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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Form 10-K

Commission File Number 000-26963

3860 North First Street, San Jose, CA 95134

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

Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.001 per share par value

      Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:     Yes 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 common stock held by non-affiliates of the registrant was approximately $118,664,481 on March 1, 2002, based on the average bid and asked price of the registrant’s common stock as reported on The Nasdaq Stock Market as of such date.

      There were 60,943,414 shares of the registrant’s common stock issued and outstanding as of March 1, 2002.

DOCUMENTS INCORPORATED BY REFERENCE

      Portions of the registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission in connection with the registrant’s Annual Meeting of Stockholders currently expected to be held on May 21, 2002 are incorporated by reference into Part III.

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PART I

Item 1.     Business

      Certain 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, including statements regarding our business strategy, product capability, financial condition, results of operation and business. The words “anticipate,” “believe,” “estimate,” “expect,” “plan,” “intend” and similar expressions, as they relate to Netro, are intended to identify forward-looking statements. Such statements reflect our current views with respect to future events and involve known and unknown risks, uncertainties and other factors including, but not limited to, economic, key employee, competitive, regulatory, governmental and technological factors affecting our growth, operations, markets, products, services, licenses and other factors discussed under the heading “Risk Factors” in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” We cannot be sure that any of our expectations will be realized.

Overview

      We are a leading provider of broadband, point-to-multipoint, fixed wireless equipment. Telecommunications service providers use our equipment to provide voice and high speed data access connections to end users, or between locations in the metropolitan telecommunications network, as an alternative to using wired or other connectivity. Our products are designed to provide access connectivity to residences and small and mid-sized businesses, as well as to provide infrastructure transmission connections between mobile phone service hubs and the core mobile telecommunications network. We began commercially shipping our first point-to-multipoint product, AirStar®, in 1998 and have a significant installed base for this product. AirStar is mainly targeted at service providers offering voice and high speed data services to small and mid-sized enterprises and mobile phone service providers for infrastructure applications. AirStar operates at the higher end of the licensed frequency spectrum (10 -  39 GHz) with support for an additional frequency, at the lower range (3.5 GHz).

      In February of 2002 we acquired from AT&T Wireless Services, Inc. their fixed wireless development team, a license to intellectual property, equipment and proprietary software assets. The technology was originally developed under the code name “Angel.” The Angel product was commercially deployed in the United States by AT&T Wireless and is a proven and mature platform that is mainly targeted at service providers offering voice and high speed data services to residential and small business customers, segments we do not address with the AirStar platform. Angel operates at the lower end of the licensed frequency spectrum (1.9 - 3.5 GHz). We plan to sell the Angel system internationally. We are in the process of modifying the Angel platform to conform to international standards, including adding frequency options that are more typically used in international markets, such as 3.5 GHz. We expect these modifications to be complete in the second half of 2002.

      Both the AirStar and Angel platforms have been designed to minimize the costs of deployment and operation and to permit operators to offer a broad range of voice, Internet Protocol, or “IP”, and data services. When modifications to the Angel platform are complete, we will offer complete solutions that operate at point-to-multipoint frequencies licensed in every major geography in the world, including Europe, Asia, North America and Latin America, which we believe is a significant competitive advantage.

      We were incorporated in California on November 14, 1994 and were reincorporated in Delaware on June 19, 2001. Our principal corporate offices are located at 3860 North First Street, San Jose, California 95134.

The Netro Solution

      The global telecommunications industry has experienced substantial deregulation during the past several years. Simultaneously, the emergence of the Internet and other telecommunications services has increased the demand for bandwidth. In addition, we believe that there is a growing demand for public telecommunications voice services in some less developed countries where, according to the International Telecommunication

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      At the same time as deregulation, the emergence of the Internet and increased demand for telecommunications services in developing countries are driving the demand for new and better access solutions. Governments are also licensing mobile service providers to use new spectrum for advanced mobile phone services that include both voice calls and data functionality, such as Internet browsing. This next generation of cellular phone service, typically referred to as 3G cellular, is expected to require significantly more hub sites than existing cellular topologies. In addition, these hub sites will be transmitting not only voice, but also high speed data traffic. We believe that point-to-multipoint technology such as AirStar can be a more efficient and cost-effective alternative for connecting these 3G cellular hubs to the core mobile network than existing methods, such as leased lines and point-to-point radios.

