32        Non-Competition Agreement between the Company and Wilson O.
             Cochran, II, dated February 29, 2000.(5)

10.33        2000 Nonstatutory Stock Option Plan.(7)

10.34        Form of Stock Option Agreement and Form of Stock Option Grant
             Notice used in connection with the 2000 Nonstatutory Stock Option
             Plan.(7)

23.1         Consent of Ernst & Young LLP, Independent Auditors.*

24.1         Power of Attorney. Reference is made to page 47.

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

     (1)     Filed as an exhibit to the Registrant's Registration Statement on
             Form S-1 filed with the Securities and Exchange Commission (the
             "Commission") on March 1, 1999 (File No. 333-73153), as amended by
             Amendment No. 1 filed with the Commission on April 13, 1999,
             Amendment No. 2 filed with the Commission on April 26, 1999, and
             Amendment No. 3 filed with the Commission on May 11, 1999.

     (2)     Filed as an exhibit to the Registrant's Quarterly Report on Form
             10-Q for the quarter ended September 30, 1999.

     (3)     Filed as an exhibit to the Registrant's Annual Report on Form 10-K
             for the year ended December 31, 1999.

     (4)     Filed as an exhibit to the Registrant's Current Report on Form 8-K
             filed with the Commission on March 15, 2000.

     (5)     Filed as an exhibit to the Registration Statement on Form S-1 filed
             with the Commission on March 20, 2000 (File No. 333-32846), as
             amended by Amendment No. 1 filed with the Commission on

                                       45
<PAGE>

          April 27, 2000 and Amendment No. 2 filed with the Commission on April
          28, 2000, and amended post-effectively on June 8, 2000 to convert to a
          Registration Statement on Form S-3.

     (6)  Filed as an exhibit to the Registrant's Notice of Annual Meeting and
          Definitive Proxy Statement for the 2000 Annual Meeting of Stockholders
          filed with the Commission on April 10, 2000.

     (7)  Filed as an exhibit to the Registrant's Registration Statement on Form
          S-8 filed with the Commission on June 7, 2000 (File No. 333-38798).

     *    Filed Herewith

     +    Confidential treatment has been granted with respect to certain
          portions of this exhibit. Omitted portions have been filed separately
          with the Securities and Exchange Commission.

                                       46
<PAGE>

                                  SIGNATURES

    Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

Date:    March 5, 2001


                                               Copper Mountain Networks, Inc.

                                               By: /s/ RICHARD S. GILBERT
                                                   ----------------------
                                                   Richard S.  Gilbert
                                                   President, Chief Executive
                                                   Officer and Chairman of the
                                                   Board

    KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Richard S. Gilbert and/or John A. Creelman, and
each of them, as his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments to this Report,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming that all said
attorneys-in-fact and agents, or any of them or their or his substitute or
substituted, may lawfully do or cause to be done by virtue hereof.

    Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
              Signature                                       Title                         Date
              ---------                                       -----                         ----
<S>                                                  <C>                                <C>
/s/ RICHARD S.  GILBERT                             President, Chief Executive          March 5, 2001
--------------------------------------------
Richard S.  Gilbert                                 Officer and Chairman of the
                                                    Board (Principal Executive
                                                    Officer)

/s/ JOHN A.  CREELMAN                               Vice President of Finance,          March 5, 2001
--------------------------------------------
                                                    Chief Financial Officer and
John A.  Creelman                                   Secretary (Principal Financial
                                                    Officer and Principal
                                                    Accounting Officer)


/s/ JOSEPH D. MARKEE                                Chief Technical Officer and         March 5, 2001
--------------------------------------------
Joseph D. Markee                                    Director

/s/  ROBERT L.  BAILEY                              Director                            March 5, 2001
--------------------------------------------
Robert L.  Bailey

/s/ TENCH COXE                                      Director                            March 5, 2001
--------------------------------------------
Tench Coxe

/s/ ROGER EVANS                                     Director                            March 5, 2001
--------------------------------------------
Roger Evans

/s/ RICHARD H.  KIMBALL                             Director                            March 5, 2001
--------------------------------------------
Richard H.  Kimball

/s/ RAYMOND V.  THOMAS                              Director                            March 5, 2001
--------------------------------------------
Raymond V.  Thomas

/s/ ANDREW W.  VERHALEN                             Director                            March 5, 2001
--------------------------------------------
Andrew W.  Verhalen
</TABLE>

                                       47
<PAGE>

               REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Copper Mountain Networks, Inc.

We have audited the accompanying balance sheets of Copper Mountain Networks,
Inc. as of December 31, 2000 and 1999, and the related statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 2000. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 financial statements referred to above present fairly, in
all material respects, the financial position of Copper Mountain Networks, Inc.
at December 31, 2000 and 1999, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States.



                                                           ERNST & YOUNG LLP

San Diego, California
January 30, 2001

                                      F-1
<PAGE>

                        COPPER MOUNTAIN NETWORKS, INC.

                                BALANCE SHEETS
                     (in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                             December 31,
                                                                       2000                1999
                                                                  -------------       -------------
ASSETS
------
<S>                                                               <C>                 <C>
Current assets:
 Cash and cash equivalents                                        $      65,838       $      25,405
 Short-term marketable investments                                       96,778              91,764
 Accounts receivable, net                                                19,496              18,992
 Inventory                                                               26,405              12,801
 Other current assets                                                     7,961               1,530
                                                                  -------------       -------------
Total current assets                                                    216,478             150,492
Marketable investments                                                    6,161               5,139
Property and equipment, net                                              24,961               8,825
Other assets                                                             11,126               1,319
Purchased intangibles                                                    46,159                 ---
                                                                  -------------       -------------
Total assets                                                      $     304,885       $     165,775
                                                                  =============       =============

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
 Accounts payable                                                 $      23,963       $       7,887
 Accrued liabilities                                                     45,951               8,800
 Current portion of obligations under capital leases
   and equipment notes payable                                            3,177               1,618
                                                                  -------------       -------------
Total current liabilities                                                73,091              18,305
Obligations under capital leases and equipment
  notes payable, less current portion                                     6,654               4,044
Other accrued                                                               314                 105
Stockholders' equity:
  Preferred stock, $.001 par value, 5,000 shares authorized,
   none issued and outstanding                                             ----                ----
  Common stock, $.001 par value, 100,000 shares
   authorized, 52,053 and 47,662 shares issued and
   outstanding at December 31, 2000 and 1999,
   respectively                                                              52                  48
  Additional paid in capital                                            236,675             159,149
  Deferred compensation                                                  (2,283)             (4,565)
  Accumulated deficit                                                    (9,618)            (11,311)
                                                                  --------------      -------------
Total stockholders' equity                                              224,826             143,321
                                                                  -------------       -------------
Total liabilities and stockholders' equity                        $     304,885       $     165,775
                                                                  =============       =============
</TABLE>

                See accompanying notes to financial statements

                                      F-2
<PAGE>

                        COPPER MOUNTAIN NETWORKS, INC.

                           STATEMENTS OF OPERATIONS
                     (in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                            Year Ended
                                                                            December 31,
                                                         ----------------------------------------------------
                                                               2000              1999               1998
                                                         ---------------   ---------------    ---------------
<S>                                                      <C>               <C>                <C>
   Net revenue                                            $     281,576     $     112,723      $      21,821
   Cost of revenue                                              165,128            53,002             12,400
                                                          -------------     -------------      -------------
     Gross margin                                               116,448            59,721              9,421
   Operating expenses:
     Research and development                                    37,494            15,523              7,225
     Sales and marketing                                         34,868            16,158              5,363
     General and administrative                                  21,823             5,998              3,428
     Amortization of purchased intangibles                       17,753              ----               ----
     Amortization of deferred stock compensation                  3,664             5,431              3,929
     Write-off of in-process research and development             6,300              ----               ----
                                                          -------------     -------------      -------------
         Total operating expenses                               121,902            43,110             19,945
                                                          -------------     -------------      -------------

   Income (loss) from operations                                 (5,454)           16,611            (10,524)

   Other income (expense):
        Interest and other income                                 9,618             4,385                406
        Interest expense                                           (611)             (289)              (213)
                                                          -------------     -------------      --------------
   Income (loss) before income taxes                              3,553            20,707            (10,331)
   Provision for income taxes                                     1,860             8,490               ----
                                                          -------------     -------------      -------------
   Net income (loss)                                      $       1,693     $      12,217      $     (10,331)
                                                          =============     =============      =============


   Basic net income (loss) per share                      $        0.03     $        0.39      $       (3.87)
                                                          =============     =============      =============

   Diluted net income (loss) per share                    $        0.03     $        0.23      $       (3.87)
                                                          =============     =============      =============


   Basic common equivalent shares                                50,584            31,289              2,666
                                                          =============     =============      =============

   Diluted common equivalent shares                              58,217            52,282              2,666
                                                          =============     =============      =============
</TABLE>

                See accompanying notes to financial statements

                                      F-3
<PAGE>

                        COPPER MOUNTAIN NETWORKS, INC.
                      STATEMENTS OF STOCKHOLDERS' EQUITY
                     (in thousands, except per share data)

