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SECURITIES AND EXCHANGE COMMISSION

Form 10-K

Commission file number 000-30993

Western Multiplex Corporation

1196 Borregas Avenue

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

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

      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 þ          No o

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

      The aggregate market value of the registrant’s voting stock held by non-affiliates of the registrant was approximately $18.9 million on February 21, 2002, based on the closing sales price of the registrant’s common stock as reported on The Nasdaq Stock Market as of such date.

      The number of shares outstanding of the registrant’s Class A common stock as of February 21, 2002 was approximately 59,291,283.

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PART I

Item 1.     Business

      Except for any historical information contained herein, the matters discussed in this Annual Report on Form 10-K contain certain “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the Company’s financial condition, results of operations, cash flows, revenues, financing plans, business strategies and market acceptance of its products. The words “anticipate,” “believe,” “estimate,” “expect,” “plan,” “intend,” and similar expressions are intended to identify these forward-looking statements. These forward-looking statements are found at various places throughout this Annual Report. We caution you not to place undue reliance on these forward-looking statements, which speak only as of the date they were made. We do not undertake any obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date of this Annual Report or to reflect the occurrence of unanticipated events.

Overview

      We provide broadband, or high-speed, wireless access products both in the United States and internationally. Our products and systems enable service providers, businesses and other enterprises to deliver data, voice and video services. We believe our fixed wireless systems address the growing need of our customers and end-users to rapidly and cost effectively deploy high-speed communication networks. During the last ten years, we have developed technologies that have enabled us to introduce what we believe are some of the fastest, longest range and most reliable broadband wireless systems available, including our Tsunami 480, which we believe is currently the industry’s fastest license-exempt wireless system.

      We serve the global broadband wireless access market by selling our systems to service providers, businesses and other enterprises directly through our sales force and indirectly through distributors, value-added resellers and products integrators. In 2001, we sold our systems to 381 customers in 58 countries.

The Western Multiplex Solution

      We believe that our broadband wireless systems address the growing need for bandwidth where digital phone lines or fiber optic cable are either too expensive to deploy in a timely fashion or are unavailable. Our systems are used in a variety of applications in different markets, including:

	•	Wireless operator infrastructure. Our systems enable cellular and personal communication service providers to connect their base stations to other base stations and to existing wire line networks.
	•	Fiber extension. Our systems enable service providers to extend the reach of the fiber optic network that spans the United States with products that combine the high transmission speeds and the reliability of fiber optic cable with the flexibility, cost effectiveness and rapid deployment of wireless technologies.
	•	Campus and other private networks. Our systems enable enterprises with multiple facilities, including those located in a campus environment, to connect their facilities to expand or establish private computer and communications networks.
	•	Last mile access. Our systems connect end-users with a service provider’s central office, providing high-speed last mile internet access.
	•	Fiber redundancy. Our systems enable service providers and enterprises to back-up the wire line portions of their networks.

      The key benefits of our solution include:

      Rapid deployment. Service providers, businesses and other enterprises can rapidly deploy our licensed and license-exempt systems to establish new, or expand existing, network infrastructures. Competing technologies such as digital phone lines and fiber optic cable generally take longer to deploy than our broadband wireless access systems. In addition, our license-exempt systems do not require frequency

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      Telecommunications grade availability of service. We have developed proprietary error correction algorithms, fault tolerant systems and comprehensive network management software designed to enable our Lynx and Tsunami systems to match or exceed fiber network availability standards. These wireless systems are designed to provide 99.999% availability, or less than five minutes of down time per year. As a result, our systems enable service providers, businesses and other enterprises to provide end-users with telecommunications grade availability which is equal to or better than that offered by most alternative broadband access solutions.

      High-speed and long distance connections. We have used our engineering expertise and proprietary radio frequency and digital signal processing technologies to design systems that offer an attractive combination of high-speed transmission rates and long-range coverage. During the past ten years, we have introduced what we believe are some of the fastest and longest-range wireless systems available, including our Tsunami 480, which we believe is currently the industry’s fastest license-exempt system.

      Cost-effective solution. Because our technology enables our systems to transmit over longer distances than competing product designs, service providers, businesses and other enterprises require fewer units to cover a specified area. As a result, they are able to reduce both their initial and incremental capital expenditures for network deployment.

      Fully integrated end-to-end solution. We offer a broad range of systems that enable service providers, businesses and other enterprises to create complete broadband wireless networks that connect end-users to the fiber optic network. Our point-to-point systems are primarily used within the backhaul segments of networks and also provide last mile access to large businesses. Our point-to-multipoint systems provide last mile access to residential users and small businesses. Our systems use similar radio frequency technology, digital signal processing and network management software. We believe this design commonality offers service providers, businesses and other enterprises higher end-to-end performance, lower equipment costs and lower training and maintenance costs.

      Our broadband wireless access systems have various disadvantages and limitations. For example, the broadband wireless access industry is technology intensive and requires us to continually develop new products or product enhancements in order for us to remain competitive. In addition, in contrast to mobile wireless access solutions, our systems require line-of-sight installation, which often requires the end-user to obtain roof rights from third parties. Our systems may also experience problems due to radio signal interference, which may occur if multiple wireless systems are operating on the same radio frequencies and in the same geographic areas as our systems or, in the case of operating frequencies above 11 Ghz, if there is inclement weather. Furthermore, our point-to-multipoint systems started shipping in late 2001 and we may not be able to successfully penetrate the market with these systems.

Strategy

      Our objective is to be a leading global provider of broadband wireless access systems. Our strategy to accomplish this objective is to:

      Capitalize on our technology expertise to rapidly introduce new products. Over the last ten years, we have developed several core technologies that form the basis of our current product lines and which we intend to use in our future product development. Our dedicated team of engineers has multi-disciplinary technical capabilities, including radio frequency technology, digital signal processing and system software development. We believe integrating these capabilities is highly complex, and we intend to continue to take advantage of our technology expertise to introduce product enhancements and new products in a rapid and cost effective manner. For example, we are currently developing a point-to-point broadband wireless system capable of transmitting data at speeds in excess of 180 megabits per second and point-to-multipoint systems which will easily integrate with our existing point-to-point systems.

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      Utilize existing customer relationships to expand into new market segments. In 2001, we sold our systems to 381 customers in 58 countries. Our customers include AT&T Wireless Group, Verizon Wireless, Cingular Wireless and Voicestream Wireless Corporation. We intend to build upon our relationships with current customers as they continue to expand their networks and enter new market segments, such as fiber extension, campus and other private networks and last mile access. We believe that we will be well-positioned to provide our current customers with broadband wireless access solutions in their new markets.

      Increase our presence in international markets. While our products are currently sold and approved for use in 39 countries, we intend to increase our presence in these countries and further expand into new international markets where broadband wire line access is currently too expensive or unavailable. In particular, we believe there is a substantial opportunity for our licensed products in countries where government authorities have granted or have indicated that they intend to grant broadband wireless licenses. Additionally, as governmental authorities make license-exempt spectrum available, we believe our license-exempt systems will be well-positioned for rapid deployment in these international markets. We will continue to expand our presence worldwide by expanding our international sales and marketing efforts, obtaining regulatory approval for deploying our systems in new international markets, increasing our total product offerings in both existing and new international markets and establishing strategic alliances and partnerships.

      Aggressively market through distributors, value-added resellers and systems integrators. We have established relationships with key distributors, value-added resellers and systems integrators such as Avant Telecoms Inc., Communications Services International, Inc., Hutton Communication, Inc., Somera Communications Inc., Tessco Technologies Incorporated and Westcon Inc. to market and sell our systems. To further accelerate our growth, we intend to build upon our existing relationships and establish new relationships with distributors, value-added resellers and systems integrators that we believe have strong relationships with potential customers for our Lynx, Tsunami and point-to-multipoint systems. Our marketing group continues to develop materials and programs such as training courses to assist our distributors, value-added resellers and systems integrators in penetrating these markets.

