<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, 1999

                       Commission File Number 000-27843

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

<TABLE>
 <S>                              <C>
            Delaware                                77-0521878
 (State or other jurisdiction of                  (IRS Employer
 incorporation or organization)                Identification No.)
</TABLE>

                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. [X]

  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 20, 2000) was approximately $679,000,000.
The number of outstanding shares of the Registrant's Common Stock as of the
close of business on March 23, 2000 was 47,837,500.

                      DOCUMENTS INCORPORATED BY REFERENCE

  The Registrant's definitive Proxy Statement for the 2000 Annual Meeting of
Stockholders is incorporated by reference in Part III of the Form 10-K to the
extent stated herein.

-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
<PAGE>

                          SOMERA COMMUNICATIONS, INC.

                                     INDEX

<TABLE>
<CAPTION>
                                                                           Page
                                                                           ----
                                    PART I

 <C>      <S>                                                              <C>
 Item 1.  Business......................................................     1
 Item 2.  Properties....................................................    15
 Item 3.  Legal Proceedings.............................................    15
 Item 4.  Submission of Matters to a Vote of Security Holders...........    15

<CAPTION>
                                    PART II

 <C>      <S>                                                              <C>
          Market for Registrant's Common Equity and Related Stockholder
 Item 5.  Matters.......................................................    17
 Item 6.  Selected Financial Data.......................................    18
          Management's Discussion and Analysis of Financial Condition
 Item 7.  and Results of Operations.....................................    19
 Item 7A. Qualitative and Quantitative Disclosures of Market Risk.......    25
 Item 8.  Financial Statements and Supplementary Data...................    26
          Changes in and Disagreements with Accountants on Accounting
 Item 9.  and Financial Disclosure......................................    43

<CAPTION>
                                   PART III

 <C>      <S>                                                              <C>
 Item 10. Directors and Executive Officers of the Registrant............    43
 Item 11. Executive Compensation........................................    43
          Security Ownership of Certain Beneficial Owners and
 Item 12. Management....................................................    43
 Item 13. Certain Relationships and Related Transactions................    43

<CAPTION>
                                    PART IV

 <C>      <S>                                                              <C>
          Exhibits, Financial Statement Schedules and Reports on Form 8-
 Item 14. K.............................................................    44
</TABLE>

                                       i
<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. All 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 "will", "believe", "anticipate",
"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 that could cause
our actual results to differ materially from our expectations under "Risks
Factors" and elsewhere in this Annual Report on Form 10-K. These cautionary
statements qualify all forward-looking statements attributable to us or
persons acting on our behalf.

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. Our innovative
equipment and service offerings are delivered through our team of more than 80
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 center to provide our customers with rapidly
deployable equipment solutions.

Industry Background

  The telecommunications infrastructure equipment market has experienced
tremendous growth in recent years. This growth has been driven primarily by
increased carrier competition, expanded service offerings, increased demand
among businesses and consumers and technology advancements. Dataquest projects
that worldwide sales of telecommunications infrastructure equipment will grow
from $180 billion in 1998 to $230 billion in 2002.

  Telecommunications infrastructure equipment is purchased by a wide variety
of existing and emerging carriers, including:

  .  Incumbent local exchange carriers, or ILECs, which provided local
     telephone service on an exclusive basis prior to deregulation, and
     include independent local exchange carriers, and regional bell operating
     companies, or RBOCs;

  .  Long distance carriers, or IXCs;

  .  Wireless carriers, such as cellular service providers, personal
     communications service, or PCS companies, paging operators and
     specialized mobile radio operators, or SMRs, that offer wireless
     communications services similar to cellular; and

  .  Competitive local exchange carriers, or CLECs, which compete with ILECs
     to provide local telecommunications service subsequent to deregulation.

                                       1
<PAGE>

  These carriers are making substantial capital expenditures on
telecommunications infrastructure equipment to build, upgrade and maintain
their networks. These networks are primarily comprised of switching,
transmission, access, wireless, microwave and power equipment.

Carrier Challenges in the Changing Telecommunications Market

  Increased Carrier Competition. Global deregulation has changed the
telecommunications industry and created significant new opportunities for
carriers. For example, in the United States, where each local telephone market
was once served by a single local exchange carrier, deregulation has now
created intense competition by allowing the entry of IXCs, CLECs, wireless
carriers and local exchange carriers from other markets. Carriers are making
substantial expenditures on equipment to establish themselves in new markets.
In this increasingly competitive environment, we believe carriers will
continue to devote significant financial resources to build, upgrade and
maintain their networks.

  Expanded Service Offerings. To differentiate themselves, carriers are
rapidly developing and offering to their customers innovative and more
affordable services. Examples of these services include high speed Internet
access, one-rate wireless and long distance plans and other services. To
deliver these expanded services, carriers must invest significant capital to
increase their network capacity and enhance their current networks.

  Increased Demand Among Businesses and Consumers. The demand among businesses
and consumers for telecommunications services has increased dramatically in
recent years.

  As competition among carriers has resulted in lower pricing and greater
accessibility, consumers have increased their utilization of and dependence on
new services. For example, the growth in high speed data and Internet
applications, including e-mail, web browsing and e-commerce, and the increased
availability of more flexible mobile networks, such as cellular, PCS and
paging, have increased business and consumer demand for these and other new
services. To meet this demand, carriers must build, upgrade and maintain
reliable networks capable of supporting significantly greater volumes of
traffic as well as new service offerings.

  Technology Advancements. Advancements in telecommunications technology
enable carriers to increase capacity, improve service quality and expand their
service offerings. To respond to increased competition and differentiate their
service offerings, carriers are purchasing and deploying new equipment and
technologies from a wide variety of manufacturers.

 Impact on Carrier Equipment Needs

  The foregoing challenges are fueling demand by existing and emerging
carriers for telecommunications infrastructure equipment and services.
Carriers have invested hundreds of billions of dollars in telecommunications
network infrastructure. To maximize the value of their investments, carriers
are expanding and upgrading their existing networks and utilizing existing and
new technologies and equipment from multiple vendors. In addition, carriers
are seeking cost-effective ways to expand and maintain existing network
elements based on mature technologies.

  As carriers build, maintain and upgrade their telecommunications networks,
they often replace existing equipment that still has a significant useful
life. This equipment often is suitable for redeployment in other parts of a
carrier's network to increase network capacity and expand service offerings.
While historically carriers may have scrapped this equipment or let it remain
idle, competitive factors increasingly require carriers to attempt to
recapture a portion of their original investment. While carriers prefer to
redeploy this equipment within their own networks, they are often unable to do
so. In cases where redeployment cannot be achieved, they are seeking third
party assistance to regain a portion of their initial investment.

  Carriers not only require large amounts of telecommunications equipment, but
they also need related value-added services to support the buildout and
expansion of their networks. In particular, emerging carriers lack many

                                       2
<PAGE>

of the human and financial resources of existing carriers and need these
value-added services as they aggressively build out their networks to take
advantage of opportunities to capture and retain customers. These emerging
carriers seek creative and cost effective ways to build out their networks
through a combination of new and de-installed equipment and services. Once
they have expanded these networks, they will have the same needs as incumbent
carriers to increasingly expand their service offerings and network coverage.
This cycle of network buildouts, upgrades, expansions and maintenance by
carriers will continue to fuel the trend of increased demand for both new and
de-installed equipment.

 Limitations of Existing Equipment Providers

  To satisfy their equipment needs, carriers have traditionally purchased
equipment from original equipment manufacturers, distributors and secondary
market dealers. In this increasingly competitive market, many carriers are
discovering that the traditional equipment providers are unable to fulfill
their complex and changing equipment and service requirements.

  Original Equipment Manufacturers. Historically, carriers have relied on
original equipment manufacturers for new telecommunications infrastructure
equipment. Today, some large original equipment manufacturers offer a variety
of products but do not support multi-vendor product lines. In addition, while
some original equipment manufacturers offer limited trade-in programs for
equipment, they typically only cover equipment they manufactured and offer
relatively low valuations. Original equipment manufacturers are also
encountering difficulties in serving increased numbers of carriers as their
direct sales models do not scale well and are not cost effective in today's
environment. As a result, many large original equipment manufacturers are
moving away from the direct sales model and relying more upon value-added
equipment providers to deliver much of their equipment.

