<PAGE>

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

                                    FORM 10-K
                                  ANNUAL REPORT
                     PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 2000

                        Commission File Number 000-27843

                           Somera Communications, Inc.
             (Exact name of registrant as specified in its charter)

                 Delaware                                 77-0521878
     (State or other jurisdiction of                    (IRS Employer
      incorporation or organization)                  Identification No.)

                 5383 Hollister Avenue, Santa Barbara, CA 93111
              (Address of principal executive offices and zip code)

                                 (805) 681-3322
              (Registrant's telephone number, including area code)

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

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

                    Common Stock, $0.001 par value per share
                                (Title of Class)

      Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|

      Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, 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. |_|

      The aggregate market value of the voting stock held by non-affiliates of
the Registrant (based on the closing sale price of the Common Stock as reported
on the NASDAQ National Market on March 27. 2001) was approximately $81,000,000.
The number of outstanding shares of the Registrant's Common Stock as of the
close of business on March 28, 2001 was 48,644,607.

                       DOCUMENTS INCORPORATED BY REFERENCE

      Portions of the Registrant's definitive Proxy Statement for the 2001
Annual Meeting of Stockholders are incorporated by reference in Part III of this
Form 10-K to the extent stated herein.
<PAGE>

                           SOMERA COMMUNICATIONS, INC.

                                      INDEX

                                                                            Page
                                                                            ----

                                     PART I

Item 1.  Business .........................................................    1
Item 2.  Properties .......................................................    7
Item 3.  Legal Proceedings ................................................    7
Item 4.  Submission of Matters to a Vote of Security Holders ..............    7

                                     PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholder
         Matters ..........................................................    8
Item 6.  Selected Financial Data ..........................................    9
Item 7.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations ............................................   10
Item 7A. Qualitative and Quantitative Disclosures About Market Risk .......   22
Item 8.  Financial Statements and Supplementary Data ......................   23
Item 9.  Changes in and Disagreements with Accountants on Accounting
         and Financial Disclosure .........................................   42

                                    PART III

Item 10. Directors and Executive Officers of the Registrant ...............   42
Item 11. Executive Compensation ...........................................   42
Item 12. Security Ownership of Certain Beneficial Owners and Management ...   42
Item 13. Certain Relationships and Related Transactions ...................   42

                                     PART IV

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

                                     PART I

      This Annual Report on Form 10-K contains forward-looking statements that
are subject to a number of risks and uncertainties, many of which are beyond our
control. These statements, other than statements of historical facts included in
this Annual Report on Form 10-K, regarding our strategy, future operations,
financial position, estimated revenues or losses, projected costs, prospects,
plans and objectives of management are forward-looking statements. When used in
this Annual Report on Form 10-K, the words "may", "will", "should", "plan",
"anticipate", "believe", "intend", "estimate", "expect", "project" and similar
expressions are intended to identify forward-looking statements, although not
all forward-looking statements contain such identifying words. All
forward-looking statements speak only as of the date of this Annual Report on
Form 10-K. You should not place undue reliance on these forward-looking
statements. Although we believe that our plans, intentions and expectations
reflected in or suggested by the forward-looking statements we make in this
Annual Report on Form 10-K are reasonable, we can give no assurance that these
plans, intentions or expectations will be achieved. We disclose important
factors in "Risks Factors" and elsewhere in this Annual Report that could cause
our actual results to differ materially from the forward-looking statements in
this Form 10-K. These cautionary statements qualify all forward-looking
statements attributable to us or persons acting on our behalf. We are under no
duty to update any of the forward-looking statements after the date of this
report to conform these statements to actual results or to changes in our
expectations.

ITEM 1. BUSINESS

      We provide telecommunications carriers with a broad range of
infrastructure equipment and related services designed to meet their specific
and changing equipment needs. We offer our customers a unique combination of new
and de-installed equipment from a variety of manufacturers, allowing them to
make fast multi-vendor purchases from a single cost-effective source. To further
address our customers' dynamic equipment needs, we offer a suite of customized,
value-added services including asset recovery, inventory management, technical
support and other ancillary services under the umbrella of Somera OneSource
Services. Our innovative equipment and service offerings are delivered through
our team of sales and procurement professionals, who work individually with
customers to understand, anticipate and meet their ongoing equipment
requirements. Our sales teams utilize our relationship management database, our
selective inventory and our distribution infrastructure to provide our customers
with rapidly deployable equipment solutions.

Equipment and Services

      Equipment

      We offer our customers a broad range of telecommunications infrastructure
equipment to address their specific and changing equipment needs. The equipment
we sell includes new and de-installed items from a variety of manufacturers. In
2000, we sold over 10,000 different items, from over 300 different
manufacturers. We offer the original manufacturer's warranty on all new
equipment. On de-installed equipment, we offer our own warranty which guarantees
that the equipment will perform up to the manufacturer's original
specifications.

      The new equipment we offer consists of telecommunications equipment
purchased primarily from the OEM or a distributor. The de-installed equipment we
offer consists primarily of equipment removed from carriers' existing
telecommunications networks. These carriers are typically the original owners of
such equipment. The carrier or another third party professionally removes this
equipment. In some instances, Somera will directly perform the de-installation
on behalf of the carrier. Following removal, de-installed equipment is shipped
to our distribution facility where we test and refurbish the equipment as
necessary. Our refurbishment process includes services such as cleaning and
testing de-installed equipment, and repairing and reconfiguring the equipment
where necessary. The refurbishment process is conducted by our in-house
technicians, whom we train, or by third parties. Upon completion of this
process, the de-installed equipment is added to our list of available items and
may be sold to a customer.

      The equipment we sell is grouped into several general categories including
switching, transmission, access, wireless, data, microwave and power products.


                                       1
<PAGE>

      Switching. Switching equipment is used by carriers to manage call traffic
and to deliver value-added services. Switches and related equipment are located
in the central office of a telecommunications carrier and serve to determine
pathways and circuits for establishing, breaking or completing voice and data
communications over the public switched telephone network, or PSTN, and the
Internet. We provide a variety of switching equipment, including switches,
circuit cards, shelves, racks and other ancillary items in support of carrier
upgrades and reconfigurations. Manufacturers of switching equipment whose
products we sell include Alcatel USA, Lucent Technologies and Nortel Networks.

      Transmission. Transmission equipment is used by carriers to carry
information to multiple points in a carrier's network. Transmission equipment
serves as the backbone of a telecommunications carrier's network and transmits
voice and data traffic in the form of standard electrical or optical signals. We
sell a broad range of transmission products, including channel banks,
multiplexors, digital cross-connect systems, DSX panels and echo cancellers.
Manufacturers of transmission equipment whose products we sell include ADC
Telecommunications, Fujitsu, Lucent Technologies, NEC, Nortel Networks, Telco
Systems, and Tellabs.

      Access. Access equipment is used by carriers, to provide local telephone
service and Internet access. Access equipment is used in the local loop, or last
mile, portion of the PSTN and connects a home or business to the switch in a
carrier's central office. We provide a variety of access equipment, including
digital loop carriers, digital subscriber line products, channel service
units/digital subscriber units, multiplexors and network interface units.
Manufacturers of access equipment whose products we sell include ADC
Telecommunications, Carrier Access, Lucent Technologies, NEC, Newbridge
Networks, Nortel Networks, Telco Systems, and VINA Technologies.

      Wireless. Cell sites and related ancillary wireless products are used by
cellular, PCS and paging carriers to provide wireless telephone and Internet
access. This equipment is used to amplify, transmit and receive signals between
mobile users and transmission sites, including cell sites and transmission
towers. We sell a broad range of wireless equipment including radio base
stations, towers, shelters, combiners, transceivers and other related items.
Manufacturers of wireless and cell site equipment whose products we sell include
Allen Telecom, Telefon AB LM Ericsson, Lucent Technologies, Motorola, Nortel
Networks and Siemens.

      Data. Data networking equipment is used to transmit, route and switch data
communications traffic within a carrier's network. We provide a wide variety of
data networking products including routers, ATM switches, hubs and bridges.
Manufacturers of data networking equipment whose products we sell include Cisco
Systems, Lucent Technologies, Nortel Networks, and Motorola.

      Microwave. Microwave systems are used by carriers to transmit and receive
voice, data and video traffic. These systems enable point-to-point and
point-to-multipoint, high speed wireless communications. We provide a variety of
microwave systems, including antennas, dishes, coaxial cables and connectors.
Manufacturers of microwave systems whose products we sell include Alcatel
Alsthom, Adaptive Broadband, Digital Microwave, Digital Transmission Systems,
Harris-Farinon Canada, Nortel Networks and Western Multiplex.

      Power. Power equipment is used by carriers to provide direct current (DC)
and/or alternate current (AC) power to support their network infrastructure
equipment. We sell a broad range of power equipment, including power bays,
rectifiers, batteries, breaker panels and converters. Manufacturers of power
equipment whose products we sell include C&D Technologies, GEC, Lucent
Technologies, Marconi, Nortel Networks, Peco II and Power Conversion Products.

      Services

      Unlike other equipment providers that are product driven, we are customer
focused. Our equipment and service offerings, industry focused sales teams and
internal systems and procedures are all specifically designed to meet the needs
of each carrier market we serve. We train our employees to offer high quality
service and to provide consistent, reliable customer service. We believe these
elements enable us to offer a sales force that can provide rapid, knowledgeable
and creative solutions to our customers.

      To enable carriers to focus on their core business, we offer the following
services in connection with our equipment sales and procurement:


                                       2
<PAGE>

      o     Asset Recovery Programs. Our innovative asset recovery programs
            offer carriers effective solutions to manage their de-installed
            equipment. These programs are customized to meet the specific
            objectives of each carrier, and include equipment purchases as well
            as equipment trade-ins, consignment and re-marketing programs. The
            programs allow carriers to easily and rapidly recapture value from
            de-installed equipment.

      o     Technical Services. Our technical services include product
            selection, equipment configuration, custom integration and technical
            support. These services enable carriers to supplement their internal
            technical resources.

      o     Value-added Materials Management Services. Our materials management
            services include equipment procurement, multi-vendor equipment
            packaging, which we refer to as kitting, warehousing and other
            inventory management and deployment services.

      o     Other Services. Through our extensive network of subcontractor
            relationships and partners, we are also capable of providing
            specialized transportation services, regional warehousing, repair
            services, installation and de-installation services.

Sales, Marketing and Procurement

      Our sales organization is located primarily at our corporate headquarters
in Santa Barbara, California and is augmented by our satellite offices located
in California, New Jersey, Georgia, Kansas, Washington, and our international
office in Amsterdam, The Netherlands. As of December 31, 2000, we employed 180
sales and procurement professionals. We generate leads primarily through direct
marketing, customer referrals and participation in industry tradeshows. Our
sales force is organized by market segment, including specialized teams focused
on the regional bell operating companies ("RBOCs"), incumbent local exchange
carriers ("ILECs"), long distance carriers ("IXCs"), competitive local exchange
carriers ("CLECs"), wireless carriers, including cellular, personal
communications service companies ("PCSs") and specialized mobile radio operators
("SMRs"), and internet service providers ("ISPs").

      Our sales force operates on a named account basis rather than by
geography, which allows us to maintain a consistent, single point of contact for
each customer. Another key feature of our selling effort is the relationships we
establish at various levels in our customers' organizations. This structure
allows us to establish multiple contacts with each customer across their
management, engineering and purchasing operations. For each type of carrier, we
employ dedicated teams with extensive market knowledge to meet the specific
equipment needs of these customers.

      Each team member has access to, and is supported by, our relationship
management database. This real time proprietary information system allows each
team to:

      o     respond to customer requirements by accessing our extensive database
            of excess and de-installed equipment located at carriers,
            manufacturers, distributors and other third parties worldwide, as
            well as by accessing our select inventory;

      o     access relevant detailed purchase and sale information by customer
            and part number;

      o     access technical and system configuration information;

      o     trace and track all customer and vendor order activity; and

      o     project and anticipate customer equipment requirements.

      Each of our teams is headed by a group sales director who is responsible
for the overall customer relationship and is supported by a number of group
sales managers, account executives, logistics administrators and production
controllers. We believe our dedicated team structure provides consistent high
quality customer service which builds long-term relationships with our
customers. Our account executives have frequent customer contact and oversee
customer proposals while our logistics administrators work with our production
controllers as well as our customers to coordinate sourcing, delivery and any
required follow-through procedures to ensure our customers receive quality,


                                       3
<PAGE>

timely customer service.

      Our marketing effort focuses on enhancing market awareness of our brand
through industry trade shows, professional sales presentations and brochures, an
informative web site, branded giveaways and special customer events.
Additionally, we advertise in key telecommunications industry publications. We
believe the size and scope of our operations in our highly fragmented industry
gives us both a unique advantage and opportunity to further build and enhance
our brand recognition.

      In support of our sales activities, we have teams who are responsible for
procurement of the de-installed equipment we sell. Procurement teams are
organized by market segment, including specialized teams focused on wireless
carriers, wireline carriers, original equipment manufacturers and distributors.
Our procurement specialists are dedicated, on a named account basis, to purchase
de-installed equipment from carriers. We also employ a product marketing group
that develops and maintains our relationships with manufacturers and
distributors to assure the availability of new equipment for our customers.

      As we attempt to expand our sales, marketing and procurement efforts into
international markets, we face a number of challenges, including:

      o     recruiting skilled sales and technical support personnel;

      o     creation of new supply and customer relationships;

      o     difficulties and costs of managing and staffing international
            operations; and

      o     developing relationships with local suppliers.

      We cannot be certain that one or more of these factors will not harm our
future international operations.

Customers

      We sell equipment to ILECs, RBOCs, IXCs, a broad range of wireless
carriers including cellular, PCS, paging and SMRs, and CLECs. We have over 1,000
customers who are located primarily in the United States. In 2000, Verizon
Communications accounted for 11.3% of our net revenue. In 1999, no single
customer accounted for more than 10% of our net revenue. In 1998 ALLTEL
accounted for 10.2% of our net revenue. Sales to customers outside of the United
States accounted for 7.8% of our net revenue in 2000, 10.9% of our net revenue
in 1999 and 19.7% of our net revenue in 1998. Customers from whom we recognized
at least $7.5 million in net revenue in 2000 include leading carriers such as
Verizon Communications, ALLTEL, and MCI Worldcom.

Competition

      The market for our equipment and service offerings is highly competitive.
We believe that the trends toward greater demand for telecommunications
services, increasing global deregulation and rapid technology advancements
characterized by shortened product lifecycles will continue to drive competition
in our industry for the foreseeable future. Increased competition may result in
price reductions, lower gross margins and loss of our market share.

      Increased competition in the secondary market for telecommunications
equipment could also heighten demand for the limited supply of de-installed
equipment, which would lead to increased prices for, and reduce the availability
of, this equipment. Any increase in these prices could significantly impact our
ability to maintain our gross margins. Any reduction in the availability of this
equipment could cause us to lose customers.

      We currently face competition primarily from original equipment
manufacturers, distributors and secondary market dealers. Many of these
competitors have longer operating histories, significantly greater resources and
name recognition, and a larger base of customers. These competitors are also
likely to enjoy substantial competitive advantages over us, including the
following:


                                       4
<PAGE>

      o     ability to devote greater resources to the development, promotion
            and sale of their equipment and related services;

      o     ability to adopt more aggressive pricing policies than we can;

      o     ability to expand existing customer relationships and more
            effectively develop new customer relationships than we can,
            including securing long term purchase agreements;

      o     ability to leverage their customer relationships through volume
            purchasing contracts, and other means intended to discourage
            customers from purchasing products from us;

      o     ability to more rapidly adopt new or emerging technologies and
            increase the array of products offered to better respond to changes
            in customer requirements;

      o     greater focus and expertise on specific manufacturers or product
            lines;

      o     ability to implement more effective e-commerce solutions; and

      o     ability to form new alliances or business combinations to rapidly
            acquire significant market share.

      There can be no assurance that we will have the resources to compete
successfully in the future or that competitive pressures will not harm our
business.