      Expand through strategic transactions. We intend to pursue acquisitions of complementary businesses, technologies, products or services to expand our presence in the broadband wireless access market. On March 24, 2000, we acquired Ubiquity Communication, Inc., a Petaluma, California-based company. Through the acquisition, we acquired development stage point-to-multipoint technology that we have integrated with our core technologies to develop our point-to-multipoint systems. On March 22, 2001, we acquired WirelessHome Corporation, a Long Beach, California-based company. Through this acquisition, we acquired point-to-multipoint technology in the Beta phase that we have used to complete development of our first generation point-to-multipoint systems. On January 16, 2002, we signed a merger agreement with Proxim, Inc., a Sunnyvale, California-based company. Proxim provides wireless local area networking and building-to-building network products based on radio frequency or RF technology.

Products

      We have three product lines: Lynx, Tsunami and Tsunami Multipoint, which began shipment in December 2001. We design our systems generally to use common features, components and software.

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      Our products operate at different transmission speeds and radio frequencies. Our product names directly correspond to the transmission speeds at which they are capable of operating. The table below summarizes the features of our current products:

Each of our point-to-point systems consists of two identical pieces of equipment. Each piece of equipment is first connected to an end-user’s network by a cable and a connector and then connected by an antenna cable to an antenna, which is usually on a rooftop or tower. The two antennae are then aimed at one another to create a wireless connection between the two end-user locations. By using multiple systems, end-users can connect more than two locations to form a more extensive network. Our point-to-multipoint system consists of a base station connected to a wire line network which communicates with a multitude of subscriber units that connect remote local area computer networks to the main wire line network.

      Lynx products. Our point-to-point Lynx products are primarily used by wireless operators to connect their base stations to other base stations and to existing wire line networks. These connections comprise the backhaul segments of their networks. In addition, these products are also used to establish campus and private networks and to provide fiber extension and last mile access. Our Lynx products are offered in a variety of frequencies, ranging from 2.4 GHz to 11 GHz, which includes both licensed and license-exempt spectrum, and in a variety of data transmission speeds, ranging from 56 Kbps per second to 155 Mbps per second. Our Lynx products can transmit and receive the maximum data capacity in both directions simultaneously, a feature commonly known as full duplex. Our products have a compact, fully-integrated design and a built-in network management system. They can be linked together within a network and managed with simple network management protocol, or SNMP, software. SNMP is an industry standard set of rules that governs network

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      We are currently developing additional Lynx products, some of which should be capable of operating at speeds exceeding 625 megabits per second. These products under development will be additional solutions for fiber extension and last mile access.

      Tsunami products. Our point-to-point Tsunami products primarily enable service providers, businesses and other enterprises to expand or establish private networks by bridging Internet traffic among multiple facilities. In addition, these products are also used to provide fiber extension and last mile access. Tsunami products are currently offered in a variety of frequencies, ranging from 2.4 GHz to 23 GHz, and in a variety of data transmission speeds, ranging from 2 Mbps per second to 480 Mbps per second. Like our Lynx products, our Tsunami products offer features including full duplex transmission, fully-integrated design and a separate control and diagnostic channel. In addition, our higher capacity Tsunami systems include one or more additional T1 or E1 connections without reducing the carrying capacity of the system. The additional T1 or E1 connection is a standard telecommunications interface that is not based on Internet Protocol and is typically used for voice and/or video.

      We are currently developing Tsunami products that should operate at speeds exceeding 720 megabits per second. These products under development will be additional solutions for fiber extension, last mile access and campus and private networks.

      In late 2001 we began shipping our point-to-multipoint systems to enable service providers, businesses and other enterprises to cost-effectively connect end-users to a central hub. Businesses and other enterprises may also use these systems to cost-effectively connect multiple facilities within their private networks.

      Our point-to-multipoint systems are deployed in a hub and spoke configuration consisting of a single central hub and equipment located at each end-user’s premises. The central hub will wirelessly connect to the remote customer premises equipment. It will also prioritize transmission and allocate slots of time to each end-user based on a system called time division duplexing. We believe our time division duplexing technology will provide a more efficient use of capacity than most alternative technologies to accommodate the peaks and lows of traffic between the end-user and the central hub. The central hub will operate in a range of frequencies, in various geographic configurations and will be capable of supporting hundreds of units of customer premises equipment. The hub unit will also be able to connect to the central office of a service provider using our point-to-point technology. The customer premises equipment will transmit and receive data between the end-user and the central hub at various transmission speeds and frequencies.

Technology

      Over the last ten years, we have developed a number of core technologies that form the basis of our current product offerings and which will also be used in our future product development. Our primary areas of technology expertise are radio frequency technology, digital signal processing and system software development.

      Radio frequency technology. Microwave and millimeter-wave technology are the technologies used to wirelessly transmit data, voice and video. Microwave technology uses radio frequencies ranging from 1 GHz up to 20 GHz, and millimeter-wave technology uses frequencies above 20 GHz. We believe we are one of the few wireless equipment manufacturers in the industry that has internally developed fully integrated microwave circuit board designs. We believe having these design capabilities provides us with higher performance, lower production costs, shorter development cycles and the ability to customize our products so that they can easily be integrated with our existing products and with the networks of our various customers and end-users.

      Digital signal processing technology. Our products use proprietary digital signal processing technologies and designs that we developed specifically for use in wireless systems. We believe these technologies have

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      System software. Our systems use SNMP-based software that enables remote monitoring and control and facilitates the integration and compatibility of our products with larger communications networks. In addition, we have patented software for bandwidth allocation, which we believe will allow our point-to-multipoint products to use bandwidth more efficiently and to operate at higher speeds than other point-to-multipoint systems.

Sales and Marketing

      We sell our products worldwide to service providers, businesses and other enterprises directly through our sales force and indirectly through distributors and value-added resellers. We focus our marketing efforts on supporting our direct sales force, distributors, value-added resellers and systems integrators. We also seek to stimulate market demand by increasing brand awareness and educating potential customers about the advantages of using our products.

      In the United States and Canada, our sales force focuses on key strategic accounts such as service providers, businesses and other enterprises and also develops relationships with end-users that purchase through distributors and value-added resellers. Outside the United States and Canada, sales are generally made through distributors or value-added resellers. Our sales force, however, develops direct relationships with end-users either independently, in which case the sales representative then brings in the distributor or value-added reseller to complete the sale, or together with the distributors or value-added resellers through the relationships they have developed with the end-users.

      We have established relationships with large national and international distributors, local and specialized distributors and value-added resellers. The distributors sell our products, and the value-added resellers not only sell our products, but also assist their customers in network design, installation and testing. In some cases, both distributors and value-added resellers also assist their customers with financing, maintenance and the purchase of ancillary equipment necessary for installation of a wireless network. We are currently exploring opportunities to begin selling directly to original equipment manufacturers. In 2001, sales of our products through distributors and value-added resellers represented 88.0% of our revenue.

      Our estimated backlog as of December 31, 2000 and 2001 was $15.2 million and $8.5 million, respectively.

Customer Service

      We are committed to providing our customers with high levels of service and support. We provide training, technical assistance and customer support on the installation, management, use and testing of our products. We also provide a 24 month warranty for our systems and offer both in-warranty and out-of-warranty repair services. Our repair center is staffed with technicians who work directly with our quality assurance team to identify potential problems and repair equipment. In addition, we have a number of flexible hardware and software maintenance and support programs available for our products.

Customers

      We have a globally diversified base of customers and end-users consisting of service providers, businesses and other enterprises. In 2001, we sold our products to 381 customers in 58 countries. For the year ended December 31, 2001, sales to our three largest distributors, Comstor, Somera Communications, Inc., and Tessco Technologies, represented 29.9%, 11.4% and 10.5%, respectively, of revenue.

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      Export sales, which are denominated in U.S. dollars and consist of domestic sales to customers in foreign countries accounted for approximately 23.1%, 33.2% and 24.3% of net revenue in 1999, 2000, and 2001 respectively.