  Distributors. Telecommunications equipment distributors typically provide a
selection of new equipment from a list of specific manufacturers and serve a
product fulfillment role within defined product lines. While this high-volume,
low margin, transaction-oriented model offers a wider selection of equipment
than original equipment manufacturers, it generally results in limited
flexibility to address changing carrier equipment requirements. Additionally,
the lower margins associated with distributor sales results in a sales force
focused on sales volume and not on creative, customized solutions.
Distributors are not able to support the complexities of effective trade-in,
refurbishing and redeployment programs.

  Secondary Market Dealers. While original equipment manufacturers and
distributors have limited involvement in the growing secondary market for
telecommunications equipment, secondary market dealers specialize in this type
of transaction. These dealers buy and sell used equipment in niche markets and
often serve as an outlet for carriers' excess inventories. Generally these
secondary market dealers lack the management, operational and financial
resources necessary to consistently and effectively meet changing equipment
requirements.

 Emerging Requirements for Telecommunications Equipment Providers

  Due to increased competition, the need to rapidly deliver expanded services,
greater demand and technology advancements, carrier demand for
telecommunications infrastructure equipment and related services has grown
significantly. In today's dynamic environment, carriers are balancing the need
to attract and retain their customers with aggressive network buildout
schedules. As a result, carriers are turning to equipment providers who offer:

  .  Broad selections of multi-vendor equipment and technologies available
     from a single source;

  .  Rapid responses from flexible, knowledgeable sales and customer service
     representatives;

  .  Asset recovery programs that offer higher returns and greater
     flexibility across a broader range of de-installed equipment.

  .  Technical support on a wide variety of products, including product
     selection and configuration;

                                       3
<PAGE>

  .  Other equipment solutions including repair, installation and de-
     installation; and

  .  Value-added materials management services including warehousing, multi-
     vendor equipment packaging, which we refer to as kitting, and other
     network deployment services.

The Somera Strategy

  Our objective is to be the premier provider of telecommunications
infrastructure equipment and related services to carriers worldwide. Key
elements of our strategy include:

  .  Expand Penetration of Telecommunications Carrier Market. Our strategy is
     to further penetrate our existing base of over 800 customers and to
     identify, target, and develop additional customers. We intend to
     increase our sales force and continue our highly interactive dialogue
     with carriers to better understand and respond to their specific
     equipment and service needs. We believe we have established a track
     record of providing high levels of customer service and that our
     reputation will give us access to greater customer opportunities in the
     future. We believe that our relationship management database provides us
     with the broad industry pricing and equipment deployment knowledge
     necessary to meet our customers' needs and anticipate market trends.

  .  Expand Product Lines and Service Capabilities. To continue to meet the
     dynamic needs of carriers, we intend to continuously add to the depth
     and breadth of our equipment and service offerings. We intend to expand
     our product lines by increasing our access to carriers' de-installed
     equipment and partnering with additional original equipment
     manufacturers and distributors. We will aggressively seek new supply
     sources to address under-served equipment segments.

  .  Implement a "Business-to-Business" E-Commerce Capability. We have
     contracted with one of the industry's premier internet consulting firms,
     Viant Corporation, to help facilitate the further development of our E-
     Commerce capability.

  .  Increase RBOC Penetration. We intend to expand our relationships with
     the RBOCs by increasing our resources dedicated to this market,
     including expanding our sales force and obtaining ISO 9000 certification
     for our distribution center and testing facilities. We also intend to
     further strengthen product expertise in those areas most heavily
     demanded by RBOCs. We believe that maintaining strong relationships with
     the RBOCs can also offer a significant potential source of de-installed
     equipment.

  .  Pursue Opportunities for International Growth. International markets
     represent a significant opportunity for future growth. We are currently
     generating net revenue in Latin America, Europe and Asia and expect to
     continue this international expansion. We intend to add additional sales
     management and resources to focus on these markets. Entry into the
     European market gives us the opportunity to expand our current offering
     of equipment based on European standards and technology and increases
     our ability to serve foreign markets. In addition, we believe that
     international expansion by some of our existing customers will provide
     us with greater access to these foreign markets.

  .  Pursue Selective Acquisitions. The secondary market for
     telecommunications equipment is highly fragmented, consisting primarily
     of suppliers offering limited products to niche markets. We believe that
     these suppliers and other equipment providers, especially those that can
     increase the breadth and depth of our equipment and service offerings
     and enable us to reach new markets or further penetrate existing
     markets, represent potential acquisition opportunities.

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 1999, we sold over 5,500 different items, from over 250
different manufacturers.

                                       4
<PAGE>

We offer the original manufacturer's warranty on all new equipment we sell. 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. This equipment is professionally removed by the carrier or
another third party upon installation of the replacement equipment. In some
instances, we will remove the equipment directly 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, microwave and power products.

  Switching. Switching equipment is used by carriers to manage call traffic
and to deliver value-added service. 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, Centigram, 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 Inc., Fujitsu Ltd., Lucent Technologies Inc., NEC Corp.,
Nortel Networks Inc., Telco Systems, Inc. and Tellabs Inc.

  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, channel service units/digital subscriber
units, multiplexors and network interface units. Manufacturers of access
equipment whose products we sell include ADC Telecommunications Inc., Carrier
Access Corp., Lucent Technologies Inc., NEC Corp., Newbridge Networks Corp.,
Nortel Networks Inc., Telco Systems, Inc. and VINA Technologies, Inc.

  Wireless. Cell sites and other wireless equipment 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 Inc., Telefon AB LM Ericsson, Lucent Technologies Inc.,
Motorola Inc., Nortel Networks Inc. and Siemens AG.

  Microwave. Microwave systems are used by carriers to transmit and receive
voice, data and video traffic. These systems enable point to point 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 S.A., Adaptive
Broadband Corp., Digital Microwave Corp., Digital Transmission Systems Inc.,
Harris-Farinon Canada Inc., Nortel Networks Inc. and Glenayre Technologies
Inc.

                                       5
<PAGE>

  Power. Power equipment is used by carriers to provide direct current, or DC,
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, 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:

  .  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.

  .  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.

  .  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.

  .  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 in
Pasadena and Los Gatos, California. As of December 31, 1999, we employed more
than 80 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 RBOCs, independent local exchange carriers,
IXCs, CLECs, and wireless carriers, including cellular, PCS and SMRs.

  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:

  .  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;

                                       6
<PAGE>

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

  .  access technical and system configuration information;

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

  .  project and anticipate customer equipment requirements.

  Each of our teams is directed by a group sales manager who is responsible
for the overall customer relationship and is supported by a number of 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, 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:

  .  recruiting skilled sales and technical support personnel;

  .  creation of new supply and customer relationships;

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

  .  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 independent local exchange carriers, RBOCs, IXCs, a
broad range of wireless carriers including cellular, PCS, paging and SMRs, and
CLECs. We have over 800 customers who are located primarily in the United
States. In 1999, no single customer accounted for more than 10% of our net
revenue. In 1998 ALLTEL Corporation accounted for 10.2% of our net revenue and
in 1997 Vodafone AirTouch plc accounted for 10.1% of our net revenue. Sales to
customers outside of the United States accounted for 10.9% of our net revenue
in 1999, 19.7% of our net revenue in 1998 and 16.5% of our net revenue in
1997. Customers from whom we recognized at least $3.0 million in net revenue
in 1999 include leading carriers such as ALLTEL Corporation, Nextel
Communications, AT&T Corporation, GTE Corporation and Western Wireless.

                                       7
<PAGE>

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:

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

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

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

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

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

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

  .  ability to implement more effective electronic commerce solutions; and

  .  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, 1999, we had 134 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.

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.

                                       8
<PAGE>

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:

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

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

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

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

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

  .  variations in customer purchasing patterns due to seasonality and other
     factors;

  .  write-offs due to inventory defects or obsolescence;

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

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

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

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.

                                       9
<PAGE>

  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.

  Through the end of 1999, 65% or more of our annual net revenue has been
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 32.1% of our net
revenue in 1999, 43.8% in 1998 and 42.2% in 1997. In 1999, no single customer
accounted for over 10% of our net revenue. In 1998, ALLTEL Corporation
accounted for 10.2% of our net revenue and in 1997, Vodafone AirTouch plc
accounted for 10.1% 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.