      Our AirStar system operates at the higher licensed frequencies (10 - 39 GHz, with a low frequency version for 3.5 GHz) and is designed to allow service providers to offer a wide range of high speed data and voice services to small and mid-sized enterprises and to enable mobile service providers to deploy cost effective transmission infrastructure for their 3G cellular networks. AirStar has an impressive track record of performance and stability across a worldwide installed base. AirStar can handle a wide range of services providing on-demand bandwidth and allowing for oversubscription of available spectrum, thereby allowing service providers to maximize revenues from their broadband wireless installation.

      Our Angel system operates at the lower licensed frequencies (1.9 - 3.5 GHz) and is designed to offer residences and small businesses primary voice and high speed data services with speeds similar to those offered by DSL. Angel uses orthogonal frequency division multiplexing, or “OFDM”, to allow service providers non-line-of-sight coverage within a cell, to ensure that up to 95 percent of the population within a given cell will be covered by the base station. This non-line-of-sight capability, along with the quality of the services offered by Angel, make it a leading edge solution. Angel was deployed in the United States to 47,000 subscribers and was the first solution of its kind to be mass deployed and field proven.

      Both AirStar and Angel are designed to provide the following benefits to service providers:

	•	Carrier Class Voice and High Speed Data Services. Many existing high speed access technologies are optimized for either voice or data traffic. However, offering both voice and data services can increase the average revenue per user a service provider can realize. Voice traffic requires fixed-speed, low-capacity transmissions, while data traffic requires variable-speed, high-capacity transmissions. Consequently, network operators wishing to carry both types of traffic, whether because they offer access solutions or are aggregating mobile phone traffic, often must choose among setting aside capacity to service peak transmission data traffic requirements, which typically requires installing more base stations, allowing degradation of service during heavy usage, or servicing a smaller number of subscribers. In contrast, service providers using the Angel or AirStar systems can support voice and high speed data from the same system without having to make these performance compromises.
	•	Cost-Effective Deployment and Operation. Both AirStar and Angel use point-to-multipoint deployment architectures. By employing a point-to-multipoint architecture, one hub radio can serve multiple subscriber radios. This results in lower total radio costs than point-to-point architectures in which each radio can communicate with only one other radio. In addition, a significant portion of the cost to build an AirStar or Angel network is directly related to subscriber growth. To add subscribers in a sector, a provider simply installs equipment at the subscriber’s premises and activates the service remotely, allowing the service provider to incur costs concurrently with the subscriber growth. The Angel system also uses OFDM and therefore allows non-line-of-sight deployment, meaning that there is up to a 95 percent chance in a given cell that a subscriber can indeed be connected to the network. This

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		reduces capital expenditures in terms of the number of hubs that need to be deployed and reduces service provider operating costs since there are fewer cases where, due to unanticipated coverage gaps, a service technician will fail to connect a subscriber who has requested service.
	•	Quality of Service and Reliability. Service providers using Netro’s products can deploy bundles of voice and high speed data services at different price points to different market segments with high levels of service availability. In addition, AirStar permits differentiated service levels among subscribers. AirStar can prioritize transmissions depending on their source and type, and fill available transmission capacity with lower priority transmissions. Furthermore, Netro’s products are engineered to enable service providers to offer the same high reliability and availability for services that traditional service providers have historically offered for voice services. Reliability is accomplished through an error correction algorithm, redundancy and comprehensive network management software.
	•	Global Market Coverage. We currently offer products to address point-to-multipoint licensed frequencies in Europe, Asia, North America, Latin America and the Middle East. We are also in the process of adapting our products to additional frequencies to address new markets and new spectrum auctions ongoing in our existing markets. In addition, we will be adding a 3.5 GHz frequency radio to the Angel system to make it suitable for some of the international markets we plan to address with this platform. We believe our experience around the world makes our products more attractive to service providers with multi-country strategies and enhances our ability to apply learning from established markets to developing markets.
	•	Rapid Time to Market. Service providers using Netro’s products can achieve rapid time to market for integrated voice and high speed data connections through efficient installation, network management software and the ability to dynamically allocate capacity among subscribers. Service providers that we target have typically committed a high level of capital investment to enter the high speed wireless telecommunications services market, and thus are focused on quickly realizing a return on their investment. Our systems are scalable and allow service providers to rapidly offer new services to existing or incremental subscribers within a coverage area by a simple software command and a radio installation that is automatically configured by the base station with little technician intervention. By installing one base station, the service provider can attain coverage of many potential subscribers. For example, an AirStar cell operating at the 26 GHz frequency band can cover ranges from 5 to 15 square miles, depending on local conditions, and has a transmission capacity of over 600 Mbps. Compared to other high speed, wire-based technologies that often require lengthy and expensive upgrades before offering service or do not support integrated voice and data services, our products allow a service provider to rapidly deploy integrated voice and high speed data services as demand warrants.