      In 1999, 2000, and 2001, sales to all distributors of the Company’s products accounted for approximately 23.1%, 39.5% and 69.8% of net revenues.

Research and Development

      Our research and development efforts are focused on improving the functionality and performance of our existing products as well as developing new products to meet the changing needs of our diverse base of customers and end-users. We are currently pursuing the following research and development initiatives:

	•	developing our point-to-multipoint systems;
	•	adapting our products to additional frequencies and interfaces;
	•	developing higher speed products;
	•	increasing the performance of our digital signal processing technology; and
	•	designing our products for low-cost, outsourced manufacturing, assembly and testing.

      We devote a substantial portion of our resources to developing new products, enhancing existing products, expanding and improving our core wireless technologies and strengthening our technological expertise. Over the last ten years, we have made and expect to continue to make significant investments in research and development. We invested approximately $5.9 million, $12.4 million and $19.1 million in research and development activities in 1999, 2000, and 2001, respectively.

Manufacturing

      Our ISO 9001 certified manufacturing operation, based in our Sunnyvale, California facility, consists primarily of pilot production, product assembly and product testing. Our strategy is to outsource manufacturing and procurement of component parts to manufacturers with the expertise and ability to achieve the cost reductions associated with volume manufacturing and to respond quickly to orders, while maintaining our quality standards. This allows us to focus our internal resources on developing new products. We rely on two contract manufacturers to produce our printed circuit boards and one contract manufacturer for limited printed circuit board testing. We complete the final assembly and testing of our products at our Sunnyvale facility.

      We depend on single source suppliers for several of our components. Most of these components are purchased by our contract manufacturers. We carry additional inventory of these components, as do our contract manufacturers, but we may have manufacturing shortages if our sales increase more than we expect. We have experienced in the past and may in the future experience difficulties in obtaining various components due to capacity constraints among suppliers in our industry which are experiencing high levels of demand.

Competition

      The market for broadband wireless access systems is rapidly evolving, highly competitive and subject to rapid technological change. Because we develop a variety of products for several different markets, we have a broad range of competitors. Competition for one or more of our systems includes products manufactured or marketed by a number of large communication equipment suppliers, including Alcatel, Ericsson Business Networks AB, Lucent Technologies Inc. and Nortel Networks Corporation, as well as by a number of smaller companies, including Alvarion, Ltd., P-Com, Inc., Proxim, Inc., and Wi-LAN Inc. Many of our competitors are substantially larger than we are and have significantly greater financial, sales, marketing, distribution, technical, manufacturing and other resources. In addition, our competitors may provide financing to their customers. Companies in the communications industry which are currently not selling broadband wireless access products, as well as our current competitors, may make strategic acquisitions or establish cooperative

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      We have just begun to ship our point-to-multipoint products and have not yet developed a competitive position in the point-to-multipoint segment of the market. A number of other companies began commercially selling point-to-multipoint systems before us, and these companies may have a competitive advantage because they were the first to market this type of product. We believe, however, that we will be able to successfully compete by using our relationships with our existing customers to sell our new point-to-multipoint systems, which can be integrated with our other systems, and because we believe our point-to-multipoint systems may have features our competitors’ systems do not have.

      Technological developments and consolidation within the broadband wireless access equipment industry result in frequent changes to our group of competitors. The principal competitive factors in our market include:

	•	product features and reliability;
	•	the ability to be among the first to introduce new products;
	•	price;
	•	brand recognition;
	•	relationships with distributors, value-added resellers, systems integrators and service providers;
	•	the ability to integrate various products into a single network; and
	•	customer service and technical support.

      Broadband wireless access solutions compete with other high-speed solutions such as cable modem technologies, satellite technologies, digital subscriber lines and fiber optic cables. Many of these alternative technologies can take advantage of existing installed infrastructure and have achieved significantly greater market acceptance and penetration than broadband wireless access technologies. Other factors that influence the choice between wireless and wire line products include reliability and security, speed and volume capacity, cost effectiveness, availability of sufficient frequencies and geographic suitability. We expect to face increasing competitive pressures from both current and future technologies in the broadband access market.

Intellectual Property

      Our success depends on the preservation and protection of our product and manufacturing process designs and other proprietary technology. We use a variety of intellectual property in the development and manufacturing of our products, but do not believe that any of our intellectual property is individually critical to our current operations. Taken as a whole, however, we believe our intellectual property rights are significant.

      We currently have six U.S. patents, five of which relate to our point-to-multipoint systems, and one to our point-to-point systems under development. One of these patents expires in 2011, two in 2012, and two in 2016. We also have one pending U.S. patent application that pertains to our point-to-multipoint systems. Assuming our patent applications result in granted patents, those patents will expire in 2018. In addition, we have four U.S. trademarks, which cover variations of our name and logo, and several pending U.S. trademark applications, which cover our Lynx and Tsunami product lines. Because, to date, we have sold our products primarily in the United States, we have not yet applied to register any of our intellectual property in any foreign countries. However, we intend to file foreign patent and trademark applications in the future, in instances where we consider a particular trademark or aspect of our technology important enough to justify the added expense of the filings.

      In addition to our registered intellectual property, we also use proprietary technology in our business. This technology includes internally developed proprietary error correction algorithms, fault tolerant systems and comprehensive network management software. A significant portion of this technology consists of specialized

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      We also have an intellectual property license agreement with Glenayre which we entered into on November 1, 1999. Under the agreement, Glenayre granted us a royalty-free license to use some of its intellectual property, including patents, patent applications, copyrights, software, technology and proprietary information. In addition, Glenayre granted us a license to use its name. Under the agreement, we granted Glenayre a royalty-free license to two patent applications and to use any trademarks we own that relate to inventory held by Glenayre on the date of the license.

Government Regulation

      Our products are subject to extensive telecommunications-based regulation by the United States and foreign laws and international treaties. We must conform our products to a variety of regulatory requirements and protocols established to, among other things, avoid interference among users of radio frequencies and to permit interconnection of equipment. Each country has different regulations and a different regulatory process. In order for our products to be used in some jurisdictions, regulatory approval and, in some cases, specific country compliance testing and re-testing may be required. The delays inherent in this regulatory approval process may force us to reschedule, postpone or cancel the installation of our products by our customers, which may result in significant reductions in our sales.

      We are also subject to U.S. government export controls. We rely on our customers to inform us when they plan to deliver our products to other countries, and we regularly inform our customers of the export controls with which they must comply.

      In addition, domestic and international authorities continue to regulate the allocation and auction of the radio frequency spectrum. These regulations have a direct impact on us, because our licensed products can be marketed only if permitted by suitable frequency allocations, auctions and regulations. The implementation of these regulations may delay our end-users in deploying their systems, which could, in turn, lead to delays in orders of our products by our customers and end-users.

Employees

      As of December 31, 2001, we had 269 employees, including 56 in manufacturing, 91 in research and development, 91 in sales, marketing and customer service and 31 in finance and administration. We are not a party to any collective bargaining agreement. We believe that relations with our employees are good.

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Executive Officers

      The following information as of February 21, 2002, is provided with respect to each of our executive officers.

      Jonathan N. Zakin has served as our Chief Executive Officer and Chairman of the Board of Directors since November 1, 1999. Mr. Zakin is also currently President of Leeward Technology Partners and Leeward Management Inc., affiliates of Ripplewood Holdings, L.L.C., and he is the Manager of Seaview Holdings, L.L.C. Prior to founding Leeward Technology Partners in 1997, he was Executive Vice President of Business Development and Corporate Strategy of U.S. Robotics, a communications equipment company, from 1995 to 1997, Executive Vice President of Sales and Marketing of U.S. Robotics from 1989 to 1995 and Vice President of Sales from 1987 to 1989. Mr. Zakin was elected a director of U.S. Robotics in 1988. He has also held various executive and management positions, both domestically and internationally, with Winterhalter, Inc., Cosma International, Brisk and Kindle and J. Henry Schroder Corp. Mr. Zakin received an M.B.A. degree from Harvard Business School and a B.A. degree from New York University.