Employees

      As of December 31, 2000, we had 302 full-time employees. We consider our
relations with our employees to be satisfactory. We have never had a work
stoppage, and none of our employees is represented by a collective bargaining
agreement. We believe that our future success will depend in part on our ability
to attract, integrate, retain and motivate highly qualified personnel, and upon
the continued service of our senior management and key sales personnel.
Competition for qualified personnel in the telecommunications equipment industry
and our geographic location is intense. We cannot assure you that we will be
successful in attracting, integrating, retaining and motivating a sufficient
number of qualified employees to conduct our business in the future.


                                       5
<PAGE>

                      EXECUTIVE OFFICERS OF THE REGISTRANT

      The following table sets forth certain information regarding the Company's
current executive officers as of February 28, 2001.

             Name             Age     Position
             ----             ---     --------

      Dan Firestone........    39     Chairman of the Board of Directors,
                                      President and Chief Officer

      Jeffrey G. Miller....    37     Executive Vice President, Sales and
                                      Marketing

      Gary J. Owen.........    46     Chief Financial Officer

      Gil Varon............    39     Director and Vice President, Wireline
                                      Division

      Glenn E. Berger......    38     Vice President, Operations

      Brandt A. Handley....    42     Vice President, International Sales

      Dan Firestone co-founded Somera Communications in July 1995, has served as
our Chief Executive Officer since 1996, has served as our President since
December 1998, and has also served as our Chairman of the Board since our
inception. From 1994 to the present, Mr. Firestone has also operated SDC
Business Consulting, a private business consulting firm. In 1984, Mr. Firestone
co-founded Century Computer Marketing, a distributor of computer service spare
parts and related products, and served as its Chief Executive Officer until May
1994.

      Jeffrey G. Miller has served as our Executive Vice President, Sales and
Marketing since joining Somera Communications in May 1999. From January 1996
until May 1999, Mr. Miller served as Regional Director for North American Sales
and Operations for the Cellular Infrastructure Group of Motorola, Inc. From 1985
until January 1996, Mr. Miller worked in various capacities with AT&T, including
positions in sales management, product management, marketing, and software
development in their long distance, premises equipment, and voice messaging
business segments. Mr. Miller holds a B.S. in business administration from Miami
University and an M.B.A. from Ohio State University.

      Gary J. Owen has served as our Chief Financial Officer since joining
Somera Communications in July 1999. From January 1999 until July 1999, Mr. Owen
served as Group Finance Director for Logical Holdings Ltd., a U.K. software
development and services company. From January 1997 to January 1999, Mr. Owen
served as Group Finance Director for IFX Group plc, an international information
services company. From September 1996 to December 1996, Mr. Owen served as a
finance consultant doing project work for Fujitsu Telecommunications Ltd. From
May 1994 to September 1996, Mr. Owen served as Director, European Operations,
for Aurora Electronics, Inc., an electronic materials management company. From
1986 until May 1994, Mr. Owen served as Chief Financial Officer of Century
Computer Marketing, a distributor of computer service spare parts and related
products. Mr. Owen holds a B.A. in accounting and finance from Nottingham
University, England. Mr. Owen is also a qualified member of the Institute of
Chartered Accountants.

      Gil Varon co-founded Somera Communications in July 1995, served as our
President from July 1995 until December 1998, has served as our Vice President,
Wireline Division since January 1999, and has served as one of our directors
since our inception. From 1995 until the present, Mr. Varon has also served as a
Senior Sales Manager. From May 1994 to June 1995, Mr. Varon served in sales and
procurement positions for Aurora Electronics, Inc. From 1985 until May 1994, Mr.
Varon served as a Group Sales Manager at Century Computer Marketing.

      Glenn E. Berger has served as our Vice President of Operations since
joining Somera Communications in November 1999. From 1994 to November 1999, Mr.
Berger served as Director of North American Distribution Operations and
Logistics Strategy for Compaq Computer Corporation. From 1984 to 1994, Mr.
Berger held several logistics, transportation, and distribution management
positions with Frito-Lay, Inc. Mr. Berger graduated from Arizona State
University with a B.S. degree in Business Administration.

      Brandt A. Handley has served as our Vice President, International, since
joining Somera Communications in


                                       6
<PAGE>

January, 2001. From 1999 to 2000, Mr. Handley founded and operated Seedvest,
Inc., an equity investment and consultancy firm. From 1991 to 1999, Mr. Handley
served as a vice president at The Walt Disney Company, establishing two start-up
companies in Asia. From 1982 to 1991, Mr. Handley served in various management
capacities in the marketing department of The Procter & Gamble Company,
including assignments in Europe and Asia. Mr. Handley holds a B.A. in
international business from the University of Oregon and an M.B.A. from the
University of Pennsylvania.

ITEM 2. PROPERTIES

      Our principal executive and corporate offices, located in Santa Barbara,
California, occupy approximately 39,000 square feet under several lease
agreements that expire from March 2003 to March 2004. We also occupy five
additional office sites in the United States under lease agreements, totaling
approximately 14,000 square feet. At December 31, 2000, we operated three
distribution facilities in the United States, occupying approximately 171,000
square feet, all of which were leased. Our primary distribution center is
located in Oxnard, California, and occupies approximately 100,000 square feet.
We also opened our new European headquarters and distribution center, located in
Amsterdam, The Netherlands, in the fourth quarter of 2000, which occupies
approximately 14,000 square feet under a lease agreement. We believe that our
facilities are adequate for our current operations and that additional space can
be obtained if needed.

ITEM 3. LEGAL PROCEEDINGS

      From time to time, we may be involved in legal proceedings and litigation
arising in the ordinary course of business. As of the date hereof, we are not a
party to or aware of any litigation or other legal proceeding that could
materially harm our business.

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

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


                                       7
<PAGE>

                                     PART II

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

      Our common stock has been traded on the Nasdaq National Market under the
symbol "SMRA" since our initial public offering on November 12, 1999. The
following table sets forth, for the periods indicated, the high and low closing
sale prices for our common stock as reported by the Nasdaq National Market:

                                                            High    Low
                                                           ------  ------
               Year Ended December 31, 2000
               First quarter ....................          $15.44  $11.19
               Second quarter ...................          $14.88  $ 7.50
               Third quarter ....................          $14.31  $ 9.50
               Fourth quarter ...................          $12.50  $ 5.88

               Year Ended December 31, 1999
                    Fourth quarter ..............          $19.00  $12.44

      On March 27, 2001, the last reported sale price for our common stock on
the Nasdaq National Market was $5.00 per share. As of March 12, 2001, there
were approximately 289 holders of record. Because many of such shares are held
by brokers and other institutions on behalf of stockholders, we are unable to
estimate the total number of stockholders represented by these record holders.

      While we do not plan to pay dividends, any future determination to pay
dividends will be at the discretion of the board of directors and will depend
upon our financial condition, operating results, capital requirements and other
factors the board of directors deems relevant. We plan to retain earnings for
use in the operation of our business and to fund future growth.

      Since our inception in July 1995 through the effective date of our initial
public offering in November 1999, we operated in the form of a limited liability
company and income has been taxed directly to our equity members. During this
time, we made regular quarterly distributions to our members based on our funds
available for distribution. In the period beginning January 1, 1999 through
November 12, 1999, we made quarterly distributions in an aggregate amount of
$1.79 per unit to our members, including the distribution of the proceeds of our
term loan facility.


                                       8
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

      You should read the following selected financial data with our financial
statements and related notes and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" appearing elsewhere in this
Annual Report on Form 10-K. Historical results are not necessarily indicative of
the results to be expected in the future.

<TABLE>
<CAPTION>
                                                                                    Year Ended December 31,
                                                           --------------------------------------------------------------------
                                                              2000         1999           1998            1997          1996
                                                              ----         ----           ----            ----          ----
                                                                         (in thousands except per share/unit data)
<S>                                                        <C>           <C>            <C>            <C>            <C>
Statements of Operations:
Net revenue(1) .......................................     $ 211,192     $ 126,861      $  73,180      $  35,060      $  10,149
Cost of net revenue(1) ...............................       134,618        82,761         44,126         21,044          5,532
                                                           ---------     ---------      ---------      ---------      ---------
Gross profit .........................................        76,574        44,100         29,054         14,016          4,617
                                                           ---------     ---------      ---------      ---------      ---------
Operating expenses:
      Sales and marketing ............................        20,312        10,320          5,747          2,593            780
      General and administrative (excludes stock-based
         compensation of $367 in 2000 and ............        15,741         7,982          3,939          1,648            696
         $774 in 1999)
      Stock-based compensation .......................           367           774             --             --             --
      Amortization of intangible assets ..............           302            --             --             --             --
                                                           ---------     ---------      ---------      ---------      ---------
            Total operating expenses .................        36,722        19,076          9,686          4,241          1,476
                                                           ---------     ---------      ---------      ---------      ---------
Income from operations ...............................        39,852        25,024         19,368          9,775          3,141
Interest income (expense), net .......................         2,376        (2,193)          (187)           (82)           (18)
                                                           ---------     ---------      ---------      ---------      ---------
Income before income taxes ...........................        42,228        22,831         19,181          9,693          3,123
Income tax provision (benefit) .......................        17,737       (17,403)            --             --             --
                                                           ---------     ---------      ---------      ---------      ---------
      Net income .....................................     $  24,491     $  40,234      $  19,181      $   9,693      $   3,123
                                                           =========     =========      =========      =========      =========
Net income per share/unit--basic(2) ..................     $    0.51     $    1.02      $    0.50      $    0.25      $    0.08
                                                           =========     =========      =========      =========      =========
Weighted average shares/units--basic .................        47,928        39,408         38,063         38,052         37,500
                                                           =========     =========      =========      =========      =========
Net income per share/unit--diluted(2) ................     $    0.51     $    1.02      $    0.50      $    0.25      $    0.08
                                                           =========     =========      =========      =========      =========
Weighted average shares/units--diluted ...............        48,329        39,484         38,063         38,052         37,500
                                                           =========     =========      =========      =========      =========
</TABLE>

<TABLE>
<CAPTION>

                                                                                       December 31,
                                                           --------------------------------------------------------------------
                                                              2000         1999           1998            1997          1996
                                                              ----         ----           ----            ----          ----
                                                                                     (in thousands)
<S>                                                        <C>           <C>            <C>            <C>            <C>
Balance Sheet Data:
Working capital ......................................     $  78,513     $  67,888      $   9,482      $   4,602      $   1,797
Total assets .........................................       143,572       115,751         17,009          9,281          3,882
Notes payable--net of current portion ................            --            --          3,457            638            662
Mandatorily redeemable Class B units .................            --            --         51,750             --             --
Stockholders' equity/members' capital (deficit) ......       114,497        86,786        (45,136)         3,787          1,251
</TABLE>

(1)   During 2000, we adopted new guidance for the accounting for shipping and
      handling revenues and expenses, and accordingly have reclassified the
      prior period balances to conform with our current policy for the years
      ended December 31, 2000, 1999, 1998 and 1997. Our systems did not provide
      sufficient information to reclassify the balances for the year ended
      December 31, 1996. See also note 2 to our consolidated financial
      statements.

(2)   See note 2 of notes to the consolidated financial statements for an
      explanation of the calculation of net income per share/unit--basic and
      diluted.

      Commencing with 1997, our fiscal years are on a 52 and 53 week basis. For
presentation purposes we are using a calendar quarter and calendar year end
convention. Our fiscal years 1997, 1998, 1999, and 2000 ended on December 28,
1997, January 3, 1999, January 2, 2000, and December 31, 2000, respectively.



                                       9
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

      The following discussion of financial condition and results of operations
should be read in conjunction with the financial statements and related notes
appearing elsewhere in this Annual Report on Form 10-K. Our actual results could
differ materially from the results contemplated by these forward-looking
statements as a result of factors, including those discussed previously, under
"Risk Factors" or in other parts of this Annual Report on Form 10-K.

Overview

      We provide telecommunications carriers with a broad range of
infrastructure equipment and related services designed to meet their specific
and changing equipment needs. We offer our customers a unique combination of new
and de-installed equipment from a variety of manufacturers, allowing them to
make fast multi-vendor purchases from a single cost-effective source. To further
address our customers' dynamic equipment needs, we offer a suite of customized,
value-added services including asset recovery, inventory management, technical
support and other ancillary services under the umbrella of Somera OneSource
Services. Our innovative equipment and service offerings are delivered through
our team of more than 150 sales and procurement professionals, who work
individually with customers to understand, anticipate and meet their ongoing
equipment requirements. Our sales teams utilize our relationship management
database, our selective inventory and our distribution infrastructure to provide
our customers with rapidly deployable equipment solutions. Our customers include
incumbent local exchange carriers, long distance carriers, wireless carriers,
competitive local exchange carriers, and internet service providers. Incumbent
local exchange carriers, or ILECs, provided local telephone service on an
exclusive basis prior to deregulation. Since deregulation, competitive local
exchange carriers, or CLECs, have competed with ILECs to provide local
telecommunications service. We do not manufacture any of the equipment we sell.

      We purchase de-installed equipment primarily from telecommunications
carriers, many of whom are also our customers. We purchase the new equipment we
sell primarily from OEMs and distributors. By using our relationship management
database to track carriers' de-installed equipment we are able to offer our
customers a broad range of equipment. We generally have not entered into
long-term contracts or distribution arrangements with our suppliers, and if we
fail to develop and maintain our relationships with our suppliers, our business
will suffer.

      A majority of our sales to date have been to customers located in the
United States. Sales to customers outside of the United States accounted for
7.8%, 10.9%, and 19.7% of our net revenue in 2000, 1999, and 1998, respectively.
We expect sales to carriers in the United States to continue to account for the
majority of our net revenue for the foreseeable future. Through 2000, all of our
equipment sales were denominated in U.S. dollars.

      In 2000, Verizon Communications accounted for 11.3% of our net revenue. In
1999, no single customer accounted for more than 10% of our net revenue. In
1998, ALLTEL accounted for 10.2% of our net revenue. In 2000, Western Multiplex
and an international carrier accounted for 15.9% and 11.8% of our equipment
purchases. In 1999 and 1998, no suppliers accounted for more than 10% of our
equipment purchases.

      Substantially all of our sales are made on the basis of purchase orders
rather than long-term agreements. As a result, we may commit resources to the
procurement and testing of products without having received advance purchase
commitments from customers. We anticipate that our operating results for any
given period will continue to be dependent, to a significant extent, on purchase
orders. These purchase orders can be delayed or canceled by our customers
without penalty. Additionally, as telecommunications equipment supplier
competition increases, we may need to lower our selling prices or pay more for
the equipment we procure. Consequently, our gross margins may decrease over
time. We recognize revenue, net of estimated provisions for returns and warranty
obligations where significant, when we ship equipment to our customers, provided
that there are no significant post-delivery obligations.

      The market for telecommunications equipment is characterized by intense
competition. We believe that our ability to remain competitive depends on
enhancing the existing service levels we provide to our customers, acquiring
access to a broader selection of equipment, developing new customer
relationships and expanding our existing customer penetration levels. To enhance
our ability to meet these goals, we completed our first acquisition in


                                       10
<PAGE>

October 2000. In December 2000, we launched our business-to-business e-commerce
Web site. Additionally, we opened our European headquarters in Amsterdam, The
Netherlands in November 2000.

Corporate History

      We were organized as a California limited liability company, or LLC, and
commenced operations in July 1995. In July 1998, we undertook a recapitalization
in which outside investors purchased Class B units representing approximately
37.0% of Somera Communications, LLC. In August 1999, we entered into a $50
million term loan facility and a $15 million revolving loan facility with a
syndicate of financial institutions led by Fleet National Bank. In November
1999, we raised approximately $107 million in net proceeds from the initial
public offering of 9,775,000 shares of our common stock. Approximately $60
million of the proceeds were used to payoff the Fleet National Bank term loan
and revolving loan facilities, including associated accrued interest. The
balance of the proceeds have been invested in short term, interest bearing,
investment grade marketable securities. In October 2000, we completed our
acquisition of MSI Communications, Inc., a data networking equipment and
services company.