Strategy

      Our objective is to be the leading worldwide supplier of broadband wireless, point-to-multipoint equipment used by telecommunications service providers. Key elements of our strategy include the following:

      Leverage our Leadership Position. We believe that AirStar is one of the most mature point-to-multipoint broadband wireless systems and has one of the largest worldwide installed bases. We have deployed the AirStar in several commercial networks worldwide including in Germany, Spain, Portugal, Poland and Argentina. We intend to leverage our successful commercial deployments at existing service providers by extending our sales into the networks that those same service providers are establishing in other countries and by using these customers as reference accounts for new service providers. We intend to capitalize on Angel’s maturity and capabilities in the low frequency market segment to enter quickly into international markets we are targeting for Angel.

      Capitalize on Technology Expertise and Extend Product Portfolio. We have dedicated ourselves to bringing technologically advanced, innovative and cost effective solutions to the broadband fixed wireless market. We believe that our expertise in relevant core technologies and our customer oriented approach to product definition and development have enabled us to achieve technological leadership in the broadband fixed wireless market. We intend to continue to devote significant resources to our research and development

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      Reduce Product Costs. We believe that a key element to enabling the market for fixed broadband wireless is to reduce the cost per customer served and improve the business case for the service provider. We are currently in the process of several cost reduction initiatives, including engineering cost reductions which, we believe, will improve our financial performance and, more importantly, expand the addressable market. We also plan to extend the reach of our products into additional segments of the access market using third party products or technology.

      Enable Service Provider Business Models. We intend to continue to focus our product development efforts on features that would enable service providers to deploy differentiated, profitable services to their subscribers. Our Angel platform allows for non-line-of-sight operation and adaptive modulation and carries both circuit switched voice and packet data services. We believe integrating these capabilities is highly complex, and we intend to leverage our technology expertise to introduce new products and features rapidly and cost effectively. We intend to offer new features that will enable service providers to further differentiate their services. For example, we expect to introduce support for 3G infrastructure backhaul on the AirStar platform and increase the capacity of the Angel platform in 2002.

      Build Direct Sales and Customer Advocacy Infrastructure. We believe the best way to increase product sales and overall market acceptance of our products is through the development of a direct sales and customer advocacy infrastructure that allows systems integrators to participate in the product offering process while permitting our own personnel to directly touch the customer base. We presently market our products directly through sales offices in Brazil, Mexico, China, the United States and the UK, subsidiaries in France and Germany, local partners and OEMs as well as through Lucent and Nokia. We intend to devote significant resources to the expansion of our global presence and to establish strategic relationships with local system integrators who can reach and better serve additional segments of the market. We also plan to continue to work closely with our system integrators and service providers as well as third-party service and installation organizations to enable them to provide their own primary and secondary tiers of support for our products while our engineers and customer service personnel will provide backup support on a 24-hour per day, 7-day per week basis.

Products and Technology

      We currently develop, manufacture and sell the AirStar product for access offerings to small and mid-sized businesses and mobile infrastructure, and are developing the Angel platform for access offerings to residences and small businesses. We expect our Angel platform modifications to be completed during the second half of 2002. Each of our product lines is comprised of three principal components:

	•	Customer Premise Equipment, which includes a radio element which sends and receives signals to and from the hub equipment, and a digital signal processing unit, which connects and provides interfaces to the end-user’s telecommunications and/or data network;
	•	Hubs, which include several radio elements that send and receive signals from multiple customer premise equipment units and an aggregation unit, which aggregates data from the outdoor units and interfaces to the telecommunications service provider’s core network; and
	•	Network Management Software, which controls and monitors the operation of hubs and customer premise equipment.