      Amir Zoufonoun has served as our President and Chief Operating Officer and a member of the Board of Directors since November 1, 1999. He was also our General Manager from 1998 to 1999. Since Mr. Zoufonoun joined Western Multiplex in 1989, he served in various management positions of increasing responsibility, including Vice President of Engineering. From 1979 to 1989, he held various engineering and technical management positions with Harris Corporation. Mr. Zoufonoun received a M.S. degree in electrical engineering from Santa Clara University and a B.S. degree in Electrical Engineering from San Jose State University.

      Nancy Huber has served as our Chief Financial Officer, Executive Vice President and Corporate Secretary since February 16, 2000 and on October 2, 2001 was promoted from Vice President of Finance to Executive Vice President. Prior to joining us, Ms. Huber served as Vice President of Finance, Western Operations for Evans & Sutherland Computer Corporation, a graphics developer, from 1998 to 1999. From 1994 to 1998, she was Vice President of Finance and Chief Financial Officer for AccelGraphics, Inc. From 1991 to 1994, she served first as MIS Manager, then Chief Financial Officer and finally Chief Executive Officer of ATG Cygnet, Inc., a mass storage robotic company. Ms. Huber received a Master of Management degree from the J.L. Kellogg Graduate School of Management and a B.S. degree in Chemical Engineering from Purdue University.

      Fred Corsentino has served as our Vice President of Sales since February 25, 2000 and was promoted to Executive Vice President of Worldwide Sales on October 19, 2000. From 1998 to 1999, Mr. Corsentino was Vice President of Sales for Open Port Technology, a worldwide provider of Internet telephony solutions. From 1997 to 1998, Mr. Corsentino was Director of North American Enterprise Access Sales for 3Com Corporation, a communications equipment company. From 1993 to 1997, he served as Director of East Area Sales for U.S. Robotics where he was responsible for major enterprise and service provider accounts. Mr. Corsentino received an M.B.A. degree from Columbia University and a B.S. degree in Economics from the New York Institute of Technology.

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      Gordana Pance has served as our Vice President of Engineering since November 1, 2000. Prior to that she held various engineering management positions at Western Multiplex. Mrs. Pance has been a key driver behind our company’s technical leadership since 1993, when she first joined Western Multiplex to lead our RF and microwave R&D. She received her M.S. and Ph.D. degrees from the University of Rochester, New York, in 1990 and 1993 respectively, both in electrical engineering.

      Rita Khayat-Toubia has served as our Chief Information Officer and Vice President, Information Systems since March 1, 2001. Ms. Khayat-Toubia has more than 15 years of experience in information technology including project management, application development, infrastructure management, organizational development and process reengineering. Prior to joining us, Ms. Khayat-Toubia served as Director of Global Information Systems Controlling for Hoechst Marion Roussel AG, an international pharmaceutical firm where she managed worldwide IS activity and integrated all IS departments. Ms. Khayat-Toubia also served as MIS Director, Roussel Uclaf Holdings Corporation, for their U.S. headquarters in New Jersey. Prior to her position with Hoechst Marion Roussel AG, Ms. Khayat-Toubia served as Director of International Information Systems for Roussel Uclaf where she instituted operating policies and procedures for worldwide standards and strategic planning for over 25 foreign subsidiaries. Ms. Khayat-Toubia received a Post-M.S. degree in Engineering, M.S. degree in Information Systems and Business Administration from ISIM (Institut des Sciences de l’Ingengieur de Montpellier), France and a B.S. degree in Economics from Bordeaux University, France.

      Ihab Abu-Hakima has served as our Senior Vice President of International Sales since January 10, 2002. He was our Vice President of Marketing from July 24, 2000 until March 20, 2001. From March 20, 2001 until January 10, 2002 he was our Vice President of Business Development. Prior to joining us, Mr. Abu-Hakima served as Senior Vice President of Marketing and Business Development at LiveKnowledge.com, an Internet knowledge exchange from 1999 to 2000. From 1997 to 1999, he was Vice President and General Manager of the Internet and Business Computing Division of the Strategic Business Analysis Division at Silicon Graphics Computer Systems, Inc. From 1991-1996, he held various positions at Silicon Graphics Computer Systems. Mr. Abu-Hakima received an M.B.A. degree and a B.Eng. Electrical Engineering degree, with honors, from McGill University.

      Christina M. Rulo has served as our Vice President of Human Resources since October 19, 2000. Prior to joining us, Ms. Rulo served as Corporate Vice President of Human Resources for Hyperion Solutions, where she was responsible for leading a worldwide Human Resources merger effort including culture integration programs and policy and benefit redesign implementation. From 1995 through 1997, Ms. Rulo served as Vice President of Human Resources for VLSI Technology, Inc., a multi-national ASIC semiconductor corporation. Ms. Rulo also served as Human Resource Director and as a regional Human Resource Director for VLSI prior to her appointment as Vice President. Ms. Rulo is a Board member of Networks Advantage.

Item 2.     Properties

      We lease approximately 98,173 square feet of facilities in several locations. Our headquarters is a 45,709 square foot facility in Sunnyvale, California. This facility accommodates the following departments: sales and marketing, the majority of our research and development, manufacturing, administration and finance. The term of the lease for this facility expires in June 2006. We also lease approximately 4,494 square feet in Petaluma, California, which was used for our Ubiquity operations. As part of the closing of these operations during the end of the first quarter of 2001, we began subleasing this facility in November 2001. In addition, on September 13, 2000, we entered into an agreement to lease a 37,333 square foot facility in Sunnyvale, California for our manufacturing and customer support operations. The term of the lease for this facility began in January 2001 and expires in November 2010. As part of our acquisition of WirelessHome in March 2001, we also acquired the lease for a 10,637 square foot facility in Long Beach, California. The term of this lease expires in July 2005.

Item 3.     Legal Proceedings

      We are not currently a party to any material legal proceedings.

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      None.

PART II

(a) Market Information

      The following table shows the high and low bid prices of the Company’s common stock for the fiscal years ended December 31, 2000 and 2001 as reported on the NASDAQ National Market System:

      The closing price of the Company’s common stock on the NASDAQ National Market System on February 21, 2002 was $1.85.

(b) Holders

      Western Multiplex Corporation common stock is quoted on the NASDAQ National Market System under the symbol WMUX. The Company has 276 stockholders of record as of February 21, 2002.

(c) Dividends

      The Company presently intends to retain its future earnings, if any, to fund the development and growth of its business and, therefore, does not anticipate paying any cash dividends in the foreseeable future.

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Item 6.     Selected Financial Data

      You should read the selected consolidated financial data set forth below in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Western Multiplex’s consolidated financial statements and the related notes included elsewhere in this Annual Report on Form 10-K. The consolidated statements of operations data for the years ended December 31, 1999, 2000 and 2001 and the consolidated balance sheet data as of December 31, 2000 and 2001 are derived from, and are qualified by reference to, the audited consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. The statement of operations data for the year ended December 31, 1997 and 1998 and the balance sheet data as of December 31, 1998 are derived from audited financial statements not appearing elsewhere in this Annual Report on Form 10-K. The balance sheet data as of December 31, 1997 is derived from unaudited financial statements not appearing elsewhere in this Annual Report on Form 10-K. Historical results are not necessarily indicative of results that may be expected for any future period.

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

      Except for any historical information contained herein, the matters discussed in this Annual Report on Form 10-K contain certain “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the Company’s financial condition, results of operations, cash flows, revenues, financing plans, business strategies and market acceptance of its products. The words “anticipate,” “believe,” “estimate,” “expect,” “plan,” “intend,” and similar expressions, are intended to identify these forward-looking statements. These forward-looking statements are found at various places throughout this Annual Report. We caution you not to place undue reliance on these forward-looking statements, which speak only as of the date they were made. We do not undertake any obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date of this Annual Report or to reflect the occurrence of unanticipated events.