  We recently began developing an internet solution intended to enable us to
better serve our customers and vendors. We anticipate this solution will not
be fully functional until the latter part of 2000. These planned

                                      10
<PAGE>

services are very different from the traditional sales methods we currently
have with our customers. There can be no assurance that our customers will
utilize our internet solution and any delay in the completion of this
initiative could negatively impact customer adoption of this solution.

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.

  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:

  .  respond to emerging industry standards and other technological changes;

  .  develop our internal technical capabilities and expertise;

  .  broaden our equipment and service offerings; and

  .  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

                                      11
<PAGE>

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.

  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. 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 10.9% of our net revenue in 1999,
19.7% of our net revenue in 1998 and 16.5% of our net revenue in 1997.

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 1999, the number of
our employees increased from 83 to 134. 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

                                      12
<PAGE>

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.

Several key members of our management team have only recently joined us and if
they are not successfully integrated into our business or fail to work
together as a management team, our business will suffer.

  Several key members of our management team have joined us since May 1, 1999,
including Gary Owen, our chief financial officer, Jeffrey Miller, our
executive vice president of sales and marketing, and Glenn Berger, our vice
president of operations. Additionally, we intend to hire other key personnel.
If we cannot effectively integrate these employees into our business, or if
they cannot work together as a management team to enable us to implement our
business strategy, our business will suffer.

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.

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

  Currently, we depend 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. 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. Historically, net revenue in the
third quarter has been typically lower than that of the second quarter of that
year. For example, our net revenue decreased in the quarter ended September
30, 1998 compared to our net revenue for the quarter ended June 30, 1998. We
believe this trend may occur as a result of our customers' annual budgetary,
procurement and sales cycles.

                                      13
<PAGE>

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:

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

  .  develop and maintain higher inventory levels;

  .  gain access to new product lines;

  .  develop new services; or

  .  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 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.

                                      14
<PAGE>

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, our directors and entities affiliated with them
beneficially own an aggregate of approximately 78.9% of our outstanding common
stock as of December 31, 1999. 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 2. PROPERTIES

  Our principal executive and corporate offices occupy approximately 22,750
square feet in Santa Barbara, California under a lease agreement that expires
in March 2003 with one three-year extension on 8,500 square feet, and two
three-year extensions on the remaining square footage. Our distribution center
occupies approximately 100,000 square feet in Oxnard, California under a lease
agreement that expires in May 2004. We also have a warehouse of approximately
23,000 square feet in Santa Barbara, California under a lease agreement that
expires in March 2005. This facility has been subleased under a sublease
agreement expiring in March 2003. The tenant has the option to renew the
sublease directly with the lessor at the end of this term. Additionally, we
lease sales offices of approximately 590 square feet in Los Gatos, California
under a lease agreement that expires in April 2000 and of approximately 455
square feet in Pasadena, California under lease agreements that expire in
April and May of 2000, respectively. We are currently exploring additional
locations to support expansion of our corporate facilities. 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
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, 1999.

                                      15
<PAGE>

                     EXECUTIVE OFFICERS OF THE REGISTRANT

  The following table sets forth certain information regarding the Company's
current executive officers as of March 15, 2000.

<TABLE>
<CAPTION>
   Name                     Age Position
   ----                     --- --------
   <C>                      <C> <S>
   Dan Firestone...........  38 Chairman of the Board of Directors, President
                                 and Chief Executive Officer
   Jeffrey G. Miller.......  36 Executive Vice President, Sales and Marketing
   Gary J. Owen............  45 Chief Financial Officer
   Gil Varon...............  38 Director and Vice President, Wireline Division
   Glenn Berger............  37 Vice President of Operations
</TABLE>

  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 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 in 1984.

                                      16
<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 sale
prices for our common stock as reported by the Nasdaq National Market:

<TABLE>
<CAPTION>
                                                                   High   Low
                                                                  ------ ------
     <S>                                                          <C>    <C>
     Year Ended December 31, 1999
     Fourth quarter.............................................. $19.00 $12.44
</TABLE>

  On March 20, 2000, the last reported sale price for our common stock on the
Nasdaq National Market was $14.1875 per share. As of March 23, 2000, there
were approximately 47,837,500 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 1996, we made quarterly
distributions in an annual aggregate amount of $0.06 per unit to our members.
In 1997, we made quarterly distributions in an annual aggregate amount of
$0.20 per unit to our members. In 1998, we made quarterly distributions in an
annual aggregate amount of $0.43 per unit to our members. 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.

                                      17
<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,
                                              ---------------------------------
                                                1999     1998    1997    1996
                                              --------  ------- ------- -------
                                                  (in thousands except per
                                                      share/unit data)
<S>                                           <C>       <C>     <C>     <C>
Statements of Operations:
Net revenue.................................. $125,121  $72,186 $34,603 $10,149
Cost of net revenue..........................   81,021   43,132  20,587   5,532
                                              --------  ------- ------- -------
Gross profit.................................   44,100   29,054  14,016   4,617
                                              --------  ------- ------- -------
Operating expenses:
  Sales and marketing........................   10,320    5,747   2,593     780
  General and administrative (excludes stock-
   based compensation of $774)...............    7,982    3,939   1,648     696
  Stock-based compensation...................      774      --      --      --
                                              --------  ------- ------- -------
    Total operating expenses.................   19,076    9,686   4,241   1,476
                                              --------  ------- ------- -------
  Income from operations.....................   25,024   19,368   9,775   3,141
Interest expense, net........................    2,193      187      82      18
                                              --------  ------- ------- -------
  Income before income taxes.................   22,831   19,181   9,693   3,123
Income tax benefit...........................  (17,403)     --      --      --
                                              --------  ------- ------- -------
  Net income................................. $ 40,234  $19,181 $ 9,693 $ 3,123
                                              ========  ======= ======= =======
Net income per share/unit--basic(1).......... $   1.02  $  0.50 $  0.25 $  0.08
                                              ========  ======= ======= =======
Weighted average shares/units--basic.........   39,408   38,063  38,052  37,500
                                              ========  ======= ======= =======
Net income per share/unit--diluted(1)........ $   1.02  $  0.50 $  0.25 $  0.08
                                              ========  ======= ======= =======
Weighted average shares/units--diluted.......   39,484   38,063  38,052  37,500
                                              ========  ======= ======= =======
</TABLE>

<TABLE>
<CAPTION>
                                                       December 31,
                                              --------------------------------
                                                1999     1998     1997   1996
                                              -------- --------  ------ ------
                                                      (in thousands)
<S>                                           <C>      <C>       <C>    <C>
Balance Sheet Data:
Working capital.............................. $ 67,888 $  9,482  $4,602 $1,797
Total assets.................................  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)...................................   86,786  (45,136)  3,787  1,251
</TABLE>
--------
(1) See note 2 of Notes to the 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, and 1999 ended on December 28, 1997,
January 3, 1999, and January 2, 2000.

  From our inception in July 1995 to December 31, 1995, we were engaged
principally in the commencement of our business operations and recorded
approximately $240,000 of net revenue from product shipments, $122,000 of cost
of net revenue and $61,000 of operating expenses during that period.
Accordingly, as such amounts are not significant, the results for the period
from our inception to December 31, 1995 have not been presented in the tables
above.

                                      18
<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 prospectus. 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 generate revenue from sales of new and de-installed
telecommunications infrastructure equipment. Our customers include incumbent
local exchange carriers, long distance carriers, wireless carriers and
competitive local exchange carriers. 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.

  Through 1999, 65% or more of our annual net revenue has been generated from
the sale of de-installed equipment. We market and sell this equipment through
our industry focused sales teams. 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 10.9%, 19.7%, and 16.5% of our net revenue in
1999, 1998, and 1997, 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. Currently, all of our equipment sales are denominated in
U.S. dollars.

  In 1999, no single customer accounted for more than 10% of our net revenue.
In 1998, ALLTEL Corporation accounted for 10.2% of our net revenue, and in
1997, Vodafone AirTouch plc accounted for 10.1% of our net revenue. In the
years ended December 31, 1999, 1998, and 1997, 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.

  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 have recently contracted with one
of the industry's premier internet consulting firms, Viant Corporation, to
help facilitate the development of our E-Commerce capability. Failure to
accomplish these goals could harm our growth prospects and operating results.

                                      19
<PAGE>

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.