Results of Operations

      2000 Compared to 1999

      Net Revenue. Substantially all of our net revenue consists of sales of new
and de-installed telecommunications and data networking equipment, including
switching, transmission, access, wireless, microwave and power products. Net
revenue increased to $211.2 million in 2000 from $126.9 million in 1999. The
increase in net revenue was driven by greater customer demand for our equipment
in general rather than significant increases in the price of the products we
sold, our expansion in United States markets and growth in significant customer
accounts. Net revenue attributable to new equipment sales increased to $90.7
million in 2000 from $44.3 million in 1999. The increase in net revenue
attributable to new equipment sales was due to greater customer demand for new
telecommunications equipment and our offering a broader variety of new equipment
to customers. We believe that net revenue attributable to new equipment sales
will continue to increase in response to customers' demand for new
telecommunications equipment. Net revenue attributable to de-installed equipment
sales increased to $120.5 million in 2000 from $82.6 million in 1999. The
increase in net revenue attributable to de-installed equipment sales was due to
greater demand among our customers in connection with the build out and
servicing of their existing networks. We believe net revenue attributable to
de-installed equipment will increase as our customers continue to build out
their existing networks.

      Cost of Net Revenue. Substantially all of our cost of net revenue consists
of the costs of the equipment we purchase from third party sources. Cost of net
revenue increased to $134.6 million in 2000 from $82.8 million in 1999. The
increase in cost of net revenue during this period is primarily attributable to
increases in our volume of new and de-installed equipment sales. Cost of net
revenue attributable to new equipment sales increased to $73.8 million in 2000
from $36.9 million in 1999. The increase in cost of net revenue attributable to
new equipment was due primarily to increases in the volume of new equipment we
sold rather than increased unit costs of equipment we purchased. We believe
these costs may continue to increase as we purchase additional new equipment to
satisfy customer demand. Cost of net revenue attributable to de-installed
equipment sales increased to $60.8 million in 2000 from $45.9 million in 1999.
The increase in cost of net revenue attributable to de-installed equipment was
due primarily to increased volume of de-installed equipment sales and
fluctuations due to large, non-recurring purchases of de-installed equipment. We
believe that the costs of net revenues attributable to de-installed equipment
will continue to increase as our volume of de-installed equipment sales
increases in response to customer demand. Gross profit as a percentage of net
revenue, or gross margin, increased to 36.3% in 2000 from 34.8% in 1999. The
increase in gross margins was primarily due to more favorable prices obtained
from our suppliers due in part to our increased volume of purchases and
opportunistic buys, offset by an increase in the proportion of new equipment we
sold, which generally has lower gross margins than de-installed equipment. Gross
margin attributable to new equipment sales increased to 18.6% in 2000 from 16.7%
in 1999. The increase in gross margin attributable to new equipment sales was
due primarily to our ability to leverage the increased volume of purchases in
negotiating more favorable pricing from our suppliers. We believe these gross
margins will continue to fluctuate depending upon the mix of the new equipment
we sell. Gross margin attributable to de-installed equipment sales increased to
49.5% in 2000 from 44.4% in 1999. The increase in gross margin attributable to
de-installed equipment sales was due primarily to our opportunistic purchases of
de-installed equipment in 2000. We believe that gross margins attributable to
de-installed


                                       11
<PAGE>

equipment sales may continue to fluctuate depending upon the mix of de-installed
equipment we sell and our ability to make significant discounted purchases.

      Sales and Marketing. Sales and marketing expenses consist primarily of
salaries, commissions and benefits for sales, marketing and procurement
employees as well as costs associated with advertising, promotions and the
research development and launch of our business to business e-commerce
initiative. A majority of our sales and marketing expenses are incurred in
connection with establishing and maintaining long-term relationships with a
variety of carriers. Sales and marketing expenses increased to $20.3 million or
9.6% of net revenue in 2000 from $10.3 million or 8.1% of net revenue in 1999.
This increase was due to higher absolute commission expenses consistent with
increased gross profit upon which our sales commissions are based, hiring of
additional sales and procurement personnel, intensified marketing and
advertising activities and costs associated with our e-commerce initiative. We
expect that our sales and marketing expenses will continue to increase as we
expand our product and service offerings, increase our hiring of additional
sales personnel and pay commissions consistent with increased gross profit,
although such expenses may vary as a percentage of net revenue.

      General and Administrative. General and administrative expenses consist
principally of salary and benefit costs for executive and administrative
personnel, professional fees, and facility costs. General and administrative
expenses increased to $15.7 million or 7.5% of net revenue in 2000 from $8.0
million or 6.3% of net revenue in 1999. This increase was due primarily to the
increase in employees relating to the expansion of our operations and associated
facilities costs. We expect that general and administrative expenses will
increase in the future as we expand our operations, although such expenses may
vary as a percentage of net revenue.

      Stock-based Compensation. Stock-based compensation charges relate to stock
options we issued to two officers and one outside director in 1999 resulting in
unearned stock-based compensation of $830,000 which is being amortized over the
vesting period, generally four years, of the underlying options. Amortization of
the stock option charge in 2000 and 1999 amounted to $367,000 and $244,000,
respectively. We expect that the remaining charge will be amortized to net
income as follows: $148,000 in 2001, $63,000 in 2002 and $8,000 in 2003. 1999
also includes charges relating to warrants for common stock granted in exchange
for services. The warrants, which were fully vested at the date of grant,
entitle the holders to purchase up to 207,655 shares of common stock and
resulted in a one-time charge of $530,000 in 1999.

      Interest Income (Expense), Net. Interest income (expense), net consists of
investment earnings on cash and cash equivalent balances, offset by interest
expense associated with debt obligations. Interest income, net for 2000 was $2.4
million. Interest expense, net was $2.2 million in 1999 representing a one-time
write-off of $1.1 million of unamortized loan fees and interest on outstanding
debt principal. We had no long-term debt outstanding as of December 31, 2000.

      Income Tax Provision (Benefit). Income tax provision for 2000 totaled
$17.7 million, an effective tax rate of 42%, compared to an income tax benefit
of $17.4 million in 1999. In the fourth quarter of 1999, we realized a $19.5
million deferred tax credit as a result of the change in tax status of the
company from a limited liability company to a "C" Corporation. This deferred tax
asset will be amortized over 15 years. As a limited liability company, we were
not subject to federal or state income taxes.

      Business Combinations. In October 2000, the Company acquired MSI
Communications Inc. This transaction was accounted for as a purchase. The
financial results of MSI have been included in the Company's consolidated
financial statements from the date of acquisition. The Company paid $10.8
million in cash and acquisition costs and issued 693,391 shares of its common
stock, which are held in escrow at December 31, 2000. For further details about
this acquisition, see Note 3 of Notes to the Consolidated Financial Statements.
We expect this acquisition will help us build our base of customers and
establish new products and services in the data networking equipment and
services markets.

      1999 Compared to 1998

      Net Revenue. Net revenue increased to $126.9 million in 1999 from $73.2
million in 1998. The increase in net revenue was driven by greater customer
demand for our equipment in general rather than significant increases in the
price of the products we sold, our expansion in United States markets and growth
in significant customer accounts.


                                       12
<PAGE>

Net revenue attributable to new equipment sales increased to $44.3 million in
1999 from $17.3 million in 1998. The increase in net revenue attributable to new
equipment sales was due to greater customer demand for new telecommunications
equipment and our offering a broader variety of new equipment to customers. Net
revenue attributable to de-installed equipment sales increased to $82.6 million
in 1999 from $55.9 million in 1998. The increase in net revenue attributable to
de-installed equipment sales was due to greater demand among our customers in
connection with the build out and servicing of their existing networks.

      Cost of Net Revenue. Cost of net revenue increased to $82.8 million in
1999 from $44.1 million in 1998. The increase in cost of net revenue during this
period is primarily attributable to increases in our volume of new and
de-installed equipment sales. Cost of net revenue attributable to new equipment
sales increased to $36.9 million in 1999 from $14.0 million in 1998. The
increase in cost of net revenue attributable to new equipment was due primarily
to increases in the volume of new equipment we sold rather than increased unit
costs of equipment we purchased. Cost of net revenue attributable to
de-installed equipment sales increased to $45.9 million in 1999 from $30.1
million in 1998. The increase in cost of net revenue attributable to
de-installed equipment was due primarily to increased volume of de-installed
equipment sales and fluctuations due to large, non-recurring purchases of
de-installed equipment. Gross profit as a percentage of net revenue, or gross
margin, declined to 34.8% in 1999 from 39.7% in 1998. The decline in gross
margins was primarily due to an increase in the proportion of new equipment we
sold, which generally has lower gross margins than de-installed equipment,
fluctuations in the prices of a number of our purchase transactions, and
increased competition in the procurement of de-installed equipment generally.
Gross margin attributable to new equipment sales decreased to 16.7% in 1999 from
19.3% in 1998. The decrease in gross margin attributable to new equipment sales
was due primarily to fluctuations in the mix of equipment we sold. Gross margin
attributable to de-installed equipment sales decreased to 44.4% in 1999 from
46.0% in 1998. The decrease in gross margin attributable to de-installed
equipment sales was due primarily to increased prices of the de-installed
equipment we purchased relating to a number of large, non-recurring purchase
transactions in 1998.

      Sales and Marketing. Sales and marketing expenses increased to $10.3
million or 8.1% of net revenue in 1999 from $5.7 million or 7.9% of net revenue
in 1998. This increase was due to higher absolute commission expenses consistent
with increased gross profit upon which our sales commissions are based, as well
as the hiring of additional sales and procurement personnel, including a new
executive vice president of sales and marketing.

      General and Administrative. General and administrative expenses increased
to $8.0 million or 6.3% of net revenue in 1999 from $3.9 million or 5.4% of net
revenue in 1998. This increase was due primarily to the increase in employees
resulting from the expansion of our operations, as well as recruitment costs.

      Stock-based Compensation. Stock-based compensation charges relate to
warrants for common stock granted in exchange for services and options granted
to officers and a director in 1999. The warrants, which were fully vested at the
date of grant, entitle the holders to purchase up to 207,655 shares of common
stock and resulted in a one-time charge of approximately $530,000 in 1999. In
July 1999, we issued stock options to two officers and one outside director
resulting in unearned stock-based compensation of $830,000 which will be
amortized over the vesting period, generally four years, of the underlying
options. Amortization of the stock option charge in 1999 amounted to $244,000.

      Interest Expense, Net. Interest expense, net consists of interest expense
associated with debt obligations offset by interest income earned on cash and
cash equivalent balances. Interest expense, net increased to $2.2 million in
1999 from $187,000 in 1998. This increase was due to the one-time write-off of
$1.1 million of unamortized loan fees as well as the higher level of outstanding
debt principal to satisfy greater working capital needs.

      Income Tax Benefit. In 1999, we realized a $19.5 million deferred tax
credit as a result of the change in tax status of the company from a limited
liability company to a "C" Corporation in the fourth quarter of 1999. As a
limited liability company in 1998 and through the third quarter of 1999, we were
not subject to federal or state income taxes.


                                       13
<PAGE>

Quarterly Results of Operations

      The following tables set forth unaudited statement of operations data for
each of the eight quarters in the period ended December 31, 2000, as well as the
percentage of our net revenue represented by each item. In our opinion, this
unaudited information has been prepared on the same basis as the annual
financial statements. This information includes all adjustments (consisting only
of normal recurring adjustments) necessary for fair presentation when read in
conjunction with the financial statements and related notes included elsewhere
in this Annual Report on Form 10-K. The operating results for any quarter are
not necessarily indicative of results for any future period.

<TABLE>
<CAPTION>
                                                                               Quarter Ended
                                        -----------------------------------------------------------------------------------------
                                        March 31,    June 30,   Sept. 30,    Dec. 31,  March 31,  June 30,   Sept. 30,   Dec. 31,
                                        ---------    --------   ---------    --------  ---------  --------   ---------   --------
                                          1999         1999       1999         1999      2000       2000       2000         2000
                                          ----         ----       ----         ----      ----       ----       ----         ----
                                                                                (unaudited)
                                                                               (in thousands)
<S>                                     <C>         <C>         <C>         <C>         <C>        <C>        <C>        <C>
Statements of Operations Data:
Net revenue .........................   $  23,585   $  30,022   $  34,676   $  38,578   $40,626    $52,315    $58,289    $59,962
Cost of net revenue .................      14,946      19,850      23,131      24,834    25,296     33,442     37,323     38,557
                                        ---------   ---------   ---------   ---------   -------    -------    -------    -------
Gross profit ........................       8,639      10,172      11,545      13,744    15,330     18,873     20,966     21,405
                                        ---------   ---------   ---------   ---------   -------    -------    -------    -------
Operating expenses:
      Sales and marketing ...........       1,967       2,418       2,853       3,082     4,246      5,028      5,380      5,658
      General and administrative.....       1,420       1,579       2,086       2,897     2,767      3,541      4,627      4,806

      Stock-based compensation ......          --         193         459         122       122        122         66         57
      Amortization of intangible
         assets .....................          --          --          --          --        --         --         --        302
                                        ---------   ---------   ---------   ---------   -------    -------    -------    -------
            Total operating
               expenses .............       3,387       4,190       5,398       6,101     7,135      8,691     10,073     10,823
                                        ---------   ---------   ---------   ---------   -------    -------    -------    -------
Income from operations ..............       5,252       5,982       6,147       7,643     8,195     10,182     10,893     10,582
Interest income (expense), net ......         (59)        (85)       (512)     (1,537)      662        602        592        520
                                        ---------   ---------   ---------   ---------   -------    -------    -------    -------
Income before income taxes ..........       5,193       5,897       5,635       6,106     8,857     10,784     11,485     11,102
Income tax provision (benefit) ......          --          --          --     (17,403)    3,762      4,556      4,851      4,568
                                        ---------   ---------   ---------   ---------   -------    -------    -------    -------
Net income ..........................   $   5,193   $   5,897   $   5,635   $  23,509   $ 5,095    $ 6,228    $ 6,634    $ 6,534
                                        =========   =========   =========   =========   =======    =======    =======    =======

As a Percentage of Net Revenue:
Net revenue .........................       100.0%      100.0%      100.0%      100.0%    100.0%     100.0%     100.0%     100.0%
Cost of net revenue .................        63.4        66.1        66.7        64.4      62.3       63.9       64.0       64.3
                                        ---------   ---------   ---------   ---------   -------    -------    -------    -------
Gross profit ........................        36.6        33.9        33.3        35.6      37.7       36.1       36.0       35.7
                                        ---------   ---------   ---------   ---------   -------    -------    -------    -------
Operating expenses:
      Sales and marketing ...........         8.3         8.1         8.3         8.0      10.4        9.6        9.2        9.5
      General and administrative.....         6.0         5.3         6.0         7.5       6.8        6.8        8.0        8.0

      Stock-based compensation ......          --         0.6         1.3         0.3       0.3        0.2        0.1        0.1
      Amortization of intangible
         assets .....................          --          --          --          --        --         --         --        0.5
                                        ---------   ---------   ---------   ---------   -------    -------    -------    -------
            Total operating
               expenses .............        14.3        14.0        15.6        15.8      17.5       16.6       17.3       18.1
                                        ---------   ---------   ---------   ---------   -------    -------    -------    -------
Income from operations ..............        22.3        19.9        17.7        19.8      20.2       19.5       18.7       17.6
Interest income (expense), net ......        (0.3)       (4.0)        1.1         0.9      (0.3)      (1.4)       1.6        1.0
                                        ---------   ---------   ---------   ---------   -------    -------    -------    -------
Income before income taxes ..........        22.0        19.6        16.3        15.8      21.8       20.6       19.7       18.5
Income tax provision (benefit) ......          --          --          --       (45.1)      9.3        8.7        8.3        7.6
                                        ---------   ---------   ---------   ---------   -------    -------    -------    -------
Net income ..........................        22.0%       19.6%       16.3%       60.9%     12.5%      11.9%      11.4%      10.9%
                                        =========   =========   =========   =========   =======    =======    =======    =======
</TABLE>

      Historically, our net revenue and gross margins have increased in each
quarter compared to the same quarter in the prior year due primarily to
increased levels of customer demand for the equipment we sell in general. Our
gross margin improved in 2000 versus 1999 primarily due to increased customer
demand and more favorable pricing obtained from our suppliers. Sales and
marketing expenses have increased in absolute dollars for every quarter
reflecting greater commissions paid on increased gross profit, the addition of
sales personnel and intensified marketing efforts. General and administrative
expenses increased almost every quarter due to the increase in personnel and
facilities costs and professional fees required to support our growth.

