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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------

                                   FORM 10-K
                            ------------------------

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

                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000

                                       OR

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

         FOR THE TRANSITION PERIOD FROM ____________ TO ____________ .

                        COMMISSION FILE NUMBER 000-30741

                           ACCELERATED NETWORKS, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
                            ------------------------

<TABLE>
<S>                                            <C>
                   DELAWARE                                      77-0442752
         (STATE OR OTHER JURISDICTION                         (I.R.S. EMPLOYER
      OF INCORPORATION OR ORGANIZATION)                     IDENTIFICATION NO.)
</TABLE>

                 301 SCIENCE DRIVE, MOORPARK, CALIFORNIA 93021
               (ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (805) 553-9680
                            ------------------------

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

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

     Based on the closing sale price of March 30, 2001, the aggregate market
value of the voting common stock of the registrant held by non-affiliates of the
registrant on such date was approximately $33,012,036. For purposes of such
calculation, only executive officers, board members and beneficial owners of
more than 10% of the Company's outstanding common stock are deemed to be
affiliates.

     As of March 30, 2001, the number of shares outstanding of the registrant's
common stock was 50,530,972.

                      DOCUMENTS INCORPORATED BY REFERENCE

     The following documents (or portions thereof) are incorporated by reference
into this Form 10-K: None

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                           ACCELERATED NETWORKS, INC.

                               INDEX TO FORM 10-K
                      FOR THE YEAR ENDED DECEMBER 31, 2000

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<S>         <C>                                                             <C>
PART I..................................................................      1
  Item 1.   Business....................................................      1
  Item 2.   Properties..................................................     15
  Item 3.   Legal Proceedings...........................................     15
  Item 4.   Submission of Matters to a Vote of Security Holders.........     16

PART II.................................................................     16
  Item 5.   Market for the Registrant's Common Stock and Related
            Stockholder Matters.........................................     16
  Item 6.   Selected Consolidated Financial Data........................     17
  Item 7.   Management's Discussion and Analysis of Financial Condition
            and Results of Operations...................................     19
  Item 7A.  Quantitative and Qualitative Disclosures About Market
            Risk........................................................     40
  Item 8.   Financial Statements and Supplementary Data.................     40
  Item 9.   Changes in and Disagreements with Accountants on Accounting
            and Financial Disclosure....................................     40

PART III................................................................     41
  Item 10.  Directors and Executive Officers of the Registrant..........     41
  Item 11.  Executive Compensation......................................     43
  Item 12.  Security Ownership of Certain Beneficial Owners and
            Management..................................................     46
  Item 13.  Certain Relationships and Related Transactions..............     48

PART IV.................................................................     50
  Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form
            8-K.........................................................     50
</TABLE>

     In this report, "Accelerated Networks," "Accelerated," "we," "us" and "our"
collectively refers to Accelerated Networks, Inc. and its wholly-owned
subsidiaries.
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     This report on Form 10-K and our annual report contain forward-looking
statements which include, but are not limited to, statements concerning
projected revenues, expenses, gross profit and income, the need for additional
capital and the outcome of pending litigation. These forward-looking statements
are based on our current expectations, estimates and projections about our
industry, management's beliefs, and certain assumptions made by us. Words such
as "anticipates," "expects," "intends," "plans," "believes," "seeks,"
"estimates," "may," "will" and variations of these words or similar expressions
are intended to identify forward-looking statements. In addition, any statements
that refer to expectations, projections or other characterizations of future
events or circumstances, including any underlying assumptions, are forward-
looking statements. These statements are not guarantees of future performance
and are subject to certain risks, uncertainties and assumptions that are
difficult to predict. Therefore, our actual results could differ materially and
adversely from those expressed in any forward-looking statements as a result of
various factors. The section entitled "Risk Factors" set forth at the end of
Part II, Item 7 of this report, the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in Part II, Item 7 of this report
and similar discussions in our other filings with the Securities and Exchange
Commission ("SEC") discuss some of the important risk factors that may affect
our business, results of operations and financial condition. You should
carefully consider those risks in addition to the other information in this
report and in our other filings with the SEC before deciding to invest in our
company or to maintain or increase your investment. We undertake no obligation
to revise or update publicly any forward-looking statements for any reason.

                                     PART I

ITEM 1. BUSINESS

OVERVIEW

     We develop and market telecommunications products that enable the bundling
of voice and data services over a single broadband access network. Our
multiservice broadband access products are designed to allow our customers to
efficiently and cost-effectively deliver and manage multiple voice and data
services using various broadband access technologies, including digital
subscriber line, or DSL, copper-line technologies such as Tl and NxTl, and
higher bandwidth technologies such as DS3 and fiber optic OC-3. Our
comprehensive family of multiservice broadband access products include our point
of presence, or POP, located multi-service access platform, or MSAP, voice
gateways, central office or MTU located MSAP, DSL and T1 concentrators, customer
located carrier-class integrated access devices, or IADs, and a software-based
element management system. Our multiservice broadband access products are
designed to facilitate interoperability with different types of equipment
deployed in service provider networks and comply with relevant industry
standards. We believe this allows for efficient and seamless installation and
provides our customers with greater flexibility in designing and deploying their
networks. Our target customers are competitive local exchange carriers, or
CLECs, interexchange carriers, or IXCs, regional bell operating companies, or
RBOCs, incumbent local exchange carriers, or ILECs, and foreign
telecommunication service providers.

INDUSTRY BACKGROUND

  The growing need for high-speed broadband communications

     In the last few years, the volume of data traffic over the Internet and
private communications networks has grown significantly, fueled by increasing
numbers of users and continued proliferation of Internet-based applications such
as e-commerce. In addition to e-commerce, business usage of the Internet for
applications such as supply chain management, Web hosting, remote access for
telecommuters, virtual private networks, or VPNs, and other services has
generated a significant amount of traffic for the existing communications
infrastructure.

     In an effort to meet this expected growth in data traffic, many service
providers have made significant investments in fiber optic core network
infrastructure to improve bandwidth and speed in the Internet backbone.
Similarly, many businesses have made significant investments to increase the
capacity of their premises' data network infrastructure. However, an access
bottleneck still exists between the ends of the fiber

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optic networks at telephone companies' central offices and the customer
premises. This segment of the network, generally connected through the existing
copper-pair infrastructure, is commonly known as the "last mile."

  Evolution of broadband access technologies

     Historically, the telecommunications industry in the United States and
internationally was highly regulated, with both local and long distance service
providers operating as monopolies. In the U.S., ILECs had a monopoly on the last
mile and primarily offered T1 and Integrated Services Digital Network, or ISDN,
services to address their customers' needs for high speed connectivity. A Tl
line is a phone connection supporting voice or data traffic at high speeds, and
ISDN is a communication standard for sending voice, video and data on digital or
normal telephone lines. Although T1 technology helped to fill the need for
broadband access for large businesses, which used leased Tl lines as a means to
create intra-enterprise private communications networks, it was not widely
adopted by small and medium size businesses, telecommuters and residential
users, largely because of its high cost. Analog dial-up modems and ISDN terminal
adapters are also limiting because of their lower access-speeds. To address
these issues, service providers are continuing to take advantage of new
technologies such as DSL to offer cost-effective broadband access to their
customers. DSL technologies use sophisticated schemes to pack data onto copper
wires, and are sometimes referred to as last-mile technologies because they are
used only for connections from a telephone switching station to a home or
office. In addition, declining costs have now made T1 services a viable means
for service providers to deliver broadband access to medium-size business
customers as well.

  The competitive telecommunications environment

     Two broad trends in the telecommunications industry are converging,
resulting in a new type of service provider: the integrated communications
provider, or ICP. The first trend began long before the 1996 Telecommunications
Reform Act and resulted in competitive access providers, which are now referred
to as "first generation" CLECs. Historically, these CLECs have primarily focused
on delivering voice services to large and medium-size business customers and,
consequently, generally have designed their access networks to deliver a single
service, such as voice, over a single access facility, such as a T1 line. As a
result, these CLECs often had to use parallel access networks, one for
delivering voice traffic and the other for data traffic, in order to provide
their customers with both voice and data services. While these CLECs could offer
competitive pricing relative to ILECs, heightened competition and increased
price pressure, coupled with the high underlying cost of maintaining parallel
access networks, has made it increasingly difficult for CLECs to compete.

     The second trend began subsequent to the 1996 Telecommunications Reform Act
and resulted in a new type of CLEC commonly called a "data CLEC" or a "second
generation" CLEC. Data CLECs primarily constructed DSL-based access networks
initially intended for the delivery of a single service -high speed Internet
access -- to residential and business customers. Data CLECs typically lease the
copper-pair infrastructure from ILECs, add DSL functionality, and sell broadband
access on a wholesale basis to Internet service providers, or ISPs, which then
market this access to end customers. Data CLECs are also finding it difficult to
compete in this market only having a single service to offer their customers.

     Many first generation CLECs need to consolidate their voice and data access
networks, currently used to deliver multiple services, in order to reduce costs
and compete more effectively. Data CLECs in turn, having built out a significant
nationwide DSL footprint, need to augment their revenue from Internet access to
residential customers by targeting business customers with multiservice bundles.
We believe the competitive dynamics discussed above are driving first generation
CLECs and data CLECs towards becoming integrated communications providers. We
also believe that incumbent and competitive telecommunication service providers
understand the benefits of and are planning to offer multiple voice and data
services over a single broadband facility.

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  The need for multiservice broadband access solutions

     We believe that service providers must be able to cost-effectively bundle
multiple voice and data services over a single broadband access network in order
to compete more effectively. More specifically, we believe that these service
providers require multiservice broadband access solutions that:

     - allow for the delivery of a rich set of bundled voice and data services
       over a single broadband access facility;

     - enable rapid deployment of additional services;

     - provide a high degree of reliability and scalability;

     - support multiple broadband access technologies;

     - provide for ease of management; and

     - interoperate with other network elements through industry standards.

THE ACCELERATED NETWORKS SOLUTION

     We develop and market multiservice broadband access solutions that enable
service providers to deliver and manage a variety of voice and data services
efficiently and cost-effectively over a single broadband access network. We
offer a wide range of products, including our MSAP voice gateways, MSAP
concentrators, a family of carrier-class IADs and a software-based element
management system, which enable service providers to offer their end users fully
integrated, high-quality voice and data services. Using our products, service
providers can leverage emerging technologies, such as delivering voice over
digital subscriber line, or VoDSL, and enabling frame relay over digital
subscriber line, or FRoDSL, over a single broadband access facility.

  Enable each set of bundled services

     Our multiservice broadband access products are designed to enable service
providers to efficiently and cost-effectively provide their end-users with a
broad range of voice and data services, including high speed Internet access,
local dial tone, long distance voice, frame relay access, voice and data virtual
private networks, or VPNs. Our multiservice broadband access products enable
service providers to deliver these services over a single broadband access
facility, using either DSL, Tl, NxTl, DS3 or OC-3 technologies, instead of
having to use parallel networks for their voice and data traffic. As a result,
service providers are able to reduce their total network costs. In addition,
because our multiservice broadband access products facilitate the bundling of
multiple voice and data services, service providers are better able to
differentiate themselves by offering tailored services and a single point of
contact to their customers, ultimately helping to increase their revenue and
reduce their customer churn.

  Facilitate rapid deployment of additional services

     Our multiservice broadband access products enable service providers to
deploy services to their customers more quickly than is currently possible using
traditional access products. Our multiservice broadband access products enable
service providers to meet their customers' initial voice and/or data needs and
allow for efficient and cost-effective provisioning of additional voice and data
services as their customers' demands change. In addition, AccessPilot, our
software-based element management system, allows service providers to remotely
"turn on" services to their customers from a central location.

  Broaden service provider target market

     Our multiservice broadband access products are designed to enable service
providers to cost-effectively address the needs of multiple target markets.
These target markets include large, medium and small businesses, branch offices,
remote offices, small office/home office and telecommuters. In particular, we
offer service providers a broad range of carrier-class IADs, each with varying
features and functionality, which

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enable them to better address the bandwidth, service and other requirements of
their customers. In addition, because our carrier-class IADs support the
delivery of bundled voice and data services over DSL, T1, NxT1, DS3 and OC-3
access technologies, our products enable service providers to effectively extend
their service reach.

  Enhance reliability and scalability

     Our MSAP voice gateways and MSAP concentrators have been certified to be
compliant with Telcordia Technologies Network Equipment Building System, or NEBS
Level 3, an industry standard for equipment deployed in central office
locations, which is a requirement for their deployment in carrier central office
locations. In addition, because our customers are delivering mission-critical
services such as toll-quality local and long distance voice to their customers,
we have designed our products to comply with rigorous industry standards for
reliability. Our multiservice broadband access products are also highly modular
and flexible, providing a migration path for service providers to scale their
networks as their customers' requirements evolve.

  Enhance network flexibility by interoperating with other network elements

     Our multiservice broadband access products are designed to interoperate
with different types of equipment deployed in service provider networks, such as
Class 5 voice switches, DSL access multiplexers, or DSLAMs, asynchronous
transfer mode, or ATM, switches and customer premises equipment, or CPE. We
conduct interoperability testing with Lucent, Nortel and Siemens AG for their
Class 5 voice switches, ADC PairGain, Lucent, Nokia, Nortel and Paradyne for
their DSLAMs, and Efficient Networks for their CPE, to enhance the continued
end-to-end functionality of our solutions. In addition, we have performed
in-house interoperability testing of our products with a number of ATM switch
products from Alcatel, Cisco, Lucent and Marconi Communications. We believe that
our products comply with relevant industry standards, allowing for efficient and
seamless installation and providing our customers with greater flexibility in
designing and deploying their networks.

THE ACCELERATED NETWORKS STRATEGY

     Our objective is to become the leading provider of multiservice broadband
access solutions. Our current strategy to achieve this objective includes the
following key elements; however, we have recently engaged Regent Pacific
Management Corporation ("Regent Pacific") to fill several senior executive and
management positions, including the Chief Executive Officer and Chief Financial
Officer (See "Recent Events" in Item 7). Regent Pacific. This new management is
in the process of working with existing management to develop and implement an
operating plan to improve our overall performance; as such, this plan may
include significant deviations or revisions from the elements described below.

  Enhance our technology leadership

     We believe we are the only telecommunications equipment vendor offering an
architecturally homogeneous multiservice broadband access solution comprised of
our POP MSAP voice gateways, central office or MTU-located MSAP concentrators
and customer-located carrier-class IADs. We utilize a common hardware and
software architecture across all three product families. We believe this
enhances our ability to rapidly implement new features and functionality across
our entire product line. While we currently intend to exploit this advantage by
continuing to conduct research and development on all three product families
comprising our complete multiservice broadband access solution, we may decide to
focus on new or different product lines to address our customers needs and
changing market conditions.

     We further believe that the individual network elements most critical to
deploying multiple broadband access services are those at either "edge" of the
broadband access network: POP voice gateways and customer-located IADs. As a
result, we expect to continue to expand our technological leadership in these
two product areas. We believe this will help us create significant barriers to
entry for emerging competitors as well as established telecommunications
equipment vendors.

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  Expand our domestic customer base

     To date, substantially all of our domestic sales have been to CLECs and
IXCs. While we intend to increase our sales to our existing customers as they
continue to expand their networks and service offerings, we also believe there
is a significant opportunity to sell to other voice and data CLECs and IXCs, as
well as to ILECs and RBOCs, as they continue to migrate toward a multiservice
broadband access strategy. We intend to increase our sales by leveraging our
relationships with current customers and by further developing our distribution
channels. We also plan to continue to work closely with current and potential
customers to implement enhancements to our current products, as well as to
design future products that specifically meet their evolving needs.

  Capitalize on international opportunities

     Many telecommunications service providers outside the U.S. are beginning to
deploy multiservice broadband access networks. We believe these international
markets present substantial opportunities, and we plan to expand our
development, sales and marketing efforts accordingly. We have initially pursued
international markets by developing country-specific distribution relationships,
leveraging existing and entering into new OEM relationships, and establishing an
international direct sales force. We are currently focusing those efforts in
Canada, Europe and Asia and opened a sales office in Belgium in October 2000. We
have invested and intend to continue to invest in research and development to
design products that meet international standards requirements. For instance, we
plan to introduce in the second half of 2001 versions of our IADs and MSAP
gateways with additional features required for some international markets, and
we plan at that time to support v5.2 standard switch signaling. We also plan to
continue to develop relationships with service providers and equipment
manufacturers to facilitate rapid product development and deployment in these
markets.

  Broaden our distribution channels

     We plan to extend our distribution channels to meet the demand for
multiservice broadband access equipment. We intend to selectively pursue
additional OEMs, distributors, resellers and network integrators to increase the
penetration of our products in new and existing markets, both domestically and
internationally. OEMs, distributors, resellers and network integrators are an
integral part of our worldwide distribution strategy because we believe that, in
conjunction with our direct sales force, they will help identify new sales
prospects, sell our products as part of a complete solution, and customize and
integrate our products into service provider networks.

  Continue to pursue and leverage strategic relationships

     We believe that establishing strategic relationships with companies whose
business models and competencies complement our own will enable us to more
effectively penetrate various market segments and offer our customers additional
high-quality and value-added solutions. We plan to continue actively working
with our customers and other equipment vendors to ensure interoperability with
equipment installed in their networks, as well as equipment that is currently
being developed. We also plan to work with our customers and equipment
manufacturers to develop and promote new standards so that our products will
continue to be interoperable with future network equipment.

  Facilitate deployment of multiservice broadband access networks

     We believe that helping our customers design and provide competitive
multiservice voice and data offerings will facilitate rapid adoption of products
required to deliver such services. We plan to continue to collaborate with our
customers to assist them in the design, engineering, and deployment of their
multiservice broadband access networks. Toward this end, we developed a
professional services organization specifically designed to help our customers,
especially CLECs, to successfully and rapidly deploy multiservice broadband
access networks. We also plan to assist our service provider customers in
marketing bundled voice and data services to their customers.

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PRODUCTS

     We offer a family of multiservice broadband access products that enable
efficient and cost-effective delivery of voice and data services over a single
broadband access network. Our products address service provider requirements in
three related areas within the broadband access network: the POP, the central
office, and the customer premises. In addition, we complete our multiservice
broadband access solution with a software-based element management system.

  MSAP Voice Gateways

     Our MSAP voice gateways are located at service provider POPs or switching
centers. Our MSAP voice gateways receive streams of voice packets from central
offices and convert the packetized voice traffic into the format expected by
public switch telephone network, or PSTN, voice switches. Our MSAP voice
gateways then deliver the converted voice traffic to the appropriate PSTN voice
switch. These PSTN voice switches may be Class 5 local exchange switches, Class
3 or 4 long distance switches, or emerging packetized soft switches. For Class 5
switches, we use GR-303 signaling, which allows switch ports to be
cost-effectively over-subscribed. For Class 3 and 4 voice switches, we use T1
channel associated signaling.

     Our MSAP voice gateways are NEBS-compliant, redundant, chassis-based
systems that provide high-density voice switch connectivity. We currently
support 144 channelized T1 interfaces in a single chassis and 576 channelized T1
interfaces in a standard seven-foot telco rack. Our MSAP voice gateways also
provide circuit emulation capabilities as well as voice compression, silence
suppression, comfort noise insertion, and built-in, high performance echo
cancellation. Our MSAP voice gateways support a wide range of network
interfaces, including T1, NxT1, DS3 and OC-3, and may also be populated with DSL
or T1 ATM line cards, allowing them to additionally act as DSL or T1
concentrators. Our MSAP voice gateways are available in two configurations: the
4 slot AN-3204 and the 20 slot AN-3220.

  MSAP Concentrators

     Our MSAP concentrators are located at carrier central offices. Our MSAP
concentrators aggregate a large number of broadband access lines into high-speed
uplinks and perform local switching functionality. Our MSAP concentrators allow
service providers to employ a variety of broadband access technologies,
including DSL, T1, and NxT1 lines. In addition, our MSAP concentrators are built
on a robust ATM switching fabric that, when coupled with advanced policing and
traffic management capabilities, allows service providers to maintain a high
level of QoS required for delivery of multi-service applications.

     Our AN-3220 MSAP concentrator is fully NEBS Level 3-compliant, redundant,
chassis-based systems that provides high-density DSL and Tl access
concentration. A single chassis is capable of supporting up to 216 symmetrical
DSL or T1 connections. Four chassis can be configured to provide up to 864
symmetric DSL or T1 lines within a standard seven-foot telco rack. Our MSAP
concentrators also support T1 time division multiplexing, or TDM, interfaces,
which enables them to provide concentration and voice and data backhaul services
for legacy TDM devices, including digital loop carriers and customer premises
channel banks. Our MSAP concentrators may also be populated with voice services
interface cards, allowing them to additionally act as voice gateways. This is
important for those service providers which have Class 5 voice switches
installed in the same central office as their concentration equipment. Our MSAP
concentrators are available in two configurations: the 4 slot AN-3204, which is
primarily targeted at multi-tenant unit, or MTU, applications, and the 20 slot
AN-3220, primarily targeted at central office and collocation environments.

  Carrier-class IADs

     Our carrier-class IADs are installed at the customer premises of the
service providers to whom we sell and integrate multiple voice and data services
over a single broadband access facility, allowing service providers to
cost-effectively deliver bundled voice and data services to business and
residential subscribers. Our carrier-class IADs provide robust Quality of
Service, or QoS. Additionally, our carrier-class IADs facilitate complete
network management and service provisioning from service provider network
operations centers, or NOCs.
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     We provide a wide range of carrier-class IADs. Our AN-20 product provides
data-only broadband access over DSL or small office/home office and T1
facilities and is intended for small business and residential customers. Our
AN-24 IAD supports broadband data access as well as up to 4 analog voice ports
and is targeted at small offices, home offices and telecommuters. Our AN-28 IAD
supports broad-band data access and up to 8 analog voice ports and is designed
for small businesses and branch offices. Our AN-30 IAD supports broadband data
access and up to 12 analog or 24 digital voice ports and is focused on small to
medium-size business locations. Our AN-3204 may be used as a large business IAD,
facilitating DS3 and OC-3 wide area network uplinks in addition to DSL, T1 and
NxT1. The AN-32 is capable of handling Frame Relay, Ethernet (IP) and either 16
analog ports, or two subscriber-side T1 interfaces with support for up to 48
digital voice ports. It introduces Inverse Multiplexing for ATM, or IMA,
interface with up to 4 links that provide higher uplink capacity and redundancy,
and is focused on medium and larger business locations.

     All of our carrier-class IADs support internal layer two bridging and layer
three Internet protocol, or IP, routing and PPP over ATM, including such
capabilities as network address translation, dynamic host configuration protocol
and packet filtering. Additionally, our carrier-class IADs can connect directly
to customer frame relay equipment, including routers, using standard frame
relay-to-ATM internetworking functions. Our carrier-class IADs also provide
support for constant bit rate, or CBR, and real-time variable bit-rate, or
rt-VBR, voice-over-ATM, built-in voice compression, silence suppression, comfort
noise insertion, voice compression and echo cancellation. Finally, our
carrier-class IADs are fully manageable from remote NOCs using widely adopted
Internet protocols.

  AccessPilot

     Our software-based element management system, AccessPilot, is a Common
Object Request Broker Architecture, or CORBA, compliant solution that simplifies
the service provisioning and management of our products. AccessPilot is designed
to be easily integrated into existing and emerging service provider operations
support systems, or OSS, infrastructure using standard CORBA interfaces.
AccessPilot includes a user-friendly graphical user interface, or GUI, enabling
service providers to physically view and configure services from remote
management workstations. AccessPilot allows service providers to turn on new
services remotely through our multiservice broadband access products, thereby
eliminating the need for segment-by-segment manual service activation. In
particular, the following management capabilities can be accessed through
AccessPilot:

     - configuration management;

     - fault management;

     - performance management;

     - accounting management;

     - security management;

     - J2EE element management platform GUI*;

     - redundancy*

     - browser-based IAD web management*; and

     - bulk configuration and automated deployment*
---------------
* denotes capabilities currently under development

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  Products in development

     We currently have under development a number of products, features and
functions which we believe will further enhance our overall multiservice
broadband access solution. We are generally focusing our development activities
on the following areas:

     - augmenting voice signaling capabilities of our MSAP voice gateways;

     - increasing port densities for our MSAP concentrators;

     - adding DSL variants to our carrier-class IADs and MSAP concentrators;

     - broadening our carrier-class IAD product line with new IAD platforms;

     - expanding the element/network management capabilities of our AccessPilot
       product for greater coverage for FCAPS; and

     - expanding partnerships to enhance interoperability with back-office
       applications for service and business management.

CUSTOMERS

     Historically, sales of our products have primarily been to CLECs and IXCs.
Our CLEC customers have generally had little legacy equipment installed in their
networks and, therefore, have typically deployed our MSAP voice gateways, MSAP
concentrators and carrier-class IADs as a complete end-to-end solution. Some of
our CLEC customers that have already purchased and deployed a DSLAM from another
equipment supplier have purchased our MSAP voice gateways and carrier-class IADs
to complete their end-to-end solutions. Our IXC customers have generally had
larger, more established network infrastructures and therefore have typically
purchased individual products from us for inclusion in their networks.

     Sales to Siemens, CTC Communications and Lightyear Communications
constituted approximately 38%, 26% and 26% of our total sales, respectively, for
the year ended December 31, 2000. No other customer accounted for more than 10%
of our total revenue for the year.

     Many service providers, including most of our current customers, are
building networks that are in their initial stages of deployment. In general,
these service providers make relatively small initial purchases. As these
service providers continue to build out their networks, we believe they will
eventually need to purchase a significantly greater amount of equipment.
Accordingly, we intend to leverage our existing customer base to continue to
provide them with our products as they expand their networks.

STRATEGIC RELATIONSHIPS

     We believe that establishing strategic relationships with companies whose
business models and competencies complement our own will enable us to more
effectively penetrate various market segments and offer our customers additional
high-quality and value-added solutions. Toward this end, we have established
strategic relationships in a number of areas of our business, including:

          OEM. We have established OEM relationships with Siemens ICN in the
     United States and its parent, Siemens AG for international markets.
     However, Siemens AG recently announced that it has entered into an
     agreement to purchase Efficient Networks, one of our competitors.
     Accordingly, we cannot assure you that Siemens will be able to devote
     adequate resources to work with us in the future. Since we believe that OEM
     relationships will be particularly important as we implement our
     international sales operations, we are currently pursuing additional
     strategic relationships with other OEMs.

          Interoperability. We have successfully conducted interoperability
     testing with Lucent, Nortel and Siemens AG for their Class 5 voice
     switches; Convergent Networks and Santera for their packetized soft
     switches; ADC PairGain, Lucent, Nokia, Nortel and Paradyne for their
     DSLAMs; standards-based IAD vendors such as Efficient Networks, Mariposa,
     Polycom and Vina for their CPE; and General Bandwidth

                                        8
<PAGE>   11

     and Zhone Technologies for their next generation voice gateway to ensure
     the continued end-to-end functionality of our solutions.

          Technology and standards development. We have established technology
     development relationships with Dorado Software for components of element
     management and network management systems to provide service providers with
     the following functionality:

        - ease of end-to-end service provisioning;

        - fault management and correlation; and

        - standards-based layer interface to carriers' OSS systems.

        In addition, we work with our key customers to drive our development
        efforts and to establish standards for areas where none currently exist.

TECHNOLOGY

     We design and manufacture MSAP voice gateways, MSAP concentrators, and
carrier-class IADs. These products combine a number of hardware and software
technologies. Our primary areas of expertise include:

  Carrier-class hardware design

     POP and central office environments are demanding. Accordingly, our
hardware design incorporates multiple levels of redundancy, including power and
cooling. Our carrier-class IAD hardware designs use processors and memory
components derived from the same component family. This allows us to design our
carrier-class IADs to support customer-specific applications using common
software. All models of our carrier-class IAD hardware are designed to work with
the same software, simplifying deployment for service providers. Our hardware
designs use market-leading component technology, especially for DSL
applications, which today are based on de facto standards for interoperability.
We endeavor to use widely-used chipsets to ensure interoperability with a wide
range of other DSL equipment. We also use field programmable gate arrays for
specific applications, which makes our hardware designs more flexible, allowing
for rapid enhancements or changes without the need to add new chips.

  Packet-based voice expertise

     We have extensive expertise in packetized voice technology. We utilize
digital signal processing algorithms to implement voice compression, echo
cancellation, silence suppression, and comfort noise insertion, which are key
elements in optimizing bandwidth use while delivering toll-quality voice
service. In addition, we have extensive experience in all aspects of analog and
digital telephony required to implement a wide range of call routing and
termination options. Our voice-over-ATM knowledge includes the use of rt-VBR,
which optimizes use of bandwidth and allows for compressed voice. A key area of
our research and development focuses on using ATM, or SVCs, to dynamically
connect telephone subscribers with local or long distance voice switches, as
well as emerging soft switches and to directly connect to other business
locations.