<TABLE>
<CAPTION>
                                                         Preferred Stock              Common Stock
                                                         ---------------              ------------
                                                                                                             Notes
                                                                                                           Receivable
                                                     Number of                   Number of                    From
                                                      Shares        Amount        Shares       Amount      Stockholders
                                                   -----------   -------------  -----------  -----------   ------------
<S>                                                <C>           <C>            <C>          <C>           <C>
Balance at December 31, 1997                             6,997    $     20,425        4,461   $        4    $       (69)
Exercise of options to purchase common stock              ----            ----        1,030            1           ----
Stock grants for consulting services                      ----            ----           19         ----           ----
Deferred compensation related to the grant of
   stock options                                          ----            ----         ----         ----           ----
Amortization related to deferred stock
   Compensation                                           ----            ----         ----         ----           ----
Stock forfeited by employee                               ----            ----         (476)        ----             16
Repayment of note receivable from stockholder             ----            ----         ----         ----             12
Issuance of Series C convertible preferred
   stock warrants in connection with a
   financing agreement                                    ----            ----         ----         ----           ----
Issuance of Series D convertible preferred
   stock at $7.75 per share for cash, net                3,226          24,077         ----         ----           ----
Net loss                                                  ----            ----         ----         ----           ----
                                                    ----------    ------------   ----------   -----------   -----------
Balance at December 31, 1998                            10,223          44,502        5,034            5            (41)
Conversion of preferred to common stock                (10,223)        (44,502)      30,670           31           ----
Issuance of common stock, net                             ----            ----        9,200            9           ----
Stock grants for consulting services                      ----            ----            1         ----           ----
Repayment of notes receivable from
   Stockholders                                           ----            ----         ----         ----             41
Deferred compensation related to the grant of
   stock options                                          ----            ----         ----         ----           ----
Amortization related to deferred stock
   compensation                                           ----            ----         ----         ----           ----
Net exercise of warrant to purchase common
   Stock                                                  ----            ----          235         ----           ----
Tax benefit from the exercise of stock options            ----            ----         ----         ----           ----
Exercise of options to purchase common stock              ----            ----        2,522            3           ----
Net income                                                ----            ----         ----         ----           ----
                                                    ----------    ------------   ----------   ----------    -----------

Balance at December 31, 1999                              ----   $        ----       47,662   $       48    $      ----
                                                    ==========   =============   ==========   ==========    ===========

<CAPTION>
                                                      Additional                                        Total
                                                       Paid in         Deferred       Accumulated    Stockholders'
                                                       Capital       Compensation       Deficit         Equity
                                                    --------------   ------------   --------------   -------------
<S>                                                 <C>              <C>            <C>              <C>
Balance at December 31, 1997                         $       4,469    $    (2,563)   $     (13,197)   $    9,069
Exercise of options to purchase common stock                    60           ----             ----            61
Stock grants for consulting services                             5           ----             ----             5
Deferred compensation related to the grant of
   stock options                                            11,128        (11,128)            ----          ----
Amortization related to deferred stock
   Compensation                                               ----          3,929             ----         3,929
Stock forfeited by employee                                    (16)          ----             ----          ----
Repayment of note receivable from stockholder                 ----           ----             ----            12
Issuance of Series C convertible preferred
   stock warrants in connection with a
   financing agreement                                          21           ----             ----            21
Issuance of Series D convertible preferred
   stock at $7.75 per share for cash, net                     ----           ----             ----        24,077
Net loss                                                      ----           ----          (10,331)      (10,331)
                                                     -------------   ------------    --------------   ------------
Balance at December 31, 1998                                15,667         (9,762)         (23,528)       26,843
Conversion of preferred to common stock                     44,471           ----             ----          ----
Issuance of common stock, net                               88,664           ----             ----        88,673
Stock grants for consulting services                             7           ----             ----             7
Repayment of notes receivable from
   Stockholders                                               ----           ----             ----            41
Deferred compensation related to the grant of
   stock options                                               234           (234)            ----          ----
Amortization related to deferred stock
   compensation                                               ----          5,431             ----         5,431
Net exercise of warrant to purchase common
   Stock                                                      ----           ----             ----          ----
Tax benefit from the exercise of stock options               9,389           ----             ----         9,389
Exercise of options to purchase common stock                   717           ----             ----           720
Net income                                                    ----           ----           12,217        12,217
                                                     -------------   ------------    -------------    ----------

Balance at December 31, 1999                         $     159,149   $     (4,565)   $     (11,311)   $  143,321
                                                     =============   ============    =============    ==========
</TABLE>

                                      F-4
<PAGE>

                        COPPER MOUNTAIN NETWORKS, INC.
                  STATEMENTS OF STOCKHOLDERS' EQUITY (CON'T)
                     (in thousands, except per share data)


<TABLE>
<CAPTION>
                                                Preferred   Stock             Common  Stock
                                            ---------------------------   -----------------------      Notes
                                                                                                     Receivable     Additional
                                              Number of                    Number of                    from         Paid in
                                               Shares         Amount        Shares       Amount     Stockholders      Capital
                                            -----------    ------------   ----------   ----------   ------------   -------------
<S>                                         <C>            <C>            <C>          <C>          <C>            <C>
Common stock issued for acquisition of
   OnPREM                                          ----    $       ----        1,142   $         1   $      ----   $      70,158
Deferred compensation related to the
acquisition
    of OnPREM                                      ----            ----         ----          ----          ----            ----
Amortization related to deferred stock
    compensation                                   ----            ----         ----          ----          ----            ----
Common stock issued under Employee
  Stock Purchase Plan                              ----            ----          143          ----          ----           1,429
Exercise of options to purchase common
stock                                              ----            ----        3,106             3          ----           5,939
Net income                                         ----            ----         ----          ----          ----            ----
                                             ----------    ------------   ----------   -----------   -----------   -------------

Balance at December 31, 2000                       ----    $       ----       52,053   $        52   $      ----   $     236,675
                                             ==========    ============   ==========   ===========   ===========   =============


<CAPTION>
                                                                                  Total
                                                Deferred       Accumulated    Stockholders'
                                              Compensation        Deficit       Equity
                                              ------------   --------------   -----------
<S>                                          <C>             <C>              <C>
Common stock issued for acquisition of
   OnPREM                                    $        ----   $         ----   $      70,159
Deferred compensation related to the
acquisition
    of OnPREM                                       (1,382)            ----          (1,382)
Amortization related to deferred stock
    compensation                                     3,664             ----           3,664
Common stock issued under Employee
  Stock Purchase Plan                                 ----             ----           1,429
Exercise of options to purchase common
stock                                                 ----             ----           5,942
Net income                                            ----            1,693           1,693
                                             -------------    -------------    ------------

Balance at December 31, 2000                 $      (2,283)   $      (9,618)   $    224,826
                                             =============    =============    ============
</TABLE>


                 See accompanying notes to financial statements

                                      F-5
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                      Year Ended
                                                                                     December 31,
                                                              --------------------------------------------------------
                                                                   2000                   1999               1998
                                                              ---------------       --------------      --------------
<S>                                                           <C>                   <C>                 <C>
Cash flows from operating activities:
  Net income (loss)                                           $         1,693       $      12,217       $      (10,331)
  Adjustments to reconcile net income (loss)
     to net cash provided by (used in) operating activities:
       Depreciation and amortization                                   25,158               3,089                1,231
       Non-cash compensation                                            3,664               5,438                3,934
       Write-off of in-process research and development                 6,300                ----                 ----
       Loss on disposal of equipment                                     ----                 193                 ----
       Tax benefit from the sale of stock options                        ----               9,389                 ----
       Changes in operating assets and liabilities:
          Accounts receivable                                            (504)            (10,966)              (7,843)
          Inventory                                                   (13,604)             (8,133)              (4,285)
          Other current assets and other assets                       (14,710)             (1,095)              (1,469)
          Accounts payable and accrued liabilities                     49,244              10,174                4,435
                                                              ---------------       -------------       --------------

Net cash provided by (used in) operating activities                    57,241              20,306              (14,328)
                                                              ---------------       -------------       --------------

Cash flows from investing activities:
  Purchases of marketable investments                                 (97,800)           (113,416)             (11,140)
  Maturities of  marketable investments                                91,764              27,411                  242
  Purchases of property and equipment                                 (17,143)             (6,572)              (1,171)
  Cash received in the purchase of OnPREM                                 844                ----                 ----
                                                              ---------------       -------------       --------------

Net cash used in investing activities                                 (22,335)            (92,577)             (12,069)
                                                              ---------------       --------------      --------------

Cash flows from financing activities:
  Proceeds from issuance of equipment notes payable                      ----               2,464                  921
  Payments on capital lease obligations                                (1,170)               (429)                (293)
  Payments on equipment notes payable                                    (674)             (1,424)                (267)
  Proceeds from issuance of preferred stock                              ----                ----               24,077
  Repayment of shareholders notes receivable                             ----                  41                 ----
  Proceeds from issuance of common stock                                7,371              89,393                   73
                                                              ---------------       -------------       --------------