      Historically, our net revenue and results of operations have been subject
to significant fluctuations, particularly on a quarterly basis, and could
fluctuate significantly from quarter to quarter and from year to year in the
future. Causes of such fluctuations may include the rate and timing of
customers' orders for the equipment we sell, the rate at


                                       14
<PAGE>

which telecommunications carriers de-install equipment, decreases in the prices
of the equipment we sell due to increased secondary market competition, our
ability to locate and obtain equipment, our ability to deploy equipment on a
timely basis, seasonal variations in customer purchasing, write-offs due to
inventory defects and obsolescence, the potentially long sales cycle for our
equipment, delays in the commencement of operations in new markets, costs
relating to possible acquisitions, and general economic conditions and
conditions specific to the telecommunications industry. Significant quarterly
fluctuations in our net revenue will cause significant fluctuations in our cash
flows and working capital.

Liquidity and Capital Resources

      Since inception in July 1995, we have financed our operations primarily
through cash flows from operations. However, in 2000, we made a strategic
investment in inventory, resulting in an increase in inventory of $13.1 million.
This combined with the increase in accounts receivable of $18.8 million offset
net income adjusted for non-cash charges to result in the net use of cash in
operating activities of $2.9 million. Net cash generated by operating activities
was $20.5 million in 1999 and $14.9 million in 1998. Through November 1999,
substantially all of the cash generated by operating activities was distributed
to the members of Somera Communications, LLC. In July 1998, we used $51.8
million from the sale of Class B units to outside investors to repurchase
outstanding units from a number of our initial unit holders.

      On August 31, 1999, we entered into a credit agreement with a syndicate of
financial institutions led by Fleet National Bank. The credit agreement provided
for a term loan facility and a revolving loan facility. The term loan facility
was for an aggregate principal amount of $50.0 million. The revolving loan
facility allowed us to borrow $15.0 million, with a $5.0 million sublimit for
the issuance of letters of credit. The obligations under the term loan facility
and the revolving loan facility were secured by a first priority lien on all our
tangible and intangible assets. The proceeds of our term loan facility were used
to make a distribution to the members of Somera Communications, LLC of $48.5
million in September 1999 and the remaining $1.5 million was used to pay off a
portion of outstanding balances on notes payable. Additionally, approximately
$1.5 million of our revolving loan facility was used to pay off the current
portion of the notes payable. The remaining amount of notes payable,
approximately $500,000 was satisfied from available cash.

      On November 12, 1999, we sold 9,775,000 of our common shares at $12.00 per
share through an initial public offering, raising approximately $107.4 million
in net proceeds. In November 1999, we repaid and retired the outstanding balance
of the term loan facility and the outstanding balance of the revolving loan
facility with the proceeds of the offering.

      As of December 31, 2000, we had approximately $33.3 million in cash and
cash equivalents. We do not currently plan to pay dividends, but rather to
retain earnings for use in the operation of our business and to fund future
growth. We had no long-term debt outstanding as of December 31, 2000.

      We anticipate significant increases in working capital in the future
primarily as a result of increased sales of equipment and higher relative levels
of inventory. We will also continue to expend significant amounts of capital on
property and equipment related to the expansion of our corporate headquarters,
distribution centers, equipment testing infrastructure, and additional
facilities to support our growth, as well as expending significant resources in
support of our business-to-business e-commerce activities.

      We believe that cash and cash equivalents and anticipated cash flow from
operations will be sufficient to fund our working capital and capital
expenditure requirements for at least the next 12 months.

Recent Accounting Pronouncements

      In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44 ("FIN 44") "Accounting for Certain Transactions Involving
Stock Compensation," an interpretation of Accounting Principles Board Opinion
No. 25 ("APB 25"). This interpretation clarifies the definition of employee for
purposes of applying APB 25, "Accounting for Stock Issued to Employees," the
criteria for determining whether a plan qualifies as a noncompensatory plan, the
accounting consequence of various modifications to the terms of a previously
fixed stock option or award, and the accounting for an exchange of stock
compensation awards in a business combination. FIN 44 was effective July 1,
2000, but certain conclusions cover specific events that occur after either
December 15,


                                       15
<PAGE>

1998, or January 12, 2000. The adoption of FIN 44 did not have a material impact
on the Company's financial statements.

      In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements," which provides guidance on the recognition, presentation, and
disclosure of revenue in financial statements filed with the SEC. SAB 101
outlines the basic criteria that must be met to recognize revenue and provides
guidance for disclosures related to revenue recognition policies. The Company
has complied with the guidance in SAB 101 for all periods presented.

      In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 establishes new standards of
accounting and reporting for derivative instruments and hedging activities. SFAS
133 requires that all derivatives be recognized at fair value in the statement
of financial position, and that the corresponding gains or losses be reported
either in the statement of operations or as a component of comprehensive income,
depending on the type of relationship that exists. This statement, as amended by
SFAS 137, is effective for fiscal years beginning after June 15, 2000. The
Company does not currently hold derivative instruments or engage in hedging
activities and the implementation of SFAS 133 did not have a significant impact
on its financial position or results of operations.

Risk Factors

      You should carefully consider the risks described below. If any of the
following risks actually occur, our business could be harmed, the trading price
of our common stock could decline and you could lose all or part of your
investment. You should also refer to other information contained in this Annual
Report on Form 10-K, including our financial statements and related notes.

Our operating results are likely to fluctuate in future periods, which might
lead to reduced prices for our stock.

      Our annual or quarterly operating results are difficult to predict and are
likely to fluctuate significantly in the future as a result of numerous factors,
many of which are outside of our control. If our annual quarterly operating
results do not meet the expectations of securities analysts and investors, the
trading price of our stock could significantly decline. Factors that could
impact our operating results include:

      o     the rate, timing and volume of orders for the telecommunications
            infrastructure equipment we sell;

      o     the rate at which telecommunications carriers de-install their
            equipment;

      o     decreases in our selling prices due to competition in the secondary
            market;

      o     our ability to obtain products cost-effectively from original
            equipment manufacturers, or OEMs, distributors, carriers and other
            secondary sources of telecommunications equipment;

      o     our ability to provide equipment and service offerings on a timely
            basis to satisfy customer demand;

      o     variations in customer capital spending patterns due to seasonality,
            economic conditions for telecommunications carriers and other
            factors;

      o     write-offs due to inventory defects or obsolescence;

      o     the sales cycle for equipment we sell, which can be relatively
            lengthy;

      o     delays in the commencement of our operations in new market segments
            and geographic regions; and

      o     costs relating to possible acquisitions and integration of new
            businesses.


                                       16
<PAGE>

Our business depends upon our ability to match third party de-installed
equipment supply with carrier demand for this equipment and failure to do so
could reduce our net revenue.

      Our success depends on our continued ability to match the equipment needs
of telecommunications carriers with the supply of de-installed equipment
available in the secondary market. We depend upon maintaining business
relationships with third parties who can provide us with de-installed equipment
and information on available de-installed equipment. Failure to effectively
manage these relationships and match the needs of our customers with available
supply of de-installed equipment could damage our ability to generate net
revenue. In the event carriers decrease the rate at which they de-install their
networks, or choose not to de-install their networks at all, it would be more
difficult for us to locate this equipment, which could negatively impact our net
revenue.

A downturn in the telecommunications industry or an industry trend toward
reducing or delaying additional equipment purchases due to cost-cutting
pressures could reduce demand for our products.

      We rely significantly upon customers concentrated in the
telecommunications industry as a source of net revenue and de-installed
equipment inventory. We believe that a downturn in the telecommunications
industry in general or decreased carrier operating performance could result in
reduced sales to our customers and postpone network upgrades. These reduced
sales could negatively impact our ability to generate revenue and delayed
projects could impair our ability to obtain de-installed telecommunications
equipment.

The market for supplying equipment to telecommunications carriers is
competitive, and if we cannot compete effectively, our net revenue and gross
margins might decline.

      Competition among companies who supply equipment to telecommunications
carriers is intense. We currently face competition primarily from three sources:
original equipment manufacturers, distributors and secondary market dealers who
sell new and de-installed telecommunications infrastructure equipment. If we are
unable to compete effectively against our current or future competitors, we may
have to lower our selling prices and may experience reduced gross margins and
loss of market share, either of which could harm our business.

      Competition is likely to increase as new companies enter this market, as
current competitors expand their products and services or as our competitors
consolidate. Increased competition in the secondary market for
telecommunications equipment could also heighten demand for the limited supply
of de-installed equipment which would lead to increased prices for, and reduce
the availability of, this equipment. Any increase in these prices could
significantly impact our ability to maintain our gross margins.

We do not have many formal relationships with suppliers of telecommunications
equipment and may not have access to adequate product supply.

      In fiscal year 2000, 57% of our net revenue was generated from the sale of
de-installed telecommunications equipment. Typically, we do not have supply
contracts to obtain this equipment and are dependent on the de-installation of
equipment by carriers to provide us with much of the equipment we sell. Our
ability to buy de-installed equipment from carriers is dependent on our
relationships with them. If we fail to develop and maintain these business
relationships with carriers or they are unwilling to sell de-installed equipment
to us, our ability to sell de-installed equipment will suffer.

Our customer base is concentrated and the loss of one or more of our key
customers would have a negative impact on our net revenue.

      Historically, a significant portion of our sales have been to relatively
few customers. Sales to our ten largest customers accounted for 39.5% of our net
revenue in 2000, 32.1% in 1999 and 43.8% in 1998. In 2000, Verizon
Communications accounted for 11.3% of our net revenue. In 1999, no single
customer accounted for over 10% of


                                       17
<PAGE>

our net revenue. In 1998, ALLTEL accounted for 10.2% of our net revenue. In
addition, substantially all of our sales are made on a purchase order basis, and
no customer has entered into a long-term purchasing agreement with us. As a
result, we cannot be certain that our current customers will continue to
purchase from us. The loss of, or any reduction in orders from, a significant
customer would have a negative impact on our net revenue.

We may be forced to reduce the sales prices for the equipment we sell, which may
impair our ability to maintain our gross margins.

      In the future we expect to reduce prices in response to competition and to
generate increased sales volume. If manufacturers reduce the prices of new
telecommunications equipment we may be required to further reduce the price of
the new and de-installed equipment we sell. If we are forced to reduce our
prices or are unable to shift the sales mix towards higher margin equipment
sales, we will not be able to maintain current gross margins.

The market for de-installed telecommunications equipment is relatively new and
it is unclear whether our equipment and service offerings and our business will
achieve long-term market acceptance.

      The market for de-installed telecommunications equipment is relatively new
and evolving, and we are not certain that our potential customers will adopt and
deploy de-installed telecommunications equipment in their networks. For example,
with respect to de-installed equipment that includes a significant software
component, potential customers may be unable to obtain a license or sublicense
for the software. Even if they do purchase de-installed equipment, our potential
customers may not choose to purchase de-installed equipment from us for a
variety of reasons. Our customers may also re-deploy their displaced equipment
within their own networks which would eliminate their need for our equipment and
service offerings. These internal solutions would also limit the supply of
de-installed equipment available for us to purchase, which would limit the
development of this market.

Failure by our customers to accept our internet sales strategy could result in
lower than expected revenues.

      In December 2000, we launched our business-to-business Web site to enable
us to better serve our customers and vendors. These Web-based services are very
different from the traditional sales methods we currently have with our
customers. There can be no assurance about the degree to which our customers
will utilize our internet solution. If our customers fail to utilize our
internet sales solution, our ability to increase our revenues could be harmed.

We may fail to continue to attract, develop and retain key management and sales
personnel, which could negatively impact our operating results.

      We depend on the performance of our executive officers and other key
employees. The loss of any member of our senior management, in particular, Dan
Firestone, our chief executive officer, or other key employees could negatively
impact our operating results and our ability to execute our business strategy.
In addition, we depend on our sales professionals to serve customers in each of
our markets. The loss of any of our sales professionals could significantly
disrupt our relationships with our customers. We do not have "key person" life
insurance policies on any of our employees except for Dan Firestone.

      Our future success also depends on our ability to attract, retain and
motivate highly skilled employees. Competition for employees in the
telecommunications equipment industry is intense. Additionally, we depend on our
ability to train and develop skilled sales people and an inability to do so
would significantly harm our growth prospects and operating performance. We have
experienced, and we expect to continue to experience difficulty in hiring and
retaining highly skilled employees.

Our business may suffer if we are not successful in our efforts to keep up with
a rapidly changing market.


                                       18
<PAGE>

      The market for the equipment and services we sell is characterized by
technological changes, evolving industry standards, changing customer needs and
frequent new equipment and service introductions. Our future success in
addressing the needs of our customers will depend, in part, on our ability to
timely and cost-effectively:

      o     respond to emerging industry standards and other technological
            changes;

      o     develop our internal technical capabilities and expertise;

      o     broaden our equipment and service offerings; and

      o     adapt our services to new technologies as they emerge.

      Our failure in any of these areas could harm our business. Moreover, any
increased emphasis on software solutions as opposed to equipment solutions could
limit the availability of de-installed equipment, decrease customer demand for
the equipment we sell, or cause the equipment we sell to become obsolete.

The lifecycles of telecommunications infrastructure equipment may become
shorter, which would decrease the supply of, and carrier demand for,
de-installed equipment.

      Our sales of de-installed equipment depend upon carrier utilization of
existing telecommunications network technology. If the lifecycle of equipment
comprising carrier networks is significantly shortened for any reason, including
technology advancements, the installed base of any particular model would be
limited. This limited installed base would reduce the supply of, and demand for,
de-installed equipment which could decrease our net revenue.

Many of our customers are telecommunications carriers that may at any time
reduce or discontinue their purchases of the equipment we sell to them.

      If our customers choose to defer or curtail their capital spending
programs, it could have a negative impact on our sales to those
telecommunications carriers, which would harm our business. A significant
portion of our customers are emerging telecommunications carriers who compete
against existing telephone companies. These new participants only recently began
to enter these markets, and many of these carriers are still building their
networks and rolling out their services. They require substantial capital for
the development, construction and expansion of their networks and the
introduction of their services. If emerging carriers fail to acquire and retain
customers or are unsuccessful in raising needed funds or responding to any other
trends, such as price reductions for their services or diminished demand for
telecommunications services in general, then they could be forced to reduce
their capital spending programs.

If we fail to implement our strategy of purchasing equipment from and selling
equipment to regional bell operating companies, our growth will suffer.

      One of our strategies is to develop and expand our relationships with
regional bell operating companies, or RBOCs. We believe the RBOCs could provide
us with a significant source of additional net revenue. In addition, we believe
the RBOCs could provide us with a large supply of de-installed equipment. We
cannot assure you that we will be successful in implementing this strategy.
RBOCs may not choose to sell de-installed equipment to us or may not elect to
purchase this equipment from us. RBOCs may instead develop those capabilities
internally or elect to compete with us and resell de-installed equipment to our
customers or prospective customers. If we fail to successfully develop our
relationships with RBOCs or if RBOCs elect to compete with us, our growth could
suffer.

If we do not expand our international operations our growth could suffer.


                                       19
<PAGE>

      We intend to continue expanding our business in international markets.
This expansion will require significant management attention and financial
resources to develop a successful international business, including sales,
procurement and support channels. Following this strategy, we opened our
European headquarters in the fourth quarter of 2000. However, we may not be able
to maintain or increase international market demand for the equipment we sell,
and therefore we might not be able to expand our international operations. We
currently have limited experience providing equipment outside the United States.
Sales to customers outside of the United States accounted for 7.8% of our net
revenue in 2000, 10.9% of our net revenue in 1999 and 19.7% of our net revenue
in 1998.

We may fail to engage in selective acquisitions which could limit our future
growth.

      One of our strategies for growth is to engage in selective acquisitions.
Our ability to conduct such acquisitions may be limited by our ability to
identify potential acquisition candidates and obtain necessary financing. In the
event we are unable to identify and take advantage of these opportunities, we
may experience difficulties in growing our business.

If we do engage in selective acquisitions, we may experience difficulty
assimilating the operations or personnel of the acquired companies, which could
threaten our future growth.

      If we make acquisitions, we could have difficulty assimilating or
retaining the acquired companies' personnel or integrating their operations,
equipment or services into our organization. These difficulties could disrupt
our ongoing business, distract our management and employees and increase our
expenses. Moreover, our profitability may suffer because of acquisition-related
costs or amortization of acquired goodwill and other intangible assets.
Furthermore, we may have to incur debt or issue equity securities in any future
acquisitions. The issuance of equity securities would be dilutive to our
existing stockholders.