  Software and protocol technologies

     We have extensive experience with protocols such as IP, ATM and frame
relay. Our protocol software is designed to be reusable across our products and
to support compatibility with new and existing hardware. IP technologies such as
network address translation and dynamic host configuration protocol help
conserve IP addresses, which is critical in today's rapidly growing Internet
environment. Furthermore, we have considerable experience with basic bridging
and routing functions, as well as interworking functions required to map IP to
frame relay, IP to ATM and frame relay to ATM. We also possess knowledge on the
policing, shaping and traffic management techniques required to preserve service
quality across converged voice/data access networks.

                                        9
<PAGE>   12

  Transmission technologies

     Our in-depth knowledge of copper-pair transmission technologies used in the
last mile includes various types of DSL, such as asymmetric DSL, symmetric DSL
and G.Lite, T1/E1, DS3, and inverse multiplexing over ATM. In addition, we have
extensive expertise in coaxial and fiber-optic based technologies used for
transmission between POPs and central offices, including DS3, E3, OC-3 and
STM-1. The physical layer of all our products has been abstracted from the
service layers, enabling new transmission technologies to be added very quickly.

  Element management and provisioning

     We have focused heavily on technology required to deploy and manage
large-scale service provider infrastructure that incorporates customer-located
IADs. Our AccessPilot system combines simple network management protocol, or
SNMP, with CORBA interfaces to tie in with a service provider's existing OSS. In
addition, we have developed flow-through and self-provisioning features that we
believe dramatically reduce network operation costs. We incorporate
self-provisioning functionality in our carrier-class IADs, enabling
configuration from a centrally located directory.

  Research and Development

     We have made, and plan to continue to make, substantial investments in
research and development. Research and development expenses were approximately
$45.0 million for the period from inception to December 31, 2000, and
approximately $23.6 million for the year ended December 31, 2000. All of our
software development costs have been expensed as incurred. As of December 31,
2000, we had 144 employees responsible for product development, quality
assurance and documentation.

     We conduct the majority of our research and development at our Moorpark,
California headquarters and our Richardson, Texas facilities. We also have an
office in Bangalore, India which focuses on software development. We plan to
focus our research and development efforts on the following areas:

     - continued enhancement of our core product family;

     - next-generation voice signaling technologies;

     - next-generation IADs and MSAPs;

     - enhanced element management; and

     - development of interfaces and protocols for international markets.

SALES AND MARKETING

     We currently focus our sales and marketing efforts in three areas:

     - Direct. We believe that direct interaction with service providers
       provides an efficient method of understanding our customers' business
       models and technical requirements. Further, we believe that the
       competitive nature of the telecommunications equipment industry requires
       us to reduce costs that would otherwise be passed on to our customers. In
       many cases this is accomplished by avoiding intermediate steps in the
       distribution chain and establishing a direct relationship with the
       service provider customer.

     - OEM. To date, OEM sales through Siemens ICN have been an important
       distribution channel for us in the U.S. Siemens ICN primarily sells its
       products to ILECs, RBOCs, CLECs and smaller independent operating
       companies. However, Siemens AG recently announced that it has entered
       into an agreement to purchase Efficient Networks, one of our competitors.
       Accordingly, we cannot assure you that Siemens will devote adequate
       resources to work with us in the future. Since we believe that OEM
       relationships will be particularly important as we implement our
       international sales operations, we are currently pursuing additional
       strategic relationships with other OEMs.

                                        10
<PAGE>   13

     - System Integrator. We believe that some CLECs may prefer purchasing
       products through systems integrators that in addition to sourcing
       products, provide other value-added services, such as integration, test,
       staging, installation and third-party equipment procurement. While
       systems integrators have not traditionally focused on generating demand
       for our products, we believe that they are well-positioned to help
       increase market penetration of our products by targeting smaller service
       providers. As a result, we intend to work closely with selected system
       integrators to provide training and engage in cooperative sales and
       marketing programs.

     We are focusing our marketing efforts on driving demand for products used
in multiservice broadband access networks. Toward this end, we work directly
with service providers to help them develop business models, service product
packages and promotional programs, all designed to promote the delivery of
multiple voice and data services over a single broadband access facility. In
addition, we are actively working with a number of trade publications and
industry analysts to educate service providers on how to deploy, and the
benefits of, multiservice broadband access networks.

     We emphasize the use of Web-based technology for both internal and external
sales and marketing applications. For internal applications, virtually all our
information, documentation, policies, procedures, directories, competitive data
and market research are contained in Web-accessible databases. This allows for
rapid internal dissemination of information to our sales and marketing
personnel. For external applications, we make our company, product, and
process-based information available to existing and potential customers.

MANUFACTURING

     We outsource most of our product and printed circuit board assembly to
contract manufacturers. Avnet performs the majority of our component procurement
and materials management and prepares component kits for its sub-contractor,
A-Plus, which assembles, manufactures and tests our products at its facility in
San Jose, California. Arrow performs the same services as Avnet for a limited
number of our products and also sub-contracts with A-Plus for assembly,
manufacturing and testing. Avnet, Arrow and A-Plus are registered as meeting the
requirements of the International Standards Organization, or ISO, for
manufacturing and design processes. We are in the process of transitioning our
principal contract manufacturing from Avnet to Fine Pitch (a subsidiary of
Solectron). While we believe that the transition process will occur without
significant cost or disruption to our business, we cannot assure that we will
not experience such costs or disruption. For ease in manufacturing and inventory
management, we use standard parts and components whenever possible.

     We conduct final product assembly and perform reliability, stress and final
testing for most of our products. A-Plus performs the majority of these
activities for our AN-24 and AN-28 carrier-class IADs. We have complete
capabilities for configuration, packaging, and shipping of our products. We
perform comprehensive inspection tests and use statistical process controls to
assure the reliability and quality of our products. Our manufacturing engineers
develop all test procedures and design and build all equipment and stations
required to test our products. We integrate these manufacturing tests with our
contract manufacturers' build processes. Our manufacturing personnel work
closely with our design engineers to design for manufacturability, and to ensure
that our test environment remains current as broadband access technologies
evolve.

     We use a rolling 12-month forecast based on anticipated product orders to
determine our product requirements. In turn, we provide these forecasts to our
contract manufacturers, and they procure all material according to lead times.
We may, in the future, seek additional contract manufacturers or secure offshore
manufacturing capabilities to meet our anticipated manufacturing requirements
and to continue driving down the cost of our products. Because we make purchase
commitments to our contract manufacturers based on forecasts, we are subject to
significant risk that our forecasts may be inaccurate. This may cause us to
purchase less inventory than is needed to fill customer orders, or to purchase
excess quantities of inventory that may become subject to obsolescence.

SERVICE AND SUPPORT

     We provide a variety of technical support services under our AcceleratedTAC
program to help our customers deploy their multiservice broadband access
networks. AcceleratedTAC is administered by our
                                        11
<PAGE>   14

technical assistance center and is available with a wide variety of support
options that can be tailored to customer requirements, 24 hours a day, seven
days a week.

     In addition to direct technical support, we are in the process of
implementing AcceleratedStart, our comprehensive services program designed to
assist service providers in a wide variety of functional areas. Under
AcceleratedStart, our professional services teams will work with our customers
to manage the design and deployment of their networks and provide
program/project management, installation services, and on-site support. These
services are delivered utilizing a combination of third party providers and
Accelerated Networks employees. We offer the following services through
AcceleratedStart:

     - planning, network design, and engineering;

     - element and network management design;

     - program/project management;

     - network operations center design and implementation;

     - "rack and stack" central office installation services;

     - customer premises installation services;

     - on-site network operations support; and

     - customer training.

     As of December 31, 2000, we employed 17 people in our customer support and
professional services organizations with the majority located in Moorpark,
California.

COMPETITION

     The market for multiservice broadband access products is extremely
competitive and we believe that competition will increase substantially as the
introduction of new technologies, deployment of broadband access networks, and
potential regulatory changes create new opportunities for established and
emerging companies. Furthermore, DSL and T1 as technologies for deploying
broadband connections are competing with alternative technologies including
broadband wireless, passive optical networks, or PONs, and cable solutions.
Currently, we face competition in two areas: equipment manufacturers providing
point solutions and larger vendors that integrate point products into end-to-end
solutions.

     With regard to point solutions, we compete in the following three product
categories:

          Voice Gateways. We compete with other voice gateway providers,
     including CopperCom, Jetstream, Tollbridge, General Bandwidth and Zhone
     Technologies.

          Concentrators. We compete with other concentrator providers,
     including:

        - Alcatel, Lucent, Nortel, Nokia and PairGain (acquired by ADC
          Telecommunications) -- central office DSLAM;

        - Advanced Switching Communications, Alcatel, Cisco and Lucent  -- ATM
          access concentrators; and

        - Access LAN, Copper Mountain and Avial, -- MTU concentrators.

        IADs. We compete with other IAD providers, including:

        - Cisco, Mariposa, Adtran and VINA -- T1/El IADs; and

        - Polycom, Efficient Networks (pending acquisition by Siemens AG),
          Jetstream and CopperCom -- DSL IADs.

     However, in many cases, especially with CLECs, service providers building
multiservice broadband access network infrastructure require more than point
solutions and therefore prefer to purchase integrated

                                        12
<PAGE>   15

solutions from a single source. As a result, since we provide a complete
multiservice broadband access solution, we compete with larger vendors such as
Lucent, Nortel and Cisco, which utilize various point products from vendors
listed above in conjunction with their own products to offer a complete
solution.

     The principal competitive factors for products utilized in our markets
include:

     - features;

     - reliability and scalability;

     - performance;

     - interoperability with other products;

     - price;

     - ease of installation and use;

     - technical support and customer service;

     - brand recognition; and

     - equipment financing.

     While we expect to face increasing competitive pressures from both current
and future competitors in the markets we serve.

     A number of our competitors and potential competitors also have
significantly greater financial and other resources than we have, which may
enable them to more aptly meet new competitive opportunities, including offering
lease and other financing programs. In addition, the rapid technological
developments in our industry can result in frequent changes to our group of
competitors. Consolidation in our industry may also affect our ability to
compete. For instance, Siemens recently announced that it had entered into an
agreement to acquire Efficient Networks, Nortel acquired Promatory
Communications, Alcatel acquired Newbridge Networks and ADC Telecommunications
acquired PairGain Technologies. Acquisitions such as these may strengthen our
competitors' financial, technical and marketing resources and provide greater
access to customers. As a result, these competitors may be able to devote
greater resources to the development, promotion, sale and support of their
products than we can. In addition, while Siemens AG currently owns approximately
18.1% of our common stock and has been a significant distribution channel for
us, Siemens may decide to focus its efforts in the future on Efficient Networks'
products, given its recently announced agreement to acquire Efficient Networks.
There can be no assurance that we will be able to compete successfully with our
existing or new competitors, or that competitive pressures will not materially
and adversely affect our business, financial condition and results of
operations.

INTELLECTUAL PROPERTY

     We rely on a combination of copyright, patent, trademark, trade secret and
other intellectual property laws, nondisclosure agreements and other protective
measures to protect our proprietary rights. We also utilize unpatented
proprietary know-how and trade secrets and employ various methods to protect our
trade secrets and know-how. Although we do not have any issued patents to date,
we currently have seven U.S. patent applications pending.

     Although we employ a variety of intellectual property in the development
and manufacturing of our products, we believe that none of our intellectual
property is individually critical to our current operations. However, taken as a
whole, we believe our intellectual property rights are significant and that the
loss of all or a substantial portion of such rights could have a material
adverse effect on our results of operations. We cannot assure you that our
intellectual property protection measures will be sufficient to prevent
misappropriation of our technology. In addition, the laws of many foreign
countries do not protect our intellectual properties to the same extent as the
laws of the United States. From time to time, we may desire or be required to
renew or to obtain licenses from others in order to further develop and market
commercially viable products effectively. We cannot assure you that any
necessary licenses will be available on reasonable terms, if at all.
                                        13
<PAGE>   16

     Accelerated Networks(R), Accelerated Networks & Design(R), Access
Pilot(TM), AcceleratedStart(TM), and AcceleratedTAC(TM) are our trademarks and
may be subject to U.S. and foreign registration and pending trademark
applications.

GOVERNMENTAL REGULATION

     The markets for our products are characterized by a significant number of
laws, regulations and standards, both domestic and international, some of which
are evolving as new technologies are deployed. Our products are required to
comply with these laws, regulations and standards, including those promulgated
by the Federal Communications Commission, or FCC, and counterpart foreign
agencies. In some cases, we are required to obtain certifications or
authorizations before our products can be introduced, marketed, or sold. While
we believe that our products comply with all current applicable governmental
laws, regulations and standards, we cannot assure you that we will be able to
continue to design our products to comply with all necessary requirements in the
future. Accordingly, any of these laws, regulations and standards may directly
affect our ability to market or sell our products.

     In addition, FCC regulatory policies that affect the availability of
broadband access for data and Internet services may impede our customers'
penetration into their markets, affect the prices that our customers are able to
charge, or otherwise affect their ability to market their products and grow
their business. For example, FCC regulations addressing interconnection of
competing networks, collocation, unbundling of network elements, and line
sharing impact our customer base. The FCC and the courts are also continuing to
review the access charges of ILECs and CLECs that are paid by long distance
carriers. Any changes in the regulation of such access charges may affect other
telecommunications providers, including the viability of CLECs, and thus affect
our customer base. In addition, the FCC has not clearly defined how or whether
some broadband services, as well as voice over IP, should be regulated. If the
FCC decides to regulate these emerging services, our customer base could be
impacted. To the extent that our customers are adversely affected by these
changes in the regulatory environment, our business, operating results, and
financial condition may be harmed.

     Other FCC regulations and federal statutes may also affect our ability to
market or sell our product. Pursuant to the federal Communications Act, the FCC
has adopted certain rules that require manufacturers of telecommunications
equipment and providers of telecommunications services to ensure that such
equipment and services are available and accessible to those with disabilities.
These rules may affect both the manufacture of our products and our marketplace.
Courts have issued a number of opinions interpreting the Americans with
Disabilities Act, or ADA, that may indirectly affect the interpretation and
enforcement of these FCC rules. Additional court opinions interpreting either
the ADA or the applicable FCC regulations may affect our product offerings and
our customers' service offerings, either of which could affect our ability to
market or sell our products.

     State regulation of telecommunications networks and service providers may
also affect the regulatory environment of our marketplace. State regulators, for
example, typically settle disputes for competitive access to some ILEC network
elements or collocation in ILEC offices, which competitive carriers use to offer
various services. State regulators may also regulate and arbitrate disputes
concerning interconnection of networks of ILECs and competitive carriers. To the
extent that our customers are adversely affected by these changes in the
regulatory environment, our business, operating results, and financial condition
may be harmed.

     In addition to federal and state telecommunications regulations, an
increasing number of other domestic laws and regulations are being adopted to
specifically address such broadband and telecommunications issues as liability
for information retrieved from or transmitted over the Internet, online content
regulation, user privacy, taxation, consumer protection, security of data,
access by law enforcement, as well as intellectual property ownership,
obscenity, and libel. For instance, the FTC has recommended that Congress enact
legislation to ensure adequate protection of online privacy and federal online
privacy legislation is currently pending in Congress. The adoption of this or
other restrictive legislation could increase the costs of communicating over the
Internet or decrease the acceptance of the Internet as a commercial and
advertising medium, thus dampening the growth of the Internet. Because our
customers use our products to facilitate both

                                        14
<PAGE>   17

commercial and personal uses of the Internet, our business could be harmed if
the growth of the Internet were adversely affected by such regulations or
standards.

     Countries in the European Union, or EU, have also adopted laws relating to
the provision of Internet services, the use of the Internet, and
Internet-related applications. For example, in the United Kingdom, an ISP may be
liable for defamatory material posted on its sites. In Germany, an ISP may be
liable for failing to block access to content that is illegal in the country. In
addition, the EU has adopted a data protection directive to address privacy
issues, impacting the use and transfer of personal data within and outside the
EU. The application of this directive within the EU and with respect to U.S.
companies that may handle personal data from the EU is unsettled. Similarly,
countries in Europe restrict the use of encryption technology to varying
degrees, making the provision of such technology unclear. Other laws relating to
Internet usage are also being considered in the EU.

     The applicability of laws, regulations and standards affecting the voice
telephony, broadband telecommunications and data industry in which we and our
customers operate is continuing to develop, both domestically and
internationally. We cannot predict the exact impact that current and future
laws, regulations and standards may have on us or our customers. These laws,
regulations and standards may directly impact our products and result in a
material and adverse effect on our business, financial condition and results of
operations. In addition, should our customers be adversely impacted by such
regulation, our business, financial condition and results of operations would
likely be adversely affected as well.

EMPLOYEES

     As of December 31, 2000, we employed 269 full-time employees, including 48
in sales and marketing, 29 in manufacturing, 144 in engineering, 23 in finance
and administration and 25 in customer support, systems engineering and
professional services. Most of our employees are located in the United States;
however, we have approximately 40 engineering employees located in Bangalore,
India and 3 in Europe. None of our employees is represented by collective
bargaining agreements, and our management considers its relations with our
employees to be good.

ITEM 2. PROPERTIES

     We lease an approximately 23,000 square foot facility in Moorpark,
California, for executive offices and for administrative, sales and marketing,
and research and development purposes. The lease for this facility expires in
August 2002. We lease an approximately 11,200 square foot facility in
Richardson, Texas, primarily for research and development, and sales, and
marketing purposes. This lease expires in August 2002. We lease an approximately
5,500 square foot facility in Bangalore, India, which is used primarily for
research and development. This lease expires in January 2002. We lease an
approximately 2,000 square foot facility in Brussels, Belgium, primarily for
sales, marketing and customer support departments. This lease expires in
November 2001. We lease a total of approximately 35,500 square feet of space in
two facilities in Simi Valley, California for manufacturing, sales and marketing
purposes under three separate lease agreements. Two of these leases, covering an
aggregate of approximately 29,000 square feet of space, will expire in August
2001 and the remaining lease for 6,500 square feet of space will expire in
February 2003. We also have other offices in the U.S. and one office in Canada
which are used primarily for sales and support purposes.

ITEM 3. LEGAL PROCEEDINGS

     As of May 4, 2001, five securities class action lawsuits have been filed
against the Company and certain current and former officers, in the United
States District Court for the Central District of California. The lawsuits
allege that defendants made materially false and/or misleading statements
regarding the Company's financial condition and prospects during the period of
June 22, 2000 through April 17, 2001, in violation of sections 10(b), 10b-5 and
20(a) of the Securities Exchange Act of 1934. The Company expects that the cases
and any subsequently filed cases will be consolidated into a single action. The
Company believes that these lawsuits are without merit and it intends to
vigorously defend itself.

                                        15
<PAGE>   18

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

     No matters were submitted to a vote of security holders during the fourth
quarter of 2000.

                                    PART II

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

     Our common stock has been quoted on the Nasdaq Stock Market under the
symbol ACCL since the day following our initial public offering on June 22,
2000.

     The following table sets forth, for the period indicated, the high and low
closing sales prices per share of the common stock:

<TABLE>
<CAPTION>
                                                               HIGH      LOW
                                                              ------    ------
<S>                                                           <C>       <C>
2000 Fiscal Year
  Second Quarter (from June 23, 2000).......................  $61.00    $42.19
  Third Quarter.............................................   63.50     16.75
  Fourth Quarter............................................   16.62      2.78
</TABLE>

     On March 30, 2001, the last reported sales price of the common stock was
$1.875 and there were 50,530,972 stockholders of record.

RECENT SALES OF UNREGISTERED SECURITIES

     None

USE OF PROCEEDS

     On June 28, 2000, we completed the initial public offering of our common
stock pursuant to our Registration Statement on Form S-1 (File No. 333-31732)
that was declared effective by the Securities and Exchange Commission on June
22, 2000. As of December 31, 2000, we had not used any of the net proceeds from
our initial public offering and had used our existing cash balances to fund our
general operations. There has been no material change with respect to our use of
proceeds from our initial public offering to the information discussed in our
Quarterly Reports on Form 10-Q/A for the six months ended June 30, 2000 and the
nine months ended September 30, 2000.

DIVIDEND POLICY

     We have not declared any cash dividends on our capital stock since
inception and do not anticipate the payment of a cash dividend in the
foreseeable future.

                                        16
<PAGE>   19

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

     The following selected consolidated financial data should be read in
conjunction with the consolidated financial statements and notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," appearing elsewhere in this Annual Report on Form 10-K. The
consolidated statement of operations data for each of the years ended December
31, 2000, 1999 and 1998 and consolidated balance sheet data as of December 31,
2000 and 1999 set forth below are derived from our audited consolidated
financial statements which are included elsewhere in this report. The
consolidated statement of operation data from October 28, 1996 (inception)
through December 31, 1996 and for the year ended December 31, 1997 and the
consolidated balance sheet data as of December 31, 1996, 1997 and 1998 are
derived from audited financial statements of the Company not included in this
report. The historical results are not necessarily indicative of results to be
expected for any future period.

     Notes 2 and 12 of notes to the consolidated financial statements provide an
explanation of the determination of the weighted average shares used to compute
basic and diluted net loss per share.

<TABLE>
<CAPTION>
                                                                                         OCTOBER 28,
                                                                                       1996 (INCEPTION
                                                 FISCAL YEAR ENDED DECEMBER 31,            THROUGH
                                            ----------------------------------------    DECEMBER 31,
                                              2000       1999       1998      1997          1996
                                            --------   --------   --------   -------   ---------------
                                                      (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                         <C>        <C>        <C>        <C>       <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net revenue...............................  $ 34,228   $  8,466   $     --   $    --       $   --
Cost of revenue(1)........................    33,552      6,412         --        --           --
                                            --------   --------   --------   -------       ------
Gross profit..............................       676      2,054         --        --           --
Operating expenses
  Research and product development(1).....    23,606     12,934      7,398     1,126           20
  Sales and marketing(1)..................    23,084      8,998      2,010        --           --
  General and administrative(1)...........     6,522      2,379        755       485           13
                                            --------   --------   --------   -------       ------
          Total operating expenses........    53,212     24,311     10,163     1,611           33
                                            --------   --------   --------   -------       ------
Loss from operations......................   (52,536)   (22,257)   (10,163)   (1,611)         (33)
Other income (expense)....................     3,770      1,031        453       124           --
Provision for income taxes................         1          1          1         1            1
                                            --------   --------   --------   -------       ------
Net loss..................................   (48,767)   (21,227)    (9,711)   (1,488)         (34)
Beneficial conversion feature.............    (9,882)        --         --        --           --
                                            --------   --------   --------   -------       ------
Net loss applicable to common
  stockholders............................  $(58,649)  $(21,227)  $ (9,711)  $(1,488)      $  (34)
                                            ========   ========   ========   =======       ======
Basic and diluted net loss per share
  applicable to common stockholders.......  $  (2.02)  $  (3.29)  $  (2.00)  $ (0.42)      $(0.09)
                                            ========   ========   ========   =======       ======
Weighted average shares...................    29,106      6,447      4,853     3,550          393
                                            ========   ========   ========   =======       ======
</TABLE>

<TABLE>
<CAPTION>
                                                                    DECEMBER 31,
                                                   -----------------------------------------------
                                                     2000       1999       1998      1997     1996
                                                   --------   --------   --------   -------   ----
                                                                   (IN THOUSANDS)
<S>                                                <C>        <C>        <C>        <C>       <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents........................  $ 62,194   $ 15,207   $  3,507   $ 3,704   $ 17
Working capital..................................    75,189     18,241      7,797     3,579     18
Total assets.....................................   103,943     28,678     11,291     4,180     20
Redeemable convertible preferred stock...........        --     49,857     19,918     5,490     --
Total stockholders' equity (deficit).............    85,384    (28,565)   (11,005)   (1,498)   (26)
</TABLE>

                                        17
<PAGE>   20

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

(1) Amortization of stock compensation included in:

<TABLE>
<CAPTION>
                                                            FISCAL YEAR ENDED DECEMBER 31,
                                                       ----------------------------------------
                                                        2000      1999     1999    1997    1996
                                                       ------    ------    ----    ----    ----
<S>                                                    <C>       <C>       <C>     <C>     <C>
  Cost of revenues...................................  $  216    $  100    $--     $--     $--
  Research and development...........................   2,270       873     20      --      --
  Sales and marketing................................   2,190     1,498     31      --      --
  General and administrative.........................   1,564       632      1      --      --
                                                       ------    ------    ---     ---     ---
                                                       $6,240    $3,103    $52     $--     $--
                                                       ======    ======    ===     ===     ===
</TABLE>

                                        18
<PAGE>   21

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

     This report on Form 10-K contains forward-looking statements based on our
current expectations, estimates and projections about our industry, management's
beliefs and certain assumptions made by us. Words such as "anticipates,"
"expects," "intends," "plans," "believes," "may," "will" or similar expressions
are intended to identify forward-looking statements. In addition, any statements
that refer to expectations, projections or other characterizations of future
events or circumstances, including any underlying assumptions, are
forward-looking statements. Such statements are not guarantees of future
performance and are subject to certain risks, uncertainties and assumptions that
are difficult to predict. Therefore, our actual results could differ materially
and adversely from those expressed in any forward-looking statements as a result
of various factors. The section entitled "Risk Factors" set forth in this Form
10-K and similar discussions in our registration statement declared effective by
the SEC on June 22, 2000 and our subsequent reports on Form 10-Q/A filed with
the SEC on May 8, 2001, discuss some of the important risk factors that may
affect our business, results of operations and financial condition. You should
carefully consider those risks, in addition to the other information in this
report and in our other filings with the SEC, before deciding to invest in our
company or to maintain or increase your investment. We undertake no obligation
to revise or update publicly any forward-looking statements for any reason. The
information contained in this Form 10-K is not a complete description of our
business or the risks associated with an investment in our common stock. We urge
you to carefully review and consider the various disclosures made by us in this
report and in our other reports filed with the SEC that discuss our business in
greater detail.

OVERVIEW

     We design and market telecommunications products that enable the bundling
of voice and data services over a single broadband access network. Our
multiservice broadband access products are designed to allow our customers to
efficiently and cost-effectively deliver and manage multiple voice and data
services over a single broadband access facility using various broadband access
technologies. Our target customers are CLECs, IXCs, RBOCs, ILECs, and foreign
telephone companies.

     We were incorporated in October 1996. From inception through March 1999,
our operating activities consisted primarily of developing a research and
development organization, testing prototype designs, staffing of our marketing,
sales, field service and customer support organizations, building a management
team, and establishing relationships with potential customers. We commenced
shipments of our MSAP voice gateways, MSAP concentrators and carrier-class IADs
in the second calendar quarter of 1999. Sales of our MSAP and carrier-class IAD
products constituted approximately 46% and 54%, respectively, of our revenue of
the year ended December 31, 2000 and approximately 58% and 42%, respectively, of
our revenue for the year ended December 31, 1999. Since inception, we have
incurred significant losses and as of December 31, 2000, we had an accumulated
deficit of $91.1 million. We have not achieved profitability on a quarterly or
annual basis. We expect to incur significant research and development, sales and
marketing, and general and administrative expenses in the future and, as a
result, we will need to generate significantly higher revenue to achieve and
maintain profitability.

     To date, we have generated substantially all of our revenue from sales of
our MSAP and carrier-class IAD products and we believe that sales of these
products will continue to account for substantially all of our revenue for the
foreseeable future. We have not generated any significant amount of revenue from
sales of our AccessPilot element management system software or sales of our
extended warranty and customer support services, and we do not expect that sales
of these products and services will comprise a significant portion of our
revenue in the foreseeable future. A major portion of our product sales are
through our direct sales force and we expect this to continue for the
foreseeable future. In addition, we sell a significant amount of our products in
the United States through our OEM relationship with Siemens. For the year ended
December 31, 2000, direct sales and sales through Siemens accounted for 61% and
38%, respectively, of our product sales. To date, we have not generated any
revenue from international sales, although we continue to expand our sales and
marketing efforts internationally, including the opening of a sales office in
Belgium in October 2000.

                                        19
<PAGE>   22

     For the year ended December 31, 2000, sales to our three largest customers
accounted for approximately 90% of our revenue, of which sales to Siemens, CTC
Communications and Lightyear Communications accounted for approximately 38%, 26%
and 26% of our revenue, respectively. For the year ended December 31, 1999,
sales to our three largest customers accounted for approximately 90% of our
revenue, of which sales to CTC Communications Group, FirstWorld Communications
and Siemens ICN accounted for approximately 54%, 20% and 16% of our revenue,
respectively. While we anticipate that sales to any specific customer will vary
from period to period, we expect that we will continue to have significant
customer concentration for the foreseeable future. To date, we have derived a
significant portion of our revenue from a small number of orders and our sales
have been made on the basis of individual purchase orders, rather than long-term
commitments. In addition, while Siemens AG currently owns approximately 18.1% of
our common stock and has been a significant distribution channel for us, Siemens
may decide to focus its efforts in the future on Efficient Networks' products,
given its recently announced agreement to acquire Efficient Networks. There can
be no assurance that we will be able to compete successfully with our existing
or new competitors, or that competitive pressures will not materially and
adversely affect our business, financial condition and results of operations.