Net cash provided by financing activities                               5,527              90,045               24,511
                                                              ---------------       -------------       --------------

Net increase (decrease) in cash and cash equivalents                   40,433              17,774               (1,886)

Cash and cash equivalents at beginning of year                         25,405               7,631                9,517
                                                              ---------------       -------------       --------------

Cash and cash equivalents at end of year                      $        65,838       $      25,405       $        7,631
                                                              ===============       =============       ==============

Supplemental information:
  Interest paid                                               $           611       $         289       $          150
                                                              ===============       =============       ==============
  Common stock issued for acquisition of OnPREM               $        70,159       $        ----       $         ----
                                                              ===============       =============       ==============
  Equipment acquired under capital lease obligations and
     notes                                                    $         6,013       $       2,303       $        1,307
                                                              ===============       =============       ==============
  Stock forfeited for notes receivable                        $          ----       $        ----       $          (16)
                                                              ===============       =============       ==============
  Issuance of convertible preferred stock warrants            $          ----       $        ----       $           21
                                                              ===============       =============       ==============
  Issuance of stock for consulting services                   $          ----       $           7       $            5
                                                              ===============       =============       ==============
</TABLE>

                See accompanying notes to financial statements

                                      F-6
<PAGE>

                        COPPER MOUNTAIN NETWORKS, INC.

                         NOTES TO FINANCIAL STATEMENTS


1.   Organization and Summary of Significant Accounting Policies


Organization and Business Activity

     Copper Mountain Networks, Inc. (the "Company" or "Copper Mountain"), a
Delaware corporation, is a supplier of high-speed DSL-based communication
solutions for the broadband access market. The Company's solutions enable
telecommunication service providers to provide high-speed, cost-effective
connectivity over the existing copper wire infrastructure to the business,
multiple tenant unit and residential markets.

     The Company operates in one business segment, developing, marketing and
supporting advanced communications products which enable high-speed data access
to business, multi-tenant unit and residential users. The markets for high-speed
data access products are characterized by rapid technological developments,
frequent new product introductions, changes in end user requirements and
evolving industry standards. The Company's future success will depend on its
ability to develop, introduce and market enhancements to its existing products,
to introduce new products in a timely manner which meet customer requirements
and to respond to competitive pressures and technological advances. Further, the
emergence of new industry standards, whether through adoption by official
standards committees or widespread use by telephone companies or other
telecommunications service providers, could require the Company to redesign its
products.

Basis of Presentation

     The accompanying financial statements include the accounts of the Company
and its branch offices in Singapore and in the Netherlands. Activities performed
by the branches are a direct and integral extension of the Company's primary
business and are accounted for within the Company's corporate records without
consolidation. Accordingly, no foreign currency translation is reflected in the
accompanying financial statements as management considers the functional
currency of each branch to be that of the United States dollar.

Management Estimates and Assumptions

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

Cash and Cash Equivalents

     Cash and cash equivalents consist of cash, money market funds, and other
highly liquid investments with maturities of three months or less when
purchased. The carrying value of these instruments approximates fair value. The
Company generally invests its excess cash in debt instruments of the U.S.
Treasury, government agencies and corporations with strong credit ratings. Such
investments are made in accordance with the Company's investment policy, which
establishes guidelines relative to diversification and maturities designed to
maintain safety and liquidity. These guidelines are periodically reviewed and
modified to take advantage of trends in yields and interest rates. The Company
has not experienced any significant losses on its cash and cash equivalents.

                                      F-7
<PAGE>

Fair Value of Financial Instruments

     The carrying value of cash, cash equivalents, marketable investments,
accounts receivable, accounts payable, accrued liabilities, obligations under
capital leases and notes payable approximates fair value, unless the fair value
is not practicably determinable.

Investments

     At December 31, 2000, the Company held investments in investment grade debt
securities with various maturities through January 2002. Management determines
the appropriate classification of its investments in debt securities at the time
of purchase and reevaluates such designation as of each balance sheet date. The
Company's total investments in these securities as of December 31, 2000 totaled
$157.0 million. The Company has included $54.0 million of these securities in
cash and cash equivalents, as of December 31, 2000, as they have original
maturities of less than 90 days. The remaining debt securities totaling $96.8
million and $6.2 million as of December 31, 2000 have been classified as
short-term and long-term marketable investments, respectively. The Company has
designated all of its investments as held to maturity.

     At December 31, 2000, the Company held an investment in commercial paper
issued by Southern California Edison Company. The investment is included in
short-term marketable investments at a carrying value of approximately $3.4
million which matured in February 2001 and is currently in default. Management
believes that the fair value of this investment has declined since the balance
sheet date, however, the ultimate amount of the decline and the net realizable
value of this investment is not practicably determinable.


Concentration of Credit Risk

     A relatively small number of customers account for a significant percentage
of the Company's revenues. The Company expects that the sale of its products to
a limited number of customers may continue to account for a high percentage of
revenues for the foreseeable future. The Company's revenues for the year ended
December 31, 2000 include sales to four significant customers totaling $62.2
million, $53.5 million, $47.6 million and $27.3 million. The Company's revenues
for the year ended December 31, 1999 include sales to three significant
customers totaling $42.2 million, $32.0 million and $25.4 million. The Company's
revenues for the year ended December 31, 1998 include sales to two significant
customers totaling $13.2 million and $4.0 million.

     The Company performs ongoing credit evaluations of its customers and
generally requires no collateral. The Company had significant accounts
receivable balances due from two customers individually representing 35% and 15%
of total accounts receivable at December 31, 2000.

     In January 2001, Northpoint Communications, Inc. ("Northpoint"), a
significant customer of the Company, filed a petition for Chapter 11 protection
with the U.S. Bankruptcy Court. Net revenue for the year ended December 31, 2000
does not reflect shipments of approximately $9.2 million to Northpoint. The net
impact on the Company's results from operations for the year ended December 31,
2000 was $4.9 million as a result of the insolvency of Northpoint.

     The Company from time to time maintains a substantial portion of its cash
and cash equivalents in money market accounts with one financial institution.
The Company invests its excess cash in debt instruments of the U.S. Treasury,
governmental agencies and corporations with strong credit ratings. The Company
has established guidelines relative to diversification and maturities that
attempt to maintain safety and liquidity. The Company has not realized any
significant losses on its cash equivalents or marketable investments.


Inventory

                                      F-8
<PAGE>

     Inventory is stated at the lower of cost, principally standard costs, which
approximates actual costs on a first-in, first-out basis, or market. During the
fourth quarter of 2000, the Company recorded a charge of $35 million of which
$28.6 million relates to future inventory purchase commitments of finished
products and raw materials in excess of anticipated requirements and $6.4
million relates to excess inventory on hand at December 31, 2000. Reductions in
the value of the inventory are generally due to the discontinuance of certain
products, which is a result of the development and introduction of new products.
In the aggregate, the Company recorded charges to reduce the carrying costs of
inventory totaling $13.3 million, $750,000 and $504,000 for the years ended
December 31, 2000, 1999 and 1998, respectively. All such reductions to inventory
value and losses on purchase commitments for the years ended December 31, 2000,
1999 and 1998 are included in cost of revenues.


Property and Equipment

     Property and equipment is stated at cost and depreciated using the
straight-line method over the estimated useful lives of the assets, ranging from
two to five years, or lease terms, if shorter, for leasehold improvements. For
the years ended December 31, 2000, 1999 and 1998, depreciation expense,
including amortization of property and equipment acquired under capital lease
obligations, was $7.4 million, $3.0 million and $1.2 million, respectively.


Revenue Recognition

     The Company recognizes revenue pursuant to Staff Accounting Bulletin No.
101 "Revenue Recognition in Financial Statements." Accordingly, revenue is
recognized when all four of the following criteria are met: (i) persuasive
evidence that an arrangement exists; (ii) delivery of the products and/or
services has occurred; (iii) the selling price is fixed or determinable and;
(iv) collectibility is reasonably assured. Sales returns are estimated based on
historical experience and management's expectations and are recorded at the time
product revenue is recognized. In addition, the Company leases equipment to
customers under non-cancelable sales-type leases with terms of generally three
to four years.

     Annual service and support arrangements can be purchased by customers for
products no longer under warranty and are generally billed quarterly. Revenue
from service and support arrangements is recognized ratably as services are
performed.

     The Company may extend limited stock rotation, product return and price
protection rights to certain distributors and resellers. The Company may not be
able to estimate product returns if the relationship with the distributor is new
or if there is limited historical basis to determine product returns. Deferred
revenue, which is included in accrued liabilities, represents the margin on
shipments of products to distributors or resellers that will be recognized when
the Company can reasonably estimate product returns, at which time the Company
records the revenue and cost of revenue.


Research and Development Costs

     Costs incurred in connection with research and development are charged to
operations as incurred. Costs of equipment for research and development that
have alternative future uses are capitalized when purchased and depreciated
using the straight-line method over the estimated useful lives of the assets,
ranging from two to five years.