Failure to manage our rapid growth effectively could harm our results of
operations.

      Since we began commercial operations in July 1995, we have experienced
rapid growth and expansion that is straining our resources. In 2000, the number
of our full-time employees increased from 134 to 302. Continued growth could
place a further strain on our management, operational and financial resources.
Our inability to manage growth effectively could harm our business. Our current
or planned operational systems, procedures and controls may not be adequate to
support our future operations. Delays in the implementation of new systems or
operational disruptions when we transition to new systems would impair our
ability to accurately forecast sales demand, manage our equipment inventory and
record and report financial and management information on a timely and accurate
basis.

Defects in the equipment we sell may seriously harm our credibility and our
business.

      Telecommunications carriers require a strict level of quality and
reliability from telecommunications equipment suppliers. Telecommunications
equipment is inherently complex and can contain undetected software or hardware
errors. If we deliver telecommunications equipment with undetected material
defects, our reputation, credibility and equipment sales could suffer. Moreover,
because the equipment we sell is integrated into our customers' networks, it can
be difficult to identify the source of a problem should one occur. The
occurrence of such defects, errors or failures could also result in delays in
installation, product returns, product liability and warranty claims and other
losses to us or our customers. In some of our contracts, we have agreed to
indemnify our customers against liabilities arising from defects in the
equipment we sell to them. Furthermore, we supply most of our customers with
guarantees that cover the equipment we offer. While we may carry insurance
policies covering these possible liabilities, these policies may not provide
sufficient protection should a claim be asserted. A material product liability
claim, whether successful or not, could be costly, damage our reputation and
distract key personnel, any of which could harm our business.


                                       20
<PAGE>

Our strategy to outsource services could impair our ability to deliver our
equipment on a timely basis.

      While we have expanded our service capability through the launching of
Somera OneSource Services in 2000, we still currently depend, to a large degree,
on third parties for a variety of equipment-related services, including
engineering, repair, transportation, testing, installation and de-installation.
This outsourcing strategy involves risks to our business, including reduced
control over delivery schedules, quality and costs and the potential absence of
adequate capacity. In the event that any significant subcontractor were to
become unable or unwilling to continue to perform their required services, we
would have to identify and qualify acceptable replacements. This process could
be lengthy, and we cannot be sure that additional sources of third party
services would be available to us on a timely basis, or at all.

Our quarterly net revenue and the price of our stock may be negatively impacted
by the seasonal purchasing patterns of our customers.

      Our quarterly net revenue may be subject to the seasonal purchasing
patterns of our customers, which may occur as a result of our customers' annual
budgetary, procurement and sales cycles. If our quarterly net revenue fails to
meet the expectations of analysts due to those seasonal fluctuations, the
trading price of our common stock could be negatively affected.

Our ability to meet customer demand and the growth of our net revenue could be
harmed if we are unable to manage our inventory needs accurately.

      To meet customer demand in the future, we believe it is necessary to
maintain or increase some levels of inventory. Failure to maintain adequate
inventory levels in these products could hurt our ability to make sales to our
customers. In the past, we have experienced inventory shortfalls, and we cannot
be certain that we will not experience shortfalls again in the future, which
could harm our reputation and our business. Further, rapid technology
advancement could make our existing inventory obsolete and cause us to incur
losses. In addition, if our forecasts lead to an accumulation of inventories
that are not sold in a timely manner, our business could suffer.

The corruption or interruption of key software systems we use could cause our
business to suffer if it delays or restricts our ability to meet our customers'
needs.

      We rely on the integrity of key software and systems. Specifically we rely
on our relationship management database which tracks information on currently or
potentially available de-installed equipment. This software and these systems
may be vulnerable to harmful applications, computer viruses and other forms of
corruption and interruption. In the event our software or systems are affected
by any form of corruption or interruption, it could delay or restrict our
ability to meet our customers' needs, which could harm our reputation or
business.

If we are unable to meet our additional capital needs in the future, we may not
be able to execute our business growth strategy.

      We currently anticipate that our available cash resources will be
sufficient to meet our anticipated working capital and capital expenditure
requirements for at least the next 12 months. However, our resources may not be
sufficient to satisfy these requirements. We may need to raise additional funds
through public or private debt or equity financings to:

      o     take advantage of business opportunities, including more rapid
            international expansion or acquisitions of complementary businesses;

      o     develop and maintain higher inventory levels;


                                       21
<PAGE>

      o     gain access to new product lines;

      o     develop new services; or

      o     respond to competitive pressures.

      Any additional financing we may need might not be available on terms
favorable to us, or at all. If adequate funds are not available or are not
available on acceptable terms, our business could suffer if the inability to
raise this funding threatens our ability to execute our business growth
strategy. Moreover, if additional funds are raised through the issuance of
equity securities, the percentage of ownership of our current stockholders will
be reduced. Newly issued equity securities may have rights, preferences and
privileges senior to those of investors in our common stock. In addition, the
terms of any debt could impose restrictions on our operations.

Our facilities could be vulnerable to damage from earthquakes and other natural
disasters.

      Our main facilities are located on or near known earthquake fault zones
and are vulnerable to damage from fire, floods, earthquakes, power loss,
telecommunications failures and similar events. If a disaster occurs, our
ability to test and ship the equipment we sell would be seriously, if not
completely, impaired, and our inventory could be damaged or destroyed, which
would seriously harm our business. We cannot be sure that the insurance we
maintain against fires, floods, earthquakes and general business interruptions
will be adequate to cover our losses in any particular case.

Our officers and directors exert substantial influence over us, and may make
future business decisions with which some of our stockholders might disagree.

      Our executive officers, directors and entities affiliated with them
beneficially own an aggregate of approximately 67% of our outstanding common
stock as of December 31, 2000. As a result, these stockholders will be able to
exercise substantial influence over all matters requiring approval by our
stockholders, including the election of directors and approval of significant
corporate transactions. This concentration of ownership may also have the effect
of delaying or preventing a change in our control.

ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK

      We have reviewed the provisions of Financial Reporting Release No. 48
"Disclosure of Accounting Policies for Derivative Commodity Instruments and
Disclosure of Quantitative and Qualitative Information about Market Risks
Inherent in Derivative Financial Instruments, Other Financial Instruments and
Derivative Commodity Instruments." We had no holdings of derivative financial or
commodity instruments at December 31, 2000.

      All of our revenue and capital spending is denominated in U.S. dollars. We
invest our excess cash in short term, interest-bearing, investment grade
marketable securities. Due to the short time the investments are outstanding and
their general liquidity, these instruments are classified as cash equivalents
and do not represent a material interest rate risk. As of December 31, 2000, we
had no long-term debt outstanding.


                                       22
<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                          INDEX TO FINANCIAL STATEMENTS

                                                                            Page
                                                                            ----
Report of Independent Accountants .........................................   24

Consolidated Balance Sheets ...............................................   25

Consolidated Statements of Operations .....................................   26

Consolidated Statement of Stockholders' Equity/ Members'
Capital (Deficit) .........................................................   27

Consolidated Statements of Cash Flows .....................................   28

Notes to Consolidated Financial Statements ................................   29


                                       23
<PAGE>

                        REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
Somera Communications, Inc.

      In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Somera Communications Inc. and its subsidiaries at December 31, 2000
and 1999 and the results of their operations and their 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 of America. In
addition, in our opinion, the financial statement schedule listed in the index
appearing under Item 14(a)(2) on page 43 presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements. These financial statements and
financial statement schedule are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted in the
United States of America, which 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, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.


/s/   PRICEWATERHOUSECOOPERS LLP

PricewaterhouseCoopers LLP

San Jose, California
January 26, 2001


                                       24
<PAGE>

                           SOMERA COMMUNICATIONS, INC.

                           CONSOLIDATED BALANCE SHEETS
                      (in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                                             December 31,
                                                                                        ----------------------
                                                                                           2000        1999
                                                                                        ---------    ---------
<S>                                                                                     <C>          <C>
                                     ASSETS
                                     ------
Current assets:
      Cash and cash equivalents .....................................................   $  33,266    $  54,492
      Accounts receivable, (net of allowance for doubtful accounts of $1,330 and $736
         at December 31, 2000 and 1999) .............................................      38,288       19,592
      Inventories, net ..............................................................      29,716       18,386
      Deferred tax asset, current portion ...........................................       3,778        2,236
      Other current assets ..........................................................       2,540        2,147
                                                                                        ---------    ---------
            Total current assets ....................................................     107,588       96,853
Property and equipment, net .........................................................       7,108        1,505
Deferred tax asset, net of current portion ..........................................      15,900       16,490
Other assets ........................................................................         895          903
Intangible assets, net ..............................................................      12,081           --
                                                                                        ---------    ---------
           Total assets .............................................................   $ 143,572    $ 115,751
                                                                                        =========    =========

                      LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
      Accounts payable ..............................................................   $  24,145    $  23,636
      Accrued compensation ..........................................................       2,523        1,707
      Other accrued liabilities .....................................................       2,227        2,284
      Capital lease obligations, current portion ....................................         180          830
      Income taxes payable ..........................................................          --          508
                                                                                        ---------    ---------
            Total current liabilities ...............................................      29,075       28,965

Commitments (Note 6)

Stockholders' equity:
      Common stock: $0.001 par value
      Shares authorized: 200,000
      Shares issued and outstanding: 48,191 and 47,838 at December 31, 2000 and 1999,
         respectively ...............................................................          48           48
      Additional paid in capital ....................................................      69,272       66,419
      Retained earnings .............................................................      45,396       20,905
      Unearned stock-based compensation .............................................        (219)        (586)
                                                                                        ---------    ---------
            Total stockholders' equity ..............................................     114,497       86,786
                                                                                        ---------    ---------
            Total liabilities and stockholders' equity ..............................   $ 143,572    $ 115,751
                                                                                        =========    =========
</TABLE>

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


                                       25
<PAGE>

                           SOMERA COMMUNICATIONS, INC.

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

<TABLE>
<CAPTION>
                                                                               Year Ended December 31,
                                                                         --------------------------------
                                                                           2000       1999         1998
                                                                         --------   ---------    --------
<S>                                                                      <C>        <C>          <C>
Net revenue ..........................................................   $211,191   $ 126,861    $ 73,180
Cost of net revenue ..................................................    134,618      82,761      44,126
                                                                         --------   ---------    --------
            Gross profit .............................................     76,574      44,100      29,054
Operating expenses:
      Sales and marketing ............................................     20,312      10,320       5,747
      General and administrative (excludes stock-based compensation of
         $367 and $774 in 2000 and 1999) .............................     15,741       7,982       3,939
      Stock-based compensation .......................................        367         774          --
                                                                         --------   ---------    --------
      Amortization of intangible assets ..............................        302          --          --
                                                                         --------   ---------    --------
            Total operating expenses .................................     36,722      19,076       9,686
                                                                         --------   ---------    --------
Income from operations ...............................................     39,852      25,024      19,368
Interest income (expense), net .......................................      2,376      (2,193)       (187)
                                                                         --------   ---------    --------
Income before income taxes ...........................................     42,228      22,831      19,181
Income tax provision (benefit) .......................................     17,737     (17,403)         --
                                                                         --------   ---------    --------
            Net income ...............................................   $ 24,491   $  40,234    $ 19,181
                                                                         ========   =========    ========
Net income per share/unit--basic .....................................   $   0.51   $    1.02    $   0.50
                                                                         ========   =========    ========
Weighted average share/units--basic ..................................     47,928      39,408      38,063
                                                                         ========   =========    ========
Net income per share/unit--diluted ...................................   $   0.51   $    1.02    $   0.50
                                                                         ========   =========    ========
Weighted average shares/units--diluted ...............................     48,329      39,484      38,063
                                                                         ========   =========    ========
</TABLE>

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


                                       26
<PAGE>

                           SOMERA COMMUNICATIONS, INC.

    CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY/MEMBERS' CAPITAL (DEFICIT)
                                 (in thousands)

<TABLE>
<CAPTION>

                                Common Stock        Additional                Class A Units
                                ------------         Paid in    Retained      -------------
                              Number      Value      Capital    Earnings    Number      Value
                              ------      -----      -------    --------    ------      -----
<S>                          <C>         <C>         <C>          <C>        <C>       <C>
Balances,
   December 31, 1997  ....        --    $      --   $      --    $    --    34,313    $  3,443
Conversion of
   Class B units to
   Class A units .........        --           --          --         --     2,501         344
Proceeds from
   issuance of new
   units .................        --           --          --         --        --          --
Repurchase of
   members' units ........        --           --          --         --   (12,821)    (51,750)
Net income ...............        --           --          --         --        --      11,590
Distributions to
   Members ...............        --           --          --         --        --     (14,986)
                              ------    ---------   ---------    -------   -------    --------
Balances,
   December 31, 1998 .....        --    $      --   $      --    $    --    23,993    $(51,359)
Issuance of common
   stock in conversion
   of outstanding
   units .................    38,063           38     (40,967)        --   (23,993)     80,825
Issuance of common
   stock through
   initial public
   offering, net of
   issuance costs of
   $9,904 ................     9,775           10     107,386         --        --          --
Unearned employee
   stock-based
   compensation ..........        --           --          --         --        --         830
Amortization of
   unearned stock-based
compensation .............        --           --          --         --        --          --
Warrants issued in
   exchange for
   services ..............        --           --          --         --        --         530
Net income ...............        --           --          --     20,905        --      12,184
Distributions to
   Members                        --           --          --         --        --     (43,010)
                              ------    ---------   ---------    -------   -------    --------
Balances,
   December 31, 1999 .....    47,838    $      48   $  66,419    $20,905        --    $     --
Issuance of common
   stock through employee
   stock purchase plan ...        37           --         353         --        --          --
Issuance of common
   stock through exercise
   of warrants ...........        27           --          --         --        --          --
Issuance of common
   stock on acquisition of
   MSI Communications,
   Inc ...................       289           --       2,500         --        --          --
Amortization of
   unearned stock-based
   compensation ..........        --           --          --         --        --          --
Net income                        --           --          --     24,491        --          --
                              ------    ---------   ---------    -------   -------    --------
Balances,
   December 31, 2000 .....    48,191    $      48   $  69,272    $45,396        --    $     --
                              ======    =========   =========    =======   =======    ========

<CAPTION>
                                                     Unearned                     Mandatorily
                               Class B Units          Stock-                  Redeemable Class B
                               -------------          Based                   ------------------
                             Number       Value    Compensation   Total             Units
                             ------       -----    ------------   -----             -----
<S>                             <C>      <C>         <C>         <C>                      <C>
Balances,
   December 31, 1997  ....     3,750    $    344    $     --    $   3,787          --    $     --
Conversion of
   Class B units to
   Class A units .........    (2,501)       (344)         --           --          --          --
Proceeds from
   issuance of new
   units .................        --          --          --           --      14,070      51,750
Repurchase of
   members' units ........    (1,249)         --          --      (51,750)         --          --
Net income ...............        --       7,591          --       19,181          --          --
Distributions to
   Members ...............        --      (1,368)         --      (16,354)         --          --
                              ------      ------    --------       ------     -------     -------
Balances,
   December 31, 1998 .....        --    $  6,223    $     --    $ (45,136)     14,070    $ 51,750
Issuance of common
   stock in conversion
   of outstanding
   units .................        --      11,854          --       51,750     (14,070)    (51,750)
Issuance of common
   stock through
   initial public
   offering, net of
   issuance costs of
   $9,904 ................        --          --          --      107,396          --          --
Unearned employee
   stock-based
   compensation ..........        --          --        (830)          --          --          --
Amortization of
   unearned stock-based
compensation .............        --          --         244          244          --          --
Warrants issued in
   exchange for
   services ..............        --          --          --          530          --          --
Net income ...............        --       7,145          --       40,234          --          --
Distributions to
   Members                        --     (25,222)         --      (68,232)         --          --
                              ------      ------    --------       ------     -------     -------
Balances,
   December 31, 1999 .....        --    $     --    $   (586)   $  86,786          --    $     --
Issuance of common
   stock through employee
   stock purchase plan ...        --          --          --          353          --          --
Issuance of common
   stock through exercise
   of warrants ...........        --          --          --           --          --          --
Issuance of common
   stock on acquisition of
   MSI Communications,
   Inc ...................        --          --          --        2,500          --          --
Amortization of
   unearned stock-based
   compensation ..........        --          --         367          367          --          --
Net income                        --          --          --       24,491          --          --
                              ------      ------    --------       ------     -------     -------
Balances,
   December 31, 2000 .....        --    $     --      $ (219)   $ 114,497          --    $     --
                              ------      ------    --------       ------     -------     -------
</TABLE>

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


                                       27
<PAGE>

                           SOMERA COMMUNICATIONS, INC.