     We recognize revenue when all four of the following criteria are met: (a)
persuasive evidence that an arrangement exists; (b) delivery of the products
and/or services has occurred; (c) the selling price is both fixed and
determinable and; (d) collectibility is reasonably assured. Revenue associated
with multiple-element arrangements (products and post-contract support, or
"PCS") is allocated to each element based on vendor-specific objective evidence.
The Company offers extended or additional PCS services to certain large
customers consisting of software updates and technical support for products
sold. Such PCS is deferred and recognized ratably over the expected term of the
respective agreement, generally 12 to 15 months.

     We sell our products to end users through our direct sales force, as well
as through distributors. Our arrangements with distributors may contain
provisions for price protection and stock rotation allowances. We recognize
revenue on sales to distributors when a right of return exists in accordance
with the provisions set forth in Financial Accounting Standards Board (FASB) No.
48, "Revenue Recognition When Right of Return Exists." In accordance with FASB
No. 48, we recognize revenue upon shipment to distributors provided that (a) the
price is substantially fixed and determinable at the time of sale; (b) the
distributor's obligation to pay us is not contingent upon resale of the
products; (c) title and risk of loss passes to the distributor at time of
shipment; (d) the distributor has economic substance apart from that provided by
us; (e) we have no significant obligation to the distributor to bring about
resale of the products; and (f) future returns can be reasonably estimated. For
any sales that do not meet all of the above criteria, revenue is deferred until
all such criteria have been met.

     Our deferred revenue consists primarily of deferrals for PCS, stock
rotation rights and resale or recourse contingencies under specific arrangements
with customers.

     Our cost of revenue consists primarily of amounts paid to third-party
contract manufacturers, personnel and other costs such as royalties on product
shipments, warranty expense and assembly costs. We outsource most of our product
and printed circuit board assembly to contract manufacturers. Avnet procures the
majority of our component kits for its sub-contractor, A-Plus, which assembles,
manufactures and tests our products at its facility in San Jose, California.
Arrow performs the same services as Avnet for a limited number of our products
and also sub-contracts with A-Plus for assembly, manufacturing and testing. We
are in the process of transitioning our principal contract manufacturing from
Avnet to Fine Pitch (a subsidiary of Solectron).

                                        20
<PAGE>   23

     Our MSAP products typically have higher gross margin than our carrier-class
IADs. Our actual mix of products sold will depend significantly on the amount of
orders from new and existing customers, and the stage of their network
deployment. As a result, our gross margin may fluctuate significantly from
period to period. In general, our gross margin will primarily be affected by the
following factors:

     - the mix of our products and services sold;

     - demand for our products and services;

     - new product introductions both by us and by our competitors;

     - changes in our pricing policies and those of our competitors;

     - the mix of sales channels through which our products and services are
       sold; and

     - the volume manufacturing pricing we are able to attain from our contract
       manufacturers for outsourced manufacturing.

     Research and development expenses consist primarily of salaries and related
personnel costs, consulting costs, costs associated with licensed technology,
prototype costs and other costs related to the design, development, testing, and
enhancements of our products. We also incur significant expenses in connection
with the purchase of equipment used to test our products as well as the use of
our products for internal design and learning purposes. We expense our research
and development costs as they are incurred, with the exception of capital
expenditures, which are capitalized and depreciated over their estimated useful
lives, generally two to five years. Several components of our research and
development efforts require significant expenditures, the timing of which can
cause significant quarterly variability in our expenses.

     Sales and marketing expenses consist primarily of salaries, commissions and
related expenses for personnel engaged in marketing, sales and customer
engineering support functions, as well as costs associated with promotional
demonstration equipment and other marketing expenses. We believe our future
success is dependent upon establishing successful relationships with a variety
of distribution partners. To date, we have entered into a value-added reseller
agreement with Solunet and OEM relationships with Siemens AG and its affiliate,
Siemens ICN. To be successful, we must reach agreements with additional
distribution partners, both domestically and internationally. Similarly, the
complexity of our products require highly trained customer service, professional
services and support personnel.

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

     Currently, competition in our market is intense. We continue to add
features to our products based on the needs of our current and potential
customers. This has resulted in increased research and development expenses and
may result in reduced operating margins. We expect competition to increase in
the future. This competition may also result in price reductions and loss of
market share. We expect that product life cycles will remain relatively short
and that the average selling price and gross margin for our products will
decline as each product matures. To offset such declines, we must introduce new,
higher performance products on a timely basis. Further, we must reduce our
manufacturing costs on a per unit basis and sell sufficient volumes in order to
maintain our gross margin. If we fail to reduce our manufacturing costs on a per
unit basis or achieve volume shipment requirements, our gross margin will
decline. Any of the above events could have a material and adverse effect on our
business, results of operations and financial condition.

     In 2000, we recorded total deferred stock compensation of approximately
$6.0 million, representing the difference between the deemed value of our common
stock for accounting purposes and the exercise price of the options at their
date of grant, and reversed deferred stock compensation of approximately $5.5
million resulting from stock option cancellations and repurchase of unvested
common shares from employees. Options granted are typically subject to a four
year vesting period. We are amortizing the deferred stock compensation over the
vesting periods of the applicable options, or repurchase periods for the
exercised options, generally over four years. We recorded approximately $6.2
million of stock compensation expense for the year ended

                                        21
<PAGE>   24

December 31, 2000 and have approximately $4.4 million of deferred stock
compensation as of December 31, 2000, which is amortized over the vesting period
of the underlying options.

     In connection with an agreement with an affiliate of U S West, Inc. to test
certain of our products for potential deployment in U S West's network, we
issued a two-year warrant to U S WEST Internet Ventures in June 2000. The
warrant is exercisable for $3.0 million of our common stock at a price per share
of $15.00. We recorded sales and marketing expenses of approximately $1.4
million for the fair value of the warrant upon its issuance.

  Recent Events

     In February 2001, Suresh Nihalani resigned as our Chief Executive Officer
and Chairman, and Fred Boyer, our Chief Financial Officer and Vice President of
Finance and Administration, left the company. In connection with these changes,
executives of Regent Pacific Management Corporation filled several senior
management positions, including Chief Executive Officer, Chief Financial
Officer, and Vice President of Sales and Marketing. Mr. Nihalani will remain an
employee of the Company and will provide consulting to the new management on an
as-needed basis through February 2002. This new management is in the process of
working with existing management to develop and implement an operating plan to
improve our overall performance. Implementation of major components of this
operating plan, including measures designed to result in margin improvements and
operating savings are expected to begin in the second quarter of 2001, with the
initial impact of these reductions expected to occur in the third quarter of
2001. There can be no assurance that our management, including Regent Pacific,
will be able to implement the plan or that any of its objectives will be
achieved. In addition, we may make significant changes to our business,
strategies and operating budget as a result of the plan. However, until we
develop and begin implementing the plan, we will not know whether these changes
will occur.

RESULTS OF OPERATIONS

     On April 3, 2001, we filed a Notification of Late Filing on Form 12b-25
("Notification") with the SEC disclosing that we had recently retained a new
management team, including our CEO and CFO, as well as several other key
employees in our sales and finance departments, and that as a result, our new
management needed additional time to review the Company's finances in order to
be in a position to file our Form 10-K. Questions had recently arisen concerning
a transaction with a customer which had been recorded as revenue in the second
quarter of 2000 as to whether there may have been terms and conditions in
addition to those reflected in the final sales documents. On April 5, 2001, the
Audit Committee of our Board of Directors authorized a full investigation into
the transaction referenced above and transactions with other customers. With the
assistance of counsel and forensic accountants, we immediately looked into this
and other transactions for the fiscal years 1999 and 2000 to confirm that the
Company's financial results were properly stated in accordance with generally
accepted accounting principles. On April 17, 2001, we issued a press release
announcing that we were not able to file our Annual Report for the 2000 fiscal
year on Form 10-K on April 16, 2001, as previously contemplated in our
Notification on April 3, 2001. This press release also announced that we had
determined that revenue recognized in the second quarter of 2000 from the
transaction referenced above should more appropriately be deferred and that we
expected that a portion of that revenue would be recognized in subsequent
periods. In early May 2001, the investigation was completed and our auditors
completed the annual audit for 2000.

     As a result of the investigation, we have determined, as previously
disclosed on April 17, 2001, that certain revenue recorded in the second quarter
of 2000 in connection with a sale to one of our customers should more
appropriately be deferred and recognized on a sell-through basis. We deferred
revenues of approximately $1.3 million in the second quarter of fiscal 2000, of
which approximately $287,000 was recognized in the fourth quarter based on
sell-through. In addition, all subsequent sales to this reseller will be
recognized on a sell-through basis. No other material adjustments were made as a
result of the investigation.

                                        22
<PAGE>   25

FISCAL YEARS ENDED DECEMBER 30, 2000, 1999 AND 1998

  Revenue

     We recognized net revenue of approximately $34.2 million for the year ended
December 31, 2000, which represented an increase of approximately $25.7 million,
or 304%, from approximately $8.5 million for the year ended December 31, 1999.
This increase was primarily attributable to increased market demand and market
penetration of both our MSAP voice gateways and concentrators and our
carrier-class IAD'S, primarily in the CLEC market. We believe, however, that
communication service providers, specifically CLEC's, have delayed or decreased
their level of spending on communication equipment and accordingly, expect that
our net revenue will significantly decrease in 2001 due to the continuing
economic downturn impacting the telecommunication industry. In addition, we
defer revenue for PCS, stock rotation rights under specific arrangements with
distributors and, amounts related to a recourse guarantee with Siemens. We may
experience significant fluctuations in our revenue in the future based upon the
inclusion or exclusion of one or any of these components in our sales mix that
give rise to deferred revenue. For example, as of December 31, 2000,
approximately $11.1 million of our product shipments was subject to the recourse
guarantee, of which $1.1 million was deferred. In addition, we reduced revenues
in fiscal 2000 by approximately $900,000 relating to $450,000 in deferred
revenue for stock rotation rights we granted to Siemens and $450,000 related to
sales concessions we granted to another major customer in the fourth quarter.

     We began generating revenue in the second quarter of 1999 and recognized
net revenue of approximately $8.5 million in 1999. This revenue was primarily
derived from sales of our MSAP voice gateways and concentrators, which amounted
to approximately $4.9 million, and from sales of our carrier-class IADs, which
amounted to approximately $3.6 million.

  Cost of Revenues

     Cost of revenue for the year ended December 31, 2000 was approximately
$33.6 million, which represented an increase of approximately $27.0 million, or
423%, from approximately $6.4 million for the year ended December 31, 1999. This
increase was primarily a result of increased sales of our products. In addition,
during the fourth quarter of 2000, due in large part to the continuing economic
downturn impacting the telecommunications equipment spending of our significant
customers, and the additional visibility that we have gained into this downturn
in recent months, we recorded a charge of approximately $8.4 million for
expected losses related to surplus inventories, of which approximately $3.4
million relates to noncancelable inventory purchase commitments of finished
products and raw materials in excess of anticipated requirements and $5.0
million relates to excess inventory on hand at December 31, 2000. During the
third and fourth quarter of 2000, we made significant inventory purchases of
products requiring long lead times to meet anticipated short-term demand for our
products. During late 2000, however, we substantially reduced our forecasted
shipments and were unable to cancel commitments or return excess inventories to
our vendors. Excluding the $8.4 million we recorded for anticipated inventory
losses, cost of revenues for the year ended December 31, 2000 represented
approximately 73% of revenues, as compared to approximately 75% for the year
ended December 31, 1999. We expect that our cost of revenue will vary as a
percentage of net revenue depending on the mix and average selling prices of
products sold, and that we may incur additional charges related to surplus
inventory levels in the near future. In addition, we expense our cost of revenue
related to revenues deferred under the recourse guarantee as the products are
shipped. Accordingly, we record cost of revenue on these shipments with no
corresponding increase in revenues. Accordingly, we may experience significant
fluctuations in our cost of revenue and gross margins based on fluctuations in
the amount of product shipments related to the recourse guarantee. For example,
during 2000, we deferred approximately $1.1 million in revenues related to the
recourse agreement, for which approximately $837,000 in cost of revenue was
incurred.

     Cost of revenue for the year ended December 31, 1999 was approximately $6.4
million, or approximately 75% of revenue. These costs included adding
manufacturing personnel, expanding our facilities, establishing final product
testing capabilities, and establishing operations with outside contract
manufacturers, as well as

                                        23
<PAGE>   26

higher per-unit costs due to low initial volumes of our products. We did not
have any cost of revenue in either 1997 or 1998 because we did not begin
production or sales of our products until 1999.

  Research and Product Development Expenses

     Research and product development expenses for the year ended December 31,
2000 were approximately $23.6 million, which represented an increase of
approximately $10.7 million, or approximately 83% from approximately $12.9
million for the year ended December 31, 1999. This increase was primarily a
result of additional personnel costs, as well as increased third party
development costs, increased design and prototype expenses and increased costs
of using our products for internal design and testing purposes, all related to
the continued support, testing and development of our current and
next-generation products.

     Research and product development expenses for the year ended December 31,
1999 were approximately $12.9 million, which represented an increase of
approximately $5.5 million, or approximately 74%, from approximately $7.4
million for the year ended December 31, 1998. This increase was primarily a
result of additional personnel costs, amortization of deferred stock
compensation, increased costs associated with third-party certification of our
products, higher design and prototype expenses and higher costs of using our
products for internal design and testing purposes.

  Sales and Marketing Expenses

     Sales and marketing expenses for the year ended December 31, 2000 were
approximately $23.1 million, which represented an increase of approximately
$14.1 million, or approximately 157%, from approximately $9.0 million for the
year ended December 31, 1999. This increase was primarily attributable to our
expanded efforts to sell and market our MSAP and carrier-class IAD products,
including increased costs related to the hiring of additional sales and systems
engineers, customer support, product marketing, and key management personnel, as
well as increased advertising, trade shows and public relations costs,
commission expenses, demonstration equipment costs, amortization of deferred
stock compensation and a one-time charge for the fair value of a warrant issued
to US WEST Internet Ventures.

     Sales and marketing expenses for the year ended December 31, 1999 were
approximately $9.0 million, which represented an increase of approximately $7.0
million, or approximately 348%, from approximately $2.0 million for the year
ended December 31, 1998. The increase was primarily attributable to our
aggressive efforts to launch our MSAP and carrier-class IAD products, including
increased costs related to the hiring of additional sales and systems engineers,
customer support, product marketing, and key management personnel, as well as
increased advertising, trade shows and public relations costs.

  General and Administrative Expenses

     General and administrative expenses for the year ended December 31, 2000
were approximately $6.5 million, which represented an increase of approximately
$4.1 million, or approximately 173%, from approximately $2.4 million for the
year ended December 31, 1999. This increase was primarily due to the hiring of
additional general and administrative personnel necessary to support and scale
our operations, increased legal, accounting, operating and initial public
offering-related expenses, amortization of deferred stock compensation and
increased recruiting expenses to hire additional personnel.

     General and administrative expenses for the year ended December 31, 1999
were approximately $2.4 million, which represented an increase of approximately
$1.6 million, or 215%, from approximately $755,000 for the year ended December
31, 1998. This increase was primarily due to the hiring of additional general
and administrative personnel and increased legal expenses necessary to support
and scale our operations.

  Amortization of Deferred Stock Compensation

     We recorded approximately $6.0 million, $12.5 million and $716,000 in
deferred stock compensation in connection with employee and consultant stock
option grants in 2000, 1999 and 1998, respectively. We

                                        24
<PAGE>   27

reversed deferred stock compensation of approximately $5.5 million resulting
from stock option cancellations and repurchase of unvested common stock from
employees. We recognized amortization of stock compensation of approximately
$6.2 million, $3.1 million, and $52,000 for the years for ended December 31,
2000, 1999, and 1998, respectively. As of December 31, 2000, we had $4.4 million
in unamortized deferred stock compensation, which we expect to be fully
amortized by the end of 2003.

  Other Income (Expense)

     Our other income (expense) consists primarily of interest earned on our
cash balances and cash equivalents partially offset by interest expenses paid on
capital leases and credit facilities. Other income, net of other expenses, for
the year ended December 31, 2000 was approximately $3.8 million, which
represented an increase of approximately $2.7 million, or 266% from
approximately $1.0 million for the year ended December 31, 1999. This increase
was primarily attributable to interest earned on higher average cash balances
throughout the relevant period, and higher weighted-average rates of interest.

     Other income (expense) for the year ended December 31, 1999 was
approximately $1.0 million, which represented an increase of approximately
$578,000, or approximately 127% from approximately $453,000 for the year ended
December 31, 1998. This increase was primarily attributable to interest earned
on the net proceeds of our Series C preferred stock financing in February 1999.

  Income Taxes

     From inception through December 31, 2000, we incurred net losses for
federal and state tax purposes and have not recognized any tax provision or
benefit. As of December 31, 2000, we had federal and state net operating loss
carryforwards of approximately $57.3 million and $57.3 million, respectively, to
offset future taxable income which will begin to expire in varying amounts
beginning in 2012 and 2005, respectively. Given our limited operating history,
losses incurred to date and the difficulty in accurately forecasting our future
results, there are substantial risks that we may not achieve the necessary
profitability required to realize the tax benefits of such loss carryforwards.
Accordingly, we have recorded a 100% valuation allowance. In addition, our
ability to utilize net operating losses and tax credits in the future may be
limited if there is a significant change in our ownership. The annual limitation
may result in the expiration of net operating losses and tax credits before
utilization. See note 5 of the notes to our consolidated financial statements.

LIQUIDITY AND CAPITAL RESOURCES

     Since inception, we have financed our operations primarily through sales of
equity securities. We raised approximately $88.6 million in private placements
of redeemable convertible preferred securities prior to our initial public
offering. In June 2000, we completed an initial public offering of 4,600,000
shares (including 600,000 shares pursuant to the underwriters' over-allotment
option) of Common Stock at a price of $15.00 per share, resulting in proceeds of
approximately $62.3 million net of the underwriters discount and offering
expenses. We also sold 200,000 shares of our Common Stock at $15.00 per share in
a concurrent private placement, resulting in proceeds of approximately $3.0
million.

     At December 31, 2000, we had cash and cash equivalents of approximately
$62.2 million, no outstanding debt under any credit facilities, and
approximately $265,000 of outstanding obligations under our equipment loans with
Phoenix Leasing and GMAC. Amounts outstanding under our equipment loan facility
with Phoenix Leasing and GMAC bear interest at approximately 15% per annum and
 .25% per annum, respectively.

     We used approximately $39.7 million in cash for operating activities for
the year ended December 31, 2000, an increase of approximately $17.2 million, or
76%, from the approximately $22.5 million used for operating activities for the
year ended December 31, 1999. The increase was primarily due to an increase in
our net loss from approximately $21.2 million for the year ended December 31,
1999 to approximately $48.8 million for the year ended December 31, 2000, and an
increase in accounts receivable and inventory of approximately $12.9 million and
$1.5 million, respectively, partially offset by non-cash charges of approxi-

                                        25
<PAGE>   28

mately $11.1 million, an increase in accounts payable and accrued expenses of
$9.6 million, and an increase in deferred revenue of $3.2 million for the year
ended December 31, 2000.

     We used approximately $16.1 million for our investing activities in the
year ended December 31, 2000, as compared to approximately $1.4 million
generated from investing activities for the year ended December 31, 1999. The
difference was due primarily to the purchase of personal property and equipment
and purchase of short-term investments of approximately $8.1 million and $7.9
million, respectively, as well as proceeds of approximately $8.0 million from
maturities of short-term investments in the year ended December 31, 1999.

     Cash provided by financing activities for the year ended December 31, 2000
was approximately $102.7 million, an increase of approximately $70.0 million
from approximately $32.7 million for the year ended December 31, 1999. Cash
provided by financing activities primarily consists of funds received from
issuances of redeemable convertible preferred stock, proceeds from our initial
public offering and a concurrent private placement in June 2000, our equipment
loan facility and stock option exercises. Cash provided by financing activities
is partially offset by the payoff of our term loan facility and principal and
interest payments on our equipment loan facility and capitalized lease
obligations. The increase in the year ended December 31, 2000 was primarily due
to the net proceeds of approximately $103.7 million generated from our initial
public offering and concurrent private placement in June 2000 and our Series D
Preferred Stock financing in February and March 2000.

     We currently have no significant commitments for capital expenditures. We
anticipate that we will increase our capital expenditures and capital lease
commitments consistent with our anticipated needs. At December 31, 2000, we had
approximately $6.7 million in purchase commitments to our principal contract
manufacturer, Avnet. During the fourth quarter of 2000, we recorded a charge of
approximately $3.4 million related to anticipated inventory losses on these
purchase commitments.

     We anticipate that operating expenses, as well as planned capital
expenditures, will constitute a material use of our cash resources. In addition,
we may use cash resources to fund acquisitions or investments in complementary
businesses, technologies or products. We believe that our cash on hand and the
net proceeds from the sale of the common stock in our initial public offering
and the concurrent private placement will be sufficient to meet our working
capital and capital expenditure requirements for at least the next 12 months. In
the event additional financing is required, we may not be able to raise it on
acceptable terms, or at all.

                                        26
<PAGE>   29

                                  RISK FACTORS

     Before deciding to invest in Accelerated Networks or to maintain or
increase your investment, you should carefully consider the risks described
below, in addition to the other information contained in this report and in our
other filings with the SEC, including our subsequent reports on Forms 10-Q/A and
8-K. The risks and uncertainties described below are not the only ones facing
our company. Additional risks and uncertainties not presently known to us or
that we currently deem immaterial may also affect our business operations. If
any of these risks actually occur, our business, financial condition or results
of operations could be seriously harmed. In that event, the market price of our
common stock could decline and you may lose all or part of your investment.

                  RISKS THAT MAY CAUSE FINANCIAL FLUCTUATIONS

WE HAVE A LIMITED OPERATING HISTORY, WHICH WILL MAKE IT DIFFICULT OR IMPOSSIBLE
FOR YOU TO PREDICT OUR FUTURE RESULTS OF OPERATIONS.

     We have a very limited operating history upon which to base your investment
decision. We were incorporated in October 1996 and did not begin shipping our
products in significant volume until June 1999. Due to our limited operating
history, it is difficult or impossible to predict our future results of
operations. Investors in our common stock must consider our business, industry
and prospects in light of the risks and difficulties typically encountered by
companies in their early stages of development, particularly those in rapidly
evolving and intensely competitive markets such as the market for broadband
access equipment. In particular, you should carefully consider the specific
risks which are discussed in more detail in this section, in our Quarterly
Reports on Form 10-Q/A filed with the SEC on May 8, 2001 and in our registration
statement on Form S-1 declared effective by the SEC on June 22, 2000.

WE HAVE A HISTORY OF LOSSES AND MAY NOT BE ABLE TO GENERATE SUFFICIENT NET
REVENUE IN THE FUTURE TO ACHIEVE OR SUSTAIN PROFITABILITY.

     We have incurred significant losses since inception and expect that our net
losses and negative cash flow will continue for the foreseeable future as we
grow our business. As of December 31, 2000, we had an accumulated deficit of
approximately $91.1 million. Although our net revenue has grown from zero for
the year ended December 31, 1998 to approximately $8.5 million for the year
ended December 31, 1999 and approximately $34.2 million for the year ended
December 31, 2000, our net revenue may not continue to grow in the future, and
we cannot assure you that we will ever generate sufficient net revenue to
achieve or sustain profitability.

     We have large fixed expenses and we expect to continue to incur significant
expenses for research and development, sales and marketing, customer support,
developing distribution channels and general and administrative expenses. In
particular, given our early stage of development, our significant operating
expenses, and the rate at which competition in our industry is intensifying, we
may not be able to adequately control our costs and expenses or achieve or
maintain adequate operating margins. As a result, our ability to achieve and
sustain profitability will depend on our ability to generate and sustain
substantially higher revenue while maintaining reasonable cost and expense
levels. We may not be able to achieve or sustain profitability in the future.

                                        27
<PAGE>   30

IF OUR REVENUE AND OPERATING RESULTS FALL BELOW ANALYSTS' AND INVESTORS'
EXPECTATIONS, OUR STOCK PRICE COULD SIGNIFICANTLY DECLINE.

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

     - telecommunications market conditions and economic conditions;

     - the amount and timing of orders for our products;

     - the cancellation or rescheduling of significant orders for our products;

     - our ability to receive and fulfill orders evenly, across any given
       quarter;

     - our ability to develop, manufacture, introduce, ship and support new
       products and product enhancements;

     - our mix of products sold and the mix of distribution channels through
       which our products are sold;

     - the amount and timing of our research and development expenses;

     - our ability to control costs;

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

     - changes in the prices of our components;

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

     - the length and variability of the sales cycle for our products;

     - our ability to realize forecasted sales for a particular period;

     - the timing of recognizing revenue and deferral of revenue;

     - our ability to manage product transitions and adapt to technological
       advancements;

     - our ability to develop, manufacture, ship and support all of our product
       lines, for example, IADs, MSAP as a concentrator and MSAP as a voice
       gateway;

     - announcements, new product introductions and reductions in the price of
       products offered by our competitors;

     - potential seasonality of our sales; and

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

     As a result of any of these factors, it is likely that in the future, our
quarterly or annual operating results will fall below the expectations of public
market analysts and investors. In this event, the price of our common stock
could significantly decline.

     Sales of our products depend on the widespread adoption of multiservice
broadband access services and if the demand for multiservice broadband access
services does not develop, then our results of operations and financial
condition would be adversely affected.

     Our business would be harmed, and our results of operations and financial
condition would be adversely and materially affected, if the demand for
multiservice broadband access services does not increase as rapidly as we
anticipate, or if our customers' multiservice broadband access service offerings
are not well received in

                                        28
<PAGE>   31

the marketplace. Certain critical factors will likely continue to affect the
development of the multiservice broadband access services market. These factors
include:

     - demand for broadband access;

     - the development of a viable business model for multiservice broadband
       access services, including the capability to market, sell, install and
       maintain these services;

     - the extent that service providers are unable to deploy broadband access
       using DSL due to delays or other difficulties in gaining access to the
       copper-pair infrastructure from ILECs;

     - cost constraints, such as installation, space and power requirements at
       carrier central offices;

     - ability to interoperate with equipment from multiple vendors in service
       provider networks;

     - evolving industry standards for DSL, T1 and other transmission
       technologies;

     - varying and uncertain conditions of the copper-pair infrastructure,
       including size and length, electrical interference, and crossover
       interference with voice and data telecommunications services; and

     - domestic and foreign government regulation.

Even if these factors are adequately addressed, the market for multiservice
broadband access services may fail to develop or may develop more slowly than
anticipated. This could happen for a number of reasons. For instance, our
customers, particularly CLECs, may not be able to obtain sufficient capital,
personnel and other resources to operate and grow their business or may fail to
execute their business plans. In the case of DSL, we believe that the rate of
deployment of broadband access using DSL has in fact been slower than expected,
resulting in decreased capital expenditures on broadband access equipment by
telecommunications service providers. If these circumstances continue to exist,
or if we are not able to address the foregoing factors, our business would be
harmed, and our results of operations and financial condition would be adversely
affected.

WE DERIVE ALMOST ALL OF OUR REVENUE FROM A SMALL NUMBER OF CUSTOMERS AND OUR
REVENUE COULD DECLINE SIGNIFICANTLY IF WE LOSE A CUSTOMER, IF A CUSTOMER CANCELS
OR DELAYS AN ORDER, OR IF WE ARE NOT ABLE TO COLLECT RECEIVABLES FROM CUSTOMERS
OR ARE REQUIRED TO GRANT STOCK ROTATION OR INVENTORY RETURN RIGHTS TO OUR
CUSTOMERS.

     Since we depend on a small number of customers, our revenue could be
materially and adversely impacted if we lose a customer, if a customer cancels
or delays an order, or if we are not able to collect receivables from customers
or are required to grant stock rotation or inventory return rights to our
customers. Sales to Siemens, CTC Communications and Lightyear Communications
accounted for approximately 38%, 26%, and 26% of our total revenue,
respectively, for the year ended December 31, 2000. Sales to CTC Communications
Group, FirstWorld Communications and Siemens, accounted for approximately 54%,
20% and 16% of our total revenue, respectively, for the year ended December 31,
1999. Accordingly, if we do not diversify and expand our customer base, our
future success would significantly depend upon the timing and size of future
purchase orders, if any, from our largest existing customers. In addition, if
any of our customers is acquired, we may lose its business. The loss of any one
of our customers, or the delay of a significant order from any of our customers,
even if only temporary, could, among other things, reduce or delay our
recognition of revenue, harm our reputation in the industry, and reduce our
ability to accurately predict cash-flow. Market conditions in the
telecommunications equipment industry have also deteriorated significantly and
many of our customers and potential customers have experienced financial
difficulties, including bankruptcy. Accordingly, while we have to date collected
the majority of our accounts receivable outstanding as of December 31, 2000, we
may not be able to do so in the future, and may be required to write off a
significant amount of accounts receivable. In addition, some of our customers
have not yet deployed equipment that they have purchased from us, and may
request stock rotation or inventory return rights with respect to equipment they
purchase from us. While to date, we have not granted inventory return rights and
have only granted limited stock rotation rights to certain customers, we may be
required to do so in the future. Since we derive almost all of our revenue from
a small number of customers, any of these events could materially and adversely
affect our business, financial condition and results of operations.
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<PAGE>   32

OUR CUSTOMERS MAY SPORADICALLY PLACE LARGE ORDERS WITH SHORT LEAD TIMES, WHICH
MAY CAUSE OUR REVENUE AND OPERATING RESULTS TO VARY SIGNIFICANTLY FROM QUARTER
TO QUARTER.