      We believe our AirStar and Angel products have industry-leading technologies including air interface technology, modulation technology, software and hardware implementations, advanced networking architecture, radio transmission technology and networking software capabilities. We first commercialized these technologies in the form of our AirStar family of products by focusing on the service provider’s needs. Angel’s

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      Air Interface Protocol. We believe our products’ proprietary air interface protocols maximize the benefit of our point-to-multipoint architecture, and advanced peak traffic management techniques. Our air interface technology for AirStar, CellMAC^TM, schedules transmissions from each subscriber in very small increments. It allows subscribers to request additional capacity from the base station for peak demand data services through a capacity reservation mechanism that requires little wasted radio frequency. The base station can prioritize the requests according to service level agreements and allocates just enough capacity or time slots to enable the transfer of each transmission. Our air interface technology for Angel uses OFDM, which allows deployment in non-line-of-sight mode. In addition, Angel’s air interface technology supports adaptive modulation, thereby increasing bandwidth to some subscribers and doing the opposite for others, all based on a dynamic analysis of the link characteristics for each subscriber. This results in a larger effective transmission capacity and better bandwidth utilization. Angel’s air interface technology also supports circuit-switched voice services and packet data services, with data capacity allocated on demand.

      Effective Combination of Voice and Data. In AirStar, the CellMAC air interface utilizes asynchronous transfer mode, or ATM, to efficiently combine voice and data onto a single stream. This transports voice and data traffic simultaneously and maintains a guaranteed quality of service for each traffic type. Using this architecture, capacity for services can be provided based on average throughput requirements rather than peak throughput requirements. As a result, the capacity of the transmission is increased, resulting in better use of radio frequency and thus lower equipment expenditures. Our Angel technology carries circuit switched voice over narrow channels, without any degradation in voice quality. This leaves more bandwidth for dynamic sharing of data services.

      Radio Technology. Since our inception, we have worked extensively on radio designs and volume manufacturing processes to create robust yet cost-effective radios that support advanced radio technology and peak demand transmission capabilities. The current AirStar and Angel radios are both third generation designs and we are in the process of developing fourth generation designs for each platform which will reduce cost and enhance performance.

      Carrier Class Management Software. We believe that the network management systems we offer provide a significant competitive advantage. Our software architecture and use of object-oriented design principles for both real-time and network management software are key to making our software modular and adjustable to additional communications protocols. Our software extends the ability of our systems to enable the inter-working of voice protocols and support the concentration of voice traffic.

Sales and Marketing

      We have sales representatives in Brazil, Mexico, China, France, Germany, Singapore, Spain and the United Kingdom, as well as in Florida and in our corporate headquarters in San Jose, California. We sell our products indirectly through original equipment manufacturers, or “OEMs”, and local resellers in addition to through our direct sales force. In addition, we offer installation and maintenance services through our system integration partners and third-party installation and support organizations.

      During 2001, most of our sales were direct or through local resellers who rely heavily on Netro sales personnel and we expect this to continue in the future. In determining which accounts are appropriate for direct sales, we try to identify those that are key early adopters that can help drive our product feature sets in a manner that will better address the needs of the marketplace as a whole. These customers usually have the ability to install, integrate, service and maintain their systems themselves. For customers requiring significant installations integration and maintenance services, we typically sell our product through large OEMs, such as Lucent and Nokia.

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      Revenues by geography based on to the location of our original customers were as follows:

      Substantially all of our domestic revenues are related to products sold to OEMs and direct resellers. Almost all of their end customers are located outside of the United States.

      Countries that accounted for more than 10 percent of revenues based on the location of our original customers were as follows:

*	Revenues less than 10 percent for period

      Regardless of the distribution channel that services the account, our direct sales force maintains contact with the service provider and the system integrator account team. This contact keeps us close to the evolving needs of the service providers and helps ensure that we are well positioned within each account.

      Our marketing group provides marketing support services for our executive staff, our direct sales force and for our OEMs and resellers. Through our marketing activities, we provide technical and strategic sales support to our direct sales personnel and system integrators or resellers including in-depth product presentations, technical manuals, sales tools, pricing, marketing communications, marketing research, trademark administration and other support functions. Our marketing group is also responsible for product management activities throughout each product’s lifecycle. These include the definition of product features, approval of product releases, specification of enhancements to our product and service offerings and determination of future product platforms.