                      CONSOLIDATED 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 ..........................................................   $ 24,491    $  40,234    $ 19,181
      Adjustments to reconcile net income to net cash provided by operating
         activities:
            Depreciation and amortization .................................      1,015          401         137
            Provision for doubtful accounts ...............................      1,778          578         201
            Provision for excess and obsolete inventories ..................     3,062        1,258         634
            Deferred tax benefit ..........................................        (54)     (18,726)         --
            Amortization of loan fees .....................................         --        1,100          --
            Warrants issued in exchange for services ......................         --          530          --
            Training costs financed by capital lease ......................         --           65          --
            Amortization of stock-based compensation ......................        367          244          --
            Forgiveness of loans to officers ..............................         75           37          --
            Loss on disposal of assets ....................................         --            5          --
            Changes in operating assets and liabilities:
                  Accounts receivable .....................................    (18,811)      (9,933)     (4,343)
                  Inventories .............................................    (13,077)     (15,577)     (3,245)
                  Other current assets ....................................       (518)        (908)        (17)
                  Accounts payable ........................................       (513)      17,735       1,771
                  Accrued compensation ....................................        816        1,211         234
                  Other accrued liabilities ...............................     (1,282)       1,743         396
                  Income taxes payable ....................................       (508)         508          --
                                                                              --------    ---------    --------
                       Net cash provided by operating activities ..........     (3,159)      20,505      14,949
                                                                              --------    ---------    --------
Cash flows from investing activities:
      Acquisition of property and equipment ...............................     (6,129)        (599)       (553)
      Acquisition of business, net of cash acquired .......................    (10,568)          --          --
      Loans to officers ...................................................       (300)      (1,951)         --
      Repayment of loan to officer ........................................        425           --          --
      Decrease (increase) in other assets .................................          8           --         (31)
                                                                              --------    ---------    --------
                       Net cash used in investing activities ..............    (16,564)      (2,550)       (584)
                                                                              --------    ---------    --------
Cash flows from financing activities:
      Proceeds from term loan, net of fees ................................         --       48,900          --
      Repayment of term loan ..............................................         --      (50,000)         --
      Borrowings on line of credit ........................................         --        9,500          --
      Repayment of line of credit .........................................     (1,026)      (9,500)         --
      Payment of capital lease ............................................       (830)          --          --
      Proceeds from employee stock purchase plan ..........................        353           --          --
      Proceeds from initial public offering, net of issuance costs ........         --      107,396          --
      Proceeds from issuance of mandatorily redeemable Class B units ......         --           --      51,750
      Repurchase of members' capital ......................................         --           --     (51,750)
      Proceeds from/(repayment of) notes payable ..........................         --       (3,457)      2,500
      Distributions to members ............................................         --      (68,232)    (16,354)
                                                                              --------    ---------    --------
                       Net cash provided by (used in) financing activities      (1,503)      34,607     (13,854)
                                                                              --------    ---------    --------
Net increase in cash and cash equivalents .................................    (21,226)      52,562         511
Cash and cash equivalents, beginning of year ..............................     54,492        1,930       1,419
                                                                              --------    ---------    --------
Cash and cash equivalents, end of year ....................................   $ 33,266    $  54,492    $  1,930
                                                                              ========    =========    ========
Supplemental disclosures of cash flow information:
      Cash paid during the period for interest ............................   $    136    $   1,081    $    201
                                                                              ========    =========    ========
      Income taxes paid ...................................................   $ 18,974    $     815    $     --
                                                                              ========    =========    ========
      Fixed assets acquired under capital lease ...........................   $    258    $     765    $     --
                                                                              ========    =========    ========
      Issuance of common stock in acquisition of business .................   $  2,500    $      --    $     --

      Conversion of mandatorily redeemable Class B Units to common stock ..   $     --    $  51,750    $     --
                                                                              ========    =========    ========
</TABLE>

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


                                       28
<PAGE>

                           SOMERA COMMUNICATIONS, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1--Formation and Business of the Company:

      Somera Communications, LLC. ("Somera") was formed as a Limited Liability
Company in 1995 under the laws of the State of California. Somera
Communications, Inc. ("Somera, Inc.") was formed in August 1999 and is
incorporated under the laws of the State of Delaware. Concurrent with the
closing of Somera, Inc.'s initial public offering on November 12, 1999, each
member of Somera received one share of Somera, Inc. in exchange for each unit
held and Somera, Inc. assumed the assets, liabilities and the operations of
Somera. The historical results of Somera have been presented as a predecessor
business of Somera, Inc. as no change in control occurred as a result of this
transaction. The term Company in these financial statements refers to both
Somera and Somera, Inc.

      The Company is a provider of telecommunications infrastructure equipment
and services to telecommunications carriers. The Company provides customers with
a combination of new and de-installed equipment.

Note 2 - Summary of Significant Accounting Policies:

      Basis of Presentation

      The Company's fiscal years reported are the 52- or 53-week periods ending
on the Sunday nearest to December 31. Fiscal years 2000 and 1999 comprised the
52-week periods ended on December 31, 2000 and January 2, 2000, respectively.
Fiscal 1998 comprised the 53-week period ended on January 3, 1999.

      Principles of Consolidation

      In October 2000, the Company acquired MSI Communications, Inc. and in
November 2000 formed Somera Communications B.V., incorporated in The
Netherlands. The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All intercompany balances and
transactions have been eliminated.

      Use of Estimates

      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 and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.

      Revenue Recognition

      Substantially, all of the Company's revenue is derived from the sale of
products. Revenue is recognized upon shipment of product by the Company provided
that, at the time of shipment, there is evidence of a contractual arrangement
with the customer, the fee is fixed and determinable, collection of the
resulting receivable is reasonably assured and there are no significant
remaining obligations. Reserves for equipment returns and warranty obligations
are recorded at the time of shipment and are based on the historical experience
of the Company.

      Income Taxes

      Income tax expense comprises the tax payable for the period and the change
during the period in deferred tax assets and liabilities. Deferred income taxes
are determined based on the difference between the financial reporting and tax
bases of assets and liabilities using enacted rates in effect during the year in
which the differences are expected to


                                       29
<PAGE>

                           SOMERA COMMUNICATIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

reverse. Valuation allowances are established when necessary to reduce deferred
tax assets to the amount expected to be realized.

      Somera was treated as a partnership for federal and state income tax
purposes. Consequently, federal income taxes were not payable, or provided for,
by Somera. Somera's Members were taxed individually on their share of Somera's
earnings. Somera's net income or loss was allocated among the members in
accordance with the regulations of Somera. The Company became a taxable entity
on November 12, 1999.

      Concentration of Credit Risk and Other Risks and Uncertainties

      Financial instruments which potentially expose the Company to a
concentration of credit risk consist principally of cash and cash equivalents
and accounts receivable. The Company places its temporary cash with three high
credit quality financial institutions in the United States. The Company performs
ongoing credit evaluations of its customers' financial condition and generally
requires no collateral.

      For the year ended December 31, 2000, one customer accounted for 11.3% of
net revenue and no customer accounted for more than 10% of accounts receivable
at December 31, 2000. No individual customer accounted for more than 10% of net
revenue for the year ended December 31, 1999 or accounts receivable at December
31, 1999. For the year ended December 31, 1998 one customer accounted for 10.2%
of net revenue and 12.0% of the total accounts receivable at December 31, 1998.

      Two suppliers accounted for 15.9% and 11.8% of equipment purchases in the
year ended December 31, 2000. No supplier accounted for 10% or more of equipment
purchases in the years ended December 31, 1999 and 1998.

      No supplier accounted for 10% or more of equipment purchases during the
years ended December 31, 1998 and 1999. Two suppliers accounted for 15.9% and
11.8% of equipment purchases in the year ended December 31, 2000.

      Fair Value of Financial Instruments

      The carrying amounts of certain of the Company's financial instruments,
including cash and cash equivalents, accounts receivable, accounts payable and
capital leases approximate fair value due to their short-term maturities.

      Cash and Cash Equivalents

      For purposes of the statement of cash flows, the Company considers all
highly liquid instruments purchased with remaining maturity of three months or
less at the date of purchase to be cash equivalents.

      Inventories

      Inventories, which are comprised of finished goods held for resale,
including de-installed equipment, are stated at the lower of cost (determined on
an average cost basis) or net realizable value. Costs may include refurbishment
costs associated with repairing and reconfiguring de-installed equipment held
for resale. Inventories are stated net of reserves for obsolete and slow
moving items.

      Property and Equipment

      Property and equipment are recorded at cost and are stated net of
accumulated depreciation. Depreciation is recorded using the straight-line
method over the estimated useful lives of the assets, ranging from three to
seven years.

      Leasehold improvements are amortized over the shorter of the estimated
useful life of the asset or remaining lease term on a straight-line basis.


                                       30
<PAGE>

                           SOMERA COMMUNICATIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

      Expenditures for maintenance and repairs are charged to expense as
incurred. Additions, major renewals and replacements that increase the
property's useful life are capitalized. Gains and losses on dispositions of
property and equipment are included in net income.

      During 1999 the Company adopted the provisions of Accounting Standards
Executive Committee ("AcSEC") Statement of Position ("SOP") 98-1 "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use." Any
costs capitalized are depreciated on a straight-line basis over the lesser of
the estimated useful life of three years or the term of the lease.

      Intangibles Assets

      Intangible assets consist of acquired workforce and goodwill related to
the Company's acquisition of MSI Communications, Inc. and are amortized on a
straight-line basis over their estimated economic lives of three and ten years,
respectively.

      Stock-based Compensation

      The Company uses the intrinsic value method of Accounting Principles Board
Opinion No. 25 or APB 25, "Accounting for Stock Issued to Employees," and its
interpretations in accounting for its employee stock options, and presents
disclosure of pro forma information required under Statement of Financial
Accounting Standards No. 123 or SFAS 123, "Accounting for Stock-Based
Compensation." Stock and other equity instruments issued to nonemployees is
accounted for in accordance with SFAS 123 and Emerging Issues Task Force No.
96-18 or EITF 96-18, "Accounting for Equity Instruments Issued to Other than
Employees for Acquiring, or in Conjunction with Selling Goods or Services" and
valued using the Black Scholes option pricing model.

      The Company amortizes stock based compensation arising from certain
employee and non-employee stock option grants over the vesting periods of the
related options, generally four years using the method set out in FASB
Interpretation No. 28 ("FIN 28"). Under the FIN 28 method, each vested tranche
of options is accounted for as a separate option grant awarded for past
services. Accordingly, the compensation expense is recognized over the period
during which the services have been provided. This method results in higher
compensation expense in the earlier vesting periods of the related options.

      Shipping and Handling

      The Company adopted EITF 00-10 "Accounting for Shipping and Handling Fees
and Costs" in the year ended December 31, 2000. Shipping and handling fees
charged to customers are included in net revenue and the related costs are
included in cost of net revenue. The comparative period figures have been
reclassified by $2,487,000, $1,740,000 and $994,000 for the years ended December
31, 2000, 1999 and 1998, respectively, to reflect the adoption of EITF 00-10.

      Advertising and Promotional Costs

      We expense advertising and promotional costs as they are incurred.
Advertising expense for 2000, 1999, and 1998 was $247,000, $20,000, and $32,000,
respectively.

      Net Income Per Share/Unit

      Basic net income per share/unit is computed by dividing the net income for
the period by the weighted average number of shares/units outstanding during the
period. Diluted net income per share/unit is computed by dividing the net income
for the period by the weighted average number of shares/units and equivalent
shares/units outstanding


                                       31
<PAGE>

                           SOMERA COMMUNICATIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

during the period. Equivalent shares/units, composed of shares/units issuable
upon the exercise of options and warrants, are included in the diluted net
income per share/unit computation to the extent such shares/units are dilutive.
A reconciliation of the numerator and denominator used in the calculation of
basic and diluted net income per share/unit follows (in thousands, except per
unit data):

<TABLE>
<CAPTION>
                                                                           Year Ended December 31,
                                                                       -------------------------------
                                                                         2000       1999        1998
                                                                       -------     -------     -------
         <S>                                                           <C>         <C>         <C>
         Numerator
               Net income ........................................     $24,491     $40,234     $19,181
                                                                       -------     -------     -------
         Denominator
               Weighted average shares/units--basic ..............      47,928      39,408      38,063
               Dilutive effect of options and warrants to purchase
                 shares/units and escrow shares ..................         401          76          --
                                                                       -------     -------     -------
         Weighted average shares/units--diluted ..................      48,329      39,484      38,063
                                                                       -------     -------     -------
         Net income per share/unit--basic ........................     $  0.51     $  1.02     $  0.50
                                                                       =======     =======     =======
         Net income per share/unit--diluted ......................     $  0.51     $  1.02     $  0.50
                                                                       =======     =======     =======
</TABLE>

      For the year ended December 31, 2000, 404,478 and 288,913 shares of common
stock were excluded from the basic and fully diluted calculations of net income,
respectively. These shares are considered contingent as they were issued in
connection with the MSI acquisition and held in escrow until certain
contingencies are resolved. In addition, for the years ended December 31, 2000
and 1999, options to purchase 182,750 and 2,432,250 shares of common stock were
excluded from the fully diluted calculation as their effect would be anti-
dilutive.

      Comprehensive Income

      The Company has adopted the provisions of Statement of Financial
Accounting Standards No. 130 or SFAS No. 130, "Reporting Comprehensive Income."
SFAS 130 establishes standards for reporting comprehensive income and its
components in financial statements. Comprehensive income, as defined, includes
all changes in equity during a period from non-owner sources. There was no
difference between the Company's net income and its total comprehensive income
for the years ended December 31, 2000, 1999, and 1998.

      Reclassifications

      Certain financial statement items have been reclassified to conform to the
current year's presentation. These reclassifications had no impact on previously
reported net earnings.

Recent Accounting Pronouncements

      In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44 ("FIN 44") "Accounting for Certain Transactions Involving
Stock Compensation," an interpretation of Accounting Principles Board Opinion
No. 25 ("APB 25"). This interpretation clarifies the definition of employee for
purposes of applying APB 25, "Accounting for Stock Issued to Employees," the
criteria for determining whether a plan qualifies as a noncompensatory plan, the
accounting consequence of various modifications to the terms of a previously
fixed stock option or award, and the accounting for an exchange of stock
compensation awards in a business combination. FIN 44 was effective July 1,
2000, but certain conclusions cover specific events that occur after either
December 15, 1998, or January 12, 2000. The adoption of FIN 44 did not have a
material impact on the Company's financial statements.

      In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements," which provides guidance on the recognition,


                                       32
<PAGE>

                           SOMERA COMMUNICATIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

presentation, and disclosure of revenue in financial statements filed with the
SEC. SAB 101 outlines the basic criteria that must be met to recognize revenue
and provides guidance for disclosures related to revenue recognition policies.
The Company has complied with the guidance in SAB 101 for all periods presented.

      In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 establishes new standards of
accounting and reporting for derivative instruments and hedging activities. SFAS
133 requires that all derivatives be recognized at fair value in the statement
of financial position, and that the corresponding gains or losses be reported
either in the statement of operations or as a component of comprehensive income,
depending on the type of relationship that exists. This statement, as amended by
SFAS 137, is effective for fiscal years beginning after June 15, 2000. The
Company does not currently hold derivative instruments or engage in hedging
activities and the implementation of SFAS 133 did not have a significant impact
on its financial position or results of operations.

Note 3 - Acquisition of MSI Communications, Inc.