     We believe that our customers often deploy their networks in large
increments and on a sporadic basis. Accordingly, we expect to receive purchase
orders for significant dollar amounts on an irregular basis. These orders may
have short lead times. As a result, we may not have sufficient inventory to
fulfill these orders and we may incur significant costs in attempting to
expedite and fulfill these orders. Further, our revenue and operating results
may vary significantly and unexpectedly from quarter to quarter.

IF WE FAIL TO CAPITALIZE ON OPPORTUNITIES TO WIN CONTRACTS FROM OUR KEY
CUSTOMERS, WE MAY NOT BE ABLE TO SELL PRODUCTS TO THOSE CUSTOMERS FOR AN
EXTENDED PERIOD OF TIME.

     We believe that our key customers deploy their networks in large increments
and on a sporadic basis. As a result, if we fail to win a purchase contract from
a key customer, we may not have an opportunity to sell products to that customer
until its next purchase cycle, which may not be for an extended period of time.
In addition, if we fail to win contracts from key customers that are at an early
stage in their design cycle, our ability to sell products to these customers in
the future may be adversely affected because they may prefer to continue
purchasing products from their existing vendor. Since we rely on a small number
of customers for the majority of our sales, our failure to capitalize on limited
opportunities to win contracts with these customers would have a material
adverse effect on our business, results of operations and financial condition.

     The long sales and implementation cycles for our products may cause our
revenue and operating results to vary significantly.

     A customer's decision to purchase our products often involves a significant
commitment of its resources and a lengthy evaluation and product qualification
process. As a result, our sales cycles may be lengthy and we may incur
substantial sales and marketing expenses and expend significant management
effort without any guarantee of a sale. The length of our sales cycles will vary
depending on the type of customer to whom we are selling. In particular, we
believe that our sales cycle will typically range from 3 to 6 months for CLECs,
6 to 12 months for IXCs, and 9 to 15 months for RBOCs. Even after making the
decision to purchase our products, our customers often deploy our products
slowly and deliberately. Timing of deployment can vary widely and depends on:

     - the skill set of our customers;

     - the size of the network deployment;

     - the complexity of our customers' network environment;

     - the degree of hardware and software configuration necessary to deploy our
       products; and

     - their ability to finance their purchase of our products as well as their
       operations.

     As a result, our revenue and operating results may vary significantly from
quarter to quarter.

IF WE FAIL TO MANAGE OUR ORDER BACKLOG, NEW ORDERS AND SHIPMENT SCHEDULES FOR
EACH QUARTER, OUR OPERATING RESULTS FOR THAT PERIOD WILL BE ADVERSELY AFFECTED.

     We recognize revenue when our products are shipped, subject to appropriate
deferrals and allowances. Accordingly, the linearity of our revenue will depend
on our ability to receive and fulfill orders evenly across any given quarter. To
date, our order backlog at the beginning of each quarter has not been
significant and we expect this trend to continue for the foreseeable future.
Accordingly, we must obtain additional orders in a quarter for shipment in that
quarter to achieve our revenue objectives. Our sales agreements may allow
purchasers to delay scheduled delivery dates without penalty. Further, our
customer purchase orders allow purchasers to cancel orders within negotiated
time frames without significant penalty. In addition, due in part to factors
such as the timing of product release dates, purchase orders and product
availability, significant volume shipments of our products could occur at the
end of our fiscal quarters. If we fail to ship products by the end of a quarter
our operating results may be materially and adversely affected for that quarter.
In the past,

                                        30
<PAGE>   33

we have experienced cancellation of orders, resulting in additional costs and
expenses. We defer revenue for PCS, stock rotation rights under specific
arrangements with distributors and amounts related to a recourse guarantee with
Siemens. We may experience significant fluctuations in our revenue in the future
based upon the inclusion or exclusion of one or any of these components in our
sales mix that give rise to deferred revenue. For example, as of December 31,
2000, approximately $11.1 million of our product shipments was subject to the
recourse agreement, of which $1.1 million was deferred. In addition, we had
approximately $1.5 million in deferred revenue related to stock rotation rights
granted to distributors and resale contingencies.

IF WE FAIL TO INCREASE OUR REVENUE, OR IF WE EXPERIENCE DELAYS IN GENERATING OR
RECOGNIZING REVENUE, WE COULD INCUR SUBSTANTIAL OPERATING LOSSES.

     Our operating expenses are largely based on anticipated personnel
requirements and revenue trends, and a high percentage of our expenses are, and
will continue to be, fixed. In addition, we may be required to spend more in
research and development than originally budgeted in order to respond to
industry trends. We may also incur significant new costs related to possible
acquisitions and the integration of new technologies. As a result, if we fail to
increase our revenue, or if we experience delays in generating or recognizing
revenue results we could incur substantial operating losses.

IF WE FAIL TO MANAGE THE GROWTH OF OUR OPERATIONS, OUR BUSINESS WILL BE
ADVERSELY AFFECTED.

     We have rapidly and significantly expanded our operations. This expansion
has placed a significant strain on our managerial, operational and financial
resources. In addition, we recently experienced several changes in our senior
management, including the hiring of personnel from Regent Pacific Management
Corporation, to act as our new CEO, new CFO and new Vice President of Sales and
Marketing. Many of our other senior management personnel joined us within the
last two years, including a number of key managerial, technical and operations
personnel whom we have not yet fully integrated. We expect to add additional key
personnel in these areas in the near future. To manage the expected growth of
our operations and personnel, we will be required to:

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

     - expand access to additional manufacturing capacity;

     - hire, train, motivate and manage our personnel; and

     - effectively manage multiple relationships with our customers, suppliers
       and other parties.

     In addition, we will need to coordinate our domestic and international
operations and establish the necessary infrastructure to implement our
international strategy. For instance, we recently opened an office in Belgium
and will need to integrate that office into existing operations. If we are not
able to accomplish the foregoing in an efficient and timely manner, our
business, financial condition and results of operations will be materially and
adversely affected.

IF WE FAIL TO ENHANCE OUR EXISTING PRODUCTS OR DEVELOP AND INTRODUCE NEW
PRODUCTS THAT MEET CHANGING CUSTOMER REQUIREMENTS AND TECHNOLOGICAL ADVANCES,
OUR ABILITY TO SELL OUR PRODUCTS WOULD BE MATERIALLY AND ADVERSELY AFFECTED.

     Our markets are characterized by rapid technological advances, evolving
industry standards, changes in end-user requirements, frequent new product
introductions and changes in voice and data service offerings by service
providers. Our future success will significantly depend on our ability to
anticipate or adapt to such changes and to offer, on a timely and cost-effective
basis, products that meet changing customer demands and industry standards. The
timely development of new or enhanced products is a complex and uncertain
process and we may not have sufficient resources to successfully and accurately
anticipate technological and market trends, or to successfully manage long
development cycles. We may also experience design, manufacturing, marketing and
other difficulties that could delay or prevent our development, introduction or
marketing of new products and enhancements. The introduction of new or enhanced
products also requires that we manage the
                                        31
<PAGE>   34

transition from older products to these new or enhanced products in order to
minimize disruption in customer ordering patterns and ensure that adequate
supplies of new products are available for delivery to meet anticipated customer
demand. We may also be required to collaborate with third parties to develop our
products and may not be able to do so on a timely and cost-effective basis, if
at all. If we are not able to develop new products or enhancements to existing
products on a timely and cost-effective basis, or if our new products or
enhancements fail to achieve market acceptance, our business, financial
condition and results of operations would be materially and adversely affected.

OUR ABILITY TO OPERATE AND GROW OUR BUSINESS MAY BE HARMED IF WE ARE UNABLE TO
DEVELOP AND MAINTAIN STRATEGIC RELATIONSHIPS WITH THIRD PARTIES.

     Our success will substantially depend on our ability to develop and
maintain strategic relationships. Our strategic relationships are relatively
new, and we cannot be certain that any revenue will be derived from those
arrangements. The amount and timing of resources that our strategic partners
devote to our business is not within our control and our strategic partners may
not perform their obligations as expected. In the event that any strategic
partner breaches or terminates its relationship with us, we may not be able to
sustain or grow our business. We may also not be able to maintain or develop
strategic relationships or to replace strategic partners. In addition, our
current largest distribution partner, Siemens, recently announced that it had
entered into an agreement to acquire Efficient Networks, one of our competitors.
As a result, we do not know whether Siemens will devote adequate, if any,
resources to work with us in the future.

IF WE ARE UNABLE TO RETAIN AND HIRE ADDITIONAL QUALIFIED PERSONNEL, WE MAY NOT
BE ABLE TO SUCCESSFULLY ACHIEVE OUR OBJECTIVES.

     Our success depends to a significant degree upon the continued
contributions of the principal members of our sales, marketing, engineering and
management personnel, many of whom perform important management functions and
would be difficult to replace. During the fourth quarter of 2000 and in the
first quarter of 2001, we experienced significant personnel changes at the
senior management level, including the hiring of a new Chief Executive Officer
and Chairman of the Board, Chief Financial Officer and Vice President of Finance
and Administration, Vice President of Worldwide Sales, and Vice President of
Marketing. Although the Board has entered into an agreement with Regent Pacific
Management Corporation to provide personnel to fill these and other senior
management positions, the agreement is due to expire in August of 2003 and may
be canceled at any time after February 2002. If the agreement with Regent
Pacific were canceled or not renewed, the loss of the Regent Pacific personnel
could have a material adverse effect on our operations, especially during any
transition phase to new management after the cancellation or non-renewal.
Similarly, if any adverse change in our relationship with Regent Pacific occurs,
it could hinder management's ability to direct our business and materially and
adversely affect our business, financial condition and results of operations. In
addition, the loss of the services of any other key management personnel, or key
sales personnel and engineers, could materially adversely affect our business,
financial condition and results of operations.

     In addition, recruiting qualified personnel in our industry is intensely
competitive and time-consuming. In particular, we have experienced difficulty in
hiring hardware, software, system and test and customer support engineers. We
believe that we will continue to experience difficulty in recruiting and
retaining qualified personnel in the future. If we are not able to attract and
retain the necessary personnel, we will not be able to operate and grow our
business.

WE DEPEND ON SOLE SOURCE AND LIMITED SOURCE SUPPLIERS FOR KEY COMPONENTS, AND IF
WE ARE UNABLE TO BUY THESE COMPONENTS ON A TIMELY BASIS, WE WILL NOT BE ABLE TO
DELIVER OUR PRODUCTS TO OUR CUSTOMERS.

     Several of the key components used in our products, including field
programmable gate arrays, DSL transreceivers, microprocessors, digital signal
processors and custom power supplies, are sourced from single or limited sources
of supply. These suppliers range from small vendors to large established
companies. We do not have guaranteed supply arrangements with most of our key
suppliers, and we or our contract manufacturers may not be able to obtain
necessary supplies in a timely manner. Financial or other difficulties faced by
these suppliers or significant changes in demand for these components could
limit the availability of
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<PAGE>   35

these components. In addition, any of our sole-source suppliers could be
acquired by, or enter into exclusive arrangements with, our competitors, stop
selling their products or components to us at commercially reasonable prices, or
refuse to sell their products or components to us altogether. Any interruption
or delay in the supply of any of these components, or the inability to obtain
these components from alternate sources at acceptable prices and within a
reasonable amount of time, would adversely affect our ability to meet scheduled
product deliveries to our customers and would materially adversely affect our
business, results of operations and financial condition. As much as six months
could be required before we would begin receiving adequate supplies from
alternative suppliers, if any. In addition, qualifying additional suppliers is
time-consuming and expensive and exposes us to potential supplier production
difficulties or quality variations.

     It is also possible that a source may not be available for us or be in a
position to satisfy our production requirements at acceptable prices and on a
timely basis, if at all, which could have a material adverse effect on our
business, financial condition and results of operations.

BECAUSE WE DEPEND UPON A SMALL NUMBER OF OUTSIDE CONTRACTORS TO MANUFACTURE OUR
PRODUCTS, OUR OPERATIONS COULD BE DELAYED OR INTERRUPTED IF WE ENCOUNTER
PROBLEMS WITH THEM.

     We currently rely on Avnet, Inc., A-Plus Manufacturing and Arrow
Electronics to build our products, and we are transitioning our contract
services from Avnet to Fine Pitch Industries, Inc. We do not have internal
manufacturing capabilities. Our reliance on these manufacturers involves a
number of risks, including the absence of adequate capacity, the unavailability
of or interruptions in access to certain process technologies and reduced
control over component availability, delivery schedules, manufacturing yields
and costs. If Avnet, A-Plus, Arrow or Fine Pitch are unable or unwilling to
continue manufacturing our products in required volumes and at high quality
levels, we will have to identify, qualify and select acceptable alternative
manufacturers, which could take more than six months. It is possible that an
alternate source may not be available to us when needed or be in a position to
satisfy our production requirements at acceptable prices and quality. Any
significant interruption in manufacturing would result in us having to reduce
our supply of products to our customers, which in turn could have a material
adverse effect on our customer relations, business, financial condition and
results of operations. Avnet, Arrow, A-Plus and Fine Pitch also build products
for other companies, and we cannot be certain that they will always have
sufficient quantities of inventory available to fill orders placed by our
customers, or that they will allocate their internal resources to fill our
orders on a timely basis.

     We are currently transitioning to Fine Pitch for our manufacturing
capability, but do not have a long term supply contract in place. In addition to
the inherent risks associated with such a transition, qualifying a new contract
manufacturer and commencing volume production is expensive and time consuming.
If we are required or choose to change contract manufacturers, our revenue may
decline and our customer relationships may be damaged.

     We may not be able to effectively manage our relationships with our
contract manufacturers and they may not meet our future requirements for timely
delivery. Any interruption in the operations of our contract manufacturers would
adversely affect our ability to meet our scheduled product deliveries to our
customers, which could cause the loss of existing or potential customers and
could materially adversely affect our business, results of operations and
financial condition. In addition, if our contract manufacturers fail to build
products with sufficient quality, our reputation, business, results of
operations and financial condition will be harmed.

IF WE ARE NOT ABLE TO ESTABLISH RELATIONSHIPS WITH A VARIETY OF DISTRIBUTION
PARTNERS, WE MAY NOT BE ABLE TO INCREASE OUR SALES AND GROW OUR BUSINESS.

     We believe that our future success is dependent upon establishing
successful relationships with a variety of distribution partners. To date, we
have entered into a value-added reseller agreement with Solunet and OEM
agreements with Siemens AG and Siemens ICN. While Siemens AG and its affiliates
currently own approximately 18.1% of our outstanding shares, Siemens also sells
products that compete with our products and recently announced that it had
entered into an agreement to purchase Efficient Networks, one of our

                                        33
<PAGE>   36

competitors. Accordingly, we cannot assure you that it will devote adequate
resources to distributing our products. We also cannot be certain that we will
be able to reach agreement with additional distribution partners on a timely
basis or at all, or that any of our current or future distribution partners will
devote adequate resources to selling our products. If we cannot establish these
relationships, we may not be able to increase our sales and grow our business.

IF INSTALLATION OF OUR MSAP CONCENTRATORS AT CENTRAL OFFICES ARE DELAYED, OUR
REPUTATION MAY BE HARMED AND WE MAY LOSE SALES.

     Our MSAP Concentrators are generally installed at carrier central offices.
In many cases, deployment of our equipment at carrier central offices is
intended to facilitate the provisioning of services that compete with the
carrier's services. Therefore, carriers may have an incentive to withhold or
delay installations of our MSAP concentrators. While we believe that current
regulations and laws require these carriers to cooperate in allowing
installation of our equipment, any delay, whether justified or not, will
adversely affect our customers' ability to deploy our equipment, which in turn
would adversely affect our reputation and result in lost sales. This would
result in a material adverse effect on our business, results of operations and
financial condition.

WE HAVE NO SIGNIFICANT EXPERIENCE OPERATING IN INTERNATIONAL MARKETS AND WE MAY
NOT BE ABLE TO SUCCESSFULLY ESTABLISH AND MANAGE OUR INTERNATIONAL OPERATIONS.

     We intend to expand our international operations and enter new markets.
This expansion will require significant management attention and financial
resources. We have only recently launched our international sales operations in
Canada and Europe. As a result, we have limited experience in marketing and
distributing our products internationally and in developing versions of our
products that comply with local standards. Our current international sales
efforts, particularly those in Europe, will likely be impacted by seasonal
purchasing patterns in foreign countries, which is typical of European customers
during the summer months. In addition, our international operations, including
those in Canada and Europe, will be subject to other inherent risks, including:

     - international telecommunications market;

     - difficulties and costs of staffing and managing foreign operations;

     - certification requirements;

     - longer sales cycles;

     - expenses associated with customizing products for foreign countries;

     - dependence on local vendors;

     - dependence on our ability to establish and maintain strategic
       relationships with international distribution partners;

     - protectionist laws and business practices that favor local competition;

     - reduced protection for intellectual property rights in some countries;

     - difficulties associated with enforcing agreements through foreign legal
       systems;

     - greater difficulty in collecting accounts receivable;

     - fluctuations in currency exchange rates;

     - unexpected changes in regulatory requirements;

     - the impact of recessions in economies outside the United States;

     - political and economic instability;

     - import or export licensing requirements; and

     - potential adverse tax consequences.

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<PAGE>   37

IF OUR PRODUCTS CONTAIN UNDETECTED SOFTWARE OR HARDWARE ERRORS, WE COULD INCUR
SIGNIFICANT UNEXPECTED EXPENSES AND LOST SALES.

     Our products are highly technical and are designed for deployment in very
large and complex networks. Although we thoroughly test our products, because of
their nature, they can only be fully tested when deployed in live networks that
generate high amounts of voice and/or data traffic. Because of our short
operating history, our products have not yet been broadly deployed.
Consequently, our customers may discover errors or defects in our products after
they have been broadly deployed. In addition, our customers may use our products
in conjunction with products from other vendors. As a result, when problems
occur, it may be difficult to identify the source of the problem. Any defects or
errors in our products discovered in the future, or failures of our customers'
networks, whether caused by our products or another vendor's products, could
result in:

     - loss of, or delay in, revenue and loss of market share;

     - product returns;

     - negative publicity regarding us and our products;

     - unexpected expenses to remedy errors;

     - diversion of our development resources;

     - increased service warranty, costs and repair; and

     - increased insurance costs.

Any of the above items could have a material adverse effect on our business,
results of operations and financial condition.

IF OUR PRODUCTS CONTAIN DEFECTS, WE COULD BE EXPOSED TO SIGNIFICANT PRODUCT
LIABILITY CLAIMS AND DAMAGE TO OUR REPUTATION.

     Because our products are designed to provide critical communications
services, we may be subject to significant liability claims. Our agreements with
customers typically contain provisions intended to limit our exposure to
liability claims. However, these limitations may not preclude all potential
claims resulting from a defect in one or more of our products. Although we
believe that we maintain adequate product liability insurance covering certain
damages arising from implementation and use of our products, our insurance may
not be sufficient to cover us against all possible liability. Liability claims
could also require us to spend significant time and money in litigation or to
pay significant damages. As a result, any such claims, whether or not
successful, could seriously damage our reputation and have a material adverse
effect on our business, financial condition and results of operations.

IF WE FAIL TO ACCURATELY PREDICT OUR MANUFACTURING REQUIREMENTS, WE COULD INCUR
ADDITIONAL COSTS OR EXPERIENCE MANUFACTURING DELAYS.

     We do not have long-term supply contracts with our contract manufacturers.
Consequently, these manufacturers are not obligated to supply products to us for
any specific period, in any specific quantity or at any certain price, except as
may be provided in a particular purchase order. We currently provide forecasts
of our demand to our contract manufacturers 12 months prior to scheduled
delivery of products to our customers. Lead times for the materials and
components that we order vary significantly and depend on numerous factors,
including the specific supplier, contract terms and demand for a component at a
given time. If we overestimate our component requirements, our contract
manufacturers may purchase excess inventory. For those parts which are unique to
our products, we could be required to pay for these excess parts and recognize
related inventory write-down costs. If we underestimate our requirements, our
contract manufacturers may have an inadequate inventory, which could interrupt
manufacturing of our products and result in delays in shipments and revenue. We
also may experience shortages of certain components from time to time, which
also could delay the manufacturing of our products and recognition of revenue.

                                        35
<PAGE>   38

WE MAY INVEST A SIGNIFICANT AMOUNT OF OUR RESOURCES TO DEVELOP, MARKET AND SELL
OUR PRODUCTS AND MAY NOT REALIZE ANY RETURN ON THIS INVESTMENT.

     We plan to invest a significant amount of our resources to develop, market
and sell our products. Accordingly, our success will depend on our ability to
generate sufficient revenue from sales of these products to offset the expenses
associated with developing, marketing and selling them. There are many risks
that we face in doing so. In particular, the rapidly changing technological
environment in which we operate can require the frequent introduction of new
products, resulting in short product lifecycles. Accordingly, if our products do
not quickly achieve market acceptance, they may become obsolete before we have
generated enough revenue from their sales to realize a sufficient return on our
investment.

     As a result, we may incur significant expenses and losses due to lack of
customer demand, unusable purchased components for these products and the
diversion of our engineers from future product development efforts. From time to
time we may also need to write-off excess and obsolete inventory. We recorded
charges totaling $8.4 million during the fourth quarter of 2000 to take into
consideration excess inventory levels and obsolete inventory. If we incur
substantial development, sales, marketing and inventory expenses that we are not
able to recover, and we are not able to compensate for such expenses, our
business, financial condition and results of operations could be materially and
adversely affected.

IF THE DEVELOPMENT AND ADOPTION OF RELEVANT INDUSTRY STANDARDS DO NOT OCCUR ON A
TIMELY BASIS, OUR PRODUCTS MAY NOT ACHIEVE MARKET ACCEPTANCE.

     Our ability to achieve market acceptance for our products will also depend
on the timing and adoption of industry standards for new technologies in our
markets. Many technological developments occur prior to the adoption of relevant
industry standards. The absence of an industry standard related to a specific
technology may prevent widespread market acceptance of products using that
technology. The existence of multiple competing standards may also retard or
delay the development of a broad market for our products. We may develop
products that use new technologies prior to the adoption of industry standards
related to these technologies. Consequently, our products may not comply with
eventual industry standards, which could hurt our ability to sell these products
and also require us to quickly design and manufacture new products that meet
these standards. Even after industry standards are adopted, the future success
of our products depends upon widespread market acceptance of their underlying
technologies.

OUR INABILITY TO PROTECT OUR INTELLECTUAL PROPERTY COULD ADVERSELY AFFECT OUR
ABILITY TO COMPETE.

     Our success and ability to compete substantially depend on our proprietary
technology. Despite our efforts to protect our proprietary rights, existing
copyright, trademark and trade secret laws afford us only limited protection.
Any infringement of our proprietary rights could result in significant
litigation costs, and any failure to adequately protect our proprietary rights
could result in our competitors offering similar products, potentially resulting
in loss of a competitive advantage and decreased revenue. We rely on a
combination of patent, copyright, trademark and trade secret laws, as well as
confidentiality agreements and licensing arrangements, to establish and protect
our proprietary rights. We presently have no patents, although we have seven
patent applications pending. In addition, the laws of certain foreign countries
do not protect our proprietary rights to the same extent as do the laws of the
United States. Attempts may be made to copy or reverse engineer aspects of our
products or to obtain and use information that we regard as proprietary.
Accordingly, we may not be able to protect our proprietary rights against
unauthorized third-party copying or use. Furthermore, policing the unauthorized
use of our products is difficult. Litigation may be necessary in the future to
enforce our intellectual property rights, to protect our trade secrets or to
determine the validity and scope of the proprietary rights of others. Such
litigation could result in substantial costs and diversion of resources and
could have a material adverse effect on our business, financial condition and
operating results.

                                        36
<PAGE>   39

WE COULD BECOME SUBJECT TO LITIGATION REGARDING INTELLECTUAL PROPERTY RIGHTS
WHICH COULD SERIOUSLY HARM OUR BUSINESS.

     Our industry is characterized by frequent intellectual property litigation
based on allegations of infringement of intellectual property rights. From time
to time, third parties may assert patent, copyright, trademark and other
intellectual property rights to technologies or rights that are important to our
business. In addition, in our agreements, we may agree to indemnify our
customers for any expenses or liabilities resulting from claimed infringements
of patents, trademarks or copyrights of third parties. Any claims asserting that
our products infringe or may infringe on proprietary rights of third parties,
with or without merit, could be time-consuming, resulting in costly litigation
and diverting the efforts of our technical and management personnel. These
claims could also result in product shipment delays or require us to modify our
products or enter into royalty or licensing agreements. Such royalty or
licensing agreements, if required, may not be available on terms acceptable to
us, if at all.

     Although we are not aware of any material intellectual property claims
against us, we may be a party to litigation in the future. We also cannot assure
you that we would prevail in any such actions, given their complex technical
issues and inherent uncertainties. Although we carry general liability
insurance, our insurance may not cover potential claims of this type or may not
be adequate to indemnify us for all liability that may be imposed.

IF WE BECOME SUBJECT TO UNFAIR HIRING CLAIMS WE COULD INCUR SUBSTANTIAL COSTS IN
DEFENDING OURSELVES.

     Companies in our industry whose employees accept positions with competitors
frequently claim that their competitors have engaged in unfair hiring practices.
We have received claims of this kind in the past and we cannot assure you that
we will not receive claims of this kind in the future or that those claims will
not result in material litigation. We could incur substantial costs in defending
ourselves against these claims, regardless of their merits, which would have a
material and adverse effect on our business, financial condition and results of
operations.

POTENTIAL ECONOMIC AND POLITICAL INSTABILITY IN INDIA COULD ADVERSELY AFFECT OUR
PRODUCT DEVELOPMENT EFFORTS.

     We believe that we currently receive favorable tax and tariff treatment for
our product development activities in India. However, if political instability
in India results in a government adverse to foreign corporate activity, a number
of adverse consequences could occur, including higher tariffs, taxes or export
controls, and increased governmental ownership or regulation, any of which would
increase our costs of product development. In addition, we record expenses for
our subsidiary in India in Indian Rupees. Accordingly, our operating results are
also exposed to changes in exchange rates between the U.S. dollar and Indian
Rupee. While to date, our results have not materially been affected by any
changes in currency exchange rates, devaluation of the U.S. dollar against the
Indian Rupee would adversely affect our expenses for our Indian subsidiary.

OUR BUSINESS COULD BE SHUT DOWN OR SEVERELY IMPACTED IF A NATURAL DISASTER
OCCURS.

     Our business and operations depend on the extent to which our facility and
products are protected against damage from fire, earthquakes, power loss, and
similar events. Despite precautions taken by us, a natural disaster or other
unanticipated problem could, among other things, hinder our research and
development efforts, delay the shipment of our products and affect our ability
to receive and fulfill orders. For example, since we perform all of our final
assembly and tests in one location, any fire or other disaster at our assembly
facility would have a material adverse effect on our business, results of
operations and financial condition. While we believe that our insurance policy
is comparable to those of similar companies in our industry, it does not cover
all natural disasters, in particular, earthquakes or floods.

                                        37
<PAGE>   40

              RISKS ASSOCIATED WITH THE BROADBAND ACCESS INDUSTRY

INTENSE COMPETITION COULD PREVENT US FROM INCREASING OR SUSTAINING OUR REVENUE
AND PREVENT US FROM ACHIEVING OR SUSTAINING PROFITABILITY.

     The market for multiservice broadband access products is highly
competitive. We compete directly with numerous companies, including Alcatel SA,
Cisco Systems, Inc., CopperCom, Inc., Copper Mountain Networks, Inc., Jetstream
Communications, Inc., Lucent Technologies, Inc., Nokia, Nortel Networks, Inc.,
Tollbridge Technologies, Inc. and Zhone Technologies. Many of our current and
potential competitors have longer operating histories, significantly greater
selling and marketing, technical, manufacturing, financial, customer support,
professional services and other resources, including vendor-sponsored financing
programs. As a result, these competitors are able to devote greater resources to
the development, promotion, sale and support of their products. Moreover, our
competitors may foresee the course of market developments more accurately than
we do and could develop new technologies that compete with our products or even
render our products obsolete. We may not have sufficient resources to continue
to make the investments or achieve the technological advances necessary to
compete successfully with existing or new competitors. In addition, due to the
rapidly evolving markets in which we compete, additional competitors with
significant market presence and financial resources, including other large
telecommunications equipment manufacturers, may enter our markets, thereby
further intensifying competition.