Results of Operations

 1999 Compared to 1998

  Net Revenue. Net revenue consists of sales of new and de-installed
telecommunications equipment, including switching, transmission, access,
wireless, microwave and power products. Net revenue increased to $125.1
million in 1999 from $72.2 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. Net revenue
attributable to new equipment sales increased to $43.7 million in 1999 from
$17.1 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. 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 $81.4 million in 1999 from $55.1 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. 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 $81.0 million in 1999 from $43.1 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 $36.3 million in
1999 from $13.7 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. 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 $44.7 million in
1999 from $29.4 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. 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, declined to
35.2% in 1999 from 40.2% 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 17.0% in 1999 from 19.5% in 1998. The
decrease in gross margin attributable to new equipment sales was due primarily
to fluctuations in the mix of equipment we sold. 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 decreased
to 45.1% in 1999 from 46.7% 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

                                      20
<PAGE>

number of large, non-recurring purchase transactions in 1998. We believe that
gross margins attributable to de-installed 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 and promotions. 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 $10.3 million in 1999 from
$5.7 million 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. 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 $8.0 million in 1999 from $3.9 million in 1998. This
increase was due primarily to the increase in employees resulting from the
expansion of our operations, as well as recruitment 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
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.
The remaining charge will be amortized to net income as follows: $367,000 in
2000, $148,000 in 2001, $63,000 in 2002 and $8,000 in 2003. There was no
stock-based compensation charge in 1998.

  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. We had no
long term loans outstanding as of December 31, 1999.

  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. This deferred tax asset will be
amortized over 15 years. As a limited liability company in 1998, we were not
subject to federal or state income taxes.

 1998 Compared to 1997

  Net Revenue. Net revenue increased to $72.2 million in 1998 from $34.6
million in 1997. The increase was due to significant increases of sales in
both the United States and Latin American markets, an increase in sales of new
equipment and the growth of several customer accounts. The increases in net
revenue are only nominally attributable to increases in the prices we charge
for our products. Net revenue attributable to new equipment sales increased to
$17.1 million in 1998 from $3.1 million in 1997. The increase in net revenue
attributable to new equipment sales from 1997 to 1998 was due to significant
increases in existing customer demand for new equipment. Net revenue
attributable to de-installed equipment sales increased to $55.1 million in
1998 from $31.5 million in 1997. The increase in net revenue attributable to
de-installed equipment sales from

                                      21
<PAGE>

1997 to 1998 was due to increased customer demand for de-installed equipment
in connection with the build-out and servicing of existing networks and a
broader offering of de-installed equipment.

  Cost of Net Revenue. Cost of net revenue increased to $43.1 million in 1998
from $20.6 million in 1997. Substantially all of the increase was due to the
increase in procurement costs associated with increased volumes of equipment
we sold. These increased costs are only nominally attributable to increases in
the costs of the equipment we purchase from third parties because these costs
have remained relatively stable. Cost of net revenue attributable to new
equipment sales increased to $13.7 million in 1998 from $2.5 million in 1997.
The increase in cost of net revenue attributable to new equipment sales is due
primarily to increased volumes of new equipment purchased from third parties
to be sold to customers. Cost of net revenue attributable to de-installed
equipment sales increased to $29.4 million in 1998 from $18.1 million in 1997.
The increase in cost of net revenue attributable to de-installed equipment
sales is due primarily to increased volumes of de-installed equipment
purchased from third parties to be sold to customers. The gross margin
decreased to 40.2% in 1998, from 40.5% in 1997. The relatively stable gross
margin levels between 1998 and 1997 were due to increased volumes of sales of
higher margin de-installed equipment in 1998, offsetting an increased portion
of lower margin new equipment sales in the same period. Gross margin
attributable to new equipment sales increased to 19.5% in 1998 from 18.3% in
1997. The increase in gross margin attributable to new equipment sales is due
to primarily to fluctuations in the equipment we sold. Gross margin
attributable to de-installed equipment sales increased to 46.7% in 1998 from
42.7% in 1997. The increase in gross margin attributable to de-installed
equipment sales is due primarily to favorable pricing related to a number of
large, non-recurring purchase transactions in 1998.

  Sales and Marketing. Sales and marketing expenses increased to $5.7 million
in 1998 from $2.6 million in 1997. The increases for each of these periods
were primarily due to the addition of sales and procurement personnel,
including sales managers, higher absolute commission expenses consistent with
increased gross profit and increased marketing efforts.

  General and Administrative. General and administrative expenses increased to
$3.9 million in 1998 from $1.6 million in 1997. The increase was due to a
significant increase in headcount resulting from the expansion of our
operations, as well as the approximately $700,000 in financing costs
attributable to our recapitalization in July 1998.

  Interest Expense, Net. Interest expense, net increased to $187,000 in 1998,
from $82,000 in 1997. The increase was due to higher borrowing levels
necessary to fund our working capital requirements.

                                      22
<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, 1999, 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,
                            1998      1998      1998      1998      1999      1999      1999      1999
                          --------- --------  --------- --------  --------- --------  --------- --------
                                                          (unaudited)
                                                        (in thousands)
<S>                       <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>
Statements of Operations
 Data:
Net revenue.............   $14,258  $20,159    $16,854  $20,915    $23,248  $29,586    $34,200  $ 38,087
Cost of net revenue.....     8,688   12,349      9,853   12,242     14,609   19,414     22,655    24,343
                           -------  -------    -------  -------    -------  -------    -------  --------
Gross profit............     5,570    7,810      7,001    8,673      8,639   10,172     11,545    13,744
                           -------  -------    -------  -------    -------  -------    -------  --------
Operating expenses:
  Sales and marketing...       990    1,404      1,501    1,853      1,967    2,418      2,853     3,082
  General and
   administrative.......       525      801      1,596    1,016      1,420    1,579      2,086     2,897
  Stock-based
   compensation.........       --       --         --       --         --       193        459       122
                           -------  -------    -------  -------    -------  -------    -------  --------
   Total operating
    expenses............     1,515    2,205      3,097    2,869      3,387    4,190      5,398     6,101
                           -------  -------    -------  -------    -------  -------    -------  --------
Income from operations..     4,055    5,605      3,904    5,804      5,252    5,982      6,147     7,643
Interest expense, net...        18       57         42       70         59       85        512     1,537
                           -------  -------    -------  -------    -------  -------    -------  --------
Income before income
 taxes..................     4,037    5,548      3,862    5,734      5,193    5,897      5,635     6,106
Income tax benefit......       --       --         --       --         --       --         --    (17,403)
                           -------  -------    -------  -------    -------  -------    -------  --------
Net income..............   $ 4,037  $ 5,548    $ 3,862  $ 5,734    $ 5,193  $ 5,897    $ 5,635  $ 23,509
                           =======  =======    =======  =======    =======  =======    =======  ========

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.....      60.9     61.3       58.5     58.5       62.8     65.6       66.2      63.9
                           -------  -------    -------  -------    -------  -------    -------  --------
Gross profit............      39.1     38.7       41.5     41.5       37.2     34.4       33.8      36.1
                           -------  -------    -------  -------    -------  -------    -------  --------
Operating expenses:
  Sales and marketing...       7.0      6.9        8.9      8.9        8.5      8.2        8.3       8.1
  General and
   administrative.......       3.7      4.0        9.4      4.8        6.1      5.3        6.1       7.6
  Stock-based
   compensation.........       --       --         --       --         --       0.7        1.4       0.3
                           -------  -------    -------  -------    -------  -------    -------  --------
   Total operating
    expenses............      10.7     10.9       18.3     13.7       14.6     14.2       15.8      16.0
                           -------  -------    -------  -------    -------  -------    -------  --------
Income from operations..      28.4     27.8       23.2     27.8       22.6     20.2       18.0      20.1
Interest expense, net...       0.1      0.3        0.3      0.4        0.3      0.3        1.5       4.1
                           -------  -------    -------  -------    -------  -------    -------  --------
Income before income
 taxes..................      28.3     27.5       22.9     27.4       22.3     19.9       16.5      16.0
Income tax benefit......       --       --         --       --         --       --         --      (45.7)
                           -------  -------    -------  -------    -------  -------    -------  --------
Net income..............      28.3%    27.5%      22.9%    27.4%      22.3%    19.9%      16.5%     61.7%
                           =======  =======    =======  =======    =======  =======    =======  ========
</TABLE>

  Our net revenue 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 margins declined over the period from
39.1% in the quarter ended March 31, 1998 to 36.1% in the quarter ended
December 31, 1999 due largely to an increase in our percentage of sales of new
equipment which have lower gross margins than de-installed equipment. This was
partially offset by improved gross margins on sales of de-installed equipment.

