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

FORM 10-Q

(Mark One)

or

Commission File Number (000-25865)

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

            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 o

            The number of shares outstanding of the issuer’s common stock, $.001 par value, as of July 31, 2002 was 5,779,666.

COPPER MOUNTAIN NETWORKS, INC.
INDEX

COPPER MOUNTAIN NETWORKS, INC.
CONDENSED BALANCE SHEETS
(in thousands)

See accompanying notes to condensed financial statements

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COPPER MOUNTAIN NETWORKS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
 (unaudited)

* The following table shows how the Company’s deferred stock compensation would be allocated to cost of revenue and the respective expense categories:

See accompanying notes to condensed financial statements.

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COPPER MOUNTAIN NETWORKS, INC.
CONDENSED STATEMENT OF STOCKHOLDERS’ EQUITY
(in thousands)
(unaudited)

See accompanying notes to condensed financial statements

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

See accompanying notes to condensed financial statements

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NOTE 1 - General

In management’s opinion, the accompanying unaudited financial statements for Copper Mountain Networks, Inc. (the “Company”) for the three and six month periods ended June 30, 2002 and 2001 have been prepared in accordance with generally accepted accounting principles for interim financial statements and include all adjustments (consisting only of normal recurring accrualsexcept for a decrease in the reserve for obsolete inventory and adverse purchase commitment totaling $14.9 million and a recovery of bad debt of $2.3 million for the three months ended June 30, 2002; a decrease in the reserve for obsolete inventory and adverse purchase commitment totaling $14.9 million, a recovery of bad debt of $3.0 million and a gain on investment of $1.0 million for the six months ended June 30, 2002; a charge to write-off certain intangible assets of $40.8 million, a charge related to excess inventory on hand of $16.0 million, a charge related to the investment in commercial paper of Southern California Edison of $0.4 million for the three months ended June 30, 2001 and a charge to write-off certain intangible assets of $40.8 million, a charge related to excess inventory on hand and on order of $51.0 million, a restructuring charge of $4.4 million, a $2.6 million charge related to the collectibility of certain receivables and a charge related to the investment in commercial paper of Southern California Edison of $1.0 million for the six months ended June 30, 2001) that the Company considers necessary for a fair presentation of its financial position, results of operations, and cash flows for such periods. However, the accompanying financial statements do not contain all of the information and footnotes required by generally accepted accounting principles for complete financial statements. All such financial statements are unaudited except for the December 31, 2001 balance sheet. This quarterly report and the accompanying financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto presented in its Annual Report on Form 10-K for the year ended December 31, 2001 (the “2001 Annual Report”).  Footnotes which would substantially duplicate the disclosures in the Company’s audited financial statements for the year ended December 31, 2001 contained in the 2001 Annual Report have been omitted. The interim financial information contained in this quarterly report is not necessarily indicative of the results to be expected for any other interim period or for the full year ending December 31, 2002.

Investments In Marketable Securities

At June 30, 2002, the Companyheldinvestments in investment grade debt and money market securities with various maturities through November 2002.   Management determines the appropriate classification of the Company’s investments in debt securities at the time of purchase and reevaluates such designation as of each balance sheet date.  The Company’s total investments in these securities as of June 30, 2002 totaled $55.7 million.  The Company has included $36.1 million of these securities in cash and cash equivalents and cash allocated for book overdraft at June 30, 2002, as they have original maturities of less than 90 days.   The remaining debt securities totaling $19.6 million at June 30, 2002 have been classified as short-term marketable investments.  The fair value of the Company’s total investments in marketable securities based upon the closing market prices of such securities on June 30, 2002 approximated the carrying value.  The Company has designated all of its investments held on June 30, 2002 as held-to-maturity.

During the three months ended June 30, 2001, the Company reduced the carrying value of the investment in commercial paper issued by Southern California Edison Company to its indicated fair market value of approximately $2.4 million.  Included in other income, net for the three and six months ended June 30, 2001 is a loss adjustment of $395,000 and $1.0 million, respectively, to adjust the carrying value of the investment to fair market value. In March 2002 the principal balance of this investment was fully paid in the amount of $3.4 million, plus accrued interest.  The resulting gain in the amount of $1.0 million is included in other income for the six months ended June 30, 2002.

Investment In Sales-Type Leases

During the year ended December 31, 2000, the Company entered into an $8.6 million credit facility with a customer for the purchase of the Company’s equipment under a capital lease agreement.  At December 31, 2000, the Company had a net lease receivable from this customer of $4.7 million.  During the six months ended June 30, 2001, the Company received the lessee’s quarterly lease payments; however, as a result of the continuing deterioration of the lessee’s financial position, the Company took a $2.6 million charge to reduce the carrying value of the lease receivable.  This charge is included in bad debt expense for the six

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months ended June 30, 2001.  The Company received the lessee’s quarterly lease payments totaling $0.7 million and $1.4 million for the three and six months ended June 30, 2002, respectively, which is included in recovery of bad debt.

Concentration of Credit Risk

A relatively small number of customers account for a significant percentage of the Company’s revenues.  The Company expects that the sale of its products to a limited number of customers may continue to account for a high percentage of revenues for the foreseeable future. The Company’s revenues for the three months ended June 30, 2002 include revenue recognized from significant customers totaling $0.4 million or 17%, $0.3 million or 13%, $0.3 million or 12%, $0.3 million or 10% and one international customer totaling $0.5 million or 22% of net revenue.  The Company’s revenues for the six months ended June 30, 2002 include revenue recognized from significant customers totaling $0.9 million or 16%, $0.7 million or 12% and one international customer totaling $1.0 million or 18% of net revenue.

The Company performs ongoing credit evaluations of its customers and generally requires no collateral.  The Company had significant accounts receivable balances due from three customers individually representing 47%, 15% and 12% of total accounts receivable at June 30, 2002.