Advertising Costs

     The cost of advertising is expensed as incurred. For the years ended
December 31, 2000, 1999 and 1998, the Company incurred advertising expense of
$4.5 million, $1.2 million and $320,000, respectively.


Software Costs

                                      F-9
<PAGE>

     Software product development costs incurred from the time technological
feasibility is reached until the product is available for general release to
customers are capitalized and reported at the lower of cost or net realizable
value. There have been no such costs capitalized to date as the costs incurred
subsequent to reaching technological feasibility have not been significant.


Impairment of Long-Lived Assets

     The Company assesses potential impairments to its long-lived assets when
there is evidence that events or changes in circumstances have made recovery of
the asset's carrying value unlikely. An impairment loss would be recognized when
the sum of the expected future undiscounted net cash flows is less than the
carrying amount of the asset. Should an impairment exist, the impairment loss
would be measured based on the excess of the carrying amount of the asset over
the asset's fair value. The Company has identified no such impairment losses.
Substantially all of the Company's long-lived assets are located in the United
States.


Warranty Reserves

     The Company provides limited warranties on certain of its products for
periods of up to one year. The Company recognizes warranty reserves when
products are shipped based upon an estimate of total warranty costs, and such
reserves are included in accrued liabilities.


Income Taxes

     Deferred income taxes result primarily from temporary differences between
financial and tax reporting. Deferred tax assets and liabilities are determined
based on the difference between the financial statement bases and the tax bases
of assets and liabilities using enacted tax rates. A valuation allowance is
established to reduce a deferred tax asset to the amount that is expected more
likely than not to be realized.


Stock Based Compensation

     The Company measures compensation expense for its stock-based employee
compensation plans using the intrinsic value method and provides pro forma
disclosures of net income (loss) and net income (loss) per share as if the fair
value method had been applied in measuring compensation expense (See Note 8).

     Deferred compensation for options granted to non-employees has been
determined in accordance with SFAS No. 123 and EITF 96-18 as the fair value of
the consideration received or the fair value of the equity instruments issued,
whichever is more reliably measured. Deferred charges for options granted to
non-employees are periodically remeasured as the underlying options vest.


Comprehensive Income

         The Company has adopted Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income," which requires that all
components of comprehensive income, including net income, be reported in the
financial statements in the period in which they are recognized. Comprehensive
income is defined as the change in equity during a period from transactions and
other events and circumstances from non-owner sources. Net income (loss) and
other comprehensive income, including foreign currency translation adjustments
and unrealized gains and losses on investments, shall be reported, net of their
related tax effect, to arrive at comprehensive income (loss). Comprehensive
income (loss) for the years ended December 31, 2000, 1999 and 1998 did not
differ from reported net income (loss).


Net Income (Loss) Per Share

                                      F-10
<PAGE>

     Basic and diluted net income (loss) per share has been computed in
accordance with SFAS No. 128, "Earnings Per Share," using the weighted-average
number of shares of common stock outstanding and common stock equivalents during
the period.


     A reconciliation of shares used in the calculation of basic and diluted net
loss per share attributable to common shareholders is as follows (in thousands):

<TABLE>
<CAPTION>
                                                                           December 31,
                                                                ------------------------------
                                                                  2000       1999       1998
                                                                -------     -------    -------
     <S>                                                        <C>         <C>        <C>
     Weighted average common shares outstanding                  50,584      31,289      2,666
     Dilutive effect of preferred shares                           ----      11,091       ----
     Dilutive effect of stock options                             7,140       8,585       ----
     Dilutive effect of restricted shares                            29         708       ----
     Dilutive effect of warrants                                    464         609       ----
                                                                 ------     -------      -----
     Shares used in computing diluted net income (loss) per
        common share                                             58,217      52,282      2,666
                                                                 ======     =======      =====
</TABLE>

     Dilutive securities include options, warrants, preferred stock as if
converted and restricted stock subject to vesting. Potentially dilutive
securities totaling 1.7 million and 40.9 million for the years ended December
31, 2000 and 1998, respectively, were excluded from basic and diluted earnings
per share because of their anti-dilutive effect.


Recapitalization

     In April 1999, the Company reincorporated as a Delaware corporation. The
authorized shares of the Company were set at 100 million shares of common stock
($.001 par value) and 5 million shares of preferred stock ($.001 par value).
Under the restated certificate, the Company's board of directors has the
authority, without further action by stockholders, to issue up to 5 million
shares of preferred stock in one or more series and to fix the rights,
preferences, privileges, qualifications and restrictions granted to or imposed
upon such preferred stock. The issuance of preferred stock could adversely
affect the voting power of holders of common stock. All common share data in the
accompanying financial statements have been adjusted retroactively to give
effect to the reincorporation.

     In November 1999, the Company's Board of Directors declared a two-for-one
stock split of the Company's common stock in the form of a stock dividend. The
stock dividend was distributed on December 10, 1999 to stockholders of record on
November 24, 1999. All references in the financial statements and notes to
number of shares and per share amounts have been restated to reflect this stock
split.


New Accounting Standards

     In June 1998, the FASB issued SFAS No. 133 ("SFAS 133"), "Accounting for
Derivative Instruments and Hedging Activities," as amended in June 2000 by SFAS
No. 138 ("SFAS 138"), "Accounting for Certain Derivative Instruments and Certain
Hedging Activities," which requires companies to recognize all derivatives as
either assets or liabilities in the balance sheet and measure such instruments
at fair value. As amended by SFAS No. 137 ("SFAS 137"), "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133," the provisions of SFAS 133 will require adoption no
later than the beginning of the Company's fiscal year ending December 31, 2001.
Adoption of SFAS 133, as amended by SFAS 138, is not expected to have a material
impact on the Company's financial statements.

     In March 2000, the FASB issued FASB Interpretation No. 44, "Accounting for
Certain Transactions involving Stock Compensation, an interpretation of APB
Opinion No. 25." The Interpretation requires that stock options that

                                      F-11
<PAGE>

have been modified to effectively reduce the exercise price generally be
accounted for as variable. The Company adopted the Interpretation prospectively
as of July 1, 2000. The adoption of the Interpretation has not had a significant
impact on the Company's financial statements.


Reclassifications

     Certain prior period amounts and balances have been reclassified to conform
with the current period presentation.


2.   Acquisition

     On February 29, 2000, the Company completed its acquisition of
privately-held OnPREM Networks Corporation ("OnPREM") of Fremont, California.
OnPREM is a developer of highly integrated DSL solutions for the small and
medium building Multi-Tenant Unit ("MTU") market. Under the terms of the
agreement, Copper Mountain acquired OnPREM in exchange for the issuance of
approximately 1.1 million shares of Copper Mountain common stock and the
assumption of options outstanding under the OnPREM 1998 Stock Plan.

     The purchase price of the OnPREM acquisition, excluding acquisition costs,
was $70.1 million. The acquisition was accounted for as a purchase. On the date
of acquisition the purchase price was allocated as follows (in thousands):

          Purchased intangibles                    $     65,360
          In-process research and development             6,300
          Current assets                                  1,000
          Non-current assets                                372
          Current liabilities                              (488)
          Accrued acquisition costs                      (3,700)
          Deferred compensation                           1,286
                                                   ------------
                                                   $     70,130
                                                   ============

     In connection with the acquisition of OnPREM, the Company wrote-off the
purchased in-process research and development of $6.3 million, which was charged
to operations upon completion of the acquisition. The purchased intangibles are
being amortized over their estimated useful life of three years.

     Subsequent to the acquisition, OnPREM was merged with the Company. OnPREM's
results from operations have been included in the Company's results from
operations since February 29, 2000. If the OnPREM acquisition would have
occurred on January 1, 1999, pro forma financial information would have been as
follows (in thousands, except per share data):


                                                 December 31,
                                       -------------------------------
                                            2000              1999
                                       --------------      -----------
                                                   (Unaudited)
Net revenue                            $   281,576         $ 112,723
Net loss                                    (3,042)          (18,270)
Basic and diluted net loss per share         (0.06)            (0.56)


3.   Completion of Initial Public Offering

     On May 13, 1999, the Company completed its initial public offering for the
sale of 9.2 million shares on a split-adjusted basis of common stock at a price
to the public of $10.50 per share, which resulted in net proceeds to the Company
of $89.8 million after payment of the underwriters' commissions but before
offering expenses. Simultaneously with the closing of the initial public
offering, all of the Company's convertible preferred stock was automatically
converted into an aggregate of 30.7 million shares of common stock.