                                      23
<PAGE>

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 costs and professional fees required to support our growth. In the
quarter ended September 30, 1998, general and administrative expenses included
approximately $700,000 in costs associated with the July 1998
recapitalization.

  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 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. Historically, we have
seen that our net revenue is subject to seasonal fluctuations because our
customers typically purchase less telecommunications equipment during the
third calendar quarter of each year due to the annual nature of budgetary,
procurement and sales cycles. 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. Net cash generated by operating activities
was $20.5 million in 1999, $14.9 million in 1998, and $8.0 million in 1997.
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, 1999, we had approximately $54.5 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, 1999.

  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 center and equipment testing infrastructure to
support our growth. In addition, we will expend significant resources relating
to the implementation of our business to business e-commerce capability.

                                      24
<PAGE>

  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.

Year 2000 Readiness

  The year 2000 issue is the potential for system and processing failures of
date-related data and is the result of the computer-controlled systems using
two digits rather than four to define the applicable year. For example,
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices or
engage in similar normal business activities.

  To date, the products we sell have not revealed any significant year 2000
problems. Additionally, we have not experienced any business interruptions as
a result of our suppliers' and business partners' failure to properly address
the year 2000 issue. As of March 15, 2000, we have not experienced any
significant issues as a result of year 2000 problems and do not anticipate
incurring material incremental costs in future periods due to such issues.

Recent Accounting Pronouncements

  In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, or 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 hedging relationship that
exists. We do not currently hold derivative instruments or engage in hedging
activities.

  In July 1999, the FASB issued Statement of Financial Accounting Standards
No. 137, or SFAS No. 137, Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB No. 133. SFAS 137 deferred
the effective date of SFAS 133 until the first fiscal quarter beginning after
June 15, 2000.

  In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in Financial
Statements." SAB 101 provides guidance for revenue recognition under certain
circumstances. We are currently evaluating the impact of SAB 101 on our
financial statements and related disclosures. The accounting and disclosures
prescribed by SAB 101 will be effective for our fiscal year ended December 31,
2000.

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, 1999.

  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, 1999, we had no long term debt outstanding.

                                      25
<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                         INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                            Page
                                                                            ----
<S>                                                                         <C>
Report of Independent Accountants..........................................  27

Balance Sheets.............................................................  28

Statements of Operations...................................................  29

Statement of Stockholders' Equity/Members' Capital (Deficit)...............  30

Statements of Cash Flows...................................................  31

Notes to Financial Statements..............................................  32
</TABLE>

                                       26
<PAGE>

                       REPORT OF INDEPENDENT ACCOUNTANTS

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

  In our opinion, the financial statements listed in the accompanying index
present fairly, in all material respects, the financial position of Somera
Communications Inc. at December 31, 1999 and 1998 and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999 in conformity with accounting principles generally accepted
in the United States. In addition, in our opinion, the financial statement
schedule listed in the index appearing under Item 14(a)(1) on page 44 presents
fairly, in all material respects, the information set forth therein when read
in conjunction with the related 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, 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 the
opinions expressed above.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP

San Jose, California
January 27, 2000, except note 11
 for which the date is March 17, 2000

                                      27
<PAGE>

                          SOMERA COMMUNICATIONS, INC.

                                 BALANCE SHEETS
                     (in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                    December 31,
                                                                  ------------------
                                                                    1999      1998
                                                                  --------  --------
                             ASSETS
                             ------
 <S>                                                              <C>       <C>
 Current assets:
   Cash and cash equivalents....................................  $ 54,492  $  1,930
   Accounts receivable, (net of allowance for doubtful accounts
    of $736 and $249 at December 31, 1999 and 1998).............    19,592    10,237
   Inventories, net.............................................    18,386     4,067
   Deferred tax asset--current portion..........................     2,236       --
   Other current assets.........................................     2,147       186
                                                                  --------  --------
     Total current assets.......................................    96,853    16,420
 Property and equipment, net....................................     1,505       547
 Deferred tax asset--net of current portion.....................    16,490       --
 Other assets...................................................       903        42
                                                                  --------  --------
     Total assets...............................................  $115,751  $ 17,009
                                                                  ========  ========

<CAPTION>
 LIABILITIES, STOCKHOLDERS' EQUITY/MANDATORILY REDEEMABLE CLASS
                           B UNITS AND
                   MEMBERS' CAPITAL (DEFICIT)
 --------------------------------------------------------------
 <S>                                                              <C>       <C>
 Current liabilities:
   Accounts payable.............................................  $ 23,636  $  5,901
   Accrued compensation.........................................     1,707       496
   Other accrued liabilities....................................     2,284       541
   Capital lease obligations--current portion...................       830       --
   Income taxes payable.........................................       508       --
                                                                  --------  --------
     Total current liabilities..................................    28,965     6,938
 Notes payable..................................................       --      1,838
 Notes payable to related parties...............................       --      1,619
                                                                  --------  --------
     Total liabilities..........................................    28,965    10,395
                                                                  --------  --------

 Commitments (Note 5)

 Mandatorily redeemable Class B units...........................       --     51,750
                                                                  --------  --------
 Stockholders' equity/members' deficit
   Class A Units................................................       --    (51,359)
   Class B Units................................................       --      6,223
 Common stock: $0.001 par value
   Shares authorized: 200,000
   Shares issued and outstanding at December 31, 1999: 47,838...        48       --
 Additional paid in capital.....................................    66,419       --
 Retained earnings..............................................    20,905       --
 Unearned stock based compensation..............................      (586)      --
                                                                  --------  --------
     Total stockholders' equity/members' deficit................    86,786   (45,136)
                                                                  --------  --------
     Total liabilities and stockholders' equity/members'
      deficit...................................................  $115,751  $ 17,009
                                                                  ========  ========
</TABLE>

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

                                       28
<PAGE>

                          SOMERA COMMUNICATIONS, INC.

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

<TABLE>
<CAPTION>
                                                      Year Ended December 31,
                                                     --------------------------
                                                       1999      1998    1997
                                                     --------  -------- -------
<S>                                                  <C>       <C>      <C>
Net revenue......................................... $125,121  $ 72,186 $34,603
Cost of net revenue.................................   81,021    43,132  20,587
                                                     --------  -------- -------
    Gross profit....................................   44,100    29,054  14,016
Operating expenses:
  Sales and marketing...............................   10,320     5,747   2,593
  General and administrative (excludes stock-based
   compensation of $774)............................    7,982     3,939   1,648
  Stock-based compensation..........................      774       --      --
                                                     --------  -------- -------
    Total operating expenses........................   19,076     9,686   4,241
                                                     --------  -------- -------
  Income from operations............................   25,024    19,368   9,775
Interest expense, net...............................    2,193       187      82
                                                     --------  -------- -------
  Income before income taxes........................   22,831    19,181   9,693
Income tax benefit..................................  (17,403)      --      --
                                                     --------  -------- -------
    Net income...................................... $ 40,234  $ 19,181 $ 9,693
                                                     ========  ======== =======
Net income per share/unit--basic.................... $   1.02  $   0.50 $  0.25
                                                     ========  ======== =======
Weighted average share/units--basic.................   39,408    38,063  38,052
                                                     ========  ======== =======
Net income per share/unit--diluted.................. $   1.02  $   0.50 $  0.25
                                                     ========  ======== =======
Weighted average shares/units--diluted..............   39,484    38,063  38,052
                                                     ========  ======== =======
</TABLE>


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

                                       29
<PAGE>

                          SOMERA COMMUNICATIONS, INC.