The Company from time to time maintains a substantial portion of its cash and cash equivalents in money market accounts with one financial institution.  The Company invests its excess cash in debt instruments of the U.S. Treasury, governmental agencies and corporations with strong credit ratings.  The Company has established guidelines relative to diversification and maturities that attempt to maintain safety and liquidity.

Inventory

Inventory is stated at the lower of cost, principally standard costs, which approximates actual costs on a first-in, first-out basis, or market. During the three and six months ended June 30, 2002, the Company reversed charges totaling $14.9 million related to finished products and raw materials in excess of anticipated requirements.  These reductions in the adverse purchase commitment liability are included in cost of revenues.  During the three months ended June 30, 2001, the Company recorded a charge of $16.0 million related to finished products and raw materials in excess of anticipated requirements.  During the six months ended June 30, 2001, the Company recorded charges totaling $51.0 million related to finished goods and raw materials in excess of anticipated requirements.  The reductions to inventory value and loss on purchase commitments are included in cost of revenues.

During the three and six months ended June 30, 2002 the Company settled disputes with several vendors.  In the aggregate, these settlements resulted in the reversal of charges totaling $14.9 million referred to above.  The Company paid an aggregate of $7.6 million to settle these disputes.

Accounts Receivable Sale

During 2001, NorthPoint Communications (“NorthPoint”), filed voluntary petitions under Chapter 11 of the Bankruptcy Code, initiating bankruptcy proceedings in the Northern District of California, San Francisco Division (the “Bankruptcy Cases”).  NorthPoint was a customer of the Company.  The Bankruptcy Cases were converted to cases under Chapter 7 of the Bankruptcy Code in 2001.  The Company filed a proof of claim against NorthPoint in the amount of approximately $10.4 millionarising from unsecured claims under equipment purchase and software licensing agreements, a marketing and development agreement, and service agreements, which have been rejected.  The Company believes that ultimately the claims will be allowed.

During the three and six months ended June 30, 2002 the Company assigned the claim in the amount of $10.4 million to a third party for $1.4 million.  The transaction has been accounted for as an asset sale in accordance with Statement of Financial Accounting Standards No. 140 Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.  This claim was assigned with recourse, which is based on whether the Company’s claims are allowed as a valid claim to the NorthPoint bankruptcy estate.  The Company does not expect to make any future payments as a result of the recourse provisions of

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the assignment.  Accordingly, the estimated fair value of the recourse liability associated with the claim is zero.  The ultimate liability associated with the claim could exceed the amount of this estimate.  The resulting gain of $1.4 million recognized on the sale of the claim is included in recovery of bad debt for the three and six months ended June 30, 2002.

New Accounting Standards

In July 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 146, Accounting for Costs Associated with Exit or Disposal Activities (“FAS 146”).  This statement supercedes Emerging Issues Task Force Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring) (EITF 94-3).  FAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred.  Under EITF 94-3, a liability for an exit cost was recognized at the date of an entity’s commitment to an exit plan.  FAS 146 is effective for exit or disposal activities that are initiated after December 31, 2002.  Adoption of FAS 146 is not currently expected to have a material impact on results of operations.

NOTE 2 – Management Estimates and Assumptions

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

NOTE 3 – Net Income Per Share

In July 2002, the Company completed a stockholder approved reverse stock split.  The ratio of the reverse stock split was one-for-ten and reduced the number of shares of issued and outstanding stock from approximately 58 million shares to approximately 5.8 million shares.  All share and per share data has been restated to reflect this reverse stock split.

Basic and diluted net income (loss) per share has been computed using the weighted-average number of shares of common stock outstanding during the period including any dilutive common stock equivalents.

Common stock equivalents of 3.3 million were used to calculate earnings per share for the three months ended June 30, 2002.  Common stock equivalents of 2.0 million for the six months ended June 30, 2002, were excluded from the calculation because of their anti-dilutive effect. Common stock equivalents of 2.0 million and 3.0 million for the three and six month periods ended June 30, 2001, respectively, were excluded from the calculation because of their anti-dilutive effect.

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NOTE 4 – Composition of Certain Balance Sheet Captions (in thousands)

NOTE 5 – Restructuring

On March 7, 2001, the Company announced that it had adopted a business plan to re-size its business to reflect current and expected business conditions.  This restructuring plan was largely completed during 2001.  As a result of the adoption of this plan, the Company recorded charges of $4.4 million during the three months ended March 31, 2001.  These charges primarily relate to: consolidation of the Company’s continuing operations resulting in impairment of assets, anticipated losses on disposition of assets and excess lease costs; and the elimination of job responsibilities, resulting in costs incurred for employee severance.  Employee reductions occurred in almost all areas of the Company, including operations, marketing, sales and administrative areas.  As a result of this plan, the Company had reduced its non-temporary work force by approximately 100 positions.  Substantially all workforce reductions related to this plan occurred during 2001.

On August 2, 2001, the Company announced that it had adopted a business plan to again re-size its business to reflect current and expected business conditions.  This restructuring plan is expected to largely be completed during 2002.  As a result of the adoption of this plan, the Company recorded charges of $16.0 million during the three months ended September 30, 2001.  These charges primarily relate to: consolidation of the Company’s continuing operations resulting in impairment of assets, anticipated losses on disposition of assets and excess lease costs; and the elimination of job responsibilities, resulting in costs incurred for employee severance.  Employee reductions occurred in all areas of the Company.  As a result of this plan, the Company reduced its non-temporary work force by approximately 150 additional positions.  Substantially all workforce reductions occurred during 2001.