                                      F-12
<PAGE>

4.    Composition of Certain Balance Sheet Captions

<TABLE>
<CAPTION>

                                                                   December 31,
                                                         ------------------------------
                                                              2000            1999
                                                         -------------     ------------
                                                                  (in thousands)
     <S>                                                 <C>               <C>
     Accounts receivable:
       Trade receivables                                   $    23,426      $    19,132
       Allowance for doubtful accounts                          (3,930)            (140)
                                                           ------------     ------------
                                                           $    19,496      $    18,992
                                                           ===========      ===========

     Inventory:
       Raw materials                                       $    22,635      $     6,003
       Work in process                                           1,529            3,148
       Finished goods                                           14,569            4,478
       Allowance for excess and obsolescence                   (12,328)            (828)
                                                           ------------     ------------
                                                           $    26,405      $    12,801
                                                           ===========      ===========

     Property and equipment:
       Laboratory equipment and software                   $    18,438      $     8,029
       Computer equipment and software                           6,885            3,294
       Office furniture and fixtures                             4,273            1,313
       Leasehold improvements                                    3,366              356
       Construction in progress                                  4,120              561
                                                         -------------      -----------
                                                                37,082           13,553
       Less accumulated depreciation and amortization          (12,121)          (4,728)
                                                           -----------      -----------
                                                           $    24,961      $     8,825
                                                           ===========      ===========

     Accrued liabilities:
       Adverse purchase commitment                         $    28,600      $      ----
       Accrued compensation                                      4,126            2,293
       Accrued warranty                                          3,714            1,930
       Accrued vacation                                          2,203            1,385
       Deferred revenue                                          2,554              275
       Other                                                     4,754            2,917
                                                           -----------      -----------
                                                           $    45,951      $     8,800
                                                           ===========      ===========
</TABLE>

5.   Investments

     At December 31, 2000 and 1999, investments consisted of the following (in
thousands):

<TABLE>
<CAPTION>
                                                     Current                       Noncurrent
                                            ---------------------------     --------------------------
                                                   December 31,                    December 31,
                                            ---------------------------     --------------------------
                                                2000          1999              2000         1999
                                            ------------  -------------     ------------  ------------
      <S>                                   <C>           <C>               <C>           <C>
      Held to maturity:
        Commercial paper                    $    44,962     $    31,856     $      ----    $      ----
        U.S. government securities                3,078          33,514            ----           ----
        Corporate medium-term notes              48,738          26,394           6,161          5,139
                                            -----------     -----------     -----------    -----------
                                            $    96,778     $    91,764     $     6,161    $     5,139
                                            ===========     ===========     ===========    ===========
</TABLE>

     At December 31, 2000, non-current held-to-maturity debt securities of $6.2
million had maturities of less than fourteen months.

                                      F-13
<PAGE>

6.   Short-Term Bank Borrowings

     In August 1998, the Company entered into a $4.0 million line of credit
agreement with a bank which allows it to borrow an amount equal to 80% of
eligible accounts receivable plus the lesser of 25% of the Company's eligible
inventory or $500,000. Interest accrued at the bank's prime rate plus .25% (8.0%
at December 31, 1998). There were no borrowings outstanding as of December 31,
1999 and the line of credit expired on August 13, 1999.

     In connection with this financing agreement, the Company granted warrants
to the bank to purchase an aggregate of 25,000 shares of Series C convertible
preferred stock at $4.75 per share. The warrants are exercisable for five years
from the date of issuance. The estimated fair value of the warrants was
approximately $21,000, which has been capitalized as debt issuance costs and was
amortized over the life of the financing agreement. These warrants were
exercised in 1999 and converted into 75,000 shares of common stock.


7.    Notes Payable and Capital Lease Obligations

     In August 2000, the Company entered into an $800,000 credit facility with a
financing company for the purchase of equipment under a capital lease agreement.
As of December 31, 2000, the full amount of funds available under this credit
facility had been utilized. The borrowings under the capital lease agreement are
to be repaid in 48 equal monthly installments and accrue interest at 9.85% per
annum. The obligation is secured by the related equipment.

     In June 2000, the Company secured a $5.0 million credit facility with a
financing company for the purchase of equipment under a capital lease agreement.
As of December 31, 2000, $100,000 of this credit facility was available for
future borrowings. The borrowings under the capital lease agreement are to be
repaid in 36 equal monthly installments and accrue interest at 10.8% per annum.
The obligation is secured by the related equipment.

     In August 1999, the Company entered into a credit facility with a bank for
the purchase of equipment. The credit facility includes $2.4 million in
equipment loans and $2.6 million in commitments for the purchase of equipment
under a capital lease agreement. During the year ended December 31, 1999, the
full amount of funds available under the equipment loan had been utilized. As of
December 31, 2000, the full amount of funds available under the capital lease
agreement had been utilized. The borrowings under the equipment loans and the
capital lease agreement are to be repaid in 48 equal monthly installments and
accrue interest at 10.8% per annum. Both obligations are secured by the related
equipment.

     In August 1998, the Company entered into an equipment line of credit with a
bank that allows the Company to borrow up to $1.0 million for the purchase of
equipment. The Company used a portion of the equipment loans entered into in
August 1999 to repay all amounts outstanding under this equipment line.

     In 1996, the Company entered into an equipment financing agreement with a
bank and leasing company that allows the Company to borrow up to $1.0 million
for purchases of equipment. The notes are secured by the related equipment. As
of December 31, 2000 and 1999 the full amount of funds available under the
equipment financing agreement was utilized.

     In connection with the 1996 equipment financing agreement, the Company
agreed to make a final payment equal to 12.5% of the equipment financed at the
end of the amortization period. Additionally, the Company granted warrants to
the bank and leasing company to purchase an aggregate of 50,000 shares of Series
A convertible preferred stock at $1.00 per share of which warrants for the
purchase of 40,000 shares were exercised in 1999 and converted into 120,000
shares of common stock. The warrants are exercisable for the longer of ten years
from the date of issuance or five years after an initial public offering. The
estimated fair value of the warrants was approximately $18,000, which was
capitalized as debt issuance costs and is being amortized over the life of the
equipment financing agreement.

                                      F-14
<PAGE>

A summary of the notes payable is as follows (in thousands):

<TABLE>
<CAPTION>
                                                                                         December 31,
                                                                                  -----------------------
                                                                                     2000         1999
                                                                                  ---------    ----------
     <S>                                                                          <C>          <C>
     Bank installment loan, with various maturity dates through October 2003,
          total monthly payments of $57,000, bearing interest at
          10.8%, collateralized by equipment                                      $   1,793    $    2,254
     Bank and leasing company installment loans, with various maturity
        dates through December 2000, total monthly payments of $27,000 with
        interest rates ranging between 8.99% and 9.76%, collateralized
        by equipment                                                                   ----           212
                                                                                  ---------    ----------
                                                                                      1,793         2,466
     Less current portion                                                              (513)         (753)
                                                                                  ---------    ----------
                                                                                  $   1,280    $    1,713
                                                                                  =========    ==========
</TABLE>

     At December 31, 2000, future aggregate annual principal payments on the
notes payable are $513,000, $571,000, and $709,000 for 2001, 2002, and 2003,
respectively.


8.   Stockholders' Equity

Preferred Stock

     At December 31, 1998, the Company had 10.2 million shares of its
convertible preferred stock outstanding. On May 18, 1999, the Company completed
its initial public offering which resulted in the conversion of all of the
outstanding convertible preferred stock into 30.7 million shares of common
stock. Following the conversion, and upon the Company's reincorporation in
Delaware, the Company's certificate of incorporation was amended and restated to
delete all references to such shares of preferred stock. Under the restated
certificate, the Board has the authority, without further action by
stockholders, to issue up to 5.0 million shares of preferred stock in one or
more series and to fix the rights, preferences, privileges, qualifications and
restrictions granted to or imposed upon such preferred stock, including dividend
rights, conversion rights, voting rights, rights and terms of redemption,
liquidation preference and sinking fund terms, any or all of which may be
greater than the rights of the common stock.


Common Stock

     The Company has issued 3.9 million shares of common stock to the founders
of the Company at prices ranging from $.02 to $.04 per share in exchange for
promissory notes bearing interest at rates ranging from 5.5% to 10% that matured
March 12, 2000. The Company had the option to repurchase, at the original issue
price, unvested shares in the event of termination of employment. In 1998,
476,000 unvested common shares were forfeited upon the termination of one of the
founders. As of December 31, 1999 all amounts outstanding under the remaining
promissory notes had been repaid by the founders.

                                      F-15
<PAGE>

Stock Option Cancel and Re-grant Program

     In November 2000, the Company allowed employees holding options to purchase
the Company's common stock to cancel certain stock option grants in exchange for
a commitment that options to purchase the same number of common shares will be
granted in May 2001 with an exercise price equal to fair value on the date of
the new grant, provided that the participant has not terminated employment prior
to such time (the "Cancel and Re-grant Program"). Options granted under the
Cancel and Re-grant Program will vest ratably over a period of 36 months. All
other terms of options granted under the Cancel and Re-grant Program will be
substantially the same as the cancelled options. Options to purchase 4.8 million
shares of common stock were cancelled under the Cancel and Re-grant Program. At
December 31, 2000, the Company is committed to grant options to purchase
4.7 million shares of common stock in May 2001.