     The markets in which we compete are characterized by increasing
consolidation, as exemplified by the pending acquisition of Efficient Networks
by Siemens and the acquisitions of Promatory Communications, Inc., by Nortel
Networks and PairGain Technologies, Inc. by ADC Telecommunications, Inc. We
cannot predict how industry consolidation will affect our competitors and we may
not be able to compete successfully in an increasingly consolidated industry.
Additionally, because we may be dependent on strategic relationships with third
parties in our industry, any consolidation involving these parties could reduce
the demand for our products and otherwise harm our business prospects. For
instance, Siemens has been a significant distribution channel for our products
but we do not know if Siemens will provide adequate, if any, resources to work
with us in the future, in light of Siemens' recently announced agreement to
acquire Efficient Networks, one of our competitors. Our competitors that have
large market capitalizations or cash reserves are also better positioned than we
are to acquire other companies, including our competitors, thereby obtaining new
technologies or products that may displace our product lines. Any of these
acquisitions could give our competitors a strategic advantage that would
materially and adversely affect our business, financial condition and results of
operations.

     In addition, many of our competitors have much greater name recognition and
have a more extensive customer base, broader customer relationships, significant
financing programs, and broader product offerings than we do. These companies
can adopt aggressive pricing policies and leverage their customer bases and
broader product offerings to gain market share. We have encountered, and expect
to continue to encounter, potential customers that, due to existing
relationships with our competitors, are committed to the product offerings of
these competitors. As a result, these potential customers may not consider
purchasing our products.

     We expect that competitive pressures will result in price reductions,
reduced margin and loss of market share, which would materially and adversely
affect our business, financial condition and results of operations.

IF OUR PRODUCTS ARE NOT INTEROPERABLE WITHIN OUR CUSTOMERS' NETWORKS, ORDERS
WILL BE DELAYED OR CANCELED AND COULD RESULT IN SUBSTANTIAL PRODUCT RETURNS,
WHICH COULD SERIOUSLY HARM OUR BUSINESS.

     Many of our customers require that our products be designed to interface
with their existing networks, each of which may have different specifications
and utilize multiple protocol standards. Our customers' networks may contain
multiple generations of products from different vendors that have been added
over time as their networks have grown and evolved. Our products may be required
to interoperate with these products as well as with future products in order to
meet our customers' requirements. In some cases, we may be required to modify
our product designs to achieve a sale, which may result in a longer sales cycle,
increased

                                        38
<PAGE>   41

research and development expense, and reduced operating margins. If our products
do not interoperate with existing equipment in our customers' networks,
installations could be delayed, orders for our products could be cancelled or
our products could be returned. This could have a material adverse effect on our
business, financial condition and results of operations.

IF WE FAIL TO COMPLY WITH REGULATIONS AND EVOLVING INDUSTRY STANDARDS, SALES OF
OUR EXISTING AND FUTURE PRODUCTS COULD BE ADVERSELY AFFECTED.

     The markets for our products are characterized by a significant number of
laws, regulations and standards, including those promulgated by the Federal
Communications Commission, or FCC, and standards established by Underwriters
Laboratories, some of which are evolving as new technologies are deployed. While
we believe that our products comply with all current governmental laws,
regulations and standards, we cannot assure you that we will be able to continue
to design our products to comply with all necessary requirements in the future.
In addition, our customers may require our products to comply with various
industry standards, such as those promulgated by Telcordia Technologies, or
proprietary standards promoted by our competitors. Our key competitors may
establish proprietary standards which they do not make available to us. As a
result, we may not be able to achieve interoperability with their products.
Internationally, we may also be required to comply with standards established by
telecommunications authorities in various countries as well as with
recommendations of the International Telecommunication Union.

     Our customers may also require, or we may otherwise deem it necessary or
advisable, that we modify our products to address actual or anticipated changes
in the regulatory environment. Failure of our products to comply, or delays in
compliance, with the various existing, anticipated, and evolving industry
regulations and standards could adversely affect sales of our existing and
future products. Moreover, the enactment of new laws or regulations, changes in
the interpretation of existing laws or regulations or a reversal of the trend
toward deregulation in the telecommunications industry, could have a material
adverse effect on our customers, and thereby materially adversely affect our
business, financial condition and results of operations.

OUR CUSTOMERS ARE SUBJECT TO GOVERNMENT REGULATION, AND CHANGES IN CURRENT OR
FUTURE LAWS OR REGULATIONS THAT NEGATIVELY IMPACT OUR CUSTOMERS COULD HARM OUR
BUSINESS.

     The jurisdiction of the FCC extends to the entire communications industry,
including our customers. Future FCC regulations affecting the broadband access
industry, our customers, or their service offerings, may harm our business. For
example, FCC regulatory policies that affect the availability of data and
Internet services may impede our customers' penetration into certain markets or
affect the prices that they are able to charge. In addition, international
regulatory bodies are beginning to adopt standards and regulations for the
broadband access industry. These domestic and foreign standards and regulations
address various aspects of Internet use, including issues relating to liability
for information retrieved from or transmitted over the Internet, online context
regulation, user privacy, taxation, consumer protection, security of data,
access by law enforcement, as well as intellectual property ownership, obscenity
and libel. Resulting standards and regulations, or judgments in favor of
plaintiffs in lawsuits against service providers, e-commerce and other Internet
companies, could adversely affect the development of e-commerce and other uses
of the Internet. This, in turn, could directly or indirectly materially
adversely impact the broadband telecommunications and data industry in which our
customers operate. To the extent our customers are adversely affected by laws or
regulations regarding their business, products or service offerings, this could
result in a material and adverse effect on our business, financial condition and
results of operations.

IF NECESSARY LICENSES OF THIRD PARTY TECHNOLOGY ARE NOT AVAILABLE TO US OR ARE
VERY EXPENSIVE, WE MAY NOT BE ABLE TO DEVELOP NEW PRODUCTS OR PRODUCT
ENHANCEMENTS, WHICH WOULD SERIOUSLY IMPAIR OUR ABILITY TO COMPETE EFFECTIVELY.

     From time to time we may be required to license technology from third
parties to develop new products or product enhancements. We cannot assure you
that these third-party licenses will be available to us on commercially
reasonable terms, if at all. Our inability to obtain necessary third-party
licenses may force us to obtain substitute technology of lower quality or
performance standards or at greater cost, any of which could
                                        39
<PAGE>   42

seriously harm the competitiveness of our products and which would result in a
material and adverse effect on our business, financial condition and results of
operations.

IF THIRD-PARTY SUPPLIERS DO NOT CONTINUE TO DEVELOP NEW COMPONENTS THAT WE RELY
ON FOR FUTURE PRODUCTS, WE MAY NOT BE ABLE TO OFFER COMPETITIVE PRODUCTS.

     Some of our planned future products will rely on components developed by
third parties, such as higher bandwidth switch fabrics. If these components fail
to be developed by third parties in a timely basis, or at all, or if they are
not otherwise made available to us, we may not be able to offer new products
which are competitive. In this event, our business, financial condition and
results of operations could be materially and adversely affected.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     We do not hold financial instruments for trading or speculative purposes.
Our financial instruments have short maturities and therefore are not subject to
significant interest rate risk. We generally place our marketable security
investments in high credit quality instruments, primarily corporate obligations
with contractual maturities of less than one year. Our financial liabilities
that are subject to interest rate risk are our credit facilities, which have
stated interest rates based on the bank's prime rate. We do not expect any
material loss from our marketable security investments and therefore believe
that our potential interest rate exposure is not material. We do not use any
derivatives or similar instruments to manage our interest rate risk.

     We currently have product development activities in India. We record
expenses for our subsidiary in India in Indian Rupees. Accordingly, our
operating results are also exposed to changes in exchange rates between the U.S.
dollar and Indian Rupee. While to date, our results have not materially been
affected by any changes in currency exchange rates, devaluation of the U.S.
dollar against the Indian Rupee would adversely affect our expenses for our
Indian subsidiary.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     Our consolidated financial statements and schedule(s) required by
Regulation S-X, are included in this Form 10-K beginning on page F-1.

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

     Not applicable.

                                        40
<PAGE>   43

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

DIRECTORS AND EXECUTIVE OFFICERS

     The following table sets forth certain information with respect to our
directors and executive officers as of April 30, 2001:

<TABLE>
<CAPTION>
                NAME                   AGE                    POSITION(S)
                ----                   ---                    -----------
<S>                                    <C>   <C>
Gary J. Sbona........................  57    Chairman, Chief Executive Officer, and
                                             Director
H. Michael Hogan III.................  38    Vice President, Finance and Administration,
                                             Chief Financial Officer and Secretary
Pete S. Patel........................  48    Senior Vice President, Engineering and
                                             Operations
Benjamin DiLello.....................  46    Vice President, Worldwide Sales and Marketing
Brig. Gen. H.R. Johnson USAF           77    Director
  (Ret.).............................
Steven M. Krausz.....................  46    Director
Robert F. Kuhling Jr.................  46    Director
Anthony T. Maher.....................  56    Director
Peter T. Morris......................  44    Director
Lip-Bu Tan...........................  41    Director
</TABLE>

     The following is a brief description of the capacities in which each of the
directors and executive officers served or has served at our company as well as
their other business experience during the past five years.

     GARY J. SBONA has served as our Chairman and Chief Executive Officer since
February 2001. Since 1974, Mr. Sbona has also served as the Chairman and Chief
Executive Officer of Regent Pacific Management Corporation, an international
turnaround management firm that is currently providing our company with
management services. Mr. Sbona also serves as Chairman and Chief Executive
Officer of Verity, Inc., a publicly traded software company, specializing in
knowledge retrieval software and as Chairman and Chief Executive Officer of
Auspex Systems, Inc., a publicly traded, network-attached storage company. Since
1999, Mr. Sbona has served as a director of 3D Systems Corporation, a publicly
traded mass customization equipment manufacturer. Since 1974, Mr. Sbona has held
positions as an officer and/or director of numerous publicly and privately held
companies.

     H. MICHAEL HOGAN III has been our Vice President, Finance and
Administration, our Chief Financial Officer and our Secretary since February
2001. Prior to joining us, Mr. Hogan has served as Senior Vice President, Chief
Financial Officer of 3D Systems Corporation since September 1999 when he joined
them as part of the management team provided by Regent Pacific. Mr. Hogan has
been a Principal of Regent Pacific since 1996. Mr. Hogan holds a B.A. from
Colgate University and is a Certified Insolvency Reorganization Accountant and a
Certified Turnaround Professional.

     PETE S. PATEL has been our Senior Vice President, Engineering and
Operations since April 2001, and our Vice President, Operations since April
1999. Prior to joining us, Mr. Patel held various senior management positions at
Advanced Fibre Communications, a telecommunications company, including Vice
President of Operations from May 1998 to April 1999, Director of Operations from
June 1997 to May 1998, Director of Design Verification and Test Engineering from
May 1996 to June 1997, and Senior Test Engineering Manager from August 1995 to
May 1996. From February 1988 to August 1995, Mr. Patel held various management
positions at DSC Communications Corporation, a telecommunications company. Mr.
Patel holds a F.Y.B.Sc. in Science from Gujarat University, India and a B.V.Sc.
and A.H. from Gujarat Agricultural University, India.

     BENJAMIN DILELLO has been our Vice President, Worldwide Sales and Marketing
since February 2001. Prior to joining us, Mr. DiLello has held positions as an
officer and senior vice president of world-wide sales of several Regent Pacific
client companies. Mr. DiLello has been a principal of Regent Pacific since 1995.
Mr. DiLello holds a B.S. from Rider University.

                                        41
<PAGE>   44

     BRIG. GEN. H.R. JOHNSON, USAF (RET.) has served as a director of our
company since March 1997. His current board memberships include Teuza Venture
Fund, an Israeli venture fund, and several private companies. Since March of
1999, General Johnson has been the President of H.R. Johnson and Associates,
where he provides technology strategy and consulting services for various
technology corporations. Previously, General Johnson was the Senior Vice
President of Business Development of Fairchild Corporation, an aerospace and
technology company. General Johnson has an M.B.A. from George Washington
University and a B.S. in Military Science from the University of Maryland.

     STEVEN M. KRAUSZ has served as a director of our company since May 1997.
Mr. Krausz has been a general partner of several venture capital funds
affiliated with U.S. Venture Partners, a venture capital firm, since August
1985. He also serves as a director of Verity, Inc., a provider of knowledge
retrieval software products, and several private companies. Mr. Krausz serves on
our board as a representative of U.S. Venture Partners. Mr. Krausz holds an
M.B.A. and a B.S. in Electrical Engineering from Stanford University.

     ROBERT F. KUHLING, JR. has served as a director of our company since May
1998. Mr. Kuhling has been a managing director and general partner of several
venture capital funds managed by ONSET Ventures, a venture capital firm, since
1987. He also serves as a director of Curon Medical, a developer and
manufacturer of medical devices for the treatment of digestive system disorders,
Euphonix, Inc., a developer of professional audio equipment, Gadzoox Networks,
Inc., a storage area networking company, and several private companies. Mr.
Kuhling serves on our board as a representative of ONSET Ventures. Mr. Kuhling
holds an M.B.A. from Harvard University and an A.B. in economics from Hamilton
College.

     ANTHONY T. MAHER has served as a director of our company since February
1999. Since May 1978, Mr. Maher has held various executive positions within the
Siemens Public Communication Networks Group of Siemens AG, a network equipment
provider, including as a member of the board of directors from October 1997 to
present, Executive Director for Access Networks from October 1995 to September
1997, and Executive Director of Worldwide Product Planning from January 1993 to
September 1995. Mr. Maher is currently a member of the board of Siemens ICN,
Efficient Networks, Inc., a networking and communications company, Floware
Wireless Systems Ltd., a provider of broadband wireless access communications
systems, and several private companies. Mr. Maher serves on our board as a
representative of Siemens AG. Mr. Maher holds an M.S. in Electrical Engineering
and Solid State Physics and a B.S. in Electrical Engineering from the University
of Illinois.

     PETER T. MORRIS has served as a director of our company since May 1997. Mr.
Morris is a general partner at New Enterprise Associates, a venture capital
firm, where he has been employed since 1992. He also serves as a director of
Alliance Fiber Optic Products, Inc. a fiber optic company, Gadzoox Networks,
Packeteer, Inc., a bandwidth management software company, Virata Corporation, a
DSL chip provider, and several private companies. Mr. Morris serves on our board
as a representative of New Enterprise Associates. Mr. Morris holds an M.B.A. and
a B.S. in Electrical Engineering from Stanford University.

     LIP-BU TAN has served as a director of our company since October 1999. Mr.
Tan is a general partner of the Walden Group and Chairman of Walden
International Investment Group. He also serves as a director of Creative
Technology Ltd., a multimedia product and peripheral company, MediaRing.com,
Inc., a provider of Web-based voice communication services, Integrated Silicon
Solution, Inc., a designer of high-performance memory devices, and several
private companies. Mr. Tan serves on our board as a representative of The Walden
International Investment Group. Mr. Tan holds an M.B.A. from the University of
San Francisco, an M.S. in Nuclear Engineering from Massachusetts Institute of
Technology and a B.S. in Physics from Nanyang University, Singapore.

COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934

     The members of the Board of Directors, our executive officers and persons
who hold more than 10% of our outstanding common stock are subject to the
reporting requirements of Section 16(a) of the Securities Exchange Act of 1934
which require them to file reports with respect to their ownership of the common
stock and their transactions in such common stock. Based upon (i) the copies of
Section 16(a) reports which we received from such persons for their 2000 fiscal
year transactions in the common stock and their common
                                        42
<PAGE>   45

stock holdings, and (ii) the written representations received from one or more
of such persons that no annual Form 5 reports were required to be filed by them
for the 2000 fiscal year, we believe that all reporting requirements under
Section 16(a) for such fiscal year were met in a timely manner by our directors,
executive officers and greater than ten percent beneficial owners.

ITEM 11. EXECUTIVE COMPENSATION

SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION

     The following table provides certain summary information concerning the
compensation earned for services rendered during the 1999 and 2000 fiscal years
by our Chief Executive Officer for the 2000 fiscal year and each of our four
other most highly compensated executive officers whose salary and bonus for the
2000 fiscal year was in excess of $100,000. In addition, Mr. Vogt is also
included in the table because he would have been among our four most highly
compensated executive officers on the last day of the 2000 fiscal year had he
not resigned earlier during that year. No other executive officers who would
have otherwise been includable in such table on the basis of salary and bonus
earned for the 2000 fiscal year has been excluded by reason of his or her
termination of employment or change in executive status during that year. The
listed individuals are sometimes referred to herein as the "named executive
officers."

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                LONG-TERM COMPENSATION
                                             ANNUAL COMPENSATION         ------------------------------------
                                        ------------------------------           AWARDS
                                                                OTHER    -----------------------
                                                               ANNUAL    RESTRICTED   SECURITIES    PAYOUTS
                                                               COMPEN-     STOCK      UNDERLYING   ----------   ALL OTHER
      NAME AND PRINCIPAL                                       SATION      AWARD       OPTIONS/       LTIP       COMPEN-
           POSITION              YEAR   SALARY($)   BONUS($)   ($)(1)      (S)($)      SARS(#)     PAYOUTS($)   SATION($)
      ------------------         ----   ---------   --------   -------   ----------   ----------   ----------   ---------
<S>                              <C>    <C>         <C>        <C>       <C>          <C>          <C>          <C>
Suresh Nihalani................  2000   $244,608         --    $19,994       --           --           --           --
  Chief Executive Officer(2)     1999   $218,400         --        --        --           --           --           --
Hitendra Sonny Soni............  2000   $150,000    $70,000    $5,537        --           --           --           --
  V.P., Business Development(3)  1999   $102,159    $76,881        --        --           --           --           --
Kiran P. Munj..................  2000   $163,013         --    $7,199        --           --           --           --
  V.P., Hardware Engineering     1999   $285,000         --        --        --           --           --           --
Frederic T. Boyer..............  2000   $157,820         --    $3,545        --           --           --           --
  Chief Financial Officer(4)     1999   $151,750         --        --        --           --           --           --
Pete S. Patel..................  2000   $159,000         --    $  879        --           --           --           --
  V.P. Operations                1999   $108,928         --        --        --           --           --           --
Charles D. Vogt................  2000   $202,841    $83,242    $4,691        --           --           --           --
  Vice President,                1999   $ 24,715         --        --        --           --           --           --
  Worldwide Sales(5)
</TABLE>

---------------
(1) Vacation earned over the cap over the past three years, as the case may be,
    was paid out in cash in 2000.

(2) Mr. Nihalani resigned from his positions as Chairman, Chief Executive
    Officer and director in February 2001. However, Mr. Nihalani will continue
    to receive monthly salary payments of $13,590.00 through February 2002 at
    which time his employment will terminate. In addition, Mr. Nihalani received
    a one-time lump sum separation payment of $98,536.00 and accrued vacation of
    $17,836.89 at the time of his resignation.

(3) Mr. Soni terminated his employment with the Company as Vice President,
    Business Development in April 2001.

(4) Mr. Boyer terminated his employment with the Company as Vice President,
    Finance and Administration and Chief Financial Officer in February 2001.

(5) Mr. Vogt resigned from his position as Vice President, Worldwide Sales as of
    November 2000.

                                        43
<PAGE>   46

STOCK OPTIONS AND STOCK APPRECIATION RIGHTS

     The following table contains information concerning the stock options
granted to our named executive officers during the 2000 fiscal year. All the
grants were made under our Stock Option/Stock Issuance Plan. No stock
appreciation rights were granted to the named executive officers during such
fiscal year.

                       OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
                                            INDIVIDUAL GRANTS
                            --------------------------------------------------
                            NUMBER OF     % OF TOTAL                             POTENTIAL REALIZABLE VALUE AT ASSUMED
                            SECURITIES     OPTIONS                                    ANNUAL RATES OF STOCK PRICE
                            UNDERLYING    GRANTED TO    EXERCISE                    APPRECIATION FOR OPTION TERM(1)
                             OPTIONS     EMPLOYEES IN     PRICE     EXPIRATION   -------------------------------------
           NAME              GRANTED     FISCAL YEAR    PER SHARE      DATE        0%(2)          5%           10%
           ----             ----------   ------------   ---------   ----------   ----------   ----------   -----------
<S>                         <C>          <C>            <C>         <C>          <C>          <C>          <C>
Suresh Nihalani(3)........   690,200        17.32%        7.00       01/09/10    2,415,700    6,971,020    13,962,746
Frederic T. Boyer.........        --           --           --             --           --           --            --
Kiran P. Munj.............   159,800         4.12%        7.00       01/09/10      559,300    1,613,980     3,231,955
Pete S. Patel.............    60,000         1.51%        7.00       01/09/10      210,000      606,000     1,213,500
Hitenda Sonny Soni........    40,000         1.03%        7.00       01/09/10      140,000      404,000       809,200
Charles D. Vogt...........        --           --           --             --           --           --            --
</TABLE>

---------------
(1) The 5% and 10% assumed annual rates of compounded stock price appreciation
    are mandated by rules of the Securities and Exchange Commission and do not
    represent our estimate or projection of our future common stock prices.
    Amounts represent hypothetical gains that could be achieved for the
    respective options if exercised at the end of the option term. These amounts
    represent assumed rates of appreciation in the value of the common stock
    from the fair market value on the date of grant. Actual gains, if any, on
    stock option exercises are dependent on the future performance of our common
    stock and overall stock market conditions. The amounts reflected in the
    table may not necessarily be achieved. Potential realizable values are net
    of exercise price, but before the payment of taxes associated with exercise.

(2) Based on the deemed fair market value of our common stock as of January 10,
    2000, as subsequently determined for accounting purposes to be approximately
    $10.50 per share.

(3) Mr. Nihalani's options vest in accordance with their terms while he remains
    an employee with us up to a maximum of 359,479 vested shares. Any of his
    options which vest after February 13, 2001 and are exercised after May 13,
    2001 will be treated as non-qualified stock options.

     All of the options have a term of ten years and vest over four years, with
25% of the option shares vesting one year after the option grant date and the
remaining option shares vesting in a series of equal monthly installments over
the succeeding 36 months. The exercise price was determined by the Board to be
equal to the fair value of the common stock on the date of grant.

                                        44
<PAGE>   47

AGGREGATED OPTION/SAR EXERCISES AND FISCAL YEAR-END VALUE

     The following table provides information, with respect to our named
executive officers, concerning the exercise of options during the 2000 fiscal
year and unexercised options held by them at the end of that fiscal year. None
of our named executive officers exercised any stock appreciation rights during
the 2000 fiscal year and no stock appreciation rights were held by our named
executive officers at the end of such year.

                AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
                       AND FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
                                                             NUMBER OF UNEXERCISED          VALUE OF UNEXERCISED
                                                               OPTIONS AT FISCAL            IN-THE-MONEY OPTIONS
                                                                  YEAR END(#)             AT FISCAL YEAR END($)(2)
                       SHARES ACQUIRED       VALUE        ---------------------------   ----------------------------
        NAME           ON EXERCISE(#)    REALIZED($)(1)   EXERCISABLE   UNEXERCISABLE   EXERCISABLE    UNEXERCISABLE
        ----           ---------------   --------------   -----------   -------------   ------------   -------------
<S>                    <C>               <C>              <C>           <C>             <C>            <C>
Suresh Nihalani(3)...           --                 --       690,200           --                 --          --
Frederic T. Boyer....           --                 --       300,000           --        $789,360.00          --
Kiran P. Munj........           --                 --       159,800           --                 --          --
Pete S. Patel........           --                 --       187,500           --        $278,103.00          --
Hitenda Sonny Soni...           --                 --        40,000           --                 --          --
Charles D. Vogt......      104,000        $118,248.00            --           --                 --          --
</TABLE>

---------------
(1) Based upon the market price of the purchased shares on the exercise date
    less the option exercise price paid for those shares.

(2) Based upon the market price of $2.7812 per share, determined on the basis of
    the closing selling price per share of Common Stock on the Nasdaq National
    Market on December 30, 2001, less the option exercise price payable per
    share.

(3) Mr. Nihalani's options are exercisable and vest in accordance with their
    terms while he remains an employee with us up to a maximum of 359,479 vested
    shares.

     All of the options in the above table were immediately exercisable on the
date of grant, but are subject to our right of repurchase which lapses
periodically over time.

EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS

     We do not have any existing employment agreements with any of our named
executive officers. Accordingly, our Board of Directors may terminate the
employment of any named executive officer at any time at its discretion.

     The compensation committee of the Board of Directors, as the plan
administrator of the 2000 Stock Incentive Plan, has the authority to provide for
accelerated vesting of the shares of common stock subject to any outstanding
options held by the Chief Executive Officer or any other executive officer or
any unvested share issuances actually held by such individual, in connection
with certain changes in control of our company or the subsequent termination of
the officer's employment following the change in control event.

     We entered into a Separation Agreement and Consulting Agreement with Mr.
Nihalani, in connection with his resignation as Chief Executive Officer and
Chairman in February 2001. See "Item 13 -- Certain Relationships and Related
Transactions" for more information on this agreement.

     In February 2001, we appointed Gary J. Sbona as our Chairman of the Board
and Chief Executive Officer, and we entered into an agreement with Regent
Pacific Management Corporation, a management firm of which Mr. Sbona is chairman
and chief executive officer. See "Item 13 -- Certain Relationships and Related
Transactions" for more information on this agreement.

                                        45
<PAGE>   48

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     Our compensation committee currently consists of Messrs. Kuhling and
Morris. Neither of these individuals was an officer or employee of our company
at any time during the 2000 fiscal year or at any other time.

     No current executive officer of our company has ever served as a member of
the board of directors or compensation committee of any other entity that has or
has had one or more executive officers serving as a member of our Board of
Directors or compensation committee.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table sets forth certain information known to us with respect
to the beneficial ownership of our common stock as of March 31, 2001, by

     - all persons who are beneficial owners of five percent (5%) or more of the
       outstanding shares of our common stock;

     - each director and nominee for director;

     - the executive officers named in the Summary Compensation Table of the
       Executive section of this Form 10-K; and

     - all current directors and executive officers as a group.

     Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Except as indicated by the footnotes below, we
believe, based on information furnished to us, that the persons and entities
named in the table below have sole voting and investment power with respect to
all shares of common stock shown as beneficially owned by them. In computing the
number of shares of common stock subject to options held by that person that are
exercisable within 60 days of March 31, 2001, these shares are deemed
outstanding for the purpose of determining the percentage ownership of the
optionee. These shares, however, are not deemed outstanding for the purpose of
computing the percentage ownership of any other stockholder. Except as indicated
by footnote, and subject to the community property laws where applicable, to our
knowledge, the person named in the table above have sole voting and investment
power with respect to all shares of common stock shown as beneficially owned by
them. Unless otherwise indicated, the address for each person is our address at
301 Science Drive, Moorpark, California 93021. As of March 31, 2001, we had
50,530,972 shares of common stock outstanding.

<TABLE>
<CAPTION>
                                                             NUMBER OF SHARES     PERCENTAGE OF SHARES
                 NAME OF BENEFICIAL OWNER                   BENEFICIALLY OWNED     BENEFICIALLY OWNED
                 ------------------------                   ------------------    --------------------
<S>                                                         <C>                   <C>
NAMED EXECUTIVE OFFICERS & DIRECTORS
  Suresh Nihalani(1)......................................       5,797,388                11.3
  Frederic T. Boyer(2)....................................         143,750                   *
  Kiran P. Munj(3)........................................       1,370,342                 2.7
  Pete S. Patel(4)........................................         247,953                   *
  Hitendra Sonny Soni(5)..................................         457,953                   *
  Charles D. Vogt(6)......................................              --                   *
  Gary K. Sbona(7)........................................         970,149                 1.9
  Brig. Gen. H. R. Johnson USAF (Ret.)(8).................         187,500                   *
  Steven M. Krausz(9).....................................       6,653,473                13.2
  Robert F. Kuhling, Jr.(10)..............................       3,329,105                 6.6
  Anthony T. Maher(11)....................................       9,205,648                18.2
  Peter T. Morris(12).....................................       3,935,632                 7.8
  Lip-Bu Tan(13)..........................................       3,045,634                 6.0
  All directors and executive officers as a group (13
     persons)(14).........................................      35,344,527                66.7
</TABLE>

                                        46
<PAGE>   49

<TABLE>
<CAPTION>
                                                             NUMBER OF SHARES     PERCENTAGE OF SHARES
                 NAME OF BENEFICIAL OWNER                   BENEFICIALLY OWNED     BENEFICIALLY OWNED
                 ------------------------                   ------------------    --------------------
<S>                                                         <C>                   <C>
OTHER 5% STOCKHOLDERS
  Entities associated with Siemens AG(15).................       9,142,648                18.1
     Hofmannstrasse 51, D-81359
     Munich, Germany
  Entities associated with New Enterprise
     Associates(16).......................................       4,055,632                 8.0
     2490 Sand Hill Road
     Menlo Park, CA 94025
  Entities affiliated with U.S. Venture Partners(17)......       6,623,473                13.1
     2180 Sand Hill Road, Suite 300
     Menlo Park, CA 94025
  Onset Enterprise Associates III, L.P....................       3,297,105                 6.5
     2490 Sand Hill Road
     Menlo Park, CA 94025
  Entities affiliated with The Walden Group(18)...........       3,013,134                 6.0
     750 Battery Street, Seventh Floor
     San Francisco, CA 94111
</TABLE>

---------------
 *  Represents less than 1% of the total shares.