As a part of these plans, the carrying values of certain assets were written down.  The impaired assets include furniture, leasehold improvements, computers and other assets used in certain of the areas of the Company impacted by the reduction in force.  The projected future cash flows from these assets were less than the carrying values of the assets.  The carrying values of the assets held for sale and the assets to be held and used were reduced to their estimated fair values based on the present value of the estimated expected future cash flows.  Estimated expected future cash flows for the impaired assets are not significant.  In the year ended December 31, 2001, the Company recorded losses from impairment of assets of $9.2 million, which were recorded as restructuring costs.  The cost of these losses was previously estimated to be $10.9 million.  This estimate was reduced by the utilization of assets, primarily laboratory equipment, previously estimated to be held for disposition.  Substantially all of the impaired assets are being held for disposition and will not continue to be depreciated.  Depreciation expense for the year ended December 31, 2001 was reduced by $1.9 million as a result of this charge.  The Company estimates that depreciation

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expense will be reduced by $2.7 million, $2.4 million, $1.8 million and $0.4 million for the years ending December 31, 2002, 2003, 2004 and 2005, respectively, as a result of this charge.

Also as part of these plans, the Company elected to consolidate its operations and attempt to sublease certain of its facilities, which housed portions of its operations, marketing, sales and administrative activities.  In the year ended December 31, 2001, the Company recorded estimated excess lease costs of $7.6 million which were recorded as restructuring costs.  Estimated excess lease costs are based on assumptions of differences between lease payments and sublease receipts that could be realized on potential subleases and assumed carrying terms.  These assumptions are based on reasonably possible rates and terms from other recent leases of comparable properties.  The excess lease costs were previously estimated to be $5.9 million.  The increase in this estimate is attributable to an increase in the estimated holding periods for the remaining leases and decreased estimated sublease receipts based on continuing deterioration in the market for comparable rental office space.  The rates and terms of the actual sub-leases may differ materially from these estimates which could result in changes in the restructuring charge recognized during the year ended December 31, 2001.  Future cash outlays related to these plans are expected to be completed in 2007.  During the year ended December 31, 2001, charges totaling $20.4 million were recorded and activities costing $13.2 million were completed.

Details of the restructuring charges are as follows (in 000s):

At June 30, 2002, the portion of the reserve balance related to the impairment of assets is included in property and equipment, net.  Future cash outlays are expected to be completed in 2002, except for obligations under facility leases, which are expected to be completed in 2007.

On July 11, 2002, the Company announced that it had adopted a business plan to re-size its business to reflect current and expected business conditions.  This restructuring plan will be largely completed during 2002.  As a result of the adoption of this plan, the Company will record charges of approximately $1.4 million during the three and nine months ending September 30, 2002.  These charges primarily relate to: consolidation of the Company’s continuing operations resulting in impairment of assets, anticipated losses on disposition of assets and excess lease costs; and the elimination of job responsibilities, resulting in costs incurred for employee severance.  Employee reductions occurred in almost all areas of the Company, including operations, marketing, sales and administrative areas.  As a result of this plan, the Company reduced its non-temporary work force by approximately 47 positions.

NOTE 6  – Litigation and Claims

During the three months ended June 30, 2002, the Company resolved disputes with four vendors. The terms of each of these settlements are confidential. In the aggregate, these four settlements resulted in a non-recurring gain of approximately $14.9 million in the three months ended June 30, 2002 and a reduction in current liabilities of approximately $22.1 million during the same period. A balance of approximately $1.1 million related to these settlements is included in accounts payable at June 30, 2002.

Since October 2000, approximately twenty-four complaints have been filed in the United States District Court for the Northern District of California against the Company and two of its officers (the “Northern District Lawsuits”), along with two related derivative actions against the Company and its directors in Delaware and California, alleging violations of the federal securities laws arising out of recent declines in the Company’s stock price.  Specifically, the complaints allege claims in connection with various alleged statements and omissions to the public and to the securities markets.  The Northern District Lawsuits have been consolidated for pretrial purposes before United States Judge Vaughn Walker of the Northern District of California.  The Company has filed a motion to dismiss the Northern District Lawsuits which was heard on November 29, 2001. The Court has taken the motion off calendar pending resolution of an appeal involving the selection of plaintiff's counsel.  The derivative actions have been stayed.  No assurances can be made that we will be successful in our defense of such claims.  If we are not successful in our defense of such claims, we could be forced to make significant

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payments to our stockholders and their lawyers, and such payments could have a material adverse effect on our business, financial condition and results of operations if not covered by our insurance carrier.  Even if such claims are not successful, the litigation could result in substantial costs and divert management’s attention and resources, which could adversely affect our business, results of operations and financial position.

In December 2001, the Company and certain of its officers and directors were named as defendants in a class action shareholder complaint filed in the United States District Court for the Southern District of New York and captioned Lowlicht v. Copper Mountain Networks, Inc., et al., Case No. 01-CV-10943.  In the complaint, the plaintiffs allege that the Company, certain of its officers and directors and its IPO underwriters violated the federal securities laws because the Company’s IPO registration statement and prospectus contained untrue statements of material fact or omitted material facts regarding the compensation to be received by, and the stock allocation practices of, the IPO underwriters.  The plaintiffs seek unspecified monetary damages and other relief.  Similar complaints were filed in the same Court against numerous public companies that conducted initial public offerings (“IPOs”) of their common stock since the mid-1990s (the “IPO Cases”).

Lowlicht v. Copper Mountain Networks, Inc., et al., and the IPO Cases were consolidated for pretrial purposes before United States Judge Shira Scheindlin of the Southern District of New York.  Judge Scheindlin held an initial case management conference on September 7, 2001, at which time she ordered, among other things, that the time for all defendants to respond to any complaint be postponed until further order of the Court.  On April 19, 2002, the plaintiffs filed an amended complaint against the Company and certain of its officers and directors.  The allegations in the amended complaint are similar to the allegations in the original complaint, and Judge Scheindlin has not yet set a date for the defendants to respond to the amended complaint.  Thus, the Company has not been required to answer or respond to the complaint or the amended complaint, and no discovery has been served on the Company.