      On October 17, 2000, the Company acquired all of the outstanding shares of
MSI Communications, Inc. (MSI), a data networking equipment and services
company, for $10.8 million in cash including acquisition costs, and 693,391
shares of common stock issued to an escrow account. The shares will be released
from escrow based on certain contingencies. As of December 31, 2000, 288,913
shares valued at $2.5 million are expected to be released from escrow and are
included in the allocated purchase price. The remaining 404,478 shares will be
released from escrow and increase the purchase price resulting in an increase in
goodwill or be returned to the Company. 115,565 shares will be released from
escrow in equal installments based on the achievement of employee retention
milestones to be determined as of December 31, 2001 and 2002. 288,913 shares
will be released from escrow in equal installments based on the achievement of
certain financial performance milestones for each of the years ended December
31, 2001 and 2002. This acquisition has been accounted for as a purchase
business combination and the results of operations of MSI have been included in
the consolidated financial statements since the date of acquisition.

      The purchase price was allocated to the net tangible and indentifiable
intangible assets acquired and liabilities assumed based on their estimated fair
values at the date of acquisition as determined by management. The excess of the
purchase price over the fair value of the net indentifiable assets was allocated
to goodwill. The purchase price was allocated as follows (in thousands):

      Current assets ..............................          $  3,317
      Property and equipment, net .................               187
      Deferred tax assets ..........................              898
      Assumed liabilities .........................            (3,453)
      Acquired workforce ..........................               690
      Goodwill ....................................            11,693
                                                             --------

      Total purchase price ........................          $ 13,332
                                                             ========

      The amortization of acquired workforce and goodwill is being computed over
three and ten years, respectively, on a straight-line basis.

      The following unaudited pro forma information presents a summary of
consolidated results of operations of the Company and MSI as if the acquisition
had occurred January 1, 1999.

                                                        Year Ended December 31,
                                                        ------------------------
      (in thousands except for per share data)             2000            1999
                                                           ----            ----

      Net revenue                                      $221,403       $139,826
      Net income                                       $ 23,189       $ 38,861
      Net income per share - basic                     $   0.48       $   0.99
      Net income per share - diluted                   $   0.48       $   0.98


                                       33
<PAGE>

                           SOMERA COMMUNICATIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

      These unaudited pro forma results have been prepared for comparative
purposes only and include certain adjustments, such as the reversal of a one-
time acquisition related compensation charge and amortization expense as a
result of goodwill and other intangible assets. They do not purport to be
indicative of the results of operations which actually would have occurred had
the combination been in effect on January 1, 1999, or of future results of
operations of the consolidated entities.

Note 4--Balance Sheet Accounts (in thousands):

      Property and Equipment, Net

                                                              December 31,
                                                         --------------------
                                                           2000         1999
                                                         -------      -------

      Computer and telephone equipment .............     $ 7,335      $ 1,505
      Office equipment and furniture ...............         366          213
      Warehouse equipment ..........................         642          161
      Leasehold improvements .......................         510          181
                                                         -------      -------
                                                           8,853        2,060
      Less accumulated depreciation and amortization      (1,745)        (555)
                                                         -------      -------
                                                         $ 7,108      $ 1,505
                                                         =======      =======

      Depreciation and amortization expense for the years ended December 31,
2000, 1999, and 1998 amounted to $713,000, $401,000, and $137,000, respectively.

      Property and equipment includes $258,000 and $765,000 under capital leases
at December 31, 2000 and 1999, with related accumulated depreciation of $95,000
and $98,000 respectively.

      Intangible Assets
                                                              December 31,
                                                         --------------------
                                                           2000         1999
                                                         -------       ------

      Acquired workforce .............................. $    690      $    --
      Goodwill ........................................   11,893           --
                                                        --------      -------
                                                          12,383           --
      Accumulated amortization ........................     (302)          --
                                                        --------      -------
      Intangible assets, net .......................... $ 12,081      $    --
                                                        --------      -------


Note 5--Long-Term Debt:

      In 1998, the Company had notes payable to related parties representing
amounts payable to two of the Company's members totaling $619,000 at December
31, 1998. Also included in notes payable to related parties as of December 31,
1998 was an amount of $1,000,000 issued in March 1998 to an outside partnership,
of which a member is a general partner. Notes payable bore interest at rates
varying between 8% and 13% per annum. All of the notes were repaid in September
1999.

      On January 12, 1999, the Company replaced its then existing $2,500,000
credit facility with a new revolving line of credit with the same bank. The
facility included a fixed amount of $2,000,000 plus an amount based on a
percentage of eligible accounts receivable and inventory with a maximum amount
of $17,000,000 available.

      On August 31, 1999, the Company entered into an agreement under which a
syndicate of banks, led by Fleet National Bank provided a $50,000,000 term loan
and $15,000,000 revolving loan facility, which replaced the previous facility.
Proceeds, net of issuance costs of approximately $1,100,000, from the term loan
were $48,900,000. The issuance costs were capitalized and were being amortized
to interest expense over the term of the loan using the effective interest
method. The term loan and balance outstanding on the revolving loan facility
were repaid in November 1999 using a portion of the proceeds from the initial
public offering. As a result, the Company wrote off the balance of the
capitalized issuance costs.

Note 6--Commitments:

      The Company is obligated under various operating leases for both office
and warehouse space. The remaining lease terms range in length from one to five
years. Rent expense, net of sublease income, for the years ended December 31,
2000, 1999, and 1998 was $1,101,000, $579,000, and $297,000, respectively.


                                       34
<PAGE>

                           SOMERA COMMUNICATIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

      Future minimum lease payments, net of sublease proceeds, under
non-cancelable operating leases at December 31, 2000 are as follows (in
thousands):

                                         Operating
                                           Leases
                                           ------
      2001 .......................         $2,099
      2002 .......................          2,043
      2003 .......................          1,890
      2004 .......................          1,163
      2005 .......................            584
                                           ------
      Total minimum lease payments         $7,779
                                           ======

      Under the terms of the lease agreements, the Company is also responsible
for internal maintenance, utilities and a proportionate share (based on square
footage occupied) of property taxes. The Company is also exposed to credit risk
in the event of default of the sublessee, because the Company is still liable to
meet its obligations under the terms of the original lease agreement.

      In March 2001, the balance of approximately $180,000 due on two capital
leases was settled in cash. As a result, the amount due under these leases has
been presented as a current liability.

Note 7--Stockholders' Equity/Members' Deficit:

      Somera's capital included two classes of units--Class A and Class B. At
December 31, 1998 there were 23,993,000 Class A units and 14,070,000 Class B
units outstanding. Each unit represented the members' proportionate allocation
of net income or net loss.

      On July 23, 1998, the Company authorized the issuance and sale of an
aggregate of 14,070,000 Class B units, which represented approximately 37.0% of
the then outstanding units. Consideration of $51,750,000 was received in cash
for the sale of these units. The Company then authorized the repurchase of an
aggregate of 12,821,000 Class A units and an aggregate of 1,249,000 Class B
units for an aggregate amount of $51,750,000. Each of the remaining 2,501,000
Class B units were exchanged for one Class A unit.

      The Class A units participated in the net income of the Company based on
their percentage ownership. In addition, the holder of each Class A unit was
entitled to one vote per unit. The Class B units issued in July 1998 differed
from the Class A units as follows:

            (a) On a change in ownership the Class B unit holders could elect to
      redeem all or any part of the Class B units at an amount equal to the
      greater of:

                  (i) the original cost thereof; or

                  (ii) an amount equal to the number of Class B units to be
            redeemed multiplied by the maximum consideration payable with
            respect to any unit in such a change of ownership.

            (b) In the event of the bankruptcy of the Company, all of the Class
      B units were subject to immediate redemption at a price equal to the
      original cost thereof.

            (c) The Class B units converted on the closing of a firm commitment
      underwritten public offering of the Company's (or a corporate successor's)
      equity securities resulting in proceeds to the Company or such corporate
      successor (net of underwriting discounts and commissions and related
      offering expenses) of at least $30 million at a price per share to the
      public of at least 200% of the original cost of each Class B unit.

            (d) In a winding up or liquidation of the Company, the Class B units
      were to be paid out in preference to


                                       35
<PAGE>

                           SOMERA COMMUNICATIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

      the Class A units up to the amount of the original cost of the Class B
units.

      The members' liability was limited to the total balance held in the
members' capital account.

      Stock Splits

      In May 1999, the Company effected a 2,500-for-1 split of the outstanding
Class A and Class B units. In September 1999 the Company approved a 3-for-2
split of the Class A and B units. The effect of these splits has been
retroactively reflected throughout the financial statements.

      Initial Public Offering

      In November 1999, Somera, Inc. completed an initial public offering of
9,775,000 shares of common stock, at $12.00 per share, receiving proceeds, net
of underwriter's commissions and issuance costs, of $107,396,000. Concurrent
with the closing of the initial public offering, each outstanding unit of Somera
was exchanged for one share of Somera, Inc.'s common stock, and the assets,
liabilities and operations of Somera were assumed by Somera, Inc.

      Issuance of Common Shares on Acquisition

      In October 2000, Somera, Inc. completed its acquisition of MSI
Communications, Inc., issuing 693,391 shares of common stock into an escrow
account. Pursuant to the purchase agreement, the shares shall be released from
escrow upon meeting of various milestones. The milestones include certain levels
of gross profit and continuing employment of certain employees. Those shares
deemed likely to be released beyond a reasonable doubt are included in shares
outstanding. At December 31, 2000, 288,913 shares in escrow are included in
common stock outstanding.

      Warrants

      In May 1999, warrants exercisable into 95,155 Class A units were issued in
consideration for recruitment services. The warrants became fully exercisable
upon completion of the Company's initial public offering. The warrants are
exercisable at $7.57 per share and have a two year term. The fair value of the
warrants of approximately $193,000 has been recorded as an expense in 1999. The
fair value of these warrants was estimated using the Black-Scholes option
pricing model and the following assumptions: dividend yield of 0%; volatility of
40%; risk free interest rate of 5.58% and a term of two years. In May 2000, the
warrants were exercised in a cash-less transaction resulting in the issuance of
26,634 shares.

      In July 1999, the Company issued warrants to purchase 112,500 shares of
common stock in exchange for services. The warrants were immediately vested. The
fair value of the warrants of approximately $337,000 has been recorded as an
expense in 1999. The fair value of these warrants was estimated using the
Black-Scholes option pricing model and the following assumptions: dividend yield
of 0%; volatility of 40%; risk free interest rate of 5.65% and a term of two
years.

      Option Plans

      In May 1999 the Company adopted the 1999 unit option plan (the "Unit
Plan") under which 2,003,000 Class A units were reserved for issuance of stock
options to employees, directors, or consultants under terms and provisions
established by the Board of Managers. On October 19, 1999 the Board of Managers
increased the number of units


                                       36
<PAGE>

                           SOMERA COMMUNICATIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

issuable under the unit option plan to a total of 3,400,000 units.

      In September 1999 the Company adopted the 1999 Stock Option Plan (the
"Plan") under which 6,750,000 common shares were reserved for the issuance of
stock options to employees, directors and consultants. The primary purpose of
the Plan is to attract and retain the best available personnel and to provide
additional incentive to the grantees. Upon the completion of the initial public
offering in November 1999, options granted under the Unit Plan were converted to
options to purchase an equivalent number of common shares. Under the terms of
the Plan, incentive options may be granted to employees, and nonstatutory
options may be granted to employees, directors and consultants, at prices no
less than 100% and 85%, respectively, of the fair market value of the common
shares at the date of grant. Options granted under the Plan vest at a rate of
25% after one year with the remaining vesting evenly over the next three years.
The options expire ten years from the date of grant.

      In July 1999, the Company issued stock options to two officers and one
outside director resulting in unearned stock-based compensation of $830,000,
which is being amortized over the vesting period of the underlying options of
four years. Amortization expense associated with unearned stock-based
compensation totaled $367,000 and $244,000 for the years ended December 31, 2000
and 1999.

      Activity under the Plan is set forth below:

                                                                       Weighted
                                                                        Average
                                              Available                Exercise
                                              For Grant      Shares      Price
                                              ---------      ------      -----
Shares reserved at plan inception .......      6,750,000
   Options assumed from Unit Plan .......     (2,943,343)   2,943,343   $ 9.53
   Options granted ......................       (150,000)     150,000    11.00
                                              ----------    ---------   ------
Balances, December 31, 1999 .............      3,656,657    3,093,343   $ 9.60
                                              ----------    ---------   ------
   Options granted ......................     (2,683,500)   2,683,500   $10.90
   Options canceled .....................        237,520     (237,520)   11.26
                                              ----------    ---------   ------
Balances, December 31, 2000 .............      1,210,677    5,539,323   $10.16
                                              ==========    =========   ======

      At December 31, 2000, 976,823 options outstanding were exercisable.

      During 1999, options to purchase 830,000 shares of the Company's common
stock, with a weighted average exercise price of $8.50 per share and a weighted
average fair value of $3.05 per share, were granted with exercise prices below
the estimated market value at the date of grant.

      During 2000 and 1999, options to purchase 2,683,500 and 2,263,343 shares
of the Company's common stock, with a weighted average exercise price of $10.90
and $10.00 per share and a weighted average fair value of $4.82 and $2.54 per
share, respectively, were granted with exercise prices equal to the estimated
market value at the date of grant.

      The options outstanding and currently exercisable by exercise price at
December 31, 2000 are as follows:

<TABLE>
<CAPTION>
                                   Options Outstanding                           Options Exercisable
             --------------------------------------------------------------     ---------------------
                                                  Weighted
                                                   Average        Weighted                   Weighted
                                                  Remaining        Average                    Average
                                    Number       Contractual      Exercise        Number     Exercise
             Exercise Price      Outstanding    Life in Years       Price       Exercisable    Price
             --------------      -----------    -------------       -----       -----------    -----
            <S>                   <C>                <C>           <C>            <C>          <C>
             $7.57 - $8.50        1,490,093          8.46          $  8.09        555,246      $ 8.06
            $10.75 - $13.50       4,049,230          9.44            10.92        421,577       11.00
                                  ---------          ----          -------        -------      ------
                                  5,539,323          9.17          $ 10.16        976,823      $ 9.33
                                  =========          ====          =======        =======      ======
</TABLE>


                                       37
<PAGE>

                           SOMERA COMMUNICATIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

1999 Director Option Plan

      In September 1999, the Company adopted the 1999 Director Option Plan (the
"Director Plan"), which provides for the grant of non-statutory stock options to
non-employee directors. The Director Plan has a term of ten years. A total of
300,000 shares of the Company's common stock, plus an annual increase equal to
the number of shares needed to restore the number of shares of common stock that
are available for grant under the Director Plan to 300,000 shares, have been
reserved for issuance under the Director Plan. As of December 31, 2000, no
options have been granted under the Director Plan.

      Employee Stock Purchase Plan

      In September 1999, the Company adopted the 1999 Employee Stock Purchase
Plan (the "ESPP"), which provides eligible employees with an opportunity to
purchase the Company's common stock at a discount through accumulated payroll
deductions, during each six-month offering period. The price at which the stock
is sold under the ESPP is equal to 85% of the fair market value of the common
stock, on the first or last day of the offering period, which ever is lower. A
total of 300,000 shares of common stock have been reserved for the issuance
under the ESPP. In August 2000, 36,718 shares were issued under the ESPP
generating contributions of $353,000. The weighted average estimated fair value
of the ESPP awards issued during fiscal 2000 was $3.01 per share.

      Pro-forma Stock-based Compensation

      The Company has adopted the disclosure-only provisions of SFAS 123 for
option grants to employees. Had compensation cost been determined based on the
fair value at the grant date for the awards in 1999 and 2000 consistent with the
provisions of SFAS 123, the Company's net income for 1999 and 2000 would have
been as follows (in thousands, except per share data):

                                                       Year Ended    Year Ended
                                                      December 31,  December 31,
                                                          2000          1999
                                                          ----          ----
     Net income--as reported ......................   $   24,491   $   40,234
     Net income--as adjusted ......................   $   19,088   $   38,862
     Net income per share--basic as reported ......   $     0.51   $     1.02
     Net income per share--basic as adjusted ......   $     0.40   $     0.99
     Net income per share--diluted as reported ....   $     0.51   $     1.02
     Net income per share--diluted as adjusted ....   $     0.39   $     0.98

      The Company calculated the fair value of each option grant on the date of
grant using the Black-Scholes option pricing model as prescribed by SFAS 123
using the following assumptions:

<TABLE>
<CAPTION>
                                                  Employee Stock Option Plan        Employee Stock Purchase Plan
                                                  --------------------------        ----------------------------
                                                    2000             1999                       2000
                                                    ----             ----                       ----
      <S>                                           <C>              <C>                        <C>
      Risk-free interest rate .........             5.88%            5.61%                      6.13%
      Expected life (in years) ........                5                5                       0.50
      Dividend yield ..................                0%               0%                         0%
      Expected volatility .............               40%               0%                        40%
</TABLE>

The Company has used a volatility factor of 0% for options granted while it was
a private company. The determination of fair value of all options granted
subsequent to the Company's initial public offering included an expected
volatility factor of 40% in addition to the factors described in the preceding
paragraph. Accordingly, the above results may not be representative of future
periods. All options outstanding at December 31, 1999 were granted prior to the
completion of the Company's initial public offering.