1996 Equity Incentive Plan

     In August 1996, the Company adopted the 1996 Equity Incentive Plan (the
"1996 Plan"). At December 31, 2000, a total of 13.7 million shares of common
stock are reserved for issuance pursuant to the 1996 Plan. In addition, the 1996
Plan provides for automatic annual increases in the number of shares reserved
for issuance thereunder (beginning in 2000) equal to the lesser of: (i) 4% of
Copper Mountain's outstanding shares on a fully diluted basis taking into
account stock options and warrants and (ii) a lesser amount determined by the
board of directors.

     The 1996 Plan provides for the grant of options to the Company's directors,
officers, key employees, consultants and certain advisors. The 1996 Plan
provides for the grant of incentive and nonstatutory stock options, stock
bonuses and rights to purchase stock to employees, directors or consultants of
the Company. The 1996 Plan provides that incentive stock options will be granted
only to employees at no less than the fair market value of the Company's common
stock (no less than 85% of the fair market value for nonstatutory stock
options). Options generally vest 25% one year from date of grant and ratably
each month thereafter for a period of 36 months, and are exercisable up to ten
years from date of grant.

     Certain option grants under the 1996 Plan are subject to an early exercise
provision. Common shares obtained on early exercise of unvested options are
subject to repurchase by the Company at the original issue price and will vest
according to the respective option agreement. At December 31, 2000 and 1999,
there are no shares subject to repurchase by the Company.


Non-Employee Directors' Stock Option Plan

     In March 1999, the Company adopted the 1999 Non-Employee Directors' Stock
Option Plan ("Directors Plan") to provide for the automatic grant of options to
purchase shares of common stock to our non-employee directors. The Directors
Plan is administered by the board, unless the board delegates administration to
a committee of at least two disinterested directors. A total of 720,000 shares
of common stock has been reserved for issuance under the Directors Plan.

     On the effective date of the Directors Plan, each person who was then a
non-employee director was granted an option to purchase 60,000 shares of common
stock. Each person who, after the effective date of the plan, for the first time
becomes a non-employee director automatically will be granted, upon the date of
his or her initial appointment or election to be a non-employee director, a one-
time option to purchase 60,000 shares of common stock. On the date of each
annual meeting of our stockholders commencing with the 2000 annual meeting of
stockholders, each person who is initially elected or appointed to be a non-
employee director at least six months prior to the date of such annual meeting
automatically will be granted an option to purchase 20,000 shares of common
stock.

                                      F-16
<PAGE>

     Options granted under the Directors Plan shall be fully vested and
exercisable on the date of grant and must be exercised within five years from
the date they are granted. The exercise price of options under the Directors
Plan will equal 100% of the fair market value of the common stock on the date of
grant. Unless otherwise terminated by the board of directors, the Directors Plan
automatically terminates when all of our common stock reserved for issuance
under the Directors Plan has been issued. As of December 31, 2000, 480,000 stock
options have been granted under the Directors Plan.


Nonstatutory Stock Option Plan

     In March 2000, the Board adopted the Company's 2000 Nonstatutory Stock
Option Plan (the "NSO Plan"). A total of 600,000 shares of common stock are
reserved for issuance pursuant to the NSO Plan. The NSO Plan provides for the
grant of options to the Company's employees (other than officers), consultants
and certain advisors. The NSO Plan is a broad based plan and its adoption or
amendment is not required to be approved by the Company's stockholders. The NSO
Plan was adopted by the Board to address an expected shortfall in the number of
shares of Common Stock available for issuance under the Company's 1996 Equity
Incentive Plan prior to the date of the 2000 annual meeting of stockholders.
Such shortfall was expected to occur as a result of the Company's rapid growth
and, in particular, as a result of the additional options granted to attract and
retain former employees of OnPREM Networks Corporation following Copper
Mountain's acquisition of that company. As of December 31, 2000, 600,000 options
had been granted under the NSO Plan and 589,500 were cancelled and are available
for grant.

     The NSO Plan permits the granting of nonstatutory options, which are not
intended to qualify as incentive stock options within the meaning of Section 422
of the Internal Revenue Code, to employees (other than officers), consultants
and certain advisors. Officers and directors of the Company are not eligible to
be granted options under the NSO Plan. No person is eligible to be granted
options covering more than 500,000 shares of common stock in any calendar year.

     The NSO Plan is administered by the Board or a committee appointed by the
Board. Subject to the limitations set forth in the NSO Plan, the Board or any
such committee has the authority to select the eligible persons to whom grants
are to be made, to designate the number of shares to be covered by each stock
option grant, to establish vesting schedules, to specify the option exercise
price and the type of consideration to be paid upon exercise and, subject to
certain restrictions, to specify other terms of options granted under the plan.

         The maximum term of options granted under the NSO Plan is ten years.
Options granted under the plan are generally transferable and generally expire
three months after the termination of an optionee's service. In general, if an
optionee is permanently disabled or dies during his or her service, such
person's options may be exercised up to 12 months following such disability or
18 months following such death.

         The exercise price of options granted under the NSO Plan is determined
by the Board or a committee thereof in accordance with the guidelines set forth
in the NSO Plan, however, the exercise price is generally expected to be equal
to 100% of the fair market value of the Company's Common Stock on the date of
the grant. Options granted under the NSO Plan vest at the rate specified in the
option agreement, generally over a four year period. Pursuant to the NSO Plan,
shares subject to stock options that have expired or otherwise terminated
without having been exercised in full again become available for grant, but
exercised shares that the Company repurchases pursuant to a right of repurchase
will not again become available for grant.

     Upon certain changes in control, all outstanding stock options under the
NSO Plan must either be assumed or substituted by the surviving entity. In the
event the surviving entity does not assume or substitute such stock options,
such stock options will be terminated to the extent not exercised prior to such
change in control.


OnPREM 1998 Stock Option Plan

     In connection with the acquisition of OnPREM Networks Corporation in
February 2000, the Company assumed the 1998 Stock Option Plan of OnPREM and all
outstanding options to purchase common stock of OnPREM under such plan. By
virtue of the acquisition, the OnPREM options were proportionally adjusted with
respect to exercise prices and the number of shares subject to each option based
on the exchange ratio used in the acquisition. All other terms of the OnPREM
options, such as vesting schedules, remained unchanged. As of February 29, 2000,
the assumed options were exercisable for a total of 131,000 shares of the
Company's common stock with exercise prices ranging from $0.39 to $2.34 per
share. The Company will not make future grants under the 1998 Stock Plan of
OnPREM.

                                      F-17
<PAGE>

All stock option transactions are summarized as follows (in thousands, except
per share data):

<TABLE>
<CAPTION>
                                                                                    Weighted
                                                                                    Average
                                                                  Number of         Exercise
                                                                    Shares            Price
                                                                  ---------         --------
                       <S>                                        <C>               <C>
                       Balance at December 31, 1997                   3,753         $    .08

                          Granted                                     6,173         $    .33
                          Exercised                                  (1,029)        $    .06
                          Cancelled                                    (366)        $    .12
                                                                  ---------
                       Balance at December 31, 1998                   8,531         $    .26

                          Granted                                     4,829         $  18.09
                          Exercised                                  (2,522)        $    .28
                          Cancelled                                     (82)        $   1.97
                                                                  ---------
                       Balance at December 31, 1999                  10,756         $   8.25

                          Granted                                     7,388         $  46.61
                          Assumed in acquisition of OnPREM              131         $   1.35
                          Exercised                                  (3,106)        $   2.05
                          Cancelled                                  (5,810)        $  52.97
                                                                  ---------
                       Balance at December 31, 2000                   9,359         $  12.73
                                                                  =========
</TABLE>


     As of December 31, 2000, 1999, and 1998 there were options to purchase 2.3
million shares, 1.9 million shares and 1.3 million shares, respectively, vested
at weighted average exercise prices per share of $8.75, $1.22 and $.08,
respectively.

                                      F-18
<PAGE>

<TABLE>
<CAPTION>
                                 Option Outstanding                               Options Exercisable
       -------------------------------------------------------------------   -----------------------------
                                              Weighted
                                               Average          Weighted                        Weighted
                                 Number       Remaining         Average           Number         Average
               Range of        of Shares     Contractual        Exercise        of Shares        Exercise
           Exercise Prices    (thousands)     Life-Years         Price         (thousands)        Price
        -------------------  ------------  ---------------  --------------   --------------  --------------
        <S>                  <C>           <C>              <C>              <C>             <C>
        $   0.03  -  0.11             402         6.3       $     0.09                278    $     0.05
            0.16  -  0.16           2,265         7.4             0.16                750          0.16
            0.27  -  3.50           1,247         7.9             1.80                339          0.38
            4.25  - 10.50           3,915         8.6             7.90                707          6.62
           10.94  - 58.69           1,119         9.2            45.99                151         79.73
           70.50  - 99.94             411         7.8            82.88                120         72.00
                             ------------                                     -----------
        $   0.03  - 99.94           9,359         8.2       $    12.73              2,345    $     8.75
                             ============                                    ============
</TABLE>

Stock Based Compensation

     The Company has elected to follow APB Opinion No. 25, "Accounting for Stock
Issued to Employees" to account for their employee stock option plans. Under APB
No. 25, when the exercise price of the Company's employee stock options equals
the fair value price of the underlying stock on the date of grant, no
compensation expense is recognized in the Company's financial statements. In
previously issued financial statements the Company estimated the deemed fair
value of its common stock in connection with the accounting for stock options
granted during the three fiscal years ended December 31, 1998, which resulted in
the Company recording deferred compensation of $1.1 million, with respect to
certain options granted during 1998. During April 1999, in conjunction with the
Company's initial public offering registration statement, the Company revised
the estimates of the deemed fair value of its common stock at various dates and
has recognized additional deferred compensation of $1.8 million, $2.4 million,
$11.1 million and $234,000 during the four fiscal years ended December 31, 1999.
In connection with the acquisition of OnPREM, the Company recorded deferred
compensation of $1.4 million. The deferred compensation is being amortized to
expense in accordance with FASB Interpretation No. 28 over the vesting period of
the individual options, generally four years.