In April 1999, the Company entered into a Manufacturing Contract (the “Contract”) with Flextronics International Fremont, Inc. (“Flextronics”), whereby Flextronics purchased components for the Company and manufactured equipment that the Company sold to customers. On or about December 12, 2001, pursuant to the dispute resolution procedures in the Contract, the Company filed a demand for arbitration against Flextronics with the American Arbitration Association in San Diego County, California, seeking a declaration that the Company does not owe Flextronics certain amounts Flextronics claimed the Company owed under the Contract and seeking, among other relief, reimbursement for an alleged overpayment, payment of an outstanding invoice, and an accounting of the Contract from its inception.

On or about January 30, 2002, Flextronics filed a civil action against the Company in the Superior Court of the state of California, county of Santa Clara seeking, among other relief, payment of certain amounts allegedly owed under the Contract, interest, attorneys' fees and costs, and a writ of attachment to secure its claims pending the outcome of the arbitration. This action was transferred to the Superior Court of the State of California, county of San Diego, on or about March 20, 2002.

On or about June 28, 2002, the Company and Flextronics reached a confidential settlement and all pending actions were dismissed with prejudice. This matter has been resolved.

The Company, incident to its business activities is, party to other legal proceedings and claims.  Such matters are subject to many uncertainties and outcomes are not predictable with assurance.  Consequently, management is unable to ascertain the ultimate aggregate amount of monetary liability, amounts which may be covered by insurance, or the financial impact with respect to these matters as of June 30, 2002.  However, management believes that the final resolution of these matters, individually and in the aggregate, will not have a material adverse impact upon the Company’s financial position, results of operations or cash flows.

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Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward Looking Statements

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

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

          Readers are also urged to carefully review and consider the various disclosures made by us which attempt to advise interested parties of the factors which affect our business, including without limitation the disclosures made under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and under the caption “Risk Factors” included herein and in the Company’s Annual Report on Form 10-K for the year ended December 31, 2001 and other reports and filings made with the Securities and Exchange Commission.

Overview

Copper Mountain’s current operating activities relate primarily to developing, building and testing prototype products and establishing relationships with its target customers.

          Our revenue is generated primarily from sales of and service on our central office-based equipment: our CopperEdge 200 DSL  concentrators, or CE200, the related wide area network cards, line cards and, to a lesser extent, from sales of our DSL customer premises equipment or CPE.  Additionally, we sell network management software which provides monitoring and management capabilities for the CE200, revenues from which have not been material to date.  We also sell our VantEdge 3000 and 3300 broadband services concentrators and CopperEdge 150 DSL concentrators, or CE150, in the multiple tenant unit, or MTU, market.

          For the three months ended June 30, 2002, revenue recognized from our largest five customers, Versatel, Network Telephone, Mpower, Solunet/EGIX and AT&T, accounted for approximately 22%, 17%, 13%, 12% and 10% of our revenue, respectively.   While the level of sales to any specific customer is anticipated to vary from period to period, we expect that we will continue to have significant customer concentration for the foreseeable future.  Future sales, if any, to historically significant customers may be substantially less than historical sales.  The loss of any one of our historically major customers or the delay of significant orders from such customers, even if only temporary, could among other things reduce or delay our net revenue, adversely impact our ability to achieve annual or quarterly profitability and adversely impact our ability to generate positive cash flow, and, as a consequence, could materially adversely affect our business, financial condition and results of operations.

          In the future, we expect that revenue growth, if any, will be substantially dependent on sales of our new VantEdge product.  The VantEdge product is generally available for sale however, we may not be successful generating material revenues from the sale of the VantEdge product line.

          We market and sell our products directly to telecommunications service providers and through distributors.  No revenue is recognized on products shipped on a trial basis.  Estimated sales returns, based on historical experience by product, are recorded at the time the product revenue is recognized.  To date, significant revenues generated from international sources are entirely comprised of sales to Versatel.

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

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

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

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

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

          Prior to the year ended December 31, 2000, amortization of deferred stock compensation resulted from the granting of stock options to employees with exercise prices per share determined to be below the fair values per share for financial reporting purposes of our common stock at dates of grant.  During the year ended December 31, 2000, additional deferred compensation was recorded as part of the purchase price of OnPREM Networks Corporation.  During the second quarter of 2001, additional deferred compensation was recorded in conjunction with a stock option exchange program.  During the third and fourth quarter of 2001, additional deferred compensation was recorded in conjunction with a grant of restricted stock to employees.  The intrinsic value of the options to purchase common stock granted under the exchange program will be re-measured at the end of each period for the life of the option.  We expect that the total amount of deferred compensation expense that will be recognized under the exchange program could vary from period to period and the ultimate amount of deferred compensation expense that will be recognized is not currently determinable.  The deferred compensation is being amortized to expense in accordance with FASB Interpretation No. 28 over the vesting period of the individual options.  Deferred stock compensation and amortization of deferred stock compensation could materially increase or decrease in future periods.

          On March 7, 2001, the Company announced that it had adopted a business plan to re-size its business to reflect current and expected business conditions.  This restructuring plan was largely completed during 2001.  As a result of the adoption of this plan, the Company recorded charges of $4.4 million during the

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three months ended March 31, 2001.  These charges primarily relate to: consolidation of the Company’s continuing operations resulting in impairment of assets, anticipated losses on disposition of assets and excess lease costs; and the elimination of job responsibilities, resulting in costs incurred for employee severance.  Employee reductions occurred in almost all areas of the Company, including operations, marketing, sales and administrative areas.  As a result of this plan, the Company had reduced its non-temporary work force by approximately 100 positions.  Substantially all workforce reductions related to this plan occurred during 2001.