Customers

      Historically, the predominant portion of our revenues have come from sales to large OEMs, such as Lucent, who have in turn resold Netro products to competitive phone service providers in Europe. During 2001, we began the process of changing our customer base to incumbent phone service providers and mobile service providers. Although the majority of our revenues in 2001 were ultimately related to installations by competitive phone service providers, our strategy for future growth is dependent on the acceptance of our products by these new target customers.

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      Revenues from customers that comprised more that 10 percent of revenue were as follows:

*	Revenues less than 10 percent for period

      See “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Operations and Manufacturing

      Our manufacturing activities, based in our San Jose facility, consist primarily of prototype manufacturing, final testing and system staging. Our strategy is to outsource manufacturing to contract manufacturers, which have the expertise and ability to achieve cost reductions associated with volume manufacturing and to respond quickly to customer orders while maintaining high quality standards. This also serves to turn some of our fixed costs into variable costs and enables us to share in the purchasing efficiencies enjoyed by these larger manufacturers.

      Our operations and manufacturing groups facilitate technology transfer between our research and development group and the contract manufacturers. We may also use our manufacturing operation to expedite the sales cycle before the full product is released to external manufacturers.

Research and Development

      We believe that our extensive experience designing and implementing high-quality network and radio components and system software has enabled us to develop high-value integrated systems solutions. As a result of these development efforts, we believe we have created an industry-leading platform for cost-effective high speed wireless voice and data delivery with dynamic allocation of capacity.

      We believe that our future success depends on our continued investment in research and development in core radio, networking and software technologies, and we expect to continue to invest a significant portion of revenues in this area. Our research and development expenses were $25.8 million in 2001, $24.3 million in 2000, and $19.3 million in 1999. We are committed to an ongoing new product development program that is based on an assessment of service providers’ needs and technological changes in the communications market. In addition, we expect research and development expenses to increase significantly as a result of our acquisition of the Angel product line. We are currently investing in improving performance, service and networking features and accelerating cost reduction for both the Angel and AirStar platforms.

      We are also currently investing significant resources in extending the capabilities, frequencies and capacity of the Angel product line. We plan to sell the Angel product in international markets and are currently in the process of modifying the Angel platform to conform to international standards, including adding frequency options that are more typically used in international markets, such as 3.5 GHz. While we expect these modifications to be complete in the second half of 2002, unforeseen difficulties could delay our modification and launch of the Angel product. For example, our ability to develop radios that operate at frequencies used in international markets depends on third parties to develop technology that will be incorporated in our radios. We cannot assure that these third parties will develop these components in a timely way, if at all.

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Customer Advocacy

      A high level of continuing service and support is critical to our objective of developing long-term customer relationships. We consolidate all aspects of our customer service, satisfaction and quality assurance initiatives into a customer advocacy group. Our customer advocacy organization is based in our San Jose headquarters. We also have a customer support presence in Germany, Mexico and the United Kingdom. Our customer advocacy organization in San Jose serves as the interface to our research and development group to highlight certain problems and also provides information about customers’ needs to our marketing and research and development organizations. Our customer support model consists of three tiers of support:

	•	local problem isolation, which provides for on-site problem identification and resolution of relatively simple issues;
	•	fault isolation and repair, which provides for consultation and instruction by technicians trained by product experts; and
	•	expert level support from product engineering experts for the resolution of problems not remedied by the first two levels of support.

      Our main focus is to provide system integrators and first-tier support partners with the ability to provide local support worldwide to service providers, including training, spare parts, maintenance and installation. As most of the hands-on support is provided through system integrators, local resellers, service and installation partners, or the service providers themselves, we focus on offering various training courses to enable system integrators, service and installation partners and service providers to perform both local problem isolation and fault isolation and repair. Currently, the majority of our service and support activities are related to training and installation support for service providers. These services are provided directly at customer installations by our customer advocacy group or remotely by our San Jose headquarters team.