 (1) Includes (a) 690,200 shares issuable upon the exercise of immediately
     exercisable options granted to Mr. Nihalani, (b)4,784,502 shares held by a
     trust of which Mr. Nihalani and his wife are co-trustees, (c) 8,400 shares
     held by other members of Mr. Nihalani's immediate family, and (d) 314,286
     shares held by Mr. Nihalani as trustee of a grantor retained annuity trust.
     Mr. Nihalani resigned as our Chairman and Chief Executive Officer in
     February 2001.

 (2) Includes 143,750 shares issuable upon exercise of immediately exercisable
     options. Mr. Boyer terminated his employment with the us in February 2001.

 (3) Includes 159,800 shares issuable upon the exercise of immediately
     exercisable options and 57,142 shares held as trustee of two irrevocable
     trusts.

 (4) Includes 187,500 shares issuable upon the exercise of immediately
     exercisable options.

 (5) Includes 40,000 shares issuable upon the exercise of immediately
     exercisable options. Mr. Soni resigned in April 2001.

 (6) Mr. Vogt resigned in November 2000.

 (7) Includes 970,149 shares issuable upon the exercise of options which are
     immediately exercisable or exercisable within 60 days of March 31, 2001.

 (8) Includes 20,000 shares issuable upon the exercise of immediately
     exercisable options and 500 shares held by his wife. Also includes 40,000
     shares held by his daughter Candace Maria Johnson. Gen. Johnson holds a
     power of attorney with respect to the voting and disposition of such
     shares, but disclaims beneficial ownership of such shares.

 (9) Includes 30,000 shares issuable upon the exercise of immediately
     exercisable options. Also includes (a) 5,785,560 shares owned by U.S.
     Venture Partners V, L.P. ("USVP V"), (b) 321,420 shares owned by USVP V
     International, L.P. ("V Int'l"), (c) 179,995 shares owned by 2180
     Associates Fund V, L.P. ("2180V"), (d) 141,425 shares owned by USVP V
     Entrepreneur Partners, L.P. ("EP V"), (e) 187,270 shares owned by U.S.
     Venture Partners VII, L.P. ("USVP VII"), (f) 3,901 shares owned by 2180
     Associates Fund VII, L.P. ("2180 VII"), (g) 1,951 shares owned by USVP
     Entrepreneur Partners Fund VII-A, L.P. ("EP VII-A") and (h) 1,951 shares
     owned by USVP Entrepreneur Partners Fund VII-B, L.P. Mr. Krausz is a
     managing member of Presidio Management Group V, L.L.C. ("PMG V") and
     Presidio Management Group VII, L.L.C. ("PMG VII"). PMG V is the general
     partner of each of USVP V, V Int'l, 2180 V and EP V. PMG VII is the general
     partner of USVP VII. PMG V or PMG VII may be deemed to share voting and
     dispositive power over the shares held by each of USVP V, V INT'L, 2180 V,
     EP V and USVP VII, as the case may be. Accordingly, as the managing member
     of PMG V and PMG VII, Mr. Krausz may be deemed to share voting and
     dispositive power over these

                                        47
<PAGE>   50

     shares as well. Mr. Krausz disclaims beneficial interest in such shares,
     except as to his proportionate membership interest therein.

(10) Includes 30,000 shares issuable upon the exercise of immediately
     exercisable options. Also includes 3,297,105 shares held by ONSET
     Enterprise Associates III, L.P. ("Onset"). Mr. Kuhling is the managing
     director of OEA III Management, LLC, the general partner of Onset and, as
     such, may be deemed to exercise voting and dispositive power over the
     shares held by Onset. Mr. Kuhling disclaims beneficial ownership of such
     shares except as to his proportionate interest therein.

(11) Includes 60,000 shares issuable upon the exercise of immediately
     exercisable options. Also includes 9,114,073 shares held by Siemens AG and
     28,575 shares issuable upon exercise of a warrant held by Siemens ICN. Mr.
     Maher is of the board of Siemens ICN. Mr. Maher disclaims beneficial
     ownership of the shares underlying the warrant held by Siemens ICN.

(12) Includes 30,000 shares issuable upon the exercise of immediately
     exercisable options. Also includes 3,905,632 shares held by New Enterprise
     Associates VII, L.P. ("NEA VII"). Mr. Morris is a general partner of NEA
     VII. Mr. Morris disclaims beneficial ownership in such shares, except to
     the extent of his proportionate partnership interest therein.

(13) Includes 30,000 shares issuable upon the exercise of immediately exercised
     options held by Mr. Tan and 2,500 shares held by a trust of which Mr. Tan
     is a co-trustee. Also includes (a) 544,000 shares owned by Walden-SBIC,
     L.P., (b) 136,000 shares owned by Walden Technology Ventures II, L.P., (c)
     600,000 shares owned by Walden Media Information Technology Fund, L.P., (d)
     239,823 shares owned by Walden EDB Partners, L.P., (e) 15,882 shares owned
     by Walden EDB Partners II, L.P., (f) 240436 shares owned by Walden Japan
     Partners, L.P., (g) 727,644 shares owned by Pacven Walden Ventures III,
     L.P. and (h) 509,349 shares owned by Walden-Nikko Mauritius Co. Mr. Tan is
     a general partner of each of the above entities, with the exceptions of (1)
     Pacven Walden Ventures III, L.P., of which he is a director of Pacven
     Walden Management Co, Ltd., which is a general partner of Pacven Walden
     Management L.P., which is a general partner of Pacven Walden Ventures III,
     L.P. and (2) Walden-Nikko Mauritius, of which he is a director. Mr. Tan
     disclaims beneficial interest in such shares, except to the extent of his
     pecuniary interest therein, arising as a result of his partnership
     interests in the above shares.

(14) Includes (a) 9,114,073 shares held by Siemens AG and (b) 28,575 shares
     issuable upon exercise of a warrant held by Siemens ICN. Siemens AG is the
     parent company of Siemens ICN and, as such, may be deemed to exercise
     voting and dispositive power over the shares held by Siemens ICN.

(15) Includes (a) 3,905,632 shares held by NEA VII and (b) 150,000 shares held
     by NEA Presidents Fund, L.P.

(16) Includes (a) 5,785,560 shares owned by USVP V, (b) 321,420 shares owned by
     V Int'l, (c) 179,995 shares owned by 2180V, (d) 141,425 shares owned by EP
     V, and (e) 187,270 shares owned by USVP VII and (f) 3,901 shares owned by
     2180 VII, 1,951 shares owned by EP VII-A and 1,951 shares owned by EP
     VII-B.

(17) Includes (a) 544,000 shares owned by Walden-SBIC, L.P., (b) 136,000 shares
     owned by Walden Technology Ventures II, L.P., (c) 600,000 shares owned by
     Walden Media Information Technology Fund, L.P., (d) 239,823 shares owned by
     Walden EDB Partners, L.P., (e) 15,882 shares owned by Walden EDB Partners
     II, L.P., (f) 240,436 shares owned by Walden Japan Partners, L.P., (g)
     727,644 shares owned by Pacven Walden Ventures III, L.P. and (h) 509,349
     shares owned by Walden-Nikko Mauritius Co.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     In addition to the indemnification provisions contained in our Restated
Certificate of Incorporation and Bylaws, we have entered into separate
indemnification agreements with each of our directors. These agreements require
us, among other things, to indemnify such director against expenses (including
attorneys' fees), judgments, fines and settlements paid by such individual in
connection with any action, suit or proceeding arising out of such individual's
status or service as a director or officer of the company (other than

                                        48
<PAGE>   51

such liabilities arising from willful misconduct or conduct that is knowingly
fraudulent or deliberately dishonest) and to advance expenses incurred by such
individual in connection with any proceeding against such individual with
respect to which such individual may be entitled to indemnification by us.

     In October 2000 we entered into an amendment to our OEM agreement with
Siemens ICN, a wholly-owned subsidiary of Siemens AG. In December 2000 we
entered into a second amendment to this agreement. In December 2000, we entered
into a guaranty and loan purchase agreement with Siemens Financial Services,
Inc., an affiliate of Siemens AG, whereby we agreed to guarantee a portion of
the loan between WCI Capital Corp. and Siemens Financial Services to facilitate
the purchase of our product by Siemens for sale to Winstar Communications.

     We entered into a Separation and Consulting Agreement with Mr. Nihalani
after he resigned from his positions as Chairman, Chief Executive Officer and
director in February 2001. Pursuant to the terms of this agreement, Mr. Nihalani
will remain an employee of the Company and provide consulting to the new
management through February 2002. We will continue to pay him monthly salary
payments of $13,590.00 through February 2002. In addition, we paid Mr. Nihalani
a one-time lump sum separation payment of $98,536.00 and accrual vacation of
$17,836.89 at the time of his resignation. Upon the execution of this agreement,
our purchase option lapsed with respect to Mr. Nihalani's shares that subject to
that certain Founder/Employee Shareholder Agreement dated as of March 28, 1997,
as amended.

     In February 2001, Mr. Gary J. Sbona was appointed as our Chairman of the
Board and Chief Executive Officer, and we entered into a Retainer Agreement with
Regent Pacific Management Corporation, a management firm of which Mr. Sbona is
the Chairman and Chief Executive Officer. Pursuant to this agreement, Regent
Pacific agreed to provide us management services, at a fee of $75,000 per week,
including the services of Mr. Sbona, as Chief Executive Officer and Chairman,
and other Regent Pacific personnel as part of our management team. The agreement
has an 18 month term, with the first 12 months being non-cancelable, with an
advance retainer of $300,000.

     In connection with Mr. Sbona's service as our Chairman and Chief Executive
Officer, our Board of Directors granted Mr. Sbona an option to purchase
3,880,600 shares of our common stock at an exercise price of $1.938 per share.
The option has a term of five years, and 323,383 of the shares subject to the
option are immediately vested with the remaining shares vesting over eleven
equal monthly installments. The option also provides for accelerated vesting in
the event of the termination of Mr. Sbona's employment or the Regent Pacific
contact without cause or upon a change in control.

     All future transactions between Accelerated Networks and its officers,
directors, principal stockholders and affiliates will be approved by a majority
of the independent and disinterested members of the Board of Directors, and will
be on terms no less favorable to the company than could be obtained from
unaffiliated third parties.

     All future transactions between Accelerated Networks and its officers,
directors, principal stockholders and affiliates will be approved by a majority
of the independent and disinterested members of the Board of Directors, and will
be on terms no less favorable to the company than could be obtained from
unaffiliated third parties.

                                        49
<PAGE>   52

                                    PART IV

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

  (a)(1) Financial Statements

        See index to Consolidated Financial Statements on page F-1.

     (2) Financial Statement Schedules

          The following financial statement schedule of the Company is filed as
     part of this Form 10-K. All other schedules have been omitted because they
     are not applicable, not required, or the information is included in the
     consolidated financial statements or notes thereto.

<TABLE>
<CAPTION>
                                                                  PAGE
                                                                  ----
    <S>                                                           <C>
    Report of Independent Accountants...........................  F-23
    Schedule II -- Valuation and Qualifying Accounts............  F-24
</TABLE>

     (3) Exhibits

     The following exhibits are filed herewith or incorporated by reference.

<TABLE>
<S>        <C>
 3.1*      Certificate of Incorporation of the Registrant.
 3.2*      Bylaws of the Registrant.
 4.1*      See Exhibit 3.1 and 3.2 for provisions of the Registrant's
           Certificate of Incorporation and Bylaws defining the rights
           of holders of the Registrant's common stock. See Exhibit
           10.8 for the rights of certain holders of registration
           rights.
 4.2*      Specimen common stock certificate.
10.1*      Founder/Employee/Shareholder Agreement between the
           Registrant and Suresh Nihalani, as amended.
10.2*      Founder/Employee/Shareholder Agreement between the
           Registrant and Kiran Munj, as amended.
10.3*      Series A Preferred Stock Purchase Agreement dated as of May
           30, 1997, among the Registrant and certain investors
           thereto.
10.4*      Series B Preferred Stock Purchase Agreement dated as of May
           15, 1998, among the Registrant and certain investors
           thereto.
10.5*      Series C Preferred Stock Purchase Agreement dated as of
           February 24, 1999, among the Registrant and Siemens AG.
10.6*      Warrant Purchase Agreement dated as of December 16, 1999, by
           and between the Registrant and Siemens Information and
           Communication Networks, Inc.
10.7*      Form of Series D Preferred Stock Purchase Agreement.
10.8*      Second Restated Investors' Rights Agreement dated as of
           February 18, 2000, as amended among the Registrant and
           certain of its stockholders.
10.9*      1997 Stock Option/Stock Issuance Plan
10.10*     2000 Stock Incentive Plan.
10.11*     Employee Stock Purchase Plan.
10.12+*    Product Procurement Agreement dated as of April 21, 1999, by
           and between the Registrant and CTC Communications Group,
           Inc.
10.13+*    Product Purchase and Sale Agreement dated as of August 1,
           1999, by and between the Registrant and FirstWorld
           Communications.
10.14+*    Materials and Manufacturing Agreement Board Assembly
           Agreement dated as of March 15, 1999, by and between the
           Registrant and the Semiconductor Group of Arrow Electronics,
           Inc., as amended.
10.15+*    Standard Agreement dated as of June 1, 1999, by and between
           the Registrant and Power-One, Inc.
</TABLE>

                                        50
<PAGE>   53
<TABLE>
<S>        <C>
10.16+*    Value-Added Product Sale Agreement dated as of March 12,
           1999, by and between the Registrant and AVNET Electronics
           Marketing, a Group of Avnet, Inc.
10.17*     Agreement for Purchase of Products dated as of January 21,
           1999, by and between the Registrant and Siemens Information
           and Communication Networks, Inc.
10.17.1    Amendment No. 1 to that certain Agreement for Purchase of
           Products-OEM Agreement, dated as of October 16, 2000, by and
           between the Registrant and Siemens Information and
           Communication Networks, Inc. (Incorporated by reference to
           Exhibit 10.2 to the Registrant's Quarterly Report on Form
           10-Q filed on November 14, 2000).
10.17.2    Amendment No. 2 to that certain Agreement for Purchase of
           Products-OEM Agreement, dated as of December 1, 2000, by and
           between the Registrant and Siemens Information and
           Communication Networks, Inc.
10.18*     Service Level Agreement dated as of March 25, 1999, by and
           between the Registrant and Siemens Information and
           Communication Networks, Inc.
10.19*     Standard Industrial/Commercial Multi-Tenant Lease dated as
           of May 6, 1999, between the Registrant and Tyler Pacific
           III, L.L.C.
10.20*     Memorandum of Understanding dated as of January 13, 1999 by
           and between Mr. Viren T. Ranjan and Accelerated Networks
           (India) Private Limited.
10.21*     Standard Industrial/Commercial Single-Tenant Lease-Gross
           dated as of May 28, 1998, by and between the Registrant and
           Robert B. Reingold, Trustee for Reingold Trust #21328.
10.22+*    Licensing Agreement dated as of July 15, 1998, as amended,
           by and between the Registrant and Ditech Communications
           Corporation.
10.23+*    OEM Orbix Development and Runtime Agreement dated December
           17, 1999, by and between the Registrant and IONA.
10.24+*    Letter Agreement regarding licenses dated as December 30,
           1999 by and between the Registrant and WindRiver Systems,
           Inc.
10.25*     Form of Director Indemnification Agreement.
10.26*     Revolving Credit Loan and Security Agreement (Accounts and
           Equipment Loans) dated as of June 1, 1999, by and between
           the Registrant and Comerica Bank -- California.
10.27*     Senior Loan and Security Agreement No. L6244 dated as of May
           28, 1999, by and between the Registrant and Phoenix Leasing
           Incorporated.
10.28+*    Product Purchase and Sale Agreement dated as of February 23,
           2000, by and between the Registrant and UniDial
           Communications, Inc.
10.29*     Standard Industrial/Commercial Multi-Tenant Lease dated as
           of February 29, 2000, by and between the Registrant and
           Tyler Pacific III, LLC.
10.30*     Memorandum of Understanding dated as of May 10, 2000, by and
           between Registrant and US WEST Internet Ventures, Inc.
10.31*     Common Stock Subscription Agreement dated as of May 15,
           2000, by and between the Registrant and US WEST Internet
           Ventures, Inc.
10.32*     Agreement for Purchase of Products dated as of May 15, 2000,
           by and between the Registrant and Siemens AG.
10.33+     Mini-OSS Software License, Development and Distribution
           Agreement dated as of July 1, 2000, by and between the
           Registrant and Dorado Software, Inc. (Incorporated by
           reference to Exhibit 10.1 to the Registrant's Quarterly
           Report on Form 10-Q filed on November 14, 2000).
10.34      Guaranty and Loan Purchase Agreement dated as of December 6,
           2000, by and between the Registrant and Siemens Financial
           Services, Inc.
10.35      Retainer Agreement dated as of February 5, 2001 by and
           between the Registrant and Regent Pacific Management
           Corporation.
10.36      Employment Agreement dated as of February 12, 2001 by and
           between the Registrant and Gary Sbona.
10.37      Separation and Consulting Agreement and General Release
           dated March 16, 2001 by and between the Company and Suresh
           Nihalani.
</TABLE>

                                        51
<PAGE>   54
<TABLE>
<S>        <C>
11.1       Statement re: Computation of Per Share Earnings (included in
           Note 12 to the consolidated financial statements filed as
           part of this Annual Report on Form 10-K).
21.1*      List of Subsidiaries.
23.1       Consent of PricewaterhouseCoopers LLP, independent
           accountants.
</TABLE>

---------------
*  Incorporated herein by reference to the similarly numbered exhibit on the
   Company's Registration Statement on Form S-1 and all amendments thereto (File
   No. 333-31732).

+ Confidential treatment has been requested and received for certain portions of
  this exhibit.

(b) Reports on Form 8-K

     No reports on Form 8-K were filed during the fourth quarter of 2000.

(c) Exhibits

     The exhibits filed as part of this report are listed in Item 14(a)(3) of
this Form 10-K.

(d) Exhibits

     The financial statement schedules required by Regulation S-X and Item 8 of
this form are listed in Item 14(a)(2) of this Form 10-K.

                                        52
<PAGE>   55

                                   SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                          ACCELERATED NETWORKS, INC.

Date: May 8, 2001                         By:       /s/ GARY J. SBONA
                                            ------------------------------------
                                                       Gary J. Sbona
                                            Chief Executive Officer and Director

     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/ GARY J. SBONA                        Chief Executive Officer and    May 8, 2001
--------------------------------------------------------   Director (Principal Executive
                     Gary J. Sbona                                   Officer)

                /s/ H. MICHAEL HOGAN III                    Vice President, Finance and    May 8, 2001
--------------------------------------------------------     Administration and Chief
                  H. Michael Hogan III                     Financial Officer (Principal
                                                             Financial and Accounting
                                                                     Officer)

                    /s/ H.R. JOHNSON                                 Director              May 8, 2001
--------------------------------------------------------
          Brig. Gen. H.R. Johnson, USAF (Ret.)

                  /s/ STEVEN M. KRAUSZ                               Director              May 8, 2001
--------------------------------------------------------
                    Steven M. Krausz

                  /s/ PETER T. MORRIS                                Director              May 8, 2000
--------------------------------------------------------
                    Peter T. Morris

               /s/ ROBERT F. KUHLING, JR.                            Director              May 8, 2001
--------------------------------------------------------
                 Robert F. Kuhling, Jr.

                     /s/ LIP-BU TAN                                  Director              May 8, 2001
--------------------------------------------------------
                       Lip-Bu Tan
</TABLE>

                                        53
<PAGE>   56

                           ACCELERATED NETWORKS, INC.

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Financial Statements
Report of Independent Accountants...........................   F-2
Consolidated Balance Sheets.................................   F-3
Consolidated Statements of Operations.......................   F-4
Consolidated Statements of Stockholders' Equity (Deficit)...   F-5
Consolidated Statements of Cash Flows.......................   F-6
Notes to Consolidated Financial Statements..................   F-7

Financial Statement Schedules
Report of Independent Accountants...........................  F-23
Schedule II -- Valuation and Qualifying Accounts............  F-24
</TABLE>

                                       F-1
<PAGE>   57

                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
Accelerated Networks, Inc.

     In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, stockholders' equity (deficit)
and cash flows present fairly, in all material respects, the financial position
of Accelerated Networks, Inc. and its subsidiaries (the "Company") at December
31, 2000 and 1999, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 2000, in conformity
with accounting principles generally accepted in the United States of America.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

Woodland Hills, California
May 1, 2001

                                       F-2
<PAGE>   58

                           ACCELERATED NETWORKS, INC.

                          CONSOLIDATED BALANCE SHEETS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)

                                     ASSETS

<TABLE>
<CAPTION>
                                                                  DECEMBER 31,
                                                              --------------------
                                                                2000        1999
                                                              --------    --------
<S>                                                           <C>         <C>
Current assets:
  Cash and cash equivalents.................................  $ 62,194    $ 15,207
  Short-term investments....................................     7,913          --
  Accounts receivable, net of allowance for doubtful
     accounts of $760 and $110, respectively................     5,490       3,277
  Amounts due from related party............................    11,147       1,104
  Inventories...............................................     5,266       3,811
  Prepaid and other current assets..........................     1,570         296
                                                              --------    --------
          Total current assets..............................    93,580      23,695
Property and equipment, net.................................    10,164       4,840
Other assets................................................       199         143
                                                              --------    --------
          Total assets......................................  $103,943    $ 28,678
                                                              ========    ========

                  LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
  Accounts payable and accrued expenses.....................  $ 13,216    $  3,567
  Accrued payroll...........................................     1,708         756
  Capital lease obligations, current........................        97          28
  Credit facilities, current................................        --         884
  Deferred revenue..........................................     3,370         219
                                                              --------    --------
          Total current liabilities.........................    18,391       5,454
Capital lease obligations, net of current portion...........       168          13
Credit facilities, net of current portion...................        --       1,919
                                                              --------    --------
          Total liabilities.................................    18,559       7,386
                                                              --------    --------
Commitments and contingencies (Note 9)
Redeemable convertible preferred stock, $.001 par value;
  31,946 shares authorized; 31,651 shares issued and
  outstanding at December 31, 1999..........................        --      49,857
Stockholders' equity (deficit):
  Preferred stock, $.001 par value; 5,000 shares authorized
     and none outstanding...................................        --          --
  Common stock, $.001 par value; authorized -- 200,000 and
     75,000 shares at December 31, 2000 and 1999,
     respectively; issued and outstanding -- 50,387 and
     10,166 shares at December 31, 2000 and 1999,
     respectively...........................................        50          10
  Additional paid-in capital................................   180,913      14,050
  Cumulative foreign currency translation adjustment........       (79)         --
  Deferred stock compensation...............................    (4,391)    (10,165)
  Accumulated deficit.......................................   (91,109)    (32,460)
                                                              --------    --------
          Total stockholders' equity (deficit)..............    85,384     (28,565)
                                                              --------    --------
          Total liabilities and stockholders' equity
            (deficit).......................................  $103,943    $ 28,678
                                                              ========    ========
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.
                                       F-3
<PAGE>   59

                           ACCELERATED NETWORKS, INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                       DECEMBER 31,
                                                             --------------------------------
                                                               2000        1999        1998
                                                             --------    --------    --------
<S>                                                          <C>         <C>         <C>
Net revenue (includes related party revenue of $12,849 and
  $1,332 at December 31, 2000 and 1999, respectively)......  $ 34,228    $  8,466    $     --
Cost of revenue............................................    33,552       6,412          --
                                                             --------    --------    --------
Gross profit...............................................       676       2,054          --
                                                             --------    --------    --------
Operating expenses:
  Research and product development.........................    23,606      12,934       7,398
  Sales and marketing......................................    23,084       8,998       2,010
  General and administrative...............................     6,522       2,379         755
                                                             --------    --------    --------
          Total operating expenses.........................    53,212      24,311      10,163
                                                             --------    --------    --------
Loss from operations.......................................   (52,536)    (22,257)    (10,163)
                                                             --------    --------    --------
Other income (expense):
Interest income............................................     3,924       1,131         494
Interest expense...........................................      (154)       (100)        (41)
                                                             --------    --------    --------
                                                                3,770       1,031         453
                                                             --------    --------    --------
Loss before provision for income taxes.....................   (48,766)    (21,226)     (9,710)
Provision for income taxes.................................         1           1           1
                                                             --------    --------    --------
Net loss...................................................   (48,767)    (21,227)     (9,711)

Beneficial conversion feature..............................    (9,882)         --          --
                                                             --------    --------    --------
Net loss applicable to common stockholders.................  $(58,649)   $(21,227)   $ (9,711)
                                                             ========    ========    ========

Basic and diluted net loss per share applicable to common
  stockholders.............................................  $  (2.02)   $  (3.29)   $  (2.00)
                                                             --------    --------    --------

Weighted-average shares outstanding used to compute basic
  and diluted net loss per share applicable to common
  stockholders.............................................    29,106       6,447       4,853
                                                             ========    ========    ========

Amortization of stock-based compensation included in:
  Cost of revenues.........................................  $    216    $    100    $     --
  Research and product development.........................     2,270         873          20
  Sales and marketing......................................     2,190       1,498          31
  General and administrative...............................     1,564         632           1
                                                             --------    --------    --------
                                                             $  6,240    $  3,103    $     52
                                                             ========    ========    ========
</TABLE>

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

                                       F-4
<PAGE>   60

                           ACCELERATED NETWORKS, INC.