          On August 2, 2001, the Company announced that it had adopted a business plan to again re-size its business to reflect current and expected business conditions.  This restructuring plan is expected to largely be completed during 2002.  As a result of the adoption of this plan, the Company recorded charges of $16.0 million during the three months ended September 30, 2001.  These charges primarily relate to: consolidation of the Company’s continuing operations resulting in impairment of assets, anticipated losses on disposition of assets and excess lease costs; and the elimination of job responsibilities, resulting in costs incurred for employee severance.  Employee reductions occurred in all areas of the Company.  As a result of this plan, the Company reduced its non-temporary work force by approximately 150 additional positions.  Substantially all workforce reductions occurred during 2001.

          As a part of these plans, the carrying values of certain assets were written down.  The impaired assets include furniture, leasehold improvements, computers and other assets used in certain of the areas of the Company impacted by the reduction in force.  The projected future cash flows from these assets were less than the carrying values of the assets.  The carrying values of the assets held for sale and the assets to be held and used were reduced to their estimated fair values based on the present value of the estimated expected future cash flows.  Estimated expected future cash flows for the impaired assets are not significant.  In the year ended December 31, 2001, the Company recorded losses from impairment of assets of $9.2 million, which were recorded as restructuring costs.  The cost of these losses was previously estimated to be $10.9 million.  This estimate was reduced by the utilization of assets, primarily laboratory equipment, previously estimated to be held for disposition.  Substantially all of the impaired assets are being held for disposition and will not continue to be depreciated.  Depreciation expense for the year ended December 31, 2001 was reduced by $1.9 million as a result of this charge.  The Company estimates that depreciation expense will be reduced by $2.7 million, $2.4 million, $1.8 million and $0.4 million for the years ending December 31, 2002, 2003, 2004 and 2005, respectively, as a result of this charge.

          Also as part of these plans, the Company elected to consolidate its operations and attempt to sublease certain of its facilities, which housed portions of its operations, marketing, sales and administrative activities.  In the year ended December 31, 2001, the Company recorded estimated excess lease costs of $7.6 million which were recorded as restructuring costs.  Estimated excess lease costs are based on assumptions of differences between lease payments and sublease receipts that could be realized on potential subleases and assumed carrying terms.  These assumptions are based on reasonably possible rates and terms from other recent leases of comparable properties.  The excess lease costs were previously estimated to be $5.9 million.  The increase in this estimate is attributable to an increase in the estimated holding periods for the remaining leases and decreased estimated sublease receipts based on continuing deterioration in the market for comparable rental office space.  The rates and terms of the actual sub-leases may differ materially from these estimates which could result in changes in the restructuring charge recognized during the year ended December 31, 2001.  Future cash outlays related to these plans are expected to be completed in 2007.  During the year ended December 31, 2001, charges totaling $20.4 million were recorded and activities costing $13.2 million were completed.

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Details of the restructuring charges are as follows (in 000s):

          At June 30, 2002, the portion of the reserve balance related to the impairment of assets is included in property and equipment, net.  Future cash outlays are expected to be completed in 2002, except for obligations under facility leases, which are expected to be completed in 2007.

          On July 11, 2002, the Company announced that it had adopted a business plan to re-size its business to reflect current and expected business conditions.  This restructuring plan will be largely completed during 2002.  As a result of the adoption of this plan, the Company will record charges of approximately $1.4 million during the three and nine months ending September 30, 2002.  These charges primarily relate to: consolidation of the Company’s continuing operations resulting in impairment of assets, anticipated losses on disposition of assets and excess lease costs; and the elimination of job responsibilities, resulting in costs incurred for employee severance.  Employee reductions occurred in almost all areas of the Company, including operations, marketing, sales and administrative areas.  As a result of this plan, the Company reduced its non-temporary work force by approximately 47 positions.

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Results of Operations

The following table sets forth, as a percentage of net revenue, certain statement of operations data for the periods indicated.

Three Months Ended June 30, 2002 vs. Three Months Ended June 30, 2001

          Net Revenue.   Net revenue decreased from $6.1 million for the three months ended June 30, 2001 to $2.4 million for the three months ended June 30, 2002.  This decrease was due to significantly fewer sales of our CE200 and CE150 DSL access concentrators and related line cards.  Sales to our five largest customers for the three months ended June 30, 2002, Versatel, Network Telephone, Mpower, Solunet/EGIX and AT&T were $0.5 million, $0.4 million, $0.3 million, $0.3 million and $0.3 million.  Sales to our four largest customers for the three months ended June 30, 2001, Mpower Communications, Rhythms Netconnections, Versatel, and Network Telephone were $1.9 million, $1.1 million, $0.7 million, and $0.6 million, respectively.

          Gross Margin.   Our gross margin increased from $(14.1) million for the three months ended June 30, 2001 to $15.5 million for the three months ended June 30, 2002.  The increase in gross margin was primarily due to: a one-time gain of $14.9 million during the three months ended June 30, 2002, which resulted from vendor settlements during that period, and an excess inventory charge of $16.0 million related to inventory on hand at June 30, 2001 in excess of anticipated requirements. Before the impact of these charges, gross margin as a percentage of sales for the three months ended June 30, 2001 was adversely impacted by decreased average selling prices, sales mix and decreased production volumes.

          Research and Development.   Our research and development expenses decreased from $10.8 million for the three months ended June 30, 2001 to $6.6 million for the three months ended June 30, 2002. This decrease was due to a decrease in personnel expenses related to a decrease in our engineering staff and quality and technical support costs including outside services and decreased spending on prototype materials.  Research and development expenses as a percentage of net revenue increased from 178.0% for the quarter ended June 30, 2001 to 271.5% for the three months ended June 30, 2002.  This increase in

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research and development expense as a percentage of net revenue was primarily the result of a decrease in our net revenue for the three months ended June 30, 2002.