      We have a number of flexible hardware and software maintenance and customer support programs available for products beyond the applicable warranty period, depending on our customer preferences. As more trials begin carrying commercial traffic, we will migrate the support capabilities to off-hours, 24-hour per day, 7-day support, and continue to provide expert level support for service providers and system integrators.

Competition

      The market for high speed, wireless, point-to-multipoint telecommunications equipment is rapidly evolving and highly competitive. Increased competition is likely to result in price reductions, shorter product life cycles, longer sales cycles and loss of market share, any of which would adversely affect our business.

      Depending on the market we are addressing, we face different types of competition:

	•	Enterprise Access. As an enterprise access technology, point-to-multipoint fixed wireless solutions compete with wire-based solutions, such as fiber optic cable and leased T1 and E1 lines and wireless solutions, such as point-to-point radios. As a company within the point-to-multipoint fixed wireless industry addressing small and medium enterprise access, we compete through our AirStar product with large OEMs, such as Alcatel, Ericsson and Marconi, as well as with smaller wireless-only companies.
	•	Residential and Small Business Access. As a residential and small business access technology, point-to-multipoint fixed wireless solutions compete with wire-based solutions, such as DSL and cable modems. As a company within the point-to-multipoint fixed wireless industry addressing residential and small business access, we compete through our Angel product with established wireless local loop vendors, such as Innowave (a division of ECI Telecommunications), AirSpan and Alvarion, as well as with numerous startup companies that are developing products for our industry.
	•	Mobile Infrastructure. As a technology for connecting cellular base stations to the core telecommunications network, point-to-multipoint fixed wireless solutions compete with wire-based solutions such as leased T1 and E1 lines and wireless solutions such as point-to-point radios. As a company within the

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		point-to-multipoint fixed wireless industry addressing cellular infrastructure, we compete through our AirStar product principally with large systems integrators, such as Alcatel, Ericsson and Marconi.

      We expect competition to persist and intensify in the future. Many of our competitors are substantially larger than we are and have significantly greater financial, sales, marketing, technical, manufacturing and other resources and more established distribution channels. These competitors may be able to respond more rapidly to new or emerging technologies and changes in customer requirements. They may also be able to devote greater resources to the development, promotion, sale and financing of their products than we can. Our competitors may also attempt to influence the adoption of standards that are not compatible with our current architecture. Our larger, more established competitors may have more influence with standards-setting bodies than we do. If standards other than ours are adopted, this may require us to incur additional development and integration costs and may delay our sales efforts.

      Some of our competitors may make strategic acquisitions or establish cooperative relationships to increase their ability to gain customer market share rapidly. These competitors may enter our existing or future markets with solutions that may be less expensive, provide higher performance or additional features or be introduced earlier than our solutions. We also expect that other companies may enter our market with better products and technologies. If any technology that is competing with ours is more reliable, faster or less expensive or has other advantages over our technology, then the demand for our products and services would decrease, which would seriously harm our business.

      We expect our competitors to continue to improve the performance of their current products and to introduce new products or new technologies that may supplant or provide lower cost alternatives to our products. To be competitive, we must continue to invest significant resources in research and development, sales and marketing and customer support. We cannot be sure that we will have sufficient resources to make these investments or that we will be able to make the technological advances necessary to be competitive. As a result, we may not be able to compete effectively against our competitors.

Intellectual Property

      We rely on a combination of patent, copyright, trademark and trade secret laws, as well as confidentiality agreements and licensing arrangements, to establish and protect our proprietary rights. We presently have four issued United States patents, with additional applications in process. We have also acquired from AT&T Wireless Services, Inc. a license to several patents and numerous patent applications associated with the Angel platform. These licenses are not transferable. In addition, although AT&T Wireless has agreed not to license these patents to our competitors for a period of five years, we cannot assure that they will enforce their rights against potential infringors. Despite our efforts to protect our proprietary rights, existing copyright, trademark and trade secret laws afford only limited protection. In addition, the laws of some foreign countries do not protect our proprietary rights to the same extent as do the laws of the United States. Attempts may be made to copy or reverse engineer aspects of our products or to obtain and use information that we regard as proprietary. Accordingly, we may not be able to protect our proprietary rights against unauthorized third-party copying or use. Furthermore, policing the unauthorized use of our products is difficult. Litigation may be necessary in the future to enforce our intellectual property rights, to protect our trade secrets or to determine the validity and scope of the proprietary rights of others. This litigation could result in substantial costs and diversion of resources and could have a material adverse effect on our future operating results.