     Had compensation cost for the Company's stock-based compensation plans been
determined consistent with SFAS No. 123, the Company's pro forma amounts would
have been as indicated below (in thousands, except per share data):

<TABLE>
<CAPTION>
                                                                             Year Ended
                                                                             December 31,
                                                             -----------------------------------------
                                                                   2000          1999          1998
                                                             -------------   -----------   -----------
          <S>                                                <C>             <C>           <C>
          Net income (loss) as reported                      $    1,693      $  12,217     $ (10,331)
          Pro forma net loss under SFAS No. 123                 (32,852)        (2,064)      (10,884)
          Pro forma basic and diluted net loss per share
               under SFAS No. 123                                 (0.65)         (0.07)        (4.08)
</TABLE>

      The fair value of each option grant for the year ended December 31, 2000
was estimated on the date of grant using a Black-Scholes option pricing model
with the following weighted-average assumptions: no dividend yield; volatility
factor of 100.0%; risk free interest rate of 6.0%; and expected life for the
option of three and a half years.

      The fair value of each option grant from the Company's initial public
offering in May 1999 to December 31, 1999 was estimated on the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions: no dividend yield; volatility factor of 76.0%; risk free interest
rate of 6.0%; and expected life for the option of five years.

      The fair value of each option grant prior to the Company's initial public
offering in May 1999 was estimated on the date of grant using the minimum value
method with the following weighted-average assumptions: no dividend yield; risk
free interest rate of 5.7% to 6.5%; and expected life for the option of five
years.

                                      F-19
<PAGE>

     The weighted-average estimated fair value of employee stock options granted
during 2000, 1999 and 1998 was $31.87, $14.01 and $0.08 per share, respectively.
For purposes of pro forma disclosures, the estimated fair value of options is
amortized to expense over the vesting period.


Employee Stock Purchase Plan

     In February 1999, the Company adopted the 1999 Employee Stock Purchase Plan
(the "ESPP"). A total of 600,000 shares of common stock has been reserved for
issuance under the ESPP. The ESPP is intended to qualify as an employee stock
purchase plan within the meaning of Section 423 of the Internal Revenue Code.
Under the ESPP, the Board of Directors may authorize participation by eligible
employees, including officers, in periodic offerings following the commencement
of the ESPP. During the year ended December 31, 2000, the ESPP purchased 143,000
shares of the Company's common stock. As of December 31, 2000, 457,000 shares
are reserved for future purchases. On January 31, 2001, 80,000 shares were
purchased by the ESPP.

     Unless otherwise determined by the Board, employees are eligible to
participate in the purchase plan only if they are employed by us for at least 20
hours per week and are customarily employed for at least five months per
calendar year. Employees who participate in an offering may have up to 10% of
their earnings withheld pursuant to the purchase plan. The amount withheld is
then used to purchase shares of common stock on specified dates determined by
the Board of Directors. The price of common stock purchased under the purchase
plan will be equal to 85% of the lower of the fair market value of the common
stock at the commencement date of each offering period or the relevant purchase
date. Employees may end their participation in the offering at any time during
the offering period, and participation ends automatically on termination of
employment.


Warrants

     In January 1997, the Company entered into an agreement with a corporate
partner, whereby the two companies exchanged certain technology and services. In
addition, the Company issued a warrant to such corporate partner to purchase
147,401 shares of Series B convertible preferred stock at a price of $3.39 per
share. The warrant is exercisable for four years following the date of issuance.
The estimated fair value of the warrant was $88,000, which was capitalized as an
intangible asset and amortized over the two-year term of the agreement. The
warrant was convertible into 442,202 shares of common stock. In January 2001,
the warrant was net exercised. There were no cash proceeds as a result of the
exercise and the Company issued a net of 354,729 shares of its common stock.


Common Shares Reserved for Future Issuance

     The following table presents shares reserved for future issuance under the
Company's stock option plans, ESPP and pursuant to warrants as of December 31,
2000 (in thousands):


             1996 Equity Incentive Plan                            13,698
             Non-Employee Directors' Stock Option Plan                657
             Nonstatutory Stock Option Plan                           600
             OnPREM 1998 Stock Option Plan                             83
             Stock options issued outside the Company's
                 stock option plans                                   380
             Employee Stock Purchase Plan                             457
             Cancel and Re-grant Program                            4,714
             Warrants                                                 472
                                                              -----------
                                                                   21,061



9.   Commitments

                                      F-20
<PAGE>

     The Company leases its facilities under noncancelable operating leases
expiring on various dates through 2007. The leases contain renewal options and
are subject to cost increases. Rent expense totaled $4.6 million, $1.6 million
and $501,000 for the years ended December 31, 2000, 1999 and 1998, respectively.

     Future minimum payments under the noncancelable operating leases and
equipment under capital leases consist of the following at December 31, 2000 (in
thousands):

<TABLE>
<CAPTION>
                                                             Operating            Capital
                                                               Leases              Leases
                                                           -------------        ------------
          <S>                                              <C>                  <C>
          Year ending December 31,
               2001                                        $    7,384           $    3,355
               2002                                             7,079                3,024
               2003                                             6,899                2,827
               2004                                             7,060                  172
               2005                                             5,374                 ----
               Thereafter                                       2,987                 ----
                                                           ----------           ----------
          Total minimum lease payments                     $   36,783                9,378
                                                           ==========
                  Less amount representing interest                                 (1,348)
                                                                                ----------
                  Total present value of minimum payments                            8,030
                  Less current portion                                              (2,664)
                                                                                ----------
                  Non-current portion                                           $    5,374
                                                                                ==========
</TABLE>


     During September 1997, the Company entered into a capital lease agreement,
which allows for the Company to borrow up to $1,750,000 to finance capital
expenditures. As of December 31, 2000 and 1999, the Company had borrowed all of
the available funds under this agreement.

     In conjunction with the capital lease agreement, the Company issued a
warrant to the lessor to purchase 14,737 shares of Series C convertible
preferred stock at a price of $4.75 per share all of which were exercised in
1999 and converted into 40,000 shares of common stock. The estimated fair value
of the warrant was $25,000, which was capitalized as debt issuance costs and is
being amortized over the life of the financing agreement.

      Equipment held under the capital leases totaled $10.1 million and $4.1
million and the related accumulated amortization totaled $3.8 million and $1.4
million at December 31, 2000 and 1999, respectively. The obligations under the
capital leases are secured by the related equipment.

10.  Litigation

     Since October 2000, approximately twenty-four complaints have been filed in
the United States District Court for the Northern District of California against
the Company and two of its officers, along with one related derivative action
against the Company and its directors in Delaware, alleging violations of the
federal securities laws arising out of recent declines in the Company's stock
price. Specifically, the complaints allege claims in connection with various
alleged statements and omissions to the public and to the securities markets. No
assurances can be made that we will be successful in our defense of such claims.
If we are not successful in our defense of such claims, we could be forced to
make significant payments to our stockholders and their lawyers, and such
payments could have a material adverse effect on our business, financial
condition and results of operations if not covered by our insurance carrier.
Even if such claims are not successful, the litigation could result in
substantial costs and divert management's attention and resources, which could
adversely affect our business, results of operations and financial position.

11.  Leased Equipment

                                      F-21
<PAGE>

         During the year ended December 31, 2000, the Company entered into a
$10.0 million credit facility with a customer for the purchase of the Company's
equipment under a capital lease agreement. As of December 31, 2000, the customer
had utilized all of the funds available under this credit facility. The
borrowings under the capital lease agreement are to be repaid in 16 equal
quarterly installments and accrue interest at 12.0% per annum. The lease is
being accounted for as a sales-type capital lease. The obligation is secured by
the related equipment. As of December 31, 2000, $2.4 million and $6.2 million of
the net lease receivable were classified in the Company's balance sheet as other
current assets and other assets, respectively.