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

<TABLE>
<CAPTION>
                  Common Stock Additional            Class A Units      Class B Units      Unearned
                  ------------  Paid in   Retained ------------------  ----------------  Stock-Based
                  Number Value  Capital   Earnings  Number    Value    Number   Value    Compensation  Total
                  ------ ----- ---------- -------- --------  --------  ------  --------  ------------ --------
<S>               <C>    <C>   <C>        <C>      <C>       <C>       <C>     <C>       <C>          <C>
Balances,
 January 1,
 1997...........     --  $ --   $    --   $   --     33,750  $  1,128   3,750  $    123     $ --      $  1,251
Capital
 contributed....     --    --        --       --        563       300     --        --        --           300
Net income......     --    --        --       --        --      8,738     --        955       --         9,693
Distributions to
 members........     --    --        --       --        --     (6,723)    --       (734)      --        (7,457)
                  ------ ----   --------  -------  --------  --------  ------  --------     -----     --------
Balances,
 December 31,
 1997...........     --  $ --   $    --   $   --     34,313  $  3,443   3,750  $    344     $ --      $  3,787
Conversion of
 Class B units
 to Class A
 units..........     --    --        --       --      2,501       344  (2,501)     (344)      --           --
Proceeds from
 issuance of new
 units..........     --    --        --       --        --        --      --        --        --           --
Repurchase of
 members'
 units..........     --    --        --       --    (12,821)  (51,750) (1,249)      --        --       (51,750)
Net income......     --    --        --       --        --     11,590     --      7,591       --        19,181
Distributions to
 members........     --    --        --       --        --    (14,986)    --     (1,368)      --       (16,354)
                  ------ ----   --------  -------  --------  --------  ------  --------     -----     --------
Balances,
 December 31,
 1998...........     --  $ --   $    --   $   --     23,993  $(51,359)    --   $  6,223     $ --      $(45,136)
Net income......     --    --        --    20,905       --     12,184     --      7,145       --        40,234
Distributions to
 members........     --    --        --       --        --    (43,010)    --    (25,222)      --       (68,232)
Issuance of
 common stock in
 conversion of
 outstanding
 units..........  38,063   38    (40,967)     --    (23,993)   80,825     --     11,854       --        51,750
Issuance of
 common stock
 through initial
 public
 offering, net
 of issuance
 costs of
 $9,904.........   9,775   10    107,386      --        --        --      --        --        --       107,396
Unearned
 employee stock-
 based
 compensation...     --    --        --       --        --        830     --        --       (830)          --
Amortization of
 unearned stock-
 based
 compensation...     --    --        --       --        --        --      --        --        244          244
Warrants issued
 in exchange for
 services.......     --    --        --       --        --        530     --        --        --           530
                  ------ ----   --------  -------  --------  --------  ------  --------     -----     --------
Balances,
 December 31,
 1999...........  47,838 $ 48   $ 66,419  $20,905       --   $    --      --   $    --      $(586)    $ 86,786
                  ====== ====   ========  =======  ========  ========  ======  ========     =====     ========
<CAPTION>
                     Mandatorily
                  Redeemable Class
                       B Units
                  -------------------
                   Number    Value
                  --------- ---------
<S>               <C>       <C>
Balances,
 January 1,
 1997...........       --   $    --
Capital
 contributed....       --        --
Net income......                 --
Distributions to
 members........       --        --
                  --------- ---------
Balances,
 December 31,
 1997...........       --   $    --
Conversion of
 Class B units
 to Class A
 units..........       --        --
Proceeds from
 issuance of new
 units..........    14,070    51,750
Repurchase of
 members'
 units..........       --        --
Net income......       --        --
Distributions to
 members........       --        --
                  --------- ---------
Balances,
 December 31,
 1998...........    14,070  $ 51,750
Net income......       --        --
Distributions to
 members........       --        --
Issuance of
 common stock in
 conversion of
 outstanding
 units..........   (14,070)  (51,750)
Issuance of
 common stock
 through initial
 public
 offering, net
 of issuance
 costs of
 $9,904.........       --        --
Unearned
 employee stock-
 based
 compensation...       --        --
Amortization of
 unearned stock-
 based
 compensation...       --        --
Warrants issued
 in exchange for
 services.......       --        --
                  --------- ---------
Balances,
 December 31,
 1999...........       --   $    --
                  ========= =========
</TABLE>

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

                                       30
<PAGE>

                          SOMERA COMMUNICATIONS, INC.

                            STATEMENTS OF CASH FLOWS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                     Year Ended December 31,
                                                    ---------------------------
                                                      1999      1998     1997
                                                    --------  --------  -------
<S>                                                 <C>       <C>       <C>
Cash flows from operating activities:
  Net income......................................  $ 40,234  $ 19,181  $ 9,693
  Adjustments to reconcile net income to net cash
   provided by operating activities:
    Depreciation and amortization.................       401       137       54
    Provision for doubtful accounts...............       578       201      145
    Provision for write-downs of inventories......     1,258       634      370
    Deferred tax benefit..........................   (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......       244       --       --
    Forgiveness of loans to officers..............        37       --       --
    Loss on disposal of assets....................         5       --       --
    Changes in operating assets and liabilities:
      Accounts receivable.........................    (9,933)   (4,343)  (4,038)
      Inventories.................................   (15,577)   (3,245)    (889)
      Other current assets........................     (908)       (17)     141
      Accounts payable............................    17,735     1,771    2,352
      Accrued compensation........................     1,211       234      150
      Other accrued liabilities...................     1,743       396       66
      Income taxes payable........................       508       --       --
                                                    --------  --------  -------
        Net cash provided by operating
         activities...............................    20,505    14,949    8,044
                                                    --------  --------  -------
Cash flows from investing activities:
  Acquisition of property and equipment...........      (599)     (553)     (85)
  Loans to officers...............................    (1,951)      --       --
  Decrease (increase) in other assets.............       --        (31)       5
                                                    --------  --------  -------
        Net cash used in investing activities.....    (2,550)     (584)     (80)
                                                    --------  --------  -------
Cash flows from financing activities:
  Proceeds from term loan, net of fees............    48,900       --       --
  Payment of term loan............................   (50,000)      --       --
  Borrowings on line of credit....................     9,500       --       --
  Paydown of line of credit.......................   (9,500)       --       --
  Proceeds from initial public offering, net of
   issuance costs.................................   107,396       --       --
  Proceeds from issuance of mandatorily redeemable
   Class B units..................................       --     51,750      300
  Repurchase of members' capital..................       --    (51,750)     --
  Proceeds from/(repayment of) notes payable......    (3,457)    2,500      295
  Distributions to members........................   (68,232)  (16,354)  (7,457)
                                                    --------  --------  -------
        Net cash provided by (used in) financing
         activities...............................    34,607   (13,854)  (6,862)
                                                    --------  --------  -------
Net increase in cash and cash equivalents.........    52,562       511    1,102
Cash and cash equivalents, beginning of year......     1,930     1,419      317
                                                    --------  --------  -------
Cash and cash equivalents, end of year............  $ 54,492  $  1,930  $ 1,419
                                                    ========  ========  =======
Supplemental disclosures of cash flow information:
  Cash paid during the period for interest........  $  1,081  $    201  $    98
                                                    ========  ========  =======
  Income taxes paid...............................  $    815  $    --   $   --
                                                    ========  ========  =======
  Fixed assets acquired under capital lease.......  $    765  $    --   $   --
                                                    ========  ========  =======
</TABLE>

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

                                       31
<PAGE>

                          SOMERA COMMUNICATIONS, INC.

                         NOTES TO 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

  Commencing with fiscal 1997, the Company's fiscal years are on a 52 or 53
week basis. The 1997, 1998, and 1999 years which ended on December 28, 1997,
January 3, 1999, and January 2, 2000, respectively, were 52 and 53 week
periods.

 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

  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 contractual arrangement with the
customer, the fee is fixed and determinable and collection of the resulting
receivable is probable. 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 is 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 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.

                                      32
<PAGE>

                          SOMERA COMMUNICATIONS, INC.

                  NOTES TO FINANCIAL STATEMENTS--(Continued)


 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 two 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.

  During the year ended December 31, 1997 one customer accounted for 10.1% of
net revenue. During 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. No individual customer accounted for more than 10% of net
revenue during the year ended December 31, 1999.

  No supplier accounted for 10% or more of new and de-installed equipment
purchases during the years ended December 31, 1997, 1998 and 1999.

 Financial Instruments

  The carrying amounts of certain of the Company's financial instruments,
including cash and cash equivalents, accounts receivable, accounts payable and
notes payable 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 an original or 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 provisions 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. These lives vary 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.

  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.

                                      33
<PAGE>

                          SOMERA COMMUNICATIONS, INC.

                  NOTES TO FINANCIAL STATEMENTS--(Continued)


 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," 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. 91-18, "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 model.