      From time to time, third parties may assert patent, copyright, trademark and other intellectual property rights to technologies in various jurisdictions that are important to our business. Any claims could be time-consuming to deal with, result in costly litigation, divert the efforts of our technical and management personnel, cause product shipment delays or require us to enter into royalty or licensing agreements, any of which could have an adverse effect on our operating results. Royalty or licensing agreements, if required, may not be available on terms acceptable to us, if at all. In addition, in our sales agreements, we agree to indemnify our customers for any expenses or liabilities resulting from claimed infringements of patents, trademarks or copyrights of third parties. As part of our acquisition of assets from AT&T Wireless, we were assigned by AT&T Wireless, and we assumed, several contracts with third party software vendors. We are required to

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Employees

      As of December 31, 2001, we employed approximately 211 full-time employees and 14 contract personnel. Our full-time employees and contract personnel include 58 people in operations and manufacturing, 90 in engineering, 59 in sales, marketing and customer advocacy, and 18 in finance and administration. In connection with the acquisition of the Angel technology in February 2002, we added 124 employees. None of our employees is represented by collective bargaining agreements, and we consider relations with our employees to be good.

Item 2.     Properties

      We lease an approximately 100,000 square foot facility in San Jose, California, which we use for executive offices and for administrative, engineering, product development, manufacturing and sales and marketing purposes. The sublease for this facility expires in September 2006. We also maintain leases for executive office space in China, France, Germany, Israel, Mexico, Singapore, and the United Kingdom, which do not represent material financial obligations. In connection with acquisition of the Angel technology in February 2002, we assumed a lease to an approximately 100,000 square foot facility in Redmond, Washington, which expires in 2006.

Item 3.     Legal Proceedings

      Coates Litigation. On or around October 5, 2001, C. Robert Coates, a holder of shares of our common stock, commenced an action in the Delaware Chancery Court against the Company, the former Netro Corporation, which was incorporated in California (“Netro California”), and the members of our board of directors, styled Coates v. Netro Corp., et al., C.A. No. 19154 (“Coates I”). The complaint in Coates I makes a number of allegations relating to the approval by the shareholders of Netro California of the merger transaction by which our state of incorporation was changed from California to Delaware, including that the disclosures to stockholders in connection with that proposed transaction were incomplete or misleading in various respects. The complaint also alleges that the adoption by our board of directors of a stockholder rights plan sometime after that merger transaction was in violation of Delaware law. The complaint seeks (1) to invalidate or rescind the merger transaction or, in the alternative, to obtain an order directing a new stockholder vote on that transaction; (2) to invalidate or reform our certificate of incorporation and bylaws to eliminate certain alleged “anti-takeover provisions” contained in them; (3) to have the stockholder rights plan declared invalid or to obtain an order compelling the directors to redeem the rights distributed to our stockholders thereunder; and (4) to recover monetary damages in an unspecified amount, as well as plaintiff’s attorneys’ fees and expenses in bringing the action.

      On November 30, 2001, defendants filed a motion to dismiss the complaint in Coates I for failure to state a claim. In addition, Mr. Coates has made a motion purportedly for partial summary judgment on two issues: first, that section 2.12 of our bylaws, relating to the business that may be brought before a special meeting of stockholders, allegedly is invalid and second, that the definition of “beneficial owner” in our rights plan allegedly unduly interferes with stockholders’ ability to convene a special meeting. These motions have not yet been submitted to the Court for its consideration.

      Separately, on or about December 10, 2001, Mr. Coates filed a complaint in a second action that names as defendants us and certain members of our board of directors, styled Coates v. Netro Corp., et al., C.A. No. 19309 (“Coates II”). In the complaint in that action, Mr. Coates challenges a stock option cancellation and regrant program that was described in the 2001 proxy statement in connection with the approval by the stockholders of Netro California of an amendment to our 1996 stock option plan. Mr. Coates claims that the discussion in the proxy statement about the proposed amendment to the stock option plan and the stock option cancellation and regrant program was incomplete or misleading and that the stock option cancellation and

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      We and the other defendants believe the claims asserted by Mr. Coates in both of these actions are without merit, and we intend to vigorously defend against those claims.