      The following discussion should be read together with our financial statements and the related notes contained elsewhere in this Annual Report on Form 10-K.

Overview

      We were founded in 1979 in Sunnyvale, California as a vendor of radio components and related services. In 1992, we changed our strategy, became a designer and manufacturer of broadband wireless systems and launched our Lynx broadband wireless systems. These point-to-point systems are primarily used by wireless operators to connect their base stations to other base stations and to existing wire line networks. In 1999, we introduced our Tsunami point-to-point broadband wireless systems, which primarily enable service providers, businesses and other enterprises to expand or establish private networks by bridging Internet traffic among multiple facilities. Based on our core technologies and the technology acquired through our purchase of WirelessHome Corporation in March 2001, we are developing point-to-multipoint systems that will enable service providers, businesses and other enterprises to connect multiple facilities within a geographic area to a central hub. We began shipping our first generation of these products at the end of the fourth quarter of 2001.

      On August 4, 2000, we completed our initial public offering of 7,500,000 shares of Class A common stock at a public offering price of $12.00 per share. On August 31, 2000, the underwriters exercised their option to purchase 1,125,000 additional shares of Class A common stock to cover over-allotments. The initial public offering and subsequent exercise of 1,125,000 shares by the underwriters resulted in net proceeds to us of approximately $91.0 million after payment of the underwriter’s commission and deduction of offering expenses. Simultaneously with the closing of the initial public offering, all of our then outstanding 38,000,000 shares of Class B common stock and 42,000,000 shares of Class B treasury stock were automatically converted into 38,000,000 shares of Class A common stock and 42,000,000 shares of Class A treasury stock, respectively.

      In August 2000, we used a portion of the net proceeds from the initial public offering to repay outstanding indebtedness. We made the mandatory prepayment of our term notes to Credit Suisse First Boston and also repaid all borrowings outstanding under the revolving credit facility. The total repayment including accrued interest was $28.9 million. In connection with the prepayment of our term notes, we wrote off deferred financing costs of $394,000, net of income taxes. This transaction was accounted for as an extraordinary loss on early extinguishment of debt.

      Subsequent Event — Merger with Proxim Inc. On January 16, 2002, we signed a merger agreement with Proxim, Inc. (“Proxim”), headquartered in Sunnyvale, California. Proxim provides wireless local area networking and building-to-building network products based on radio frequency technology. Under the terms of the agreement, each outstanding share of Proxim common stock will be converted into the right to receive 1.8896 shares of Western Multiplex common stock. The merger is intended to qualify as a tax-free reorganization. Upon completion of the merger, Proxim stockholders and Western Multiplex stockholders will each own approximately 50% of the combined company. The transaction is subject to customary closing conditions, including regulatory approvals and the approval of the stockholders of both companies. The transaction is expected to close at the end of the first calendar quarter or early in the second calendar quarter of 2002.

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      Revenue, net. We primarily generate revenue from the sale of our Lynx and Tsunami systems. We introduced the Tsunami product line at the end of the fourth quarter of 1999. While our Tsunami products and Lynx products have similar pricing for comparable models, our Lynx product line contributes the largest part of our revenue. We began selling our point-to-multipoint systems in the last month of 2001 and have just begun to generate revenue from these products. We also generate a small percentage of our revenue from the sale of services and parts and rentals of our systems. We sell worldwide to service providers, businesses and other enterprises directly through our sales force and indirectly through distributors, value added resellers and system integrators. Sales to certain distributors are made under terms allowing certain rights of return, protection against subsequent price declines on our products held by our distributors and co-op marketing programs. We recognize revenue from the sale of our systems and parts when all the following conditions are met: the system or part has been shipped, evidence of an arrangement exists and we have the right to invoice the customer, the collection of the receivable is probable, and we have no post-delivery obligations remaining. Revenue from services, such as preinstallation diagnostic testing and product repair services, is recognized over the period for which the services are performed, which is less than one month. Revenue from product rentals is recognized over the period of the rental.

      Net revenue consists of product revenues reduced by estimated sales returns and allowances. Provisions for estimated sales returns and allowances, which are based on historical trends, contractual terms and other available information, are recorded at the time of sale.

      Our sales force focuses on key strategic accounts and also develops relationships with end-users that purchase through distributors and value-added resellers. Distributors sell our products, and value-added resellers not only sell our products, but also assist end-users in network design, installation and testing. We also market our products through strategic relationships we have with systems integrators, which design and install networks that incorporate our systems. Any significant decline in direct sales to end-users or in sales to our distributors or value-added resellers, or the loss of any of our distributors or value-added resellers, could materially adversely affect our revenue.

      In 2001, we sold our products to 381 customers in 58 countries. In 2001, international sales accounted for approximately 24.3% of our total sales. We expect international sales to increase as a percentage of overall sales in the future. Currently, all of our sales are denominated in U.S. dollars. Accordingly, we are not exposed to currency exchange risks other than the risk that exchange rate fluctuations may make our products more expensive for customers outside the United States and, as a result, could decrease international sales. In addition, we face risks inherent in conducting global business. These risks include extended collection time for receivables, reduced ability to enforce obligations and reduced protection for our intellectual property.

      As we have increased sales through our distributors and value-added resellers, we have experienced a decline in the average selling price of our products. This is because the prices of the products that we sell indirectly through distributors and value-added resellers are lower than the prices of the products we sell directly through our sales force to end-users. We have also lowered our prices for older products as we introduce additional products that provide faster data rates. These newer products have higher prices than our older products. Our international sales also have lower average selling prices when compared to our United States and Canadian sales. This is primarily due to our reliance on distributors and value-added resellers for international sales, and also because our lower speed products, with significantly lower prices, are being sold in larger quantities internationally than domestically. As indirect sales and sales in our international markets increase, we expect that our average selling prices will further decrease.

      Cost of revenue. Cost of revenue consists primarily of outsourced manufacturing costs, component costs, labor and overhead costs, costs of acquiring finished parts from original equipment manufacturers, customer service and accrued warranty costs. We currently outsource the majority of our manufacturing and supply chain management to a limited number of independent contract manufacturers, who obtain components for our products from suppliers. Accordingly, a significant portion of our cost of revenue consists of payments to these contract manufacturers and component suppliers. The remainder of our cost of revenue is related to our in-house manufacturing operations, which consist primarily of quality control, final assembly, testing and product integration. We expect to realize lower per unit product costs as we continue to outsource

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      Gross profit. Our gross profit is affected by both the average selling prices of our systems and our cost of revenue. Historically, decreases in our average selling prices has generally been offset by reductions in our per unit product cost. We cannot assure you, however, that we will achieve any reductions in per unit product cost in the future or that any reductions will offset a reduction in our average selling prices.

      Research and development. Research and development expenses consist primarily of salaries and related personnel expenses, prototype development expenses, consultant fees and allocated overhead related to the design, development, testing and enhancement of our products and underlying technologies. We expense all research and development expenses as incurred. We expect to increase our research and development expenses as we continue to develop new products and improve our core technologies. In particular, we expect research and development expenses to increase in connection with our continued development of point-to-multipoint broadband wireless systems.

      Sales and marketing. Sales and marketing expenses consist of salaries, commissions and related expenses for personnel engaged in sales, product marketing, sales support functions, advertising, trade show and other promotional expenses and allocated overhead. We intend to increase our sales and marketing expenditures as we add sales and marketing personnel, increase the number of distributors and value-added resellers that sell our products and increase marketing programs. In particular, we expect sales and marketing expenses to increase as we substantially expand our sales operations to support and develop leads for our distributors and value-added resellers.

      General and administrative. General and administrative expenses consist primarily of salaries and related expenses for executive, finance and administrative personnel, professional fees, other general corporate expenses, provision for bad debts, and allocated overhead. We do not expect general and administrative expenses to increase in total during 2002.