           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
                                  (THOUSANDS)

<TABLE>
<CAPTION>
                               COMMON STOCK                                                       ACCUMULATED         TOTAL
                              ---------------     ADDITIONAL      DEFERRED STOCK   ACCUMULATED   COMPREHENSIVE    STOCKHOLDERS'
                              SHARES   AMOUNT   PAID-IN CAPITAL    COMPENSATION      DEFICIT     INCOME (LOSS)   EQUITY (DEFICIT)
                              ------   ------   ---------------   --------------   -----------   -------------   ----------------
<S>                           <C>      <C>      <C>               <C>              <C>           <C>             <C>
Balance at December 31,
  1997......................   7,072    $ 7        $    118          $  (101)       $ (1,522)        $ --            $ (1,498)
Exercise of stock options...   2,200      2             155               --              --           --                 157
Repurchase of unvested
  common stock..............    (100)    --              (5)              --              --           --                  (5)
Deferred stock
  compensation..............      --     --             716             (716)             --           --                  --
Amortization of deferred
  stock
  compensation..............      --     --              --               52              --           --                  52
Net loss....................      --     --              --               --          (9,711)          --              (9,711)
                              ------    ---        --------          -------        --------         ----            --------
Balance at December 31,
  1998......................   9,172      9             984             (765)        (11,233)          --             (11,005)
Exercise of stock options...   1,052      1             408               --              --           --                 409
Repurchase of unvested
  common stock..............     (58)    --              (6)              --              --           --                  (6)
Issuance of warrants........      --     --             161               --              --           --                 161
Deferred stock
  compensation..............      --     --          12,503          (12,503)             --           --                  --
Amortization of deferred
  stock
  compensation..............      --     --              --            3,103              --           --               3,103
Net loss....................      --     --              --               --         (21,227)          --             (21,227)
                              ------    ---        --------          -------        --------         ----            --------
Balance at December 31,
  1999......................  10,166     10          14,050          (10,165)        (32,460)          --             (28,565)
Issuance of common stock in
  connection with initial
  public offering, net......   4,800      5          65,307               --              --           --              65,312
Conversion of redeemable
  convertible preferred
  stock.....................  35,106     35          88,247               --              --           --              88,282
Issuance of warrants to US
  West......................      --     --           1,385               --              --           --               1,385
Issuance of shares pursuant
  to employee stock option
  exercises and employee
  stock purchase plan.......     630     --           1,846               --              --           --               1,846
Repurchase of unvested
  common stock..............    (315)    --            (270)              --              --           --                (270)
Beneficial conversion
  feature on Series D.......      --     --           9,882               --          (9,882)          --                  --
Deferred stock
  compensation..............      --     --           5,995           (5,995)             --           --                  --
Cancellation of unvested
  stock options.............                         (5,529)           5,529              --           --                  --
Amortization of deferred
  stock
  compensation..............      --     --              --            6,240              --           --               6,240
Foreign currency translation
  adjustment................      --     --              --               --              --          (79)                (79)
Net loss....................      --     --              --               --         (48,767)          --             (48,767)
                              ------    ---        --------          -------        --------         ----            --------
Balance at December 31,
  2000......................  50,387    $50        $180,913          $(4,391)       $(91,109)        $(79)           $ 85,384
                              ======    ===        ========          =======        ========         ====            ========
</TABLE>

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

                                       F-5
<PAGE>   61

                           ACCELERATED NETWORKS, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                       DECEMBER 31,
                                                              -------------------------------
                                                                2000        1999       1998
                                                              --------    --------    -------
<S>                                                           <C>         <C>         <C>
Operating Activities:
  Net loss..................................................  $(48,767)   $(21,227)   $(9,711)
  Adjustments to reconcile net loss to net cash used in
    operating activities:
    Depreciation and amortization...........................     2,817       1,028        283
    Provisions for bad debts................................       650         110         --
    Issuance of warrant in connection with purchase order...        --         161         --
    Issuance of warrant to US West..........................     1,385                     --
    Issuance of options for services........................        --          17         --
    Amortization of deferred stock compensation.............     6,240       3,103         52
    Changes in current assets and liabilities:
      Accounts receivable...................................   (12,906)     (4,491)        --
      Inventories...........................................    (1,455)     (3,811)        --
      Prepaid and other assets..............................    (1,330)         63       (464)
      Accounts payable and accrued expenses.................     9,649       1,674      1,771
      Accrued payroll.......................................       952         700         27
      Deferred revenue......................................     3,151         219         --
      Foreign currency translation adjustment...............       (79)         --         --
                                                              --------    --------    -------
         Net cash used in operation activities..............   (39,693)    (22,454)    (8,042)
                                                              --------    --------    -------
Investing activities:
  Purchase of available-for-sale securities.................    (7,913)     (2,000)    (5,954)
  Maturity of available-for-sale securities.................        --       7,954         --
  Purchase of property and equipment........................    (8,141)     (4,535)    (1,071)
                                                              --------    --------    -------
         Net cash provided by (used in) investing
           activities.......................................   (16,054)      1,419     (7,025)
                                                              --------    --------    -------
Financing activities:
  Proceeds from issuance of common stock....................    67,200          --         --
  Repurchase of common stock................................      (270)         (5)        (5)
  Proceeds from issuance of redeemable convertible preferred
    stock...................................................    38,425      30,000     14,481
  Offering costs, exclusive of underwriters' discount.......    (1,888)        (61)       (53)
  Proceeds from exercise of stock options and issuance of
    shares under stock purchase plan........................     1,846         391        158
  Payments under capital lease obligations..................       (79)        (57)       (48)
  Proceeds from credit facilities...........................        --       2,828        458
  Repayments on credit facilities...........................    (2,500)       (361)      (121)
                                                              --------    --------    -------
         Net cash provided by financing activities..........   102,734      32,735     14,870
                                                              --------    --------    -------
         Net increase (decrease) in cash and cash
           equivalents......................................    46,987      11,700       (197)
Cash and cash equivalents at beginning of year..............    15,207       3,507      3,704
                                                              --------    --------    -------
Cash and cash equivalents at end of year....................  $ 62,194    $ 15,207    $ 3,507
                                                              ========    ========    =======
Supplemental disclosure of noncash transactions:
  Cash paid during the year for:
    Interest................................................  $    178    $    100    $    36
                                                              ========    ========    =======
    Income taxes............................................  $      1    $      1    $     1
                                                              ========    ========    =======
Supplemental disclosure of noncash transactions:
  Purchase of equipment under capital leases................  $     --    $     19    $   103
                                                              ========    ========    =======
  Return of equipment under capital lease...................  $     --    $     14    $    --
                                                              ========    ========    =======
</TABLE>

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

                                       F-6
<PAGE>   62

                           ACCELERATED NETWORKS, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 1. BUSINESS AND BASIS OF PRESENTATION

     Accelerated Networks, Inc. (the "Company") was incorporated in October 1996
as a California corporation. In January and May of 1999, the Company established
two wholly-owned subsidiaries, Accelerated Networks (India) Private Limited, in
Bangalore, India, and Accelerated Networks International Limited, in Mauritius,
respectively. All significant intercompany accounts and transactions are
eliminated in consolidation. Effective January 1, 1999, the Company began to
operate under a thirteen-week calendar quarter. For financial statement
purposes, however, the reporting periods are referred to as ended on the last
day of the related reporting period. Prior to 1999, the Company operated under a
calendar quarter. For the year ended dated December 31, 1999, there was no
difference between the Company's reporting year end and the calendar year end.

     The Company develops, manufactures, and markets telecommunications products
that enable the bundling of voice and data services over a single broadband
access network. The Company's target customers are providers of voice and/or
data services including competitive local exchange carriers, or CLECs,
interexchange carriers, or IXCs, regional bell operating companies, or RBOCs,
incumbent local exchange carriers, or ILECs, and foreign telephone companies.
The market for the Company's products is extremely competitive and is
characterized by rapid technological change, new product development and product
obsolescence, and a competitive business environment for the attraction and
retention of knowledge workers.

     Through December 31, 1998, the Company was considered to be in the
development stage and was principally engaged in research and development,
raising capital and building its management team. During 1999, the Company
ceased to be in the development stage.

     The accompanying consolidated financial statements have been prepared on
the basis that the Company will continue as a going concern. The Company has
incurred significant operating losses and negative operating cash flows since
its inception. The Company has funded operations primarily through the sale of
equity securities and debt borrowings. Management believes that the proceeds
received through the sale of equity securities, available borrowings under its
credit facility and revenue generated from operations will be adequate to
support the Company's operations through December of 2001.

     In March 2000, the Company reincorporated in the state of Delaware. The
effect of this reincorporation on the financial statements has been reflected
for all periods presented.

 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Use of Estimates -- In the normal course of preparing financial statements
in conformity with generally accepted accounting principles, management is
required 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.

     Cash and Cash Equivalents -- The Company considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents. Cash and cash equivalents are carried at cost, which approximates
fair value.

     Short-Term Investments -- The Company determines the appropriate
classification of debt and equity securities at the time of purchase and
re-evaluates such designation at each balance sheet date. To date, all
short-term investments have been classified as held-to-maturity. At December 31,
2000, the Company's short-term investments consisted of high-grade (at purchase
date) corporate bonds and government securities, which had maturities of less
than one year. The aggregate fair value of the Company's short-term investments
approximated their amortized cost basis. At December 31, 2000, unrealized gains
and losses, computed using the specific-identification method, were not
significant.

                                       F-7
<PAGE>   63
                           ACCELERATED NETWORKS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     Foreign Currency Translation -- Translation of foreign currencies are
accounted for using the US Dollar as the functional currency of the Company's
foreign subsidiaries, however books of record are maintained in the local
currencies. Foreign currency translations occur during remeasurement of the
books of record into the functional currency. The lower of cost or market value
is applied to remeasure inventory not recorded in the functional currency. All
other assets and liabilities are remeasured using the historical exchange rates,
while revenue and expenses are translated using the average rates in effect for
the period translated. The resulting gains and losses are included as a separate
component of stockholders' equity (deficit). The Company recorded a loss on
foreign currency translation of $79,000 for the year ended December 31, 2000.
There were no such gains or losses in 1999.

     Inventories -- Inventories are stated at lower of cost (first in, first
out) or market.

     Fair Value of Financial Instruments -- The Company's financial instruments,
including cash and cash equivalents, accounts receivable, accounts payable and
amounts due under capital leases and credit facilities are carried at cost,
which approximates their fair value because of the short-term maturity of these
instruments and the relatively stable interest rate environment.

     Property and Equipment -- Property and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation and amortization is
computed using the straight-line method based upon the estimated useful lives of
the assets of, generally, two to five years. Leasehold improvements and
equipment under capital leases are depreciated over the shorter of the estimated
useful life or the life of the lease. Useful lives are evaluated regularly by
management in order to determine recoverability in light of current
technological conditions. Maintenance and repairs are charged to expense as
incurred while renewals and improvements are capitalized. Upon the sale or
retirement of property and equipment, the accounts are relieved of the cost and
the related accumulated depreciation, with any resulting gain or loss included
in the Consolidated Statement of Operations.

     Long-Lived Assets -- The Company reviews its long-lived assets for
impairment whenever events or changes in circumstances indicate the carrying
amount of such assets may not be recoverable. Recoverability of these assets is
determined by comparing the forecasted undiscounted cash flows attributable to
such assets to their carrying value. If the carrying value of the assets exceeds
the forecasted undiscounted cash flows, then the assets are written down to
their fair value. Fair value is determined based on undiscounted cash flows or
appraised values, depending upon the nature of the assets. To date, there have
been no such impairments.

     Revenue Recognition -- Revenue is recognized when all four of the following
criteria are met: (a) persuasive evidence that an arrangement exists; (b)
delivery of the products and/or services has occurred; (c) the selling price is
both fixed and determinable and; (d) collectibility is reasonably assured. When
contracts contain multiple elements wherein objective evidence exists for the
value of undelivered elements, the Company accounts for the undelivered elements
in accordance with the "Residual Method." The Company offers extended or
additional post-contract support ("PCS") services to certain large customers
consisting of software updates and technical support for products sold. PCS is
deferred and recognized ratably over the expected term of the respective
agreement, generally 12 to 15 months.

     The Company sells its products to end users through its direct sales force,
as well as through distributors. The Company's arrangements with distributors
may contain provisions for price protection and stock rotation allowances. The
Company recognizes revenue on sales to distributors when a right of return
exists in accordance with the provisions set forth in Financial Accounting
Standards Board (FASB) No. 48, "Revenue Recognition When Right of Return
Exists." In accordance with FASB No. 48, the Company recognizes revenue upon
shipment to distributors provided that (a) the price is substantially fixed and
determinable at the time of sale; (b) the distributor's obligation to pay the
Company is not contingent upon resale of the products; (c) title and risk of
loss passes to the distributor at time of shipment; (d) the distributor has
economic substance apart from that provided by the Company; (e) the Company has
no significant obligation

                                       F-8
<PAGE>   64
                           ACCELERATED NETWORKS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

to the distributor to bring about resale of the products; and (f) future returns
can be reasonably estimated. For any sales that do not meet all of the above
criteria, revenue is deferred until all such criteria have been met.

     Deferred revenue consists primarily of deferrals for PCS, stock rotation
rights and resale or recourse contingencies under specific arrangements with
customers.

     Stock Compensation -- The Company accounts for stock-based employee
compensation arrangements in accordance with the provisions of Accounting
Principles Board ("APB") No. 25, "Accounting for Stock Issued to Employees," and
FASB interpretation ("FIN") No. 44 "Accounting for Certain Transactions
Involving Stock Compensation," and complies with the disclosure requirements of
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation." Under APB No. 25, compensation cost, if any, is
recognized over the respective vesting period based on the difference, on the
date of grant, between the fair value of the Company's common stock and the
grant price. The Company accounts for stock issued to non-employees in
accordance with the provisions of SFAS No. 123 and Emerging Issues Task Force
("EITF") No. 96-18.

     Advertising -- Advertising costs are expensed as incurred and amounted to
$220,000, $132,000 and $48,000 for the years ended December 31, 2000, 1999 and
1998, respectively.

     Product Warranty Costs -- The Company generally warrants its products for
one year after sale and provides for estimated future warranty costs at the time
revenue is recognized. At December 31, 2000 and December 31, 1999, accrued
product warranty costs amounted to $492,000 and $201,000, respectively, and are
included in accounts payable and accrued expenses.

     Software Development Costs -- Software development costs not qualifying for
capitalization are included in research and development and are expensed as
incurred. After technological feasibility is established, software costs are
capitalized. The capitalized cost is then amortized on a straight-line basis
over the estimated product life or on the ratio of current revenues to total
projected product revenues, if greater. The Company defines technological
feasibility as the establishment of a working model, which typically occurs upon
completion of a beta version. To date, the period between achieving
technological feasibility, and the general availability of the related products
has been short and software development costs qualifying for capitalization have
been insignificant.

     Research and Product Development -- Costs incurred in the research and
development of products are expensed as incurred.

     Income Taxes -- The Company utilizes the liability method of accounting for
income taxes. Under this method, deferred tax liabilities and assets are
determined based on the difference between the financial statement and the tax
bases of assets and liabilities using enacted tax rates in effect for the period
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.

     Net Loss Per Common Share -- The Company computes net loss per share in
accordance with SFAS No. 128, "Earnings per Share" and SEC Staff Accounting
Bulletin No. 98 ("SAB 98"). Under the provisions of SFAS No. 128 and SAB 98,
basic net loss per share is computed by dividing the net loss available to
Common Stockholders for the period by the weighted average number of shares of
Common Stock outstanding during the period. The calculation of diluted net loss
per share gives effect to Common Stock equivalents; however, potential Common
Shares are excluded if their effect is antidilutive. Potential Common Shares are
composed of Common Stock subject to repurchase rights and incremental shares of
Common Stock issuable upon the exercise of stock options and warrants.

     Comprehensive Income -- The Company has adopted the provisions of SFAS No.
130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for
reporting comprehensive income and its components in financial statements.
Comprehensive income, as defined, includes all changes in equity (net
                                       F-9
<PAGE>   65
                           ACCELERATED NETWORKS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

assets) during a period from non-owner sources. Net loss and other comprehensive
loss, including foreign currency translation adjustments, and unrealized gains
and losses on investments shall be reported, net of their related tax effect, to
arrive at comprehensive loss. During the year ended December 31, 2000 there were
no differences between the Company's net loss and its total comprehensive loss,
except for foreign currency translation losses of $79,000. During the year ended
December 31, 1999, there were no differences between the Company's net loss and
total comprehensive loss.

     Reclassification -- Certain reclassifications have been made to prior years
to conform with the 2000 presentation.

     Segments -- In 1998, the Company adopted the provisions of SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." SFAS No.
131 establishes standards for the way companies report information about
operating segments in interim and annual financial statements. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. The Company determined that it has
operated within one discrete reportable business segment since inception.

     Recent Accounting Pronouncements -- In March 1998, the AICPA issued SOP No.
98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use," which provides guidance on accounting for the cost of computer
software developed or obtained for internal use. The Company adopted the SOP No.
98-1 effective January 1, 1999. The implementation of SOP No. 98-1 did not have
a material effect on the consolidated financial statements.

     In April 1998, the AICPA issued SOP No. 98-5, "Reporting on the Costs of
Start-Up Activities." SOP No. 98-5 requires that all start-up costs related to
new operations must be expensed as incurred. In addition, start-up costs that
were capitalized in the past must be written off when SOP No. 98-5 is adopted.
The Company adopted the SOP No. 98-5 effective January 1, 1999. The
implementation of SOP No. 98-5 did not have a material effect on the
consolidated financial statements.

     In June 1999, the FASB issued Statement No. 137, "Accounting for Derivative
Instruments and Hedging Activities -- Deferral of Effective Date of FASB
Statement No. 133" ("SFAS No. 137"). The Statement defers for one year the
effective date of FASB Statement No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS No. 133"). SFAS No. 137 now will apply to all
fiscal quarters of all fiscal years beginning after June 15, 2000. In June 1998,
the FASB issued Statement No. 133, "Accounting for Derivative Instruments and
Hedging Activities." SFAS No. 133 requires the Company to recognize all
derivatives on the balance sheet at fair value. Derivatives that are not hedges
must be adjusted to fair value through income. If the derivative is a hedge,
depending on the nature of the hedge, changes in the fair value of derivatives
will either be offset against the change in fair value of the hedged assets,
liabilities, or firm commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of a derivative's change in fair value will be immediately
recognized in earnings. As of December 31, 2000, the Company did not hold any
derivative instruments or conduct any hedging activities. Therefore, there is no
anticipated impact to the consolidated financial statements for the adoption of
SFAS No. 133 and 137.

     In December 1999, the SEC issued SAB No. 101, which provides guidance on
revenue recognition. The Company adopted SAB No. 101 effective the fourth
quarter of 2000. Under the provisions of SAB No. 101, a retroactive restatement
of financial results is required if the effect of the adoption of SAB No. 101 is
material. The implementation of SAB No. 101 did not have a material effect on
current or prior period consolidated financial statements.

                                       F-10
<PAGE>   66
                           ACCELERATED NETWORKS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 3. INVENTORIES

     Inventories consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                                DECEMBER 31,
                                                              ----------------
                                                               2000      1999
                                                              ------    ------
<S>                                                           <C>       <C>
Raw materials...............................................  $1,651    $1,735
Work-in-process.............................................     925       710
Finished goods..............................................   2,690     1,366
                                                              ------    ------
                                                              $5,266    $3,811
                                                              ======    ======
</TABLE>

 4. PROPERTY AND EQUIPMENT

     Property and equipment consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                              ------------------
                                                               2000       1999
                                                              -------    -------
<S>                                                           <C>        <C>
Computer equipment and software, including assets under
  capital leases of $127 at December 31, 2000 and 1999......  $ 3,525    $ 2,087
Machinery and equipment, including assets under capital
  leases of $19 at December 31, 2000 and 1999...............    9,237      3,339
Furniture and fixtures......................................      806        355
Leasehold improvements......................................      769        415
                                                              -------    -------
                                                               14,337      6,196
Less: Accumulated depreciation and amortization, including
  amounts related to assets under capital leases of $85 and
  $62 at December 31, 2000 and 1999, respectively...........   (4,173)    (1,356)
                                                              -------    -------
          Total.............................................  $10,164    $ 4,840
                                                              =======    =======
</TABLE>

                                       F-11
<PAGE>   67
                           ACCELERATED NETWORKS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 5. INCOME TAXES

     The primary components of temporary differences which gave rise to deferred
taxes at December 31 are:

<TABLE>
<CAPTION>
                                                                  DECEMBER 31,
                                                              --------------------
                                                                2000        1999
                                                              --------    --------
                                                                  (THOUSANDS)
<S>                                                           <C>         <C>
Deferred tax assets:
  Net operating loss carryforwards..........................  $ 25,243    $ 11,666
  Accrued compensation and related expenses.................     4,039       1,877
  Allowances and reserves...................................     2,605         347
  Depreciation and amortization.............................       150          12
  Deferred revenue..........................................     1,628          --
  Other.....................................................       250         217
                                                              --------    --------
          Gross deferred tax assets.........................    33,915      14,119
Less: Valuation allowance...................................   (31,787)    (13,129)
                                                              --------    --------
          Net deferred tax assets...........................     2,128         990
                                                              --------    --------
Deferred tax liabilities:
  State taxes...............................................    (2,128)       (990)
                                                              --------    --------
          Gross deferred tax liabilities....................    (2,128)       (990)
                                                              --------    --------
  Net.......................................................  $     --    $     --
                                                              ========    ========
</TABLE>

     The provision for income taxes is different than the amount computed using
the applicable statutory federal income tax rate with the difference for each
year summarized below:

<TABLE>
<CAPTION>
                                                              2000     1999     1998
                                                              ----     ----     ----
<S>                                                           <C>      <C>      <C>
Federal tax benefit at statutory rate.......................   (35)%   (34)%    (34)%
State taxes, net of federal benefit.........................    (6)     (6)      (6)
Permanent differences.......................................     5      --       --
Adjustment due to increase in valuation allowance...........    36      41       39
                                                              ----     ---      ---
Other.......................................................    --      (1)       1
                                                              ----     ---      ---
                                                                --      --       --
                                                              ====     ===      ===
</TABLE>

     As a result of the Company's loss history, management believes a valuation
allowance for the entire net deferred tax assets, after considering deferred tax
liabilities, is required. The change in the valuation allowance was an increase
of approximately $14,897,000 and $8,707,000 in 2000 and 1999, respectively. As
of December 31, 2000, the Company had federal and state net operating loss
carryforwards of approximately $57,421,000 and $57,344,000 for which expiration
begins in 2012 and 2005, respectively. Due to changes in ownership, the Company
may be limited in the annual utilization of its net operating loss
carryforwards.

 6. CREDIT FACILITIES

     In May 1999, the Company executed a Senior Loan and Security Agreement (the
"Agreement") with a lender under which the Company can refinance up to
$1,500,000 of qualified equipment purchases through the end of May 2000. During
August 1999, the Company utilized the Agreement to execute one individual note
with the lender for approximately $328,000. The note bears interest at
approximately 15% per annum, matures in February 2003 if not renewed, is
collateralized by the purchased equipment and is payable in 41 monthly
installments of principal and interest. At the maturity date of the note, the
Company has the option to either extend the note for an additional 12 months or
make one final lump sum payment.

                                       F-12
<PAGE>   68
                           ACCELERATED NETWORKS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     At December 31, 2000, the outstanding principal was approximately $265,000,
of which approximately $97,000 was current.

     In June 1999, the Company executed a $6,500,000 credit facility (the
"Facility") with a bank. The Facility consisted of an eighteen-month, $4,000,000
revolving line of credit (the "Revolver") for general business purposes and a
twelve-month, $2,500,000 line of credit (the "Equipment Line") to finance
specified equipment purchases, respectively. At December 31, 1999, amounts
outstanding under the Equipment Line totaled $2,500,000, of which approximately
$833,000 was current. In July 2000, the Company repaid borrowings under the
Facility in full.

 7.  CONCENTRATION OF CREDIT RISK AND SUPPLIERS, SIGNIFICANT CUSTOMERS AND
     SEGMENT REPORTING

     Financial instruments which subject the Company to concentrations of credit
risk consist primarily of cash and cash equivalents and trade accounts
receivable. The Company maintains its cash and cash equivalents with major
financial institutions; at times, such balances with any one financial
institution may exceed FDIC insurance limits. The Company's accounts receivable
are derived from revenue earned from customers located primarily in the United
States. The Company extends differing levels of credit to customers and
generally does not require collateral. The Company maintains reserves for
potential credit losses based upon the expected collectibility of accounts
receivable. To date, such losses have been within management's expectations.

     The Company currently relies on a limited number of suppliers to
manufacture its products. The Company does not have a long-term contract with
any of these suppliers. The Company also does not have internal manufacturing
capabilities. Management believes that other suppliers could provide similar
products on comparable terms. A change in suppliers, however, could take more
than six months and reduce the supply of products available to customers and
result in a possible loss of sales, which would affect operating results
adversely.

     Net revenue and accounts receivable from significant customers were as
follows (in thousands, except percentages):

<TABLE>
<CAPTION>
                                                   DECEMBER 31, 2000                              DECEMBER 31, 1999
                                      --------------------------------------------   --------------------------------------------
                                                                           % OF                                           % OF
                                        NET     % OF NET    ACCOUNTS     ACCOUNTS      NET     % OF NET    ACCOUNTS     ACCOUNTS
                                      REVENUE   REVENUE    RECEIVABLE   RECEIVABLE   REVENUE   REVENUE    RECEIVABLE   RECEIVABLE
                                      -------   --------   ----------   ----------   -------   --------   ----------   ----------
<S>                                   <C>       <C>        <C>          <C>          <C>       <C>        <C>          <C>
Customer A..........................  $ 8,803      26%      $ 3,113         19%      $4,565       54%       $2,923         67%
Customer B..........................    1,131       3%           --         --        1,722       20%           --         --
Customer C..........................   12,849      38%       11,147         67%       1,332       16%        1,104         25%
Customer D..........................    8,872      26%        1,915         12%          --       --            --         --
</TABLE>

     For the year ended December 31, 2000, sales to the Company's four largest
customers accounted for approximately 93% of total revenue. With the
deterioration of market conditions in the telecommunications industry, certain
customers have acknowledged that not all of their purchased inventory has been
deployed in service provider networks. To date, the Company has not granted
inventory return rights and only limited stock rotation rights to certain types
of customers, the revenue for which has been fully deferred as of December 31,
2000. The Company has collected the majority of its accounts receivable
outstanding at December 31, 2000 subsequent to year end, pursuant to normal
payment terms.

                                       F-13
<PAGE>   69
                           ACCELERATED NETWORKS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     The Company operates in one industry segment providing multiservice
broadband access products. The Company's business operations are principally
based in the United States, and there were no foreign operations during the year
ended December 31, 1997 and 1998. Net revenue and long-lived assets by
geographical location were as follows (in thousands):

<TABLE>
<CAPTION>
                                                               FOR THE YEAR ENDED
                                                                DECEMBER 31, 2000
                                                        ---------------------------------
                                                        UNITED STATES    INDIA     TOTAL
                                                        -------------    -----    -------
<S>                                                     <C>              <C>      <C>
Net revenue...........................................     $34,228         --     $34,228
Long-lived assets.....................................       9,898       $266      10,164
</TABLE>

<TABLE>
<CAPTION>
                                                               FOR THE YEAR ENDED
                                                               DECEMBER 31, 1999
                                                       ----------------------------------
                                                       UNITED STATES     INDIA     TOTAL
                                                       -------------     -----     ------
<S>                                                    <C>               <C>       <C>
Net revenue..........................................     $8,466           --      $8,466
Long-lived assets....................................      4,378         $462       4,840
</TABLE>

 8. RELATED-PARTY TRANSACTIONS

     For the year ended December 31, 2000 and December 31, 1999, the Company
sold product of approximately $12,849,000 and $1,332,000, respectively, to a
significant stockholder (the "Stockholder") of the Company. At December 31, 2000
and December 31, 1999, amounts due from the Stockholder totaled $11,147,000 and
$1,104,000, respectively.

     In December 1999, the Company entered into a Warrant Issuance Agreement
(the "Agreement") with the Stockholder whereby the Company agreed to issue
warrants to purchase common stock of the Company if the Stockholder submitted a
minimum quarterly purchase order to, or took quarterly shipments of a minimum
amount of product from, the Company. If the specified thresholds were met, the
Company agreed to issue a warrant to the Stockholder for each fiscal quarter end
through December 2000. The maximum number of shares that could be issued under
the Agreement was 150,000. During the quarter ended December 31, 1999, the
Company received a $4,000,000 purchase order from the Stockholder. Pursuant to
the Agreement, the Company issued a noncancellable, fully vested warrant to
purchase 29,000 shares of common stock at $7.00 per share. The fair value of the
warrant was determined to be $161,000 as of the date of grant using the Black-
Scholes pricing model and assuming a risk-free interest rate of approximately
6.0%, an expected life of 2 years, a 0% dividend yield and forfeiture rate and a
volatility rate of 80%. Accordingly, the Company recognized $161,000 as an
additional sales discount and offset to net revenues on the Consolidated
Statement of Operations for the year ended December 31, 1999. During fiscal
2000, none of the specified thresholds under the Agreement were met;
accordingly, no additional warrants were issued for the year ended December 31,
2000.

     In connection with certain sales to the Stockholder commencing in the
quarter ended September 30, 2000, the Company agreed to guarantee a portion of
the financing provided by the Stockholder to one of its customers, an end-user
of the Company's products (the "End User"). Under the terms of the recourse
guarantee, the Company has agreed to guarantee 10% of the aggregate amount of
the Company's products sold by the Stockholder to the End User, up to
$15,000,000, through November 2007. The Company defers 10% of all product
revenue related to these shipments. Through December 31, 2000, the Company has
shipped $11,100,000 under this arrangement, of which $1,100,000 has been
deferred.

     On April 18, 2001, the End User voluntarily filed for protection under
Chapter 11 of the U.S. Bankruptcy Code. As of that date, the Company had
approximately $225,000 in accounts receivable outstanding related to fiscal 2000
sales transactions between the Stockholder and the End User. While management
believes that the Stockholder is ultimately obligated to pay pursuant to the
standard terms and conditions included in the

                                       F-14
<PAGE>   70
                           ACCELERATED NETWORKS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

contracts between the Company and the Stockholder, management also believes that
any risk of noncollection related to these sales transactions are adequately
accounted for in the Company's bad debt reserves.

     In addition, the Company has not been notified as to whether an event of
default between the Stockholder and the End User has occurred, and whether or
not the Company may be obligated to pay its applicable portion of the recourse
guarantee in the event of any such default.

 9. COMMITMENTS AND CONTINGENCIES

  Leases

     The Company leases its facilities and certain assets under noncancellable
leases through 2002, excluding various renewal options. The following are the
minimum lease payments under these leases (in thousands):

<TABLE>
<CAPTION>
                                                              CAPITAL    OPERATING
                  YEAR ENDING DECEMBER 31,                    LEASES      LEASES
                  ------------------------                    -------    ---------
<S>                                                           <C>        <C>
2001........................................................   $127        $734
2002........................................................    127         139
2003........................................................     59          13
                                                               ----        ----
Minimum lease payments......................................    313        $886
                                                                           ====
Less: Amount representing interest..........................     48
                                                               ----
Present value of minimum lease payments.....................    265
Less: Current portion.......................................     97
                                                               ----
Long-term portion...........................................   $168
                                                               ====
</TABLE>

     Total rental expense pertaining to operating leases for the years ended
December 31, 2000 and December 31, 2000, 1999 and 1998 was approximately
$869,000, $412,000 and $184,000, respectively.

  Purchase Commitments

     At December 31, 2000, the Company had $6,700,000 in purchase commitments to
its principal contract manufacturer, of which $3,415,000 has been reserved for
anticipated inventory losses.