          Sales and Marketing.   Our sales and marketing expenses decreased from $4.9 million for the three months ended June 30, 2001 to $1.6 million for the three months ended June 30, 2002.  This decrease was due to a decrease in personnel expenses for sales and marketing staff, decreased sales compensation associated with decreased net revenue, decreased travel costs and decreased promotional and product marketing costs during the stated periods.  Sales and marketing expenses as a percentage of net revenue decreased from 80.5% of net revenue for the three months ended June 30, 2001 to 66.8% for the three months ended June 30, 2002.  This decrease was primarily the result of the decreased costs described above.

          General and Administrative.   Our general and administrative expenses decreased from $3.2 million for the three months ended June 30, 2001 to $2.4 million for the three months ended June 30, 2002.  This decrease was due to a decrease in personnel costs, outside service costs, facility costs, supplies and depreciation.  General and administrative expenses as a percentage of net revenue increased from 53.4% for the three months ended June 30, 2001 to 97.2% for the three months ended June 30, 2002.  This increase was primarily the result of a decrease in our net revenue for the three months ended June 30, 2002.

          Recovery of bad debt.  Recovery of bad debt expense increased from zero for the three months ended June 30, 2001 to $2.3 million for the three months ended June 30, 2002.  This increase resulted in the collection and sale of receivables that had been written off in prior periods.

          Interest and Other Income.  Interest and other income decreased from $1.1 million for the three months ended June 30, 2001 to $0.3 million for the three months ended June 30, 2002. This decrease was primarily due to decreased average cash balances and investment yields during the three months ended June 30, 2002.

          Interest Expense.   Our interest expense decreased from $232,000 for the three months ended June 30, 2001 to $158,000 for the quarter ended June 30, 2001.  This decrease was primarily due to a decrease in the amounts outstanding under capital lease and equipment notes payable facilities as a result of payments made under such facilities.

Six Months Ended June 30, 2002 vs. Six Months Ended June 30, 2001

          Net Revenue.   Net revenue decreased from $14.2 million for the six months ended June 30, 2001 to $5.5 million for the six months ended June 30, 2002.  This decrease was due to fewer sales of our CE200 and CE150 DSL access concentrators and related line cards.  Sales to our three largest customers for the six months ended June 30, 2002, Versatel, Mpower Communications and Network Telephone were $1.0 million, $0.9 million and $0.6 million, respectively.  Sales to our three largest customers for the six months ended June 30, 2001, Versatel, Mpower Communications and Rhythms Netconnections were $3.1 million, $2.4 million and $1.6 million, respectively.

          Gross Margin.   Our gross margin increased from $(45.5) million for the six months ended June 30, 2001 to $16.4 million for the six months ended June 30, 2002.  The increase in gross margin was primarily due to: a one-time gain of $14.9 million during the six months ended June 30, 2002, which resulted from vendor settlements during that period, and an excess inventory charge of $51.0 million related to inventory on hand and to future inventory purchase commitments of finished products and raw materials in excess of anticipated requirements during the six months ended June 30, 2001.  Before the impact of these charges, gross margin as a percentage of sales for the six months ended June 30, 2002 was adversely impacted by decreased average selling prices, sales mix and decreased sales and production volumes.

          Research and Development.   Our research and development expenses decreased from $22.4 million for the six months ended June 30, 2001 to $13.9 million for the six months ended June 30, 2002.  This decrease was due to a decrease in personnel expenses related to a decrease in our engineering staff and quality and technical support costs including outside services and decreased spending on prototype material.  Research and development expenses as a percentage of net revenue increased from 157.9% for the six

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months ended June 30, 2001 to 255.2% for the six months ended June 30, 2002.  This increase in research and development expense as a percentage of net revenue was primarily the result of a decrease in our net revenue for the six months ended June 30, 2002.

          Sales and Marketing.   Our sales and marketing expenses decreased from $11.9 million for the six months ended June 30, 2001 to $3.4 million for the six months ended June 30, 2002.  This decrease was due to a decrease in personnel expenses for sales and marketing staff, decreased sales compensation associated with decreased net revenue, decreased travel costs and decreased promotional and product marketing costs during the stated periods.  Sales and marketing expenses as a percentage of net revenue decreased from 77.9% of net revenue for the six months ended June 30, 2001 to 62.0% for the six months ended June 30, 2002.  This decrease was primarily the result of the decreased costs described above.

          General and Administrative.   Our general and administrative expenses decreased from $11.0 million for the six months ended June 30, 2001 to $4.8 million for the six months ended June 30, 2002. This decrease was due to a decrease in personnel costs, outside service costs, facility costs, supplies and depreciation.  General and administrative expenses as a percentage of net revenue increased from 77.6% for the six months ended June 30, 2001 to 88.3% for the six months ended June 30, 2002.  This increase was primarily the result of a decrease in our net revenue for the six months ended June 30, 2002.

          Amortization of Purchased Intangibles. Amortization of purchased intangiblesdecreased from $5.3 million for the six months ended June 30, 2001 to zero for the six months ended June 30, 2002.  During the second quarter of 2001, the Company calculated the present value of expected future cash flows to determine the fair value of the assets.  This evaluation resulted in a write-off of $40.8 million of goodwill and other intangible assets.  The underlying factors contributing to the decline in expected financial results included changes in the Company’s strategic focus in the marketplace and an overall decline in the telecommunications equipment market.

          Recovery of bad debt.  Recovery of bad debt expense increased from zero for the six months ended June 30, 2001 to $3.0 million for the six months ended June 30, 2002.  This increase resulted in the collection and sale of receivables that had been written off in prior periods.

          Interest and Other Income.  Interest and other income decreased from $2.5 million for the six months ended June 30, 2001 to $1.7 million for the six months ended June 30, 2002.  This decrease was primarily due to decreased average cash balances during the six months ended June 30, 2002, which is partially off set by a gain on a marketable investment of $1.0.