         During the year ended December 31, 2000, the Company entered into a
$8.6 million credit facility with a customer for the purchase of the Company's
equipment under a capital lease agreement. As of December 31, 2000, the customer
had utilized all of the funds available under this credit facility. The
borrowings under the capital lease agreement are to be repaid in monthly
installments and accrue interest at 10.5% per annum. The lease is being
accounted for as a sales-type capital lease. The obligation is secured by the
related equipment. As of December 31, 2000, $1.9 million and $2.8 million of the
net lease receivable were classified in the Company's balance sheet as other
current assets and other assets, respectively.

         Future minimum amounts due under sales-type capital lease receivables
as of December 31, 2000 are as follows (in thousands):

              Year ending December 31,
                   2001                                       $     5,823
                   2002                                             6,073
                   2003                                             6,073
                   2004                                             2,106
                                                              -----------
              Total minimum lease payments                         20,075
              Less amount representing unearned interest           (3,442)
                                                              -----------
              Total present value of minimum payments              16,633
              Less current portion                                 (4,258)
              Less allowance for collectibility                    (3,375)
                                                              -----------
              Non-current portion                             $     9,000
                                                              ===========

12.  Income Taxes

     Significant components of the provision for income taxes are as follows (in
thousands):

<TABLE>
<CAPTION>
                                                                             Year Ended
                                                                             December 31,
                                                                      -------------------------
                                                                          2000         1999
                                                                      -----------  ------------
              <S>                                                     <C>          <C>
              Current provision:
                   Federal                                            $      ----  $       ----
                   State                                                     ----          ----
                                                                      -----------  ------------
              Total current:                                                 ----          ----

              Deferred provision:
                   Federal                                                 30,272           822
                   State                                                    7,244           329
                                                                      -----------  ------------
              Total deferred:                                              37,516         1,151
              Benefit of net operating loss and credit carryforwards      (27,872)       (2,050)
              Benefit of reversal of valuation allowance                   (7,784)         ----
              Stock options - benefit to additional paid in capital          ----         9,389
                                                                      -----------  ------------
                                                                      $     1,860  $      8,490
                                                                      ===========  ============
</TABLE>

                                      F-22
<PAGE>

     The following is a reconciliation from the expected statutory federal
income tax expense to the Company's actual income tax expense (in thousands):

<TABLE>
<CAPTION>
                                                                    Year Ended
                                                                   December 31,
                                                             ----------------------
                                                                2000         1999
                                                             ---------    ---------
               <S>                                           <C>          <C>
               Tax at U.S. statutory rate                    $   1,244    $   7,237
               Amortization of intangible assets                 8,419         ----
               State income taxes, net of federal benefit          264        1,190
               Net change in valuation allowance and other      (8,067)          63
                                                             ---------    ---------
                                                             $   1,860    $   8,490
                                                             =========    =========
</TABLE>

     Significant components of the Company's deferred tax assets and
liabilities as of December 31, 2000 and 1999 are shown below (in thousands):

<TABLE>
<CAPTION>
                                                                   December 31,
                                                            ------------------------
                                                                 2000        1999
                                                            -----------  -----------
                    <S>                                     <C>          <C>
                    Deferred tax assets:
                         Net operating loss carryforwards   $    23,936  $     5,562
                         Tax credit carryforwards                 9,393        2,993
                         Accruals and reserves                   23,422        2,884
                         Deferred compensation                      930        1,747
                         Other, net                                 569          153
                                                            -----------  -----------
                    Total deferred tax assets                    58,280       13,339
                    Valuation allowance                         (58,280)     (13,339)
                                                            -----------  -----------
                    Net deferred tax assets                 $      ----  $      ----
                                                            ===========  ===========
</TABLE>

     A valuation allowance of $58.3 million has been recorded at December 31,
2000 to offset the net deferred tax assets as realization is uncertain due to
the expectation that deductions from employee stock option exercises will exceed
future taxable income. When recognized, the tax benefit of these deferred assets
will be accounted for as a credit to shareholders' equity rather than as a
reduction of the income tax provision.

     The Company had federal and California tax net operating loss carryforwards
at December 31, 2000 of approximately $57.2 million and $60.0 million,
respectively. The federal and California tax loss carryforwards will begin to
expire in 2011 and 2004, respectively, unless previously utilized. Included in
the net operating loss carryforwards are stock option deductions of
approximately $40.8 million. The benefit of these net operating loss
carryforwards will be credited to equity when realized. The Company also has
federal and California research tax credit carryforwards of approximately $6.6
million and $2.8 million, respectively, which will begin to expire in 2011
unless previously utilized.

     Pursuant to Internal Revenue Service Code Sections 382 and 383, use of a
portion of the Company's net operating loss and credit carryforwards are limited
because of a cumulative change in ownership of more than 50% which occurred in
prior years. However, the Company does not believe such limitations have a
material impact on the Company's ability to use these carryforwards.

                                      F-23
<PAGE>

13.  Employee Savings Plan

     The Company has a 401(k) plan, which allows participating employees to
contribute up to 20% of their salary, subject to annual limits. The Company may,
at its sole discretion, approve Company contributions. The Company has approved
a match of 50% of the first 4% of salary deferred by employees during the year
ended December 31, 2000. The Board has not approved any previous matching
contributions. During the year ended December 31, 2000, matching contributions
were $429,000.


14.  Related Party Transactions

     At December 31, 2000, the Company had a note receivable from an officer
with a face value of $1.0 million included in other assets. This note was issued
in connection with the officer's employment and relocation agreement. The note
bears no interest, is secured by the officer's residence and is due at the
earlier of March 30, 2003, or 15 days from the date the officer ceases to be an
employee of the Company.

                                      F-24
<PAGE>

                                                                     Schedule II


                        COPPER MOUNTAIN NETWORKS, INC.

                       Valuation and Qualifying Accounts


<TABLE>
<CAPTION>
                                                                     Additions
                                                                  ----------------
                                                    Balance at       Charged to                       Balance at
                                                     Beginning       Costs and                           End of
Allowance for Doubtful Accounts:                      of Year         Expenses        Deductions          Year
                                                  -------------   ----------------   ------------   ----------------
<S>                                               <C>             <C>                <C>            <C>
Year ended December 31, 1999 ....................    $   -----             140,000           -----     $     140,000

Year ended December 31, 2000 ....................    $ 140,000           7,180,000       3,930,000     $   3,390,000
</TABLE>

          NOTE: The Company had no activity in allowance for doubtful accounts
                prior to 1999.


<TABLE>
<CAPTION>
                                                                     Additions
                                                                  ----------------
                                                    Balance at       Charged to                       Balance at
                                                     Beginning        Costs and                         End of
Inventory Reserves:                                   of Year         Expenses        Deductions         Year
                                                  --------------  ----------------  --------------  ---------------
<S>                                               <C>             <C>               <C>             <C>
Year ended December 31, 1998 ...................     $   897,000           504,000         229,000     $   1,172,000

Year ended December 31, 1999 ...................     $ 1,172,000           750,000       1,094,000     $     828,000

Year ended December 31, 2000 ...................     $   828,000        13,324,000       1,824,000     $  12,328,000
</TABLE>

<TABLE>
<CAPTION>
                                                                     Additions
                                                                  ---------------
                                                    Balance at       Charged to                       Balance at
                                                     Beginning        Costs and                         End of
Accrued Warranty:                                     of Year         Expenses        Deductions         Year
                                                  --------------  ---------------- ---------------  ----------------
<S>                                               <C>             <C>              <C>              <C>
Year ended December 31, 1998....................     $     2,000          426,000           10,000     $     418,000

Year ended December 31, 1999 ...................     $   418,000        1,779,000          267,000     $   1,930,000

Year ended December 31, 2000 ...................     $ 1,930,000        2,942,000        1,158,000     $   3,714,000
</TABLE>

                                     II-1
<PAGE>

<TABLE>
<CAPTION>
                                                                      Additions
                                                                  ----------------
                                                    Balance at      Charged to                       Balance at
                                                     Beginning       Costs and                         End of
Adverse Purchase Commitments:                         of Year        Expenses        Deductions         Year
                                                 ---------------- ---------------- --------------- ----------------
<S>                                              <C>              <C>              <C>             <C>
Year ended December 31, 1998 ...................    $    582,000            ----          582,000    $       ----

Year ended December 31, 1999 ...................    $       ----            ----             ----    $       ----

Year ended December 31, 2000 ...................    $       ----      28,600,000             ----    $ 28,600,000
</TABLE>


<TABLE>
<CAPTION>
                                                                     Additions
                                                                  ----------------
                                                   Balance at       Charged to                       Balance at
                                                    Beginning        Costs and                         End of
Deferred Tax Asset Valuation Allowance:              of Year         Expenses        Deductions         Year
                                                 ---------------- ---------------- --------------- --------------
<S>                                              <C>              <C>              <C>             <C>
Year ended December 31, 1998 ...................    $  5,006,000       2,787,000             ----    $  7,793,000

Year ended December 31, 1999 ...................    $  7,793,000       5,546,000             ----    $ 13,339,000

Year ended December 31, 2000 ...................    $ 13,339,000      52,725,000        7,784,000    $ 58,280,000
</TABLE>

                                     II-2