      Stock option programs. We have implemented stock option programs for employees and members of the board of directors to attract and retain business and technical personnel. During the year of 2000, we recorded deferred stock compensation for the difference between the exercise price and the deemed fair value of our common stock on the date the stock options were granted. This amount is included as a reduction of stockholders’ equity and is being amortized by charges to operations over the vesting period. The amortization expense relates to options awarded to employees in their respective operating expense categories.

Recapitalization

      On November 1, 1999, Ripplewood Partners, L.P. and affiliates acquired 94.6% of our capital stock from Glenayre Technologies, Inc. through a wholly owned subsidiary, WMC Holding Corp., in a transaction accounted for as a recapitalization. Prior to the recapitalization, we were an indirect wholly owned subsidiary of Glenayre Technologies, Inc., which had previously acquired us in 1995. As part of Glenayre’s acquisition of us, Glenayre recognized $22.0 million of goodwill, amortized over a 30-year useful life. This goodwill amount, which is $17.1 million in our balance sheet as of December 31, 2001, is reflected on our historical financial statements.

      We treated the recapitalization as an asset acquisition for federal income tax purposes. As a result, we recorded a deferred tax asset in the amount of $3.9 million ($3.1 million as of December 31, 2001) which will offset future tax liabilities during the next 13 years, assuming that we have sufficient income to realize the full benefit of this deduction.

Acquisition of Ubiquity Communication, Inc.

      On March 24, 2000, we acquired Ubiquity Communication, Inc., located in Petaluma, California. Through the acquisition, we acquired technology that we planned to use to develop our point-to-multipoint systems. At the time of the acquisition, Ubiquity Communication had seven employees, including six

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Acquisition of WirelessHome

      On March 22, 2001, we acquired WirelessHome located in Long Beach, California in a cash and stock transaction. WirelessHome is a development stage company that designs and develops point-to-multipoint systems. The acquisition was accounted for as a purchase. We acquired WirelessHome for a total consideration of $28.2 million composed of:

	•	1,649,324 shares of Class A common stock valued at $12.1 million;
	•	cash for $10.5 million;
	•	options and warrants assumed valued at $0.7 million;
	•	a stock price protection contingent consideration valued at $2.5 million; and
	•	transaction expenses for $2.4 million.

      As part of the transaction we assumed $2.0 million of net liabilities, which consist of $0.4 million of current assets, $0.9 million of other assets and $3.3 million of current liabilities. In March 2001, we issued an initial consideration of $23.0 million. As a result, we recorded the initial purchase price allocation as follows: $24.7 million to goodwill and $0.3 million to deferred compensation.

      Goodwill related to the acquisition is being amortized on a straight-line basis over the estimated useful life of five years. The initial purchase price, as well as the initial allocation, were subject to adjustments upon WirelessHome meeting certain development milestones and other considerations as defined in the agreement to acquire WirelessHome.

      On October 7, 2001, WirelessHome met the development milestones in accordance with the acquisition agreement. This resulted in additional purchase consideration of $5.2 million. We then evaluated and recorded the final purchase price and stock compensation expense arising from the achievement of those milestones. The total purchase price allocation, which consists of $28.2 million of purchase price and $2.0 million of net liabilities assumed, was as follows: $1.0 million to assembled workforce, $6.4 million to in-process research and development, $22.5 million to goodwill, and $0.3 million to deferred compensation. In addition, we recorded $2.2 million of stock compensation expense as a result of releasing and issuing 558,950 shares, which were previously held in escrow, to individuals who were directly involved in the completion of the development milestones.

      The purchase price allocation and intangible assets valuation was based on management’s estimates of the after-tax net cash flows and gave consideration to the following: (i) the employment of a fair market value premise excluding any consideration specific to us which could result in estimates of investment value for the subject assets; (ii) comprehensive due diligence concerning all potential intangible assets including trademarks, tradename, patents, copyrights, non-compete agreements, assembled work force, customer relationships and sales channel; and (iii) the value of existing technology was specifically addressed, with a view toward ensuring that the relative allocations to existing technology and in-process research and development were consistent with the relative contributions of each final product.

      In making its purchase price allocation, management considered present value calculations of income, an analysis of project accomplishments and remaining outstanding items, an assessment of overall contributions, as well as project risks. The value assigned to purchased in-process technology was determined by estimating the costs to develop the acquired technology into commercially viable products, estimating the resulting net cash flows from the projects, and discounting the net cash flows to their present value. The revenue projection

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      As WirelessHome replaced Ubiquity in the development of our point-to-multipoint systems, we closed our Ubiquity operations during the quarter ended March 30, 2001. As a result, we recorded restructuring charges of $1.2 million. The charge includes $1.0 million of cash provisions, which include severance of $0.8 million for 12 employees and $0.2 million for future lease commitments and exit costs related to the Petaluma office facility. As of December 31, 2001, approximately $0.8 million of these costs was incurred with the remainder expected to be paid in 2002. The charge also includes $0.2 million of non-cash provisions primarily related to fixed assets and other assets that will no longer be used at the facility.

Results of Operations

      The following table provides operations data as a percentage of revenue for the periods presented:

Comparison of Years Ended December 31, 2000 and 2001

      Revenue, net. Revenue was $105.5 million for the year ended December 31, 2000 compared to $105.7 million for the year ended December 31, 2001. For the year ended December 31, 2001, three distributors, Comstor, Somera Communications, Inc. and Tessco Technologies accounted for 29.4%, 11.4% and 10.5%, respectively, of total revenue. For the year ended December 31, 2000, Somera Communications, Inc. and Avant Telecoms, Inc., a value-added reseller, accounted for 21.4% and 11.1%, respectively, of total revenue. In 1999, 2000, and 2001 sales to all distributors, which have certain limited rights of return of the company’s products, accounted for approximately 23.1%, 39.5% and 69.8% of net revenue. In addition, export

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      Cost of revenue. Cost of revenue increased 10.7% from $50.5 million for the year ended December 31, 2000 to $55.9 million for the year ended December 31, 2001. As a percentage of revenue, cost of revenue increased from 47.8% for the year ended December 31, 2000 to 52.9% for the year ended December 31, 2001. The increase in cost of revenue and the increase in cost of revenue as a percentage of revenue from the year ended December 31, 2000 to the year ended December 31, 2001 was primarily due to lower than expected increase in revenue and production volume.

      Research and development. Research and development expenses increased 54.4% from $12.4 million for the year ended December 31, 2000 to $19.1 million for the year ended December 31, 2001. The increase in research and development expenses was primarily attributable to the cost of increased personnel and prototype spending for the development of new products and enhancements to existing products. As a percentage of revenue, research and development expenses increased from 11.7% for the year ended December 31, 2000 to 18.1% for the year ended December 31, 2001.

      Sales and marketing. Sales and marketing expenses increased 64.2% from $16.2 million for the year ended December 31, 2000 to $26.6 million for the year ended December 31, 2001. The increase in sales and marketing expenses is primarily attributable to increased personnel in the international sales organization, advertising and marketing programs, tradeshow, and public relations expenses. As a percentage of revenue, sales and marketing expenses increased from 15.3% for the year ended December 31, 2000 to 25.1% for the year ended December 31, 2001.

      General and administrative. General and administrative expenses increased 89.6% from $6.4 million for the year ended December 31, 2000 to $12.0 million for the year ended December 31, 2001. The increase in general and administrative expenses is primarily due to increased personnel expenses, consulting costs and provision for bad debts. As a percentage of revenue, general and administrative expenses increased from 6.0% for the year ended December 31, 2000 to 11.4% for the year ended December 31, 2001.

      Amortization of goodwill and other intangible assets. Amortization of goodwill and other intangible assets increased 128.4% from $2.4 million for the year ended December 31, 2000 to $5.4 million for the year ended December 31, 2001. The increase in amortization is attributable to goodwill and other intangible assets related to the WirelessHome acquisition in March 2001.