                                       38
<PAGE>

                           SOMERA COMMUNICATIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note 8--401(k) Savings Plan:

      In February 1998, the Company adopted a 401(k) Savings Plan (the "Savings
Plan") which covers all employees. Under the Savings Plan, employees are
permitted to contribute up to 15% of gross compensation not to exceed the annual
IRS limitation for any plan year ($10,500 in 2000). The Company matches 25% of
employee contributions for all employees who receive less than 50% of their
total compensation in the form of commissions. The Company made matching
contributions of $55,000, $24,000 and $15,000 for the years ended December 31,
2000, 1999, and 1998, respectively.

Note 9--Loans to Officers:

      On July 12, 1999 the Company entered into a mortgage loan agreement under
which it advanced $600,000 to an officer of the Company. The mortgage loan has a
term of eight years, is interest free and is collateralized by the principal
residence of the officer. Under the terms of the mortgage loan the amount
advanced will be forgiven as to $50,000 on each of the first four anniversaries
of the note and $100,000 on each of the fifth through eighth anniversaries. The
loan can be forgiven in full in the event that the officer's employment is
either terminated without cause or is constructively terminated within 12 months
of a change in control of the Company. If the officer's employment with the
Company ceases for any other reason, including death or disability, the
remaining balance becomes repayable to the Company. The term of repayment is
dependent upon the reason for the officer's employment ceasing and ranges from
six to eighteen months from the date of termination of employment.

      On October 20, 1999 the Company entered into a mortgage loan agreement
under which it advanced $1,351,000 to an officer of the Company. The mortgage
loan had an original term of six months, is interest free and is collateralized
by the principal residence of the officer. Notwithstanding the foregoing,
$300,000 of the amount advanced will be forgiven over eight years as to $25,000
on each of the first four anniversaries of the note and $50,000 on each of the
fifth through eighth anniversaries. In June 2000, the officer repaid $425,000 of
the principal balance. In September 2000, the Company re-loaned $300,000 to the
officer. The new loan is interest free and payable in October 2001. The due date
of the remaining loan principal, excluding the new loan and the amount to be
forgiven, was extended to October 19, 2001.

      As a result of the above, the Company recorded compensation charges of
$75,000 and $37,000, equal to the total amounts forgiven in 2000 and 1999. The
amounts scheduled to be repaid or forgiven during the year ended December 31,
2001 have been included in other current assets.

Note 10--Income Taxes:

      The provision for (benefit from) income taxes for the years ended December
31, 2000 and 1999 consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                                       December 31,    December 31,
                                                                       ------------    ------------
                                                                           2000             1999
                                                                           ----             ----
<S>                                                                      <C>             <C>
      Current:
            Federal .................................................    $ 13,969        $  1,071
            State ...................................................       3,822             252
                                                                         --------        --------
                                                                           17,791           1,323
                                                                         --------        --------
      Deferred:
            Federal--tax effects of incorporating flow-through entity          --        $(16,730)
            State--tax effects of incorporating flow-through entity .          --          (2,789)
            Federal--post incorporation .............................         (59)            667
            State--post incorporation ...............................           5             126
                                                                         --------        --------
                                                                              (54)        (18,726)
                                                                         --------        --------
                                                                         $ 17,737        $(17,403)
                                                                         ========        ========
</TABLE>


                                       39
<PAGE>

                           SOMERA COMMUNICATIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

      As a limited liability company, Somera was not subject to federal or state
income taxes prior to November 12, 1999. Concurrent with the assumption by
Somera, Inc. of the assets liabilities and operations of Somera, a deferred tax
asset of $19,018,000, arising from the difference in the tax and book basis of
Somera's net assets, was recorded in net income on November 12, 1999.

      The net deferred tax asset as of December 31, 2000 and 1999 comprised of
the following (in thousands):

<TABLE>
<CAPTION>
                                                                                 December 31,  December 31,
                                                                                 ------------  ------------
                                                                                     2000         1999
                                                                                     ----         ----
      <S>                                                                          <C>          <C>
      Deferred tax asset (liability):
            Property and equipment ............................................    $   (178)    $     (7)
            Reserves and accruals .............................................       2.558          961
            Difference in tax and book basis of net assets upon conversion, net      16,889       17,772
            Net operating loss carryforward ...................................         671           --
            Intangible assets .................................................        (262)          --
                                                                                   --------     --------
                 Total deferred tax asset .....................................      19,678       18,726
            Valuation allowance ...............................................          --           --
                                                                                   --------     --------
                 Net deferred tax asset .......................................    $ 19,678     $ 18,726
                                                                                   ========     ========
</TABLE>

      A reconciliation of the actual income tax rate to the federal statutory
rate follows:

<TABLE>
<CAPTION>
                                                                         December 31,    December 31,
                                                                         ------------    ------------
                                                                             2000            1999
                                                                             ----            ----
      <S>                                                                    <C>             <C>
      Tax at federal statutory rate ................................         35.00%          34.00%
      State taxes (net of federal tax benefit) .....................          6.11%           7.89%
      Difference in tax and book basis of net assets upon conversion            --          (512.85)%
      Other ........................................................          0.89%           1.67%
                                                                             -----          -------
      Effective tax rate ...........................................         42.00%         (469.29)%
                                                                             =====          =======
</TABLE>

      There was no foreign component of earnings before taxes for the years
ended December 31, 2000 and 1999.

Note 11--Geographic Information:

      The Company has adopted Statement of Financial Accounting Standards No.
131, or SFAS 131, "Disclosures about Segments of an Enterprise and Related
Information," effective January 1, 1998. The Company markets products and
related services to customers in the United States, Canada, Europe, Asia, and
Latin America.

      Operating segments are identified as components of an enterprise about
which separate discrete financial information is available that is evaluated by
the chief operating decision maker or decision making group to make decisions
about how to allocate resources and assess performance. The Company's chief
operating decision maker is the chief executive officer. To date the Company has
reviewed its operations in principally two segments. The chief operating
decision maker assesses performance based on the gross profit generated by each
segment.

      The Company does not report operating expenses, depreciation and
amortization, interest expense, capital expenditures or identifiable net assets
by segment. All segment revenues are generated from external customers. Segment
information is as follows (in thousands):


                                       40
<PAGE>

                           SOMERA COMMUNICATIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                                             New    De-installed   Total
                                             ---    ------------   -----
      Year ended December 31, 1998
            Revenue ...................    $17,333    $ 55,847    $ 73,180
                                           -------    --------    --------
            Gross profit ..............    $ 3,341    $ 25,713    $ 29,054
                                           -------    --------    --------
      Year ended December 31, 1999
            Revenue ...................    $44,316    $ 82,545    $126,861
                                           -------    --------    --------
            Gross profit ..............    $ 7,410    $ 36,690    $ 44,100
                                           -------    --------    --------
      Year ended December 31, 2000
            Revenue ...................    $90,713    $120,479    $211,192
                                           -------    --------    --------
            Gross profit ..............    $16,913    $ 59,661    $ 76,574
                                           -------    --------    --------

      Net revenue information by geographic area is as follows (in thousands):

                                                                Net Revenue
                                                                -----------
      Year ended December 31, 1998:
            United States ..............................          $ 58,756
            Canada .....................................               907
            Latin America ..............................            13,231
            Other ......................................               286
                                                                  --------
                 Total .................................          $ 73,180
                                                                  ========
      Year ended December 31, 1999:
            United States ..............................          $113,065
            Canada .....................................             4,058
            Latin America ..............................             7,662
            Other ......................................             2,076
                                                                  --------
                 Total .................................          $126,861
                                                                  ========
      Year ended December 31, 2000:
            United States ..............................          $194,663
            Canada .....................................             6,415
            Latin America ..............................             6,640
            Other ......................................             3,474
                                                                  --------
                 Total .................................          $211,192
                                                                  ========

      Substantially all long lived assets are maintained in the United States.


                                       41
<PAGE>

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

      None

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

      The information required by this Item is incorporated herein by reference
to the information relating to the directors of the Registrant and compliance
with Section 16(a) of the Exchange Act that is contained in the Proxy Statement
relating the Company's 2001 Annual Meeting of Stockholders scheduled to be held
on May 23, 2001, which will be filed with the SEC no later than 120 days after
the close of the fiscal year ended December 31, 2000.

      The information required by this Item relating to the executive officers
is contained in Item 1 of Part I hereof.

ITEM 11. EXECUTIVE COMPENSATION

      The information required by this Item is incorporated herein by reference
to the information relating to executive compensation that is contained in the
Proxy Statement relating to the Company's 2001 Annual Meeting of Stockholders
scheduled to be held on May 23, 2001, which will be filed with the SEC no later
than 120 days after the close of the fiscal year ended December 31, 2000.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      The information required by this Item is incorporated herein by reference
to the information relating to security ownership of certain beneficial owners
and management that is contained in the Proxy Statement relating to the
Company's 2001 Annual Meeting of Stockholders scheduled to be held on May 23,
2001, which will be filed with the SEC no later than 120 days after the close of
the fiscal year ended December 31, 2000.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      The information required by this Item is incorporated herein by reference
to the information relating to certain related party transactions that is
contained in the Proxy Statement relating to the Company's 2001 Annual Meeting
of Stockholders scheduled to be held on May 23, 2001, which will be filed with
the SEC no later than 120 days after the close of the fiscal year ended December
31, 2000.


                                       42
<PAGE>

                                     PART IV

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

(a) The following documents are filed as part of this report:

      1. Financial Statements and Financial Statement Schedules.

      2. List of Financial Statement Schedules.

                  II. Valuation and Qualifying Accounts and Reserves

      3. Exhibits. The following exhibits are filed as part of, or incorporated
by reference into, this Report

Exhibit
Number                            Exhibit Title
------                            -------------

3.1*      Amended and Restated Certificate of Incorporation of Somera
          Communications, Inc., a Delaware corporation, as currently in effect.

3.2*      Bylaws of Somera Communications, Inc., as currently in effect.

4.1*      Specimen common stock certificate.

10.1*     Form of Indemnification Agreement between Somera Communications, Inc.
          and each of its directors and officers.

10.2*     1999 Stock Option Plan and form of agreements thereunder (as adopted
          September 3, 1999).

10.3*     1999 Employee Stock Purchase Plan (as adopted September 3, 1999).

10.4*     1999 Director Option Plan and form of agreements thereunder (as
          adopted September 3, 1999).

10.5*     Loan Agreement by and between Somera Communications and Fleet National
          Bank, dated August 31, 1999.

10.6*     Security Agreement by and between Somera Communications and Fleet
          National Bank, dated August 31, 1999.

10.7*     Employment Agreement between Somera Communications and Jeffrey Miller,
          dated May 6, 1999.

10.8*     Employment Agreement between Somera Communications and Gary Owen,
          dated July 16, 1999.

10.9*     Lease dated January 20, 1998 between Santa Barbara Corporate Center,
          LLC and Somera Communications.

10.10*    First Amendment to Lease, dated February 2, 1998, between Santa
          Barbara Corporate Center, LLC and Somera Communications.

10.11*    Second Amendment to Lease, dated February 1, 1999, between Santa
          Barbara Corporate Center, LLC and Somera Communications.

10.12*    Industrial/Commercial Lease, dated May 12, 1999, between Sunbelt
          Properties and Somera Communications.


                                       43
<PAGE>

10.13     Second Amendment to Sublease, dated January 31, 2001, between GRC
          International, Inc. and Somera Communications.

10.14*    Form of Registration Agreement, between Somera Communications, Inc.,
          and certain of its stockholders.

10.15     Employment Agreement between Somera Communications and Brandt Handley,
          dated January 8, 2001.

10.16     Sub-Sublease, dated August 2, 2000, between EDS Information Services,
          L.L.C. and Somera Communications, Inc.

10.17     Sublease Agreement, dated May 19, 2000, between Dames & Moore, Inc.
          and Somera Communications, Inc.

10.18**   Stock Purchase Agreement, dated October 16, 2000 between the Company
          and MSI Communications, Inc.

10.19     Lease, dated November 1, 2000 through October 31, 2005, between Somera
          Communications BV i.o. and Stena Realty BV

10.20     Lease Agreement, dated November 1, 2000, between Jersey State
          Properties and Somera Communications, Inc.

10.21     First Amendment to Lease Agreement, dated January 1, 2001, between
          Jersey State Properties and Somera Communications, Inc.

10.22     Employment Agreement between Somera Communications and Glenn Berger,
          dated October 8, 1999.

23.1      Consent of PricewaterhouseCoopers LLP, independent accountants.

 *    Incorporated by reference to the Company's Registration Statement on Form
      S-1, filed September 10, 1999, as amended (File No. 333-86927).
**    Incorporated by reference to the Company's Report on Form 8-K, filed on
      October 27, 2000.

(b)   Reports on Form 8-K.

      The Company filed a Form 8-K on March 24, 2000 relating to announcement of
      a new contract.

      The Company filed a Form 8-K on October 27, 2000 announcing its
      acquisition of MSI Communications, Inc.


                                       44
<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 on this 29th day of
March 2001.

                                            Somera Communications, Inc.


                                            By:     /S/ DANIEL A. FIRESTONE
                                                       (Daniel A. Firestone
                                                     Chief Executive Officer)

                                POWER OF ATTORNEY

      KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints jointly and severally, Daniel A.
Firestone and Gary J. Owen, and each of them, as his attorney-in-fact, with full
power of substitution, for him in any and all capacities, to sign any and all
amendments to this Annual Report (Form 10-K), and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each said attorneys-in-fact, or his substitute or substitutes, may 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 March 29, 2001:


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

                                          President, Chief Executive Officer
     /S/ DANIEL A. FIRESTONE              and Chairman of the Board
--------------------------------          (Principal Executive Officer)
      (Daniel A. Firestone)



         /S/ GARY J. OWEN                 Chief Financial Officer and Assistant
--------------------------------          Secretary (Principal Financial and
         (Gary J. Owen)                   Accounting Officer)


           /S/ GIL VARON                  Director
--------------------------------
           (Gil Varon)


      /S/ WALTER G. KORTSCHAK             Director
--------------------------------
      (Walter G. Kortschak)


        /S/ PETER Y. CHUNG                Director
--------------------------------
        (Peter Y. Chung)


         /S/ BARRY PHELPS                 Director
--------------------------------
         (Barry Phelps)


                                       45
<PAGE>

                                  Valuation and Qualifying Accounts and Reserves
                                  ----------------------------------------------

SCHEDULE II

                       VALUATION AND QUALIFYING ACCOUNTS
                                 (in thousands)


<TABLE>
<CAPTION>                                                               Additions
                                                      Balance at        Charged to
                                                     Beginning of       Costs and                       Balance at
                                                        Period           Expenses       Deductions    End of Period
                                                     ------------       ----------      ----------    -------------
Year ended December 31, 1998
<S>                                                 <C>             <C>             <C>             <C>
 Allowance for sales returns......................            $150          $  424          $  289          $  285
 Allowance for doubtful accounts..................             197             201             149             249
 Allowance for excess and obsolete inventory......              45             634             622              57
Year ended December 31, 1999
 Allowance for sales returns......................            $285          $  670          $  485          $  470
 Allowance for doubtful accounts..................             249             578              91             736
 Allowance for excess and obsolete inventory......              57           1,258             673             642
Year ended December 31, 2000
 Allowance for sales returns......................            $470          $3,380          $3,118          $  732
 Allowance for doubtful accounts..................             736           1,778           1,184           1,330
 Allowance for excess and obsolete inventory......             642           3,062           1,541           2,163
</TABLE>