          Interest Expense.   Our interest expense decreased from $450,000 for the six months ended June 30, 2001 to $341,000 for the six months ended June 30, 2002.  This decrease was primarily due to a decrease in the amounts outstanding under capital lease and equipment notes payable facilities as a result of payments made under such facilities.

Liquidity and Capital Resources

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

          At June 30, 2002, we had cash and cash equivalents, net of cash allocated for book overdraft, of $31.3 million and short-term marketable investments of $19.6 million.

          Cash used in operating activities for the six months ended June 30, 2002 and 2001 was $20.0 million and $59.7 million, respectively.  The relative decrease in cash used in operating activities for the six months ended June 30, 2002 compared to the same period in the prior year was primarily the result of a change in net loss of $135.7 million partially off set by a decrease in non-cash charges and changes in working capital.

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          Cash provided by investing activities for the six months ended June 30, 2002 and 2001 was $26.2 million and $40.0 million, respectively.   The relative decrease in cash provided by investing activities for the six months ended June 30, 2002 compared to the same period in the prior year was the result of a decrease in net maturities of marketable investments and a decrease in purchases of property and equipment.

          Cash used in financing activities for the six months ended June 30, 2002 and 2001 was $1.5 million and $0.7 million, respectively.  The increase in cash used in financing activities for the six months ended June 30, 2002 compared to the same period in the prior year was primarily due to a decrease in proceeds from the issuance of common stock.

          We have no material commitments other than obligations under our credit facilities and operating and capital leases.  Our future capital requirements will depend upon many factors, including the timing of research and product development efforts and marketing efforts.  We expect to continue to expend amounts on research and development laboratory and test equipment to support on-going research and development operations.

          On July 11, 2002, the Company announced that it had adopted a business plan to re-size its business to reflect current and expected business conditions.  This restructuring plan will be largely completed during 2002.  As a result of the adoption of this plan, the Company will record charges of approximately $1.4 million during the three and nine months ending September 30, 2002.  These charges primarily relate to: consolidation of the Company’s continuing operations resulting in impairment of assets, anticipated losses on disposition of assets and excess lease costs; and the elimination of job responsibilities, resulting in costs incurred for employee severance.  Employee reductions occurred in almost all areas of the Company, including operations, marketing, sales and administrative areas.  As a result of this plan, the Company reduced its non-temporary work force by approximately 47 positions.

          We currently believe that our existing cash and cash equivalents balances and short-term marketable investments will be sufficient to fund our operating losses, capital expenditures, lease payments and working capital requirements for at least the next 12 months.  However, our capital requirements may vary based upon the timing and the success of implementation of our business plan and as a result of regulatory, technological and competitive developments or if:

          We intend to use these cash resources for working capital and other general corporate purposes. We may also use a portion of these cash resources to acquire complementary businesses or other assets. The amounts actually expended for these purposes will vary significantly depending on a number of factors, including revenue growth, if any, planned capital expenditures, and the extent and timing of our entry into target markets.  Our management intends to invest our cash in excess of current operating requirements in interest-bearing, investment-grade securities.

          Currently, the Company is not generating sufficient revenue to fund its operations.  We expect our operating losses, net operating cash outflows and capital expenditures to continue if we are unable to increase sales.  On July 11, 2002, the Company announced that it had adopted a business plan to re-size its business to reflect current and expected business conditions.  We cannot assure you that we will be able to sufficiently decrease our operating expenses.  If we are unable to realize sufficient savings from re-sizing our business, and/or sufficiently increase our revenues, our ability to deploy and service our products, fund our operations or respond to competitive pressures could be significantly impaired.

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Risk Factors That May Affect Results of Operations and Financial Condition

          You should carefully consider the following risk factors and the other information included herein as well as the information included in our Annual Report on Form 10-K for the year ended December 31, 2001 before investing in our common stock.  Our business and results of operations could be seriously harmed by any of the following risks.  The trading price of our common stock could decline due to any of these risks, and you may lose part or all of your investment.

          The Difficulties Experienced By Many of Copper Mountain’s Current Customers And The Challenges Associated With Penetrating New Markets Have Had And Are Expected To Continue To Have an Adverse Effect On Copper Mountain’s Business.

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

          The failure of our CLEC customers to raise sufficient capital to fund their operations and continue to order and pay for our products has impaired and may continue to impair Copper Mountain’s revenues and profitability.  To the extent we ship products to customers who become unable to pay for the products, we may be required to write-off significant amounts of our accounts receivable.  Similarly, to the extent that our customers order products and then suspend or cancel the orders prior to shipping, we will not generate revenues from the products we build, our inventories may increase and our expenses will increase.  Specifically, we may incur substantially higher inventory carrying costs, as well as be faced with the risk of the excess inventory that could become obsolete over time.

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

          If Copper Mountain Does Not Successfully Introduce and Commercialize the VantEdge Product, Our Business Will Be Materially Adversely Impacted

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

          Sales of our existing DSL products, which were primarily aimed at the CLEC market, have been decreasing for the last seven quarters.  Such sales could continue to decrease, if they continue at all.  As a result, our future success is substantially dependant upon our ability to successfully market and commercialize our new VantEdge product on a timely basis.  We began development of the VantEdge product in 1999, and formally announced the product in 2001.  We may not be able to finish the commercialization of the VantEdge product, for various reasons, including those set forth in these risk

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factors.  Sales of the VantEdge product may not be sufficient to allow us to continue to operate our business. Our business will be materially adversely impacted if we do not successfully commercialize the VantEdge product.