  Royalties

     The Company licenses certain technology for incorporation into its product.
Under the terms of these agreements, upon the commencement of production,
royalty payments will be made based on per-unit sales of certain of the
Company's products. Royalty expenses incurred for the years ended December 31,
2000 and December 31, 1999 were $359,000 and $88,000, respectively. There was no
royalty expense for the year ended December 31, 1998.

  Legal Proceedings

     Five securities class action lawsuits have been filed against the Company
and certain current and former officers, in the United States District Court for
the Central District of California. The lawsuits allege that defendants made
materially false and/or misleading statements regarding the Company's financial
condition and prospects during the period of June 22, 2000 through April 17,
2001, in violation of sections 10(b), 10b-5 and 20(a) of the Securities Exchange
Act of 1934. The Company expects that the cases and any subsequently filed cases
will be consolidated into a single action. The Company believes that these
lawsuits are without merit and it intends to vigorously defend itself.

     From time to time, the Company has been a party to various litigation and
administrative proceedings relating to claims arising in the normal course of
business. The Company believes that the resolution of these

                                       F-15
<PAGE>   71
                           ACCELERATED NETWORKS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

matters will not have a material adverse effect on the Company's consolidated
financial position, results of operations or cash flows.

     Patent Claim. In July 2000, the Company received notification from a
competitor of alleged patent infringement related to the distribution of certain
of its products. The Company has engaged outside legal counsel with respect to
this matter and believes that the resolution of this matter will not have a
material adverse effect on the Company's consolidated financial position,
results of operations or cash flows. The Company has not recorded any charge
related to this claim.

     Product Defect Claim. In October 2000, the Company was advised by one of
its customers that the customer believed that certain of the Company's products
sold and delivered to the customer were defective and that it believed that the
Company has failed to perform under the agreement between the two parties. The
customer has demanded that it be permitted to return the products to the Company
in exchange for a return of the purchase price of approximately $3 million. The
Company has denied the customer's allegations, and has retained counsel to
continue investigation into the allegations. No suit has been filed by either
party. The Company has not recorded any charge related to this claim.

10. CAPITALIZATION

  Preferred Stock

     Redeemable convertible preferred ("Preferred Stock") and undesignated
preferred stock at December 31, 1999 consisted of the following (in thousands,
except per share data):

<TABLE>
<CAPTION>
                                               SHARES       SHARES      LIQUIDATION   REDEMPTION   VALUE PER
                   TYPE                      AUTHORIZED   OUTSTANDING     AMOUNT        AMOUNT       SHARE
                   ----                      ----------   -----------   -----------   ----------   ---------
<S>                                          <C>          <C>           <C>           <C>          <C>
Series A Redeemable Convertible............    11,500       11,220        $ 5,610      $ 5,610       $0.50
Series B Redeemable Convertible............    11,600       11,585         14,481       14,481        1.25
Series C Redeemable Convertible............     8,846        8,846         30,000       30,000        3.39
                                               ------       ------        -------      -------
          Total............................    31,946       31,651        $50,091      $50,091
                                               ======       ======        =======      =======
</TABLE>

     Each share of preferred stock automatically converted into shares of common
shares upon the Company's initial public offering.

  Series D Financing

     In February and March of 2000, the Company completed a private offering of
3,455,000 shares of its Series D convertible preferred stock for net proceeds
totaling approximately $38,492,000. In connection with this issuance, the
Company recorded a non-cash charge to equity of approximately $9,882,000
relating to the beneficial conversion feature on the Series D preferred stock.
The charge was calculated using the deemed fair value of common stock on the
date of issuance, subtracting the conversion price and then multiplying the
resulting amount by the number of shares of common stock into which the shares
of Series D preferred stock were convertible (approximately 3,455,000 shares).
As a result of this non-cash equity charge, the Company's net loss per share
applicable to common stockholders was adversely impacted for the year ended
December 31, 2000.

  Initial Public Offering

     On June 28, 2000, the Company completed its initial public offering of
4,600,000 shares of common stock in exchange for proceeds of $62,312,000, net of
offering costs of $6,688,000. On June 28, 2000, immediately following the
closing of the initial public offering in a concurrent private placement, the
Company issued 200,000 shares of common stock to US WEST Internet Ventures ("US
WEST") in exchange for proceeds of $3,000,000.

                                       F-16
<PAGE>   72
                           ACCELERATED NETWORKS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     Upon completion of the initial public offering, all of the Company's
redeemable preferred stock converted into 35.1 million shares of common stock.

  Common Stock

     In March 1997, the Company executed Stockholders' Agreements (the
"Agreements") with its two founders to purchase 4,216,000 and 1,224,000 shares
of common stock at $0.0018 per share, respectively. The 1,224,000 shares were
subject to a repurchase right in favor of the Company. As of October 1997, 24%
of these shares were vested, with the remaining 76% of the shares vested ratably
over the next 36 months, subject to the continued service of that founder. The
vesting schedule was subsequently amended in connection with the Series A
financing in May 1997.

     In March 1997, the Company entered into separate Loan and Warrant Purchase
Agreements with its two founders, whereby, in exchange for the loans to the
Company totaling $250,000, the Company issued to the founders notes payable and
warrants to purchase 1,360,000 shares of common stock with an exercise price of
$0.0018 per share, a vesting term of 48 months and an expiration of ten years.
The warrants were exercised in full in April 1997. In May 1997, the Company
repaid the loans in connection with the closing of its Series A financing, at
which time, the two founders granted the Company repurchase rights with respect
to half of the founders' shares issued in March 1997. The repurchase rights
lapse ratably over 48 months beginning in April 1997. The Company recorded
deferred stock compensation of $101,000 for the shares covered under the
restricted stock agreements, which have been recognized as compensation expense
over the vesting period.

     At December 31, 2000 and December 31, 1999, 274,000 and 1,124,000 shares,
respectively, of the aforementioned common stock were subject to repurchase, of
which 217,000 and 897,000 shares, respectively, related to unvested shares under
the Agreements and 57,000 and 227,000 shares, respectively, related to unvested
warrants exercised.

  Stock Options

     In April 1997, the Company adopted the 1997 Stock Option/Stock Issuance
Plan ("Plan") which is divided into two separate equity programs, the Option
Grant Program and the Stock Issuance Program.

     The Option Grant Program provides for the issuance of non-qualified or
incentive stock options to employees, non-employee members of the board and
consultants. The exercise price per share is not to be less than 85% of the fair
market value per share of the Company's common stock on the date of grant.
Incentive stock options may be granted at no less than 100% of the fair market
value of the Company's common stock on the date of grant (110% if granted to an
employee who owns 10% or more of the common stock). The Board of Directors has
the discretion to determine the vesting schedule. Options may be either
immediately exercisable or in installments, but generally vest over a four-year
period from the date of grant. In the event the holder ceases to be employed by
the Company, all unvested options terminate and all vested installment options
may be exercised within an installment period following termination. Any
unvested shares acquired related to the immediately exercisable options are
subject to repurchase by the Company at the original exercise price. The Company
had 974,000 and 1,627,000 unvested shares of common stock issued and outstanding
under the Plan at December 31, 2000 and December 31, 1999 which were subject to
repurchase by the Company at the related exercise prices. In general, options
expire ten years from the date of grant.

     The Stock Issuance Program provides for shares of common stock to be issued
directly through either the immediate purchase of shares or as a bonus for
services rendered. The purchase price per share is not to be less than 85% of
the fair market value per share of the Company's common stock on the date of
grant. The purchase price, if granted to an employee who owns 10% or more of the
common stock, must be granted at no less than 110% of the fair market value of
the Company's common stock on the date of grant. Vesting terms are at the
discretion of the Plan Administrators and determined at the date of issuance. In
the event the holder

                                       F-17
<PAGE>   73
                           ACCELERATED NETWORKS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

ceases to be employed by the Company, any unvested shares are subject to
repurchase by the Company at the original purchase price.

     A summary of the status of the Company's stock options, as of December 31,
2000, 1999 and 1998, and the changes during the periods ended on those dates, is
presented below (shares in thousands):

<TABLE>
<CAPTION>
                                              2000                 1999                 1998
                                       ------------------   ------------------   ------------------
                                                WEIGHTED-            WEIGHTED-            WEIGHTED-
                                                 AVERAGE              AVERAGE              AVERAGE
                                                EXERCISE             EXERCISE             EXERCISE
                                       SHARES     PRICE     SHARES     PRICE     SHARES     PRICE
                                       ------   ---------   ------   ---------   ------   ---------
<S>                                    <C>      <C>         <C>      <C>         <C>      <C>
Outstanding at beginning of period...   3,859     $2.00      1,989     $0.09      2,613     $0.05
  Granted -- price equals fair
     value...........................   3,984      9.53      3,013      2.64        328      0.05
  Granted -- price less than fair
     value...........................      --                                     1,393      0.15
  Exercised..........................    (568)     1.99     (1,052)     0.48     (2,200)     0.07
  Cancelled..........................  (1,379)     4.73        (91)     0.60       (145)     0.07
                                       ------               ------               ------
Outstanding at period-end............   5,896     $6.44      3,859     $2.00      1,989     $0.09
                                       ======     =====     ======     =====     ======     =====
Options exercisable at period-end....   5,257     $5.66      3,859     $2.00      1,989     $0.09
                                       ======     =====     ======     =====     ======     =====
</TABLE>

     The weighted-average fair value of options granted to employees for the
years ended December 31, 2000, 1999 and 1998 were $9.53, $6.76 and $0.64 per
share, respectively.

     Additional information with respect to the outstanding options as of
December 31, 2000 is as follows (shares in thousands):

<TABLE>
<CAPTION>
                            OPTIONS OUTSTANDING                   OPTIONS EXERCISABLE
                   --------------------------------------    -----------------------------
                                   WEIGHTED-
                                    AVERAGE      WEIGHTED
                                   REMAINING     AVERAGE                      WEIGHTED
                     NUMBER       CONTRACTUAL    EXERCISE      NUMBER          AVERAGE
EXERCISE PRICES    OUTSTANDING       LIFE         PRICE      OUTSTANDING   EXERCISE PRICE
---------------    -----------    -----------    --------    -----------   ---------------
<S>                <C>            <C>            <C>         <C>           <C>
$  .05 - $ 1.75       1,514           7.37        $ 0.43        1,514          $ 0.43
$ 2.50 - $ 7.00       1,976           9.03          5.69        1,877            5.68
$ 7.25 - $10.50       1,592           9.42          8.91        1,402            9.14
$10.56 - $62.20         814           8.10         14.65          464           12.15
                     ------                                    ------
$  .05 - $62.20       5,896           8.58        $ 6.44        5,257          $ 5.66
                     ======                                    ======
</TABLE>

     During 2000, 1999 and 1998, the Company granted stock options to directors,
employees, officers, and consultants, at exercise prices below the deemed fair
market value of the Company's common stock at the date of grant. Accordingly,
the Company recorded deferred stock compensation of $5,995,000, $12,503,000 and
$716,000 for the years ended December 31, 2000, 1999 and 1998, respectively, to
be amortized over the related vesting periods (generally four years). The
Company recognized compensation expense of $6,204,000, $3,103,000 and $52,000
relating to these stock option grants for the years ended December 31, 2000,
1999 and 1998, respectively. During 2000, the Company reversed deferred stock
compensation of approximately $5,529,000 resulting from stock option
cancellations and repurchase of unvested common shares from employees.

                                       F-18
<PAGE>   74
                           ACCELERATED NETWORKS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     The Company calculated the fair value of each option granted to directors,
employees and officers of the Company on the date of the grant using the
Black-Scholes option pricing model as prescribed by SFAS No. 123 using the
following assumptions:

<TABLE>
<CAPTION>
                                                               FOR THE YEAR ENDED
                                                                  DECEMBER 31,
                                                              ---------------------
                                                              2000     1999    1998
                                                              -----    ----    ----
<S>                                                           <C>      <C>     <C>
Risk-free interest rate.....................................    6.0%   6.0%    5.5%
Expected lives (in years)...................................    4.0    4.0     4.0
Dividend yield..............................................    0.0%   0.0%    0.0%
Expected volatility.........................................  120.0%   0.0%    0.0%
</TABLE>

     Had compensation costs been determined based upon the methodology
prescribed under SFAS No. 123, the Company's net loss applicable to common
stockholders and basic and diluted net loss per share applicable to common
stockholders would approximate the following pro forma amounts (thousands,
except per share data):

<TABLE>
<CAPTION>
                                                              AS REPORTED    PRO FORMA
                                                              -----------    ---------
<S>                                                           <C>            <C>
For the year ended December 31, 2000:
  Net loss applicable to common stockholders................   $(58,649)     $(59,264)
                                                               ========      ========
  Basic and diluted net loss per share applicable to common
     stockholders...........................................   $  (2.02)     $  (2.04)
                                                               ========      ========
For the year ended December 31, 1999:
  Net loss applicable to common stockholders................   $(21,227)     $(21,404)
                                                               ========      ========
  Basic and diluted net loss per share applicable to common
     stockholders...........................................   $  (3.29)     $  (3.32)
                                                               ========      ========
For the year ended December 31, 1998:
  Net loss applicable to common stockholders................   $ (9,711)     $ (9,727)
                                                               ========      ========
  Basic and diluted net loss per share applicable to common
     stockholders...........................................   $  (2.00)     $  (2.00)
                                                               ========      ========
</TABLE>

     The effects of applying SFAS No. 123 in the above pro forma disclosure are
not indicative of future amounts, and additional awards in future years are
anticipated.

  Employee Stock Purchase Plan

     In connection with the initial public offering, the Company adopted the
2000 Employee Stock Purchase Plan (the "ESPP"). Under the terms of the ESPP,
eligible employees may elect to contribute up to 15% of earnings through payroll
deductions. The accumulated deductions are applied to the purchase of common
shares on each semi-annual purchase date, as defined. The purchase price per
share will be equal to 85% of the fair market value on the participant's entry
date into the offering period or, if lower, 85% of the fair market value on the
semi-annual purchase date. Under the terms of the ESPP, 500,000 shares have been
reserved for issuance. During 2000, 61,500 shares were issued pursuant to the
ESPP at a purchase price of $11.85 per share.

                                       F-19
<PAGE>   75
                           ACCELERATED NETWORKS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

  Common Stock Reserved

     The following represents the number of common shares reserved for future
issuance at December 31, 2000 (in thousands):

<TABLE>
<CAPTION>
                                                          NUMBER OF
                                                        COMMON SHARES
                                                        -------------
<S>                                                     <C>
Warrants..............................................         29
Options...............................................      6,958
Employee Stock Purchase Plan..........................        438
                                                            -----
                                                            7,425
                                                            =====
</TABLE>

11. EMPLOYEE BENEFIT PLAN

     During March 1999, the Company established a 401(k) Profit Sharing Plan
(the "401 Plan") available to all employees who meet the Plan's eligibility
requirements. Under the 401 Plan, participating employees may defer a percentage
(not to exceed 15%) of their eligible pretax earnings up to the Internal Revenue
Service's annual contribution limit. Company matching and profit sharing
contributions are discretionary. To date, the Company has not made any
contributions to the 401 Plan as of December 31, 2000.

12. NET LOSS PER SHARE

     The following table sets forth the computation of basic, diluted and pro
forma net loss per share (thousands, except per share data):

<TABLE>
<CAPTION>
                                                               FOR THE YEAR ENDED
                                                                  DECEMBER 31,
                                                              --------------------
                                                                2000        1999
                                                              --------    --------
<S>                                                           <C>         <C>
HISTORICAL PRESENTATION
Numerator:
  Net loss applicable to common stockholders................  $(58,649)   $(21,227)
                                                              ========    ========
Denominator:
  Weighted-average common shares outstanding................    31,147       9,816
  Adjustment for common shares issued subject to
     repurchase.............................................    (2,041)     (3,369)
                                                              --------    --------
  Denominator for basic and diluted calculations............    29,106       6,447
                                                              ========    ========
Basic and diluted net loss per share applicable to common
  stockholders..............................................  $  (2.02)   $  (3.29)
                                                              ========    ========
</TABLE>

13. SUBSEQUENT EVENTS

  Appointment of Regent Pacific Management Corporation and Replacement of Senior
Management

     On February 12, 2001, Mr. Gary J. Sbona replaced Mr. Suresh Nihalani as the
Company's Chief Executive Officer and Chairman of the Board of Directors. On
February 13, 2001, Mr. H. Michael Hogan III replaced Mr. Frederic T. Boyer as
the Company's Chief Financial Officer. In addition, the Company entered into an
agreement with Regent Pacific Management Corporation ("Regent Pacific"), a
management firm of which Mr. Sbona is the Chief Executive Officer, pursuant to
which Regent Pacific will provide management services to the Company, including
the services of Mr. Sbona and Mr. Hogan, two of a six-person Regent Pacific
Management team. The agreement has an 18-month term and may be cancelled by the
Company after expiration of the initial 12-month period, with a minimum
compensation to Regent Pacific of $3,900,000 for that initial period.

                                       F-20
<PAGE>   76
                           ACCELERATED NETWORKS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     In connection with the appointment of Mr. Sbona, the Company has granted
Mr. Sbona options to purchase 3,880,600 shares of common stock at an exercise
price of $1.94 per share. These options vest over 12 equal monthly installments.

     The Company has entered into a separation agreement with Mr. Nihalani,
under which the Company will retain Mr. Nihalani as an employee of the Company
through February 12, 2002.

NOTE 14. UNAUDITED QUARTERLY FINANCIAL DATA

     On April 5, 2001, the Company's Board of Directors authorized a full
investigation by the Company, with the assistance of outside counsel and
forensic accountants, into certain sales transactions with certain of the
Company's significant customers. At that time, questions had arisen concerning a
transaction with a customer which had been recorded as revenue in the second
quarter of fiscal 2000 as to whether there may have been terms and conditions in
addition to those reflected in the final sales documents.

     As a result of the investigation, the Company determined that certain
revenue recorded in the second quarter of 2000 in connection with sales to one
of its customers should more appropriately be deferred and recognized on a
sell-through basis. The Company deferred revenues of $1,307,000 in the second
quarter of fiscal 2000, of which approximately $287,000 was recognized in the
fourth quarter based on sell-through.

     Adjustments to the Company's reported second quarter results for the year
2000 were as follows:

<TABLE>
<CAPTION>
                                                              2000
                                                         --------------
                                                             SECOND
                                                            QUARTER
                                                         --------------
                                                         (IN THOUSANDS)
<S>                                                      <C>
Deferral of revenue....................................     $(1,307)
Deferral of corresponding cost of revenue..............         562
                                                            -------
          Total increase in net loss...................     $  (745)
                                                            =======
</TABLE>

     Unrelated to the investigation, due to subsequent visibility the Company
gained in recent months related to the continuing economic downturn impacting
telecommunications equipment spending of its significant customers, the
Company's previously announced fourth quarter results have been revised to
reflect the following:

     - An increase in cost of goods sold of approximately $8.4 million related
       to a charge for expected losses for surplus inventories, of which
       approximately $3.4 million relates to noncancelable inventory purchase
       commitments of finished products and raw materials in excess of
       anticipated requirements and $5.0 million relates to excess inventory on
       hand at December 31, 2000.

     - A decrease in revenue of approximately $450,000 related to sales
       concessions granted to one of the Company's major customers in the fourth
       quarter.

     - A decrease in revenue of approximately $177,000 related to additional
       stock rotation rights the Company granted to one of its resellers.

                                       F-21
<PAGE>   77
                           ACCELERATED NETWORKS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     Following is a summary of the unaudited quarterly results of operations for
the year ended December 31, 2000 (in thousands, except per share amounts).

<TABLE>
<CAPTION>
                                                          THREE MONTHS ENDED
                                 ---------------------------------------------------------------------
                                                      JUNE 30
                                             --------------------------
                                 MARCH 31    AS REPORTED    AS RESTATED    SEPTEMBER 30    DECEMBER 31
                                 --------    -----------    -----------    ------------    -----------
<S>                              <C>         <C>            <C>            <C>             <C>
Net revenues...................  $  7,152     $  8,770       $  7,463        $ 11,567       $  8,046
Gross profit (a)...............     2,065        3,078          2,333           3,762         (7,268)
Loss from operations...........    (9,227)     (12,685)       (13,430)        (10,478)       (19,401)
Net loss.......................    (8,843)     (12,065)       (12,810)         (8,992)       (18,122)
Beneficial conversion
  feature......................    (9,882)          --             --              --             --
Net loss applicable to common
  shareholders.................   (18,725)     (12,065)       (12,810)         (8,992)       (18,122)
Basic and diluted net loss per
  share applicable to common
  shareholders.................  $  (2.44)    $  (1.08)      $  (1.14)       $  (0.19)      $  (0.37)
</TABLE>

---------------
(a) Excludes amortization of deferred compensation included in cost of revenue
    of $216 for the year ended December 31, 2000

                                       F-22
<PAGE>   78

                       REPORT OF INDEPENDENT ACCOUNTANTS
                        ON FINANCIAL STATEMENT SCHEDULE

To the Board of Directors of Accelerated Networks, Inc.:

     Our report on the consolidated financial statements of Accelerated
Networks, Inc. and its subsidiaries is included on page F-2 of this Form 10-K.
In connection with our audits of such consolidated financial statements, we have
audited the related financial statement schedule as of December 31, 2000, 1999,
and 1998 and for each of the three years in the period ended December 31, 2000
as listed on the index on page F-1 of this Form 10-K.

     In our opinion, the financial statement schedule referred to above presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.

/s/ PricewaterhouseCoopers LLP

Woodland Hills, California
May 1, 2001

                                       F-23
<PAGE>   79

                           ACCELERATED NETWORKS, INC.

                SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
                 YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                             BALANCE AT   CHARGED TO   REVERSALS TO   DEDUCTIONS    BALANCE AT
                                             BEGINNING     COST AND      COST AND      AND OTHER      END OF
                DESCRIPTION                  OF PERIOD     EXPENSES      EXPENSES     ADJUSTMENTS     PERIOD
                -----------                  ----------   ----------   ------------   -----------   ----------
<S>                                          <C>          <C>          <C>            <C>           <C>
Allowance for doubtful accounts
2000.......................................   $   110        $850          $200         $    --      $   760
1999.......................................        --         110            --              --          110
1998.......................................        --          --            --              --           --

Income tax valuation allowance
2000.......................................   $13,129          --            --         $18,658      $31,787
1999.......................................     4,422          --            --           8,707       13,129
1998.......................................       608          --            --           3,814        4,422
</TABLE>

                                       F-24
<PAGE>   80

                                 EXHIBIT INDEX

<TABLE>
<S>        <C>
 3.1*      Certificate of Incorporation of the Registrant.
 3.2*      Bylaws of the Registrant.
 4.1*      See Exhibit 3.1 and 3.2 for provisions of the Registrant's
           Certificate of Incorporation and Bylaws defining the rights
           of holders of the Registrant's common stock. See Exhibit
           10.8 for the rights of certain holders of registration
           rights.
 4.2*      Specimen common stock certificate.
10.1*      Founder/Employee/Shareholder Agreement between the
           Registrant and Suresh Nihalani, as amended.
10.2*      Founder/Employee/Shareholder Agreement between the
           Registrant and Kiran Munj, as amended.
10.3*      Series A Preferred Stock Purchase Agreement dated as of May
           30, 1997, among the Registrant and certain investors
           thereto.
10.4*      Series B Preferred Stock Purchase Agreement dated as of May
           15, 1998, among the Registrant and certain investors
           thereto.
10.5*      Series C Preferred Stock Purchase Agreement dated as of
           February 24, 1999, among the Registrant and Siemens AG.
10.6*      Warrant Purchase Agreement dated as of December 16, 1999, by
           and between the Registrant and Siemens Information and
           Communication Networks, Inc.
10.7*      Form of Series D Preferred Stock Purchase Agreement.
10.8*      Second Restated Investors' Rights Agreement dated as of
           February 18, 2000, as amended among the Registrant and
           certain of its stockholders.
10.9*      1997 Stock Option/Stock Issuance Plan
10.10*     2000 Stock Incentive Plan.
10.11*     Employee Stock Purchase Plan.
10.12+*    Product Procurement Agreement dated as of April 21, 1999, by
           and between the Registrant and CTC Communications Group,
           Inc.
10.13+*    Product Purchase and Sale Agreement dated as of August 1,
           1999, by and between the Registrant and FirstWorld
           Communications.
10.14+*    Materials and Manufacturing Agreement Board Assembly
           Agreement dated as of March 15, 1999, by and between the
           Registrant and the Semiconductor Group of Arrow Electronics,
           Inc., as amended.
10.15+*    Standard Agreement dated as of June 1, 1999, by and between
           the Registrant and Power-One, Inc.
10.16+*    Value-Added Product Sale Agreement dated as of March 12,
           1999, by and between the Registrant and AVNET Electronics
           Marketing, a Group of Avnet, Inc.
10.17*     Agreement for Purchase of Products dated as of January 21,
           1999, by and between the Registrant and Siemens Information
           and Communication Networks, Inc.
10.17.1    Amendment No. 1 to that certain Agreement for Purchase of
           Products-OEM Agreement, dated as of October 16, 2000, by and
           between the Registrant and Siemens Information and
           Communication Networks, Inc. (Incorporated by reference to
           Exhibit 10.2 to the Registrant's Quarterly Report on Form
           10-Q filed on November 14, 2000).
10.17.2    Amendment No. 2 to that certain Agreement for Purchase of
           Products-OEM Agreement, dated as of December 1, 2000, by and
           between the Registrant and Siemens Information and
           Communication Networks, Inc.
10.18*     Service Level Agreement dated as of March 25, 1999, by and
           between the Registrant and Siemens Information and
           Communication Networks, Inc.
10.19*     Standard Industrial/Commercial Multi-Tenant Lease dated as
           of May 6, 1999, between the Registrant and Tyler Pacific
           III, L.L.C.
</TABLE>
<PAGE>   81
<TABLE>
<S>        <C>
10.20*     Memorandum of Understanding dated as of January 13, 1999 by
           and between Mr. Viren T. Ranjan and Accelerated Networks
           (India) Private Limited.
10.21*     Standard Industrial/Commercial Single-Tenant Lease-Gross
           dated as of May 28, 1998, by and between the Registrant and
           Robert B. Reingold, Trustee for Reingold Trust #21328.
10.22+*    Licensing Agreement dated as of July 15, 1998, as amended,
           by and between the Registrant and Ditech Communications
           Corporation.
10.23+*    OEM Orbix Development and Runtime Agreement dated December
           17, 1999, by and between the Registrant and IONA.
10.24+*    Letter Agreement regarding licenses dated as December 30,
           1999 by and between the Registrant and WindRiver Systems,
           Inc.
10.25*     Form of Director Indemnification Agreement.
10.26*     Revolving Credit Loan and Security Agreement (Accounts and
           Equipment Loans) dated as of June 1, 1999, by and between
           the Registrant and Comerica Bank -- California.
10.27*     Senior Loan and Security Agreement No. L6244 dated as of May
           28, 1999, by and between the Registrant and Phoenix Leasing
           Incorporated.
10.28+*    Product Purchase and Sale Agreement dated as of February 23,
           2000, by and between the Registrant and UniDial
           Communications, Inc.
10.29*     Standard Industrial/Commercial Multi-Tenant Lease dated as
           of February 29, 2000, by and between the Registrant and
           Tyler Pacific III, LLC.
10.30*     Memorandum of Understanding dated as of May 10, 2000, by and
           between Registrant and US WEST Internet Ventures, Inc.
10.31*     Common Stock Subscription Agreement dated as of May 15,
           2000, by and between the Registrant and US WEST Internet
           Ventures, Inc.
10.32*     Agreement for Purchase of Products dated as of May 15, 2000,
           by and between the Registrant and Siemens AG.
10.33+     Mini-OSS Software License, Development and Distribution
           Agreement dated as of July 1, 2000, by and between the
           Registrant and Dorado Software, Inc. (Incorporated by
           reference to Exhibit 10.1 to the Registrant's Quarterly
           Report on Form 10-Q filed on November 14, 2000).
10.34      Guaranty and Loan Purchase Agreement dated as of December 6,
           2000, by and between the Registrant and Siemens Financial
           Services, Inc.
10.35      Retainer Agreement dated as of February 5, 2001 by and
           between the Registrant and Regent Pacific Management
           Corporation.
10.36      Employment Agreement dated as of February 12, 2001 by and
           between the Registrant and Gary Sbona.
10.37      Separation and Consulting Agreement and General Release
           dated March 16, 2001 by and between the Company and Suresh
           Nihalani.
11.1       Statement re: Computation of Per Share Earnings (included in
           Note 12 to the consolidated financial statements filed as
           part of this Annual Report on Form 10-K).
21.1*      List of Subsidiaries.
23.1       Consent of PricewaterhouseCoopers LLP, independent
           accountants.
</TABLE>

---------------
*  Incorporated herein by reference to the similarly numbered exhibit on the
   Company's Registration Statement on Form S-1 and all amendments thereto (File
   No. 333-31732).

+ Confidential treatment has been requested and received for certain portions of
  this exhibit.