      In July 2001, the Financial Accounting Standards Board issued SFAS No.’s 141 and 142, “Business Combinations” and “Goodwill and Other Intangibles”, respectively. SFAS No. 141 requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method. Under SFAS No. 142, effective January 1, 2002, goodwill is no longer subject to amortization over its estimated useful life. Rather, goodwill is subject to at least an annual assessment for impairment, applying a fair-value based test. Additionally, an acquired intangible asset should be separately recognized if the benefit of the intangible asset is obtained through contractual or other legal rights, or if the intangible asset can be sold, transferred, licensed, rented, or exchanged, regardless of the acquirer’s intent to do so. As a result of our adoption of SFAS 142, as of January 1, 2002, we will no longer amortize goodwill. Goodwill amortization for the year ended December 31, 2001 was approximately $5.0 million.

      In August 2001, the Financial Accounting Standards Board issued SFAS No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 addresses financial accounting and reporting for the long-lived assets to be held and used, and disposed of. The statement will be effective for financial statements issued for fiscal years beginning after December 15, 2001. Although we currently do not expect the adoption of SFAS No. 144 to have a material impact on our financial statements, we will continue to assess any impairment of our long lived assets.

      Amortization of deferred stock compensation. Amortization of deferred stock compensation increased 24.9% from $4.2 million for the year ended December 31, 2000 to $5.2 million for the year ended December 31, 2001. Amortization of deferred stock compensation for both periods includes the sale of stock and issuance of options at prices deemed to be below fair market value. Amortization of deferred stock

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      Impairment of goodwill and intangible assets. We recorded $4.3 million of impairment of goodwill related to our former Ubiquity operations during the first quarter of 2001. The amount of the charge equals the unamortized amount of the goodwill as of the date of the closure of the Ubiquity operations, as no future benefit is anticipated since WirelessHome has replaced Ubiquity as the developer of our point-to-multipoint systems.

      Restructuring charges. During the first and second quarter of 2001, we recorded $1.2 million of restructuring charges related to the closure of our former Ubiquity operations. The charges include $1.0 million of cash provisions, which include severance of $0.8 million for 12 employees and $0.2 million for future lease commitments and exit costs related to the Petaluma office facility. As of December 31, 2001, approximately $0.8 million of the $1.0 million of cash provisions was incurred. The charge also includes $0.2 million of non-cash provisions primarily related to fixed assets and other assets that will no longer be used at the facility.

      In addition, during the second and third quarter of 2001, the Company recorded $0.6 million associated with restructuring the operations at the Company’s headquarters, primarily related to employee severances.

      The following table summarizes the restructuring activity in 2001 (in thousands):

      In-process research and development. At the time of the WirelessHome acquisition in March 2001, the WirelessHome technology was in an early stage of development, and the product’s technical feasibility had not yet been demonstrated. Furthermore, the marketability of the potential future product was unproven. As a result of WirelessHome meeting the development milestones in accordance with the acquisition agreement, we allocated $6.4 million of the final total purchase price to in-process research and development.

      Merger costs. In the fourth quarter of 2000, we incurred $3.2 million of merger costs in connection with the aborted acquisition of Adaptive Broadband Corporation. Adaptive Broadband Corporation reimbursed us $3.0 million of those costs. The additional $0.2 million in 2000 was recorded in operating expenses. The additional $30,000 in the first quarter of 2001 represents additional merger costs recorded in operating expenses.

      Interest expense. Interest expense decreased from $1.5 million for the year ended December 31, 2000 to $137,000 for the year ended December 31, 2001. Interest expense in 2000 represents interest incurred on term loans and a revolving credit line we entered into in November 1999 as part of the recapitalization. Interest expense decreased, because we repaid all borrowings outstanding under this debt in August 2000. Interest expense in 2001 represents agency and commitment fees related to our unused $10 million revolving credit facility.

      Interest income. Interest income decreased from $1.7 million for the year ended December 31, 2000 to $1.5 million for the year ended December 31, 2001. The decrease in interest income is primarily due to the decrease in investments.

      Income tax provision (benefit). Our income tax provision was $6.8 million for the year ended December 31, 2000 as compared to an income tax benefit of $4.1 million for the year ended December 31, 2001. Our effective tax rates were 50.4% for the year ended December 31, 2000 and (13.8%) for the year ended December 31, 2001. Nondeductible expenses in 2000 include amortization of goodwill and other

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      The Internal Revenue Code of 1986, as amended, contains provisions that may limit the net operating loss and credit carryforwards available for use in any given period upon the occurrence of certain events, including a significant change in ownership interests, such as the merger with Proxim.

Comparison of Years Ended December 31, 1999 and 2000

      Revenue, net. Revenue increased 135.8% from $44.8 million for the year ended December 31, 1999 to $105.5 million for the year ended December 31, 2000. Revenue increased primarily due to a 130.8% increase in the volume of products shipped for the year ended December 31, 2000 as compared to the year ended December 31, 1999, combined with an increase of 2.7% in average selling price of our products for the year ended December 31, 2000 as compared to the year ended December 31, 1999. For the year ended December 31, 2000, Somera Communications, Inc., a distributor, and Avant Telecoms, Inc., a value-added reseller, accounted for 21.4% and 11.1%, respectively, of total revenue. No other customers accounted for more than 10% of total revenues in 2000. For the year ended December 31, 1999, Somera Communications, Inc. accounted for 19.2% of total revenue.

      Cost of revenue. Cost of revenue increased 124.6% from $22.5 million for the year ended December 31, 1999 to $50.5 million for the year ended December 31, 2000. As a percentage of revenue, cost of revenue decreased from 50.2% for the year ended December 31, 1999 to 47.8% for the year ended December 31, 2000. The increase in cost of revenue was primarily attributable to increased sales. The decrease in cost of revenue as a percentage of revenue from the year ended December 31, 1999 to the year ended December 31, 2000 was primarily due to lower costs of components and the sale of newly released products in 2000 with higher gross margins.

      Research and development. Research and development expenses increased 108.9% from $5.9 million for the year ended December 31, 1999 to $12.4 million for the year ended December 31, 2000. The increase in research and development expenses was primarily attributable to the cost of increased personnel and prototype spending for the development of new products and enhancements to existing products. As a percentage of revenue, research and development expenses decreased from 13.2% for the year ended December 31, 1999 to 11.7% for the year ended December 31, 2000.

      Sales and marketing. Sales and marketing expenses increased 162.9% from $6.2 million for the year ended December 31, 1999 to $16.2 million for the year ended December 31, 2000. The increase in sales and marketing expenses is primarily attributable to increased sales and marketing personnel, advertising, tradeshow, and public relations expenses. As a percentage of revenue, sales and marketing expenses increased from 13.8% for the year ended December 31, 1999 to 15.3% for the year ended December 31, 2000.

      General and administrative. General and administrative expenses increased 228.6% from $2.0 million for the year ended December 31, 1999 to $6.7 million for the year ended December 31, 2000. The increase in general and administrative expenses is primarily due to increased personnel and consulting expenses. As a percentage of revenue, general and administrative expenses increased from 4.6% for the year ended December 31, 1999 to 6.4% for the year ended December 31, 2000.

      Amortization of goodwill. Amortization of goodwill increased 325% from $737,000 for the year ended December 31, 1999 to $2.4 million for the year ended December 31, 2000. The increase in amortization of goodwill is attributable to goodwill and other intangible assets related to the Ubiquity acquisition in March 2000.

      Amortization of deferred stock compensation. Amortization of deferred stock compensation was $4.2 million for the year ended December 31, 2000 as a result of the sale of stock and issuance of options at prices deemed to be below fair market value.

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      Merger costs. In the fourth quarter of 2000, we incurred $3.2 million of merger costs in connection with the aborted acquisition of Adaptive Broadband Corporation. Adaptive Broadband Corporation reimbursed to us $3.0 million of those costs. The remaining $0.2 million was recorded in operating expenses.