          Copper Mountain May Not Be Able to Obtain Additional Capital to Fund Its Operations When Needed, and Without Additional Capital Copper Mountain May Not Be Able to Sustain Its Operations

          We currently require approximately $8 million to $10 million in cash per quarter to fund our operations, and this rate of quarterly cash use could continue through 2003.  As a result, we believe that we have sufficient cash and cash equivalents to fund our operations for at least the next twelve months.  These estimates reflect various assumptions, including the assumption that sales of our existing products will continue at approximately the same levels as in the fourth quarter of 2001, that testing, continued development and commercialization of our new VantEdge product proceeds as planned, that we do not incur significant additional expense related to litigation, including any adverse determination in the litigation described elsewhere in this Form 10-Q under the heading “Legal Proceedings.”  Any of these assumptions may prove to be incorrect.  In particular, revenues from sales of our products have decreased in each of the past seven quarters.  In future quarters, it is unclear whether we will continue to generate revenue from sales of our current products at the same levels, if at all.  Also, the commercialization of our VantEdge product might be delayed or might require the expenditure of significantly more funds than currently anticipated, in which case our liquidity and capital resources would be adversely affected.

          We currently fund our operations with our cash, cash equivalents and marketable investments.  In order to fund our operations beyond the first quarter of 2004, we expect that we may have to raise additional funds.  Moreover, we may require such financing sooner than anticipated.  We anticipate that we may have to seek equity or long-term debt financing in the private or public capital markets to obtain the funds we need to continue operations.  Such capital raising may be made more difficult if we are no longer listed on the NASDAQ stock market as a result of our failure to continue to meet the listing requirements required by NASDAQ, which is a risk we could face.

          If additional funds are raised through the issuance of equity securities, the percentage ownership of our stockholders will be reduced, stockholders may experience additional dilution, or such equity securities may have rights, preferences or privileges senior to or more favorable than those of the holders of our common stock.  If additional funds are raised through the issuance of debt securities, such securities would have rights, preferences and privileges senior to or more favorable than those of the holders of common stock and the terms and conditions relating to such debt could impose restrictions on our operations.

          Additional financing may not be available when needed on terms and conditions favorable to us or at all.  If adequate funds are not available or are not available on acceptable terms and conditions, we may be unable to fund our ongoing operations.  In addition, our inability to obtain cash may:

Any or all of these consequences would materially adversely affect our business, financial condition or results of operations.

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          Copper Mountain May Not Achieve Quarterly or Annual Profitability

          Copper Mountain has experienced a significant decline in revenues in each quarter since the third quarter of 2000 and expects to continue incurring significant sales and marketing, research and development and general and administrative expenses and, as a result, we may have difficulty achieving profitability.  We cannot be certain that we will realize sufficient revenues in the future to achieve profitability on an annual or quarterly basis.

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

          Copper Mountain sells its products predominantly to CLECs.  Sales to our largest five customers accounted for approximately 74% of our net revenue for the three months ended June 30, 2002.  Unless and until we diversify and expand our customer base, our future success will significantly depend upon the timing and size of future purchase orders, if any, from our CLEC customers and, in particular:

          Our revenue has declined on a sequential basis each quarter since the third quarter of the year ended December 31, 2000.  In light of the market dynamics of the telecommunication service provider industry, it has become extremely difficult for us to forecast our revenues.  Future sales, if any, to our historically significant customers may be substantially less than historical sales.  The loss of another major customer or the delay of significant orders from any significant customer, even if only temporary, could among other things reduce or delay our net revenue, adversely impact our ability to achieve annual or quarterly profitability and adversely impact our ability to generate positive cash flow, and, as a consequence, could materially adversely affect our business, financial condition and results of operations.

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

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

          In the past, Copper Mountain has rapidly and significantly expanded and contracted its operations and anticipates that in the future, expansion or contraction in certain areas of its business may be required to address potential changes in its client base and market opportunities.  In particular, we expect to face numerous challenges in the execution of our new business strategy to focus more on the domestic ILEC and IXC market.  In connection with this endeavor, we may not be able to implement management information and control systems in an efficient and timely manner, and our current or planned personnel, systems, procedures and controls may not be adequate to support our future operations.  If we are unable to manage growth or reduction in growth effectively, our business, financial condition and results of operations will be

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materially adversely affected.  The volatility in our business has placed a significant strain on our managerial and operational resources. To maintain the level of our operations and personnel, we may be required to:

          As of June 30, 2002 we operated our business from facilities in Palo Alto, California and San Diego, California.  We expect to continue to face challenges related to effectively and efficiently coordinating our operations between our facilities.  If we are unsuccessful in meeting these challenges, our business and operating results may be adversely affected.

          We have excess facilities in Fremont, San Diego and Palo Alto, some of which are subleased.  We are obligated to continue making payments on the leases associated with each of these excess facilities.  If we are unable to sublease these properties to financially viable sub-lessees at rates comparable to those we are obligated to pay, it could further adversely impact our financial condition.

          We cannot assure you that we will be able to sufficiently decrease our operating expenses.  If we are unable to realize sufficient savings from re-sizing our business, and/or sufficiently increase our revenues, our ability to deploy and service our products, fund our operations or respond to competitive pressures could be significantly impaired.

          Copper Mountain Has a Limited Operating History

          Copper Mountain has a limited operating history as we were incorporated in March 1996.   Due to our limited operating history, it is difficult or impossible for us to predict future results of operations and you should not expect future revenue to be comparable to our historic revenue, nor are recent quarterly revenues a reliable indicator of future quarterly revenues.  In addition, we believe that comparing different periods of our operating results is not meaningful, and you should not rely on the results for any period as an indication of our future performance.  Investors in our common stock must consider our business and prospects in light of the risks and difficulties typically encountered by companies in their early stages of development, particularly those in rapidly evolving markets such as the telecommunications equipment industry and particularly within our volatile market segment.  Some of the specific risks include whether we are able:

We discuss these and other risks in more detail below.

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

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