 Advertising and Promotional Costs

  We expense advertising and promotional costs as they are incurred.
Advertising expense for 1999, 1998 and 1997 was $20,000, $32,000 and $19,000,
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 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,
                                                       -----------------------
                                                        1999    1998    1997
                                                       ------- ------- -------
     <S>                                               <C>     <C>     <C>
     Numerator
       Net income..................................... $40,234 $19,181 $ 9,693
                                                       ------- ------- -------
     Denominator
       Weighted average shares/units--basic...........  39,408  38,063  38,052
       Dilutive effect of options and warrants to
        purchase shares/units.........................      76     --      --
     Weighted average shares/units--diluted...........  39,484  38,063  38,052
                                                       ------- ------- -------
     Net income per share/unit--basic................. $  1.02 $  0.50 $  0.25
                                                       ======= ======= =======
     Net income per share/unit--diluted............... $  1.02 $  0.50 $  0.25
                                                       ======= ======= =======
</TABLE>

 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, 1999, 1998 and 1997.

 Recent Accounting Pronouncements

  In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, or 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

                                      34
<PAGE>

                          SOMERA COMMUNICATIONS, INC.

                  NOTES TO FINANCIAL STATEMENTS--(Continued)

corresponding gains or losses be reported either in the statement of
operations or as a component of comprehensive income, depending on the type of
hedging relationship that exists. We do not currently hold derivative
instruments or engage in hedging activities.

  In July 1999, the FASB issued Statement of Financial Accounting Standards
No. 137, or SFAS No. 137, Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB No. 133. SFAS 137 deferred
the effective date of SFAS 133 until the first fiscal quarter beginning after
June 15, 2000.

  In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in Financial
Statements." SAB 101 provides guidance for revenue recognition under certain
circumstances. We are currently evaluating the impact of SAB 101 on our
financial statements and related disclosures. The accounting and disclosures
prescribed by SAB 101 will be effective for our fiscal year ended December 31,
2000.

Note 3--Balance Sheet Accounts (in thousands):

<TABLE>
<CAPTION>
                                                                  December 31,
                                                                  -------------
                                                                   1999   1998
                                                                  ------  -----
   <S>                                                            <C>     <C>
   Property and equipment, net
   Computer and telephone equipment.............................. $1,505  $ 486
   Office equipment and furniture................................    213    124
   Warehouse equipment...........................................    161     73
   Leasehold improvements........................................    181     80
                                                                  ------  -----
                                                                   2,060    763
   Less accumulated depreciation and amortization................   (555)  (216)
                                                                  ------  -----
                                                                  $1,505  $ 547
                                                                  ======  =====
</TABLE>

  Depreciation and amortization expense for the years ended December 31, 1999,
1998 and 1997 amounted to $401,000, $137,000, and $54,000, respectively.

  Included in computer and telephone equipment is an amount of approximately
$765,000 representing assets held under capital lease as of December 31, 1999.
These represent costs incurred in respect of software, hardware and related
costs arising from the implementation of the Company's new accounting system.
Amortization charged on these assets through December 31, 1999 was $98,000.

Note 4--Notes Payable:

  Notes payable to related parties represented amounts payable to two of the
Company's members. At December 31, 1998, the aggregate amount of notes payable
to these members was $619,000. 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 October 8, 1997, the Company entered into a revolving line of credit
facility of $2,500,000. There were no borrowings on this facility during each
of the years ended December 31, 1997 and 1998. On January 12, 1999, the
Company replaced this 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.


                                      35
<PAGE>

                          SOMERA COMMUNICATIONS, INC.

                  NOTES TO FINANCIAL STATEMENTS--(Continued)

  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. 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.

  The Company had no long term debt as of December 31, 1999.

Note 5--Commitments:

  The Company is obligated under several operating leases for both office and
warehouse space. The lease terms range in length from five to seven years.
Rent expense, net of sublease income, for the years ended December 31, 1999,
1998 and 1997 was $579,000, $297,000, and $131,000, respectively.

  On June 1, 1999, the Company entered into a five year lease for new
warehouse space. The lease terms include two options to renew for three years
and rentals of $38,000 are due on a monthly basis.

  Future minimum lease payments, net of sublease proceeds, under noncancelable
operating leases at December 31, 1999 are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                       Operating
                                                                        Leases
                                                                       ---------
     <S>                                                               <C>
     2000.............................................................  $  956
     2001.............................................................     972
     2002.............................................................     999
     2003.............................................................     907
     2004.............................................................     530
     Thereafter.......................................................      70
                                                                        ------
     Total minimum lease payments.....................................  $4,434
                                                                        ======
</TABLE>

  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 subleasee, because the Company is still
liable to meet its obligations under the terms of the original lease
agreement.

  In December 1999, the Company entered into negotiations to settle the
balance due under the one capital lease outstanding as of that date. In
January 2000, the balance of approximately $830,000 due on the lease was
settled in cash. As a result the amount due under this lease has been
presented as a current liability.

Note 6--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

                                      36
<PAGE>

                          SOMERA COMMUNICATIONS, INC.

                  NOTES TO FINANCIAL STATEMENTS--(Continued)

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 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 and Initial Public Offering

  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.

  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.

 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 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 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 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.

                                      37
<PAGE>

                          SOMERA COMMUNICATIONS, INC.

                  NOTES TO FINANCIAL STATEMENTS--(Continued)


 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 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 $244,000 for the year ended December 31, 1999. The
remaining charge will be amortized to net income as follows: $367,000 in 2000,
$148,000 in 2001, $63,000 in 2002 and $8,000 in 2003.

  Activity under the Plan is set forth below:

<TABLE>
<CAPTION>
                                                    Options Outstanding
                                        -------------------------------------------
                                                                         Weighted
                                                               Weighted   Average
                                                               Average   Remaining
                            Available              Price per   Exercise Contractual
                            for Grant    Shares      Share      Price      Life
                            ----------  --------- ------------ -------- -----------
   <S>                      <C>         <C>       <C>          <C>      <C>
   Shares reserved at plan
    inception..............  6,750,000
   Options assumed from
    Unit Plan.............. (2,943,343) 2,943,343  $7.57-11.00  $ 9.53     9.63
   Options granted.........   (150,000)   150,000        11.00   11.00     9.86
                            ----------  --------- ------------  ------     ----
   Balances, December 31,
    1999...................  3,656,657  3,093,343 $ 7.57-11.00  $ 9.60     9.64
                            ==========  ========= ============  ======     ====
</TABLE>

  At December 31, 1999 no options outstanding were exercisable. The weighted
average fair value of options granted during the year ended December 31, 1999
was $2.67 per share.

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

 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

                                      38
<PAGE>

                          SOMERA COMMUNICATIONS, INC.

                  NOTES TO FINANCIAL STATEMENTS--(Continued)

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, 1999, 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 "Purchase Plan"), 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 Purchase Plan will be 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 Purchase Plan, none of which had been
issued as of December 31, 1999.

 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 consistent with the
provisions of SFAS 123, the Company's net income for 1999 would have been as
follows (in thousands, except per share data):

<TABLE>
<CAPTION>
                                                                     Year Ended
                                                                    December 31,
                                                                        1999
                                                                    ------------
     <S>                                                            <C>
     Net income--as reported.......................................   $40,234
     Net income--as adjusted.......................................   $38,862
     Net income per share--basic as reported.......................   $  1.02
     Net income per share--basic as adjusted.......................   $  0.99
     Net income per share--diluted as reported.....................   $  1.02
     Net income per share--diluted as adjusted.....................   $  0.98
</TABLE>

  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>
                                                                    Year Ended
                                                                   December 31,
                                                                       1999
                                                                  --------------
     <S>                                                          <C>
     Risk-free interest rate..................................... 5.48% to 6.09%
     Expected life (in years)....................................              5
     Dividend yield..............................................             0%
     Expected volatility.........................................             0%
</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 will include an expected
volatility factor 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.

                                      39
<PAGE>

                          SOMERA COMMUNICATIONS, INC.

                  NOTES TO FINANCIAL STATEMENTS--(Continued)


Note 7--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 ($10,000 in 1999). 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 $24,000 and $15,000 for the years ended December 31, 1999,
and 1998.

Note 8--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 on 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
has a term of six months, is interest free and is collateralized on 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.