      Interest expense. Interest expense increased from $368,000 for the year ended December 31, 1999 to $1.6 million for the year ended December 31, 2000. Interest expense for both fiscal years primarily relates to term loans and a revolving credit line we entered into in November 1999 as part of the recapitalization. In August 2000, we repaid all borrowings outstanding under this debt. Therefore, the increase in interest expense is primarily due to the fact that our borrowings outstanding were for a shorter period in 1999 than in 2000, and we had additional borrowings in 2000 against the revolving line of credit prior to repaying the debt.

      Interest income. Interest income increased from $0 for the year ended December 31, 1999 to $1.7 million for the year ended December 31, 2000. The increase in interest income is primarily due to the purchase of investments for the year ended December 31, 2000 resulting from net proceeds from our initial public offering in August 2000.

      Income tax provision. The income tax provision increased from $2.8 million for the year ended December 31, 1999 to $6.8 million for the year ended December 31, 2000. Our effective tax rate decreased from 70.6% for the year ended December 31, 1999 to 50.4% for the year ended December 31, 2000. The decrease in the effective tax rate is primarily due to recapitalization costs incurred during the year ended December 31, 1999 that were not tax deductible offset by increases in non-deductible expenses during the year ended December 31, 2000 arising from the amortization of deferred stock compensation and goodwill.

      Early extinguishment of debt. In August 2000, we used a portion of the net proceeds from the initial public offering to repay outstanding indebtedness. In connection with the prepayment of our term notes, we wrote off deferred financing costs of $394,000, net of income tax. This transaction was accounted for as an extraordinary loss.

Liquidity and Capital Resources

      Our principal source of funding has been from the net proceeds of approximately $91.0 million from our initial public offering in August 2000. Prior to our initial public offering, we had financed our operations and working capital requirements primarily through cash generated by our business and bank financing. We used $28.9 million of the net proceeds to repay outstanding indebtedness under our term notes and outstanding borrowings under our revolving credit facility. We also used approximately $7.0 million to invest in short-term and long-term interest-bearing, investment-grade securities, approximately $7.0 million for the purchase of equipment and leasehold improvements, approximately $3.0 million to pay a security deposit in connection with a new noncancellable operating lease, approximately $13.0 million in connection with the WirelessHome acquisition, approximately $2.0 million to repay debt assumed from WirelessHome, approximately $4.0 million in payments for income taxes, and approximately $12.0 million to finance our operations and working capital requirements. We estimate approximately $14.0 million of the net proceeds has not yet been used.

      As of the date of this Annual Report on Form 10-K, we have not allocated the remaining net proceeds of the offering for specific uses. We expect to use the remainder of the net proceeds of the offering primarily for general corporate purposes, including working capital, expansion of our engineering organization, product development programs, sales and marketing capabilities, and general administrative functions and capital expenditures. We may also use a portion of the net proceeds to acquire complementary businesses, products and technologies or to establish joint ventures that we believe will complement our current or future business.

      We have not identified the specific use of the remainder of the net proceeds due to the flexible nature of our planning process. The amounts that we actually expend for general corporate and other purposes will vary significantly depending on a number of factors, including future sales growth and the amount of cash we generate from operations, if any. Pending the use of the proceeds described above, we will continue to invest the remainder of the net proceeds in short-term, interest-bearing, investment-grade securities.

      Cash and cash equivalents increased by $29.2 million from $1.9 million at December 31, 1999 to $31.1 million at December 31, 2000 and decreased by $14.5 million from $31.1 million at December 31, 2000

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      Net cash provided by operating activities for 1999 was $6.4 million primarily due to net income of $1.2 million, recapitalization costs of $3.1 million, depreciation and amortization of $1.3 million, provision for bad debts of $239,000, and increased changes in inventory of $646,000, deferred taxes of $152,000, accounts payable and accrued liabilities of $2.9 million, and payable to parent company of $1.3 million, offset by increased changes in accounts receivable of $4.1 million and other long-term obligations of $286,000. Net cash used in operating activities for 2000 was $13.1 million primarily due to net income of $6.3 million, depreciation and amortization of $7.6 million, deferred financing costs amortization of $748,000, provision for bad debts of $105,000, provision for sales returns and allowances of $513,000, and increased changes in accounts payable and accrued liabilities of $11.6 million, offset by increased changes in accounts receivable of $26.1 million, inventory of $5.4 million, prepaid expenses and other of $4.6 million, deferred taxes of $199,000, other long-term assets of $2.3 million and payable to parent company of $1.4 million. Net cash used in operating activities for 2001 was $11.9 million primarily due to the net loss of $25.6 million, depreciation and amortization of $12.7 million, impairment of goodwill of $4.3 million, in-process research and development of $6.4 million, provision for bad debts of $1.0 million, provision for sales returns and allowances of $6.3 million, and increased changes in prepaid expenses and other of $2.5 million, offset by increased changes in accounts receivable of $435,000, inventory of $9.0 million, deferred taxes of $6.2 million, and accounts payable and accrued liabilities of $3.9 million.

      Net cash used in investing activities increased from $1.2 million in 1999 to $27.4 million in 2000. Net cash used in investing activities decreased from $27.4 million in 2000 to $2.6 million in 2001. Net cash used in investing activities in 1999 represents $1.2 million in purchases of equipment and leasehold improvements. Net cash used in investing activities in 2000 consists of $3.8 million in purchases of equipment and leasehold improvements, $23.6 million in purchases of investment securities, and $1.5 million in restricted cash, offset by $1.5 million in proceeds from sale of investment securities. Net cash used in investing activities in 2001 consists of $4.8 million in purchases of equipment and leasehold improvements, $10.8 million in purchases of investment securities, and $12.7 in payments in connection with the acquisition of WirelessHome, offset by $25.7 million in proceeds from the sale of investment securities.

      Net cash provided by (used in) financing activities increased from $(4.6) million in 1999 to $69.7 million in 2000. Net cash provided by financing activities decreased from $69.7 million in 2000 to $29,000 in 2001. Net cash used in financing activities in 1999 consists of $3.8 million in net cash transfers to Glenayre, $21.0 million in payment for purchase of treasury stock and $3.1 million in recapitalization costs, offset by $21.2 million in net proceeds from (repayment of) long-term debt and $2.0 million in net borrowings on (repayment of) line of credit. Net cash provided by financing activities in 2000 consists of $95.2 million in net proceeds from issuance of shares, offset by $22.0 million in net proceeds from (repayment of) long-term debt, $2.5 million in net borrowings on (repayment of) line of credit, and $1.1 million in issuances of stock subscription loans to employees. Net cash provided by financing activities in 2001 consists of $2.0 million in issuance of shares, and payments received of $144,000 on employee stock subscription loans, offset by $1.7 million in net proceeds from (repayment of) long-term debt and $400,000 in payment for purchase of treasury stock.

      We believe that our existing cash and cash equivalents and our available borrowings under our $10 million revolving credit facility with Credit Suisse First Boston will be sufficient to finance our working capital and capital expenditure requirements for at least the next 12 months. We intend to invest any cash in excess of current operating requirements in short-term, interest-bearing investment-grade securities. Our future capital requirements will depend upon many factors, including management of working capital, the success of marketing, sales and distribution efforts, the timing of research and product development efforts and expansion of our marketing efforts.

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Quarterly Results Of Operations

      The following table presents our operating results for each of the eight quarters in the period ending December 31, 2001. The information for each of these quarters is unaudited and has been prepared on the same basis as our audited financial statements appearing elsewhere in this Annual Report on Form 10-K. In the opinion of management, all necessary adjustments, consisting only of normal recurring adjustments, have been included to present fairly the unaudited quarterly results when read in conjunction with our audited financial statements and related notes. We have experienced and expect to continue to experience fluctuations in operating results from quarter to quarter. Historical operating results are not necessarily indicative of the results that may be expected for any future period.