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

Note 9--Income Taxes:

  Somera was not subject to federal or state income taxes. The provision for
(benefit from) income taxes for the year ended December 31, 1999 consists of
the following (in thousands):

<TABLE>
<CAPTION>
                                                                  December 31,
                                                                      1999
                                                                  ------------
     <S>                                                          <C>
     Current:
       Federal...................................................  $    1,071
       State.....................................................         252
                                                                   ----------
                                                                        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...............................         667
       State--post incorporation.................................         126
                                                                   ----------
                                                                     (18,726)
                                                                   ----------
                                                                   $ (17,403)
                                                                   ==========
</TABLE>

                                      40
<PAGE>

                          SOMERA COMMUNICATIONS, INC.

                  NOTES TO FINANCIAL STATEMENTS--(Continued)


  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.

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

<TABLE>
<CAPTION>
                                                                  December 31,
                                                                      1999
                                                                  ------------
     <S>                                                          <C>
     Deferred tax asset (liability):
       Fixed assets..............................................   $    (7)
       Reserves and accruals.....................................       961
       Difference in tax and book basis of net assets upon
        conversion, net..........................................    17,772
                                                                    -------
         Total deferred tax asset................................    18,726
       Valuation allowance.......................................       --
                                                                    -------
         Net deferred tax asset..................................   $18,726
                                                                    =======
</TABLE>

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

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

Note 10--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. SFAS 131 supersedes Statement of
Financial Accounting Standards No. 14, or SFAS 14, "Financial Reporting for
Segments of a Business Enterprise." SFAS 131 changes current practice under
SFAS 14 by establishing a new framework on which to base segment reporting and
also requires interim reporting of segment information. The Company markets
products and related services to customers in the United States, Canada,
Europe 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.

                                      41
<PAGE>

                          SOMERA COMMUNICATIONS, INC.

                  NOTES TO FINANCIAL STATEMENTS--(Continued)


  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):

<TABLE>
<CAPTION>
                                                    New   De-installed  Total
                                                  ------- ------------ --------
     <S>                                          <C>     <C>          <C>
     Year ended December 31, 1997
       Revenue................................... $ 3,072   $31,531    $ 34,603
                                                  -------   -------    --------
       Gross profit.............................. $   561   $13,455    $ 14,016
                                                  -------   -------    --------
     Year ended December 31, 1998
       Revenue................................... $17,098   $55,088    $ 72,186
                                                  -------   -------    --------
       Gross profit.............................. $ 3,341   $25,713    $ 29,054
                                                  -------   -------    --------
     Year ended December 31, 1999
       Revenue................................... $43,708   $81,413    $125,121
                                                  -------   -------    --------
       Gross profit.............................. $ 7,410   $36,690    $ 44,100
                                                  -------   -------    --------
</TABLE>

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

<TABLE>
<CAPTION>
                                                                     Net Revenue
                                                                     -----------
     <S>                                                             <C>
     Year ended December 31, 1997:
       United States................................................  $ 28,907
       Canada.......................................................       409
       Latin America................................................     5,204
       Other........................................................        83
                                                                      --------
         Total......................................................  $ 34,603
                                                                      ========
     Year ended December 31, 1998:
       United States................................................  $ 57,958
       Canada.......................................................       895
       Latin America................................................    13,051
       Other........................................................       282
                                                                      --------
         Total......................................................  $ 72,186
                                                                      ========
     Year ended December 31, 1999:
       United States................................................  $111,514
       Canada.......................................................     4,002
       Latin America................................................     7,557
       Other........................................................     2,048
                                                                      --------
         Total......................................................  $125,121
                                                                      ========
</TABLE>

  All long lived assets are maintained in the United States.

Note 11--Subsequent Event

  On March 17, 2000, the Company entered into a contract with a major
international telecommunications company to purchase approximately $20 million
of currently installed telecommunications equipment. Pursuant to the terms of
the contract, the Company paid $6,000,000 upon awarding of the contract, to be
applied towards the overall purchase of the equipment. The Company has
provided a performance bond for the balance of the payments due under the
contract.

                                      42
<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 with respect to directors and
compliance with Section 16(a) of the Exchange Act is incorporated herein by
reference to the information contained in the Proxy Statement relating the
Company's 2000 Annual Meeting of Stockholders scheduled to be held on May 2,
2000, which will be filed with the SEC no later than 120 days after the close
of the fiscal year ended January 2, 2000.

ITEM 11. EXECUTIVE COMPENSATION

  The information required by this Item is incorporated herein by reference to
the information contained in the Proxy Statement relating to the Company's
2000 Annual Meeting of Stockholders scheduled to be held on May 2, 2000, which
will be filed with the SEC no later than 120 days after the close of the
fiscal year ended January 2, 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 contained in the Proxy Statement relating to the Company's
2000 Annual Meeting of Stockholders scheduled to be held on May 2, 2000, which
will be filed with the SEC no later than 120 days after the close of the
fiscal year ended January 2, 2000.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

  The information required by this Item is incorporated herein by reference to
the information contained in the Proxy Statement relating to the Company's
2000 Annual Meeting of Stockholders scheduled to be held on May 2, 2000, which
will be filed with the SEC no later than 120 days after the close of the
fiscal year ended January 2, 2000.


                                      43
<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:

 (b) 1. Financial Statements and Financial Statement Schedules. See index to
Financial Statements at Item 8 of this report.

  2. List of Financial Statement Schedules.

<TABLE>
     <C> <S>
     II. Valuation and Qualifying Accounts and Reserves
</TABLE>

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

<TABLE>
<CAPTION>
 Exhibit
 Number                               Exhibit Title
 -------                              -------------
 <C>     <S>
  3.1*   Certificate of Incorporation of Somera Communications, Inc., a
          Delaware corporation, as currently in effect.

  3.2*   Form of Amended and Restated Certificate of Incorporation of Somera
          Communications, Inc. to be filed immediately following the closing of
          the offering made under this registration statement.

  3.3*   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   , 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.

 10.13*  Sublease, dated January 30, 1999, between GRC International, Inc. and
          Somera Communications.

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

 23.1    Consent of PricewaterhouseCoopers LLP, independent accountants.
</TABLE>

                                       44
<PAGE>


<TABLE>
<CAPTION>
 Exhibit
 Number      Exhibit Title
 -------     -------------
 <C>     <S>
 27.1    Financial Data Table.
</TABLE>
--------
* Incorporated by reference to the Company's Registration Statement on Form S-
  1, filed September 10, 1999, as amended (File No. 333-86927).

(c) Reports on Form 8-K.

  The Company filed a Form 8-K on March 24, 2000.

                                       45
<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 24th day
of March 2000.

                                          Somera Communications, Inc.

                                                  /s/ Daniel A. Firestone
                                          By: _________________________________
                                                    (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 the dates indicated:

<TABLE>
<CAPTION>
             Signature                           Title                  Date
             ---------                           -----                  ----

<S>                                  <C>                           <C>
      /s/ Daniel A. Firestone        President, Chief Executive     March 24, 2000
____________________________________  Officer and Chairman of the
       (Daniel A. Firestone)          Board (Principal Executive
                                      Officer)

          /s/ Gary J. Owen           Chief Financial Officer and    March 24, 2000
____________________________________  Assistant Secretary
           (Gary J. Owen)             (Principal Financial and
                                      Accounting Officer)

           /s/ Gil Varon             Director                       March 24, 2000
____________________________________
            (Gil Varon)

      /s/ Walter G. Kortschak        Director                       March 24, 2000
____________________________________
       (Walter G. Kortschak)

         /s/ Peter Y. Chung          Director                       March 24, 2000
____________________________________
          (Peter Y. Chung)

          /s/ Barry Phelps           Director                       March 24, 2000
____________________________________
           (Barry Phelps)
</TABLE>

                                      46
<PAGE>

                                  SCHEDULE II

                       VALUATION AND QUALIFYING ACCOUNTS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                 Additions
                                                  Charged
                                      Balance at to Costs              Balance
                                      Beginning     and                at End
                                      of Period  Expenses  Deductions of Period
                                      ---------- --------- ---------- ---------
<S>                                   <C>        <C>       <C>        <C>
Year ended December 31, 1997
  Allowance for sales returns........    $ 39     $  249      $138      $150
  Allowance for doubtful accounts....      52        145       --        197
  Allowance for write-downs of
   inventory.........................      35        370       360        45
Year ended December 31, 1998
  Allowance for sales returns........    $150     $  424      $289      $285
  Allowance for doubtful accounts....     197        201       149       249
  Allowance for write-downs of
   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 write-downs of
   inventory.........................      57      1,258       673       642
</TABLE>

                                       47