      Soto-Gonzalez Litigation. On or around August 23, 2001, Ramiro Soto-Gonzalez, who alleges that he was a former shareholder of our common stock, commenced a purported class action lawsuit in the U.S. District Court for the Southern District of New York against us, certain of our officers and directors (“Individual Defendants”), and Dain Rauscher, Inc., FleetBoston Robertson Stephens, Inc., and Merrill Lynch, Pierce, Fenner and Smith, Inc. (“Underwriter Defendants”) (collectively “defendants”). The Soto-Gonzalez action is one of more than 800 lawsuits currently pending in the U.S. District Court for the Southern District of New York against more than 310 different issuers, certain officers and directors of these issuers and more than 40 different underwriters arising out of initial public offerings occurring between December 1997 and December 2000.

      The complaint in the Soto-Gonzalez action makes a number of allegations relating to the initial public offering of our common stock in August 1999, including that the disclosures made in connection with that offering were incomplete or misleading in various respects. The complaint alleges, among other things, that the defendants failed to disclose that the Underwriter Defendants: (1) charged us excessive commissions and inflated transaction fees in violation of the securities laws and regulations; and (2) allowed certain investors to take part in our initial public offering in exchange for promises that these investors would purchase additional shares in the after-market for the purpose of inflating and maintaining the market price of our common stock. The complaint seeks to certify a class of stockholders who purchased our common stock between August 18, 1999 and December 6, 2000, and to recover monetary damages from defendants in an unspecified amount, as well as plaintiff’s attorneys’ fees and expenses in bringing the action. The action is in its earliest stages. We and the Individual Defendants believe the claims asserted by Mr. Soto-Gonzalez in the action are without merit, and we intend to vigorously defend against those claims.

      From time to time, we are involved in various legal proceedings in the ordinary course of business. We are not currently involved in any additional litigation that, in management’s opinion, would have a material adverse effect on our business, operating results or financial condition; however, there can be no assurance that any such proceeding will not escalate or otherwise become material to our business in the future.

Item 4.     Submission of Matters to A Vote of Security Holders

      None.

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PART II

Item 5.     Market for the Registrant’s Common Stock and Related Stockholder Matters

Price Range of Common Stock

      Our common stock trades on The Nasdaq National Market under the symbol “NTRO”. As of March 1, 2002, the Company had approximately 176 stockholders of record and the closing price of our common stock was $3.06 per share as reported by The Nasdaq National Market. The following table shows the high and low bid prices of our Common Stock for the periods presented as reported on The Nasdaq National Market:

      We have not paid dividends on our Common Stock at any time and have no present plans to do so in the future.

      Future stock prices may be subject to volatility, particularly on a quarterly basis. Any shortfall in revenues or operating results from amounts expected by securities analysts or investors could have an immediate and significant adverse effect on the trading price of our stock.

Recent Sales of Unregistered Securities

      On February 12, 2002, we issued and sold 8,200,000 shares of our common stock to AT&T Wireless as partial consideration for the purchase of certain of AT&T Wireless’ assets, pursuant to the terms of an Asset Purchase Agreement dated January 14, 2002. The assets acquired include intellectual property, equipment and proprietary software, all relating to the development, manufacture and assembly of fixed wireless telecommunications equipment developed under the code name project “Angel.” The securities were issued in reliance upon the exemption from registration provided under Section 4(2) of the Securities Act of 1933, as amended, based on the fact that the common stock was sold by the issuer in a transaction not involving a public offering.

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Item 6.     Selected Consolidated Financial Data

      You should read the following selected consolidated financial data in conjunction with our consolidated financial statements and the related notes and with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this Form 10-K. The consolidated statements of operations data for the years ended December 31, 2001, 2000 and 1999, and the consolidated balance sheet data as of December 31, 2001 and 2000, are derived from our audited consolidated financial statements included elsewhere in this Form 10-K. The consolidated statements of operations data for the years ended December 31, 1998 and 1997 and the consolidated balance sheet data as of December 31, 1999, 1998 and 1997 are derived from our audited consolidated financial statements not included in this Form 10-K. The unaudited selected quarterly data for the years ended December 31, 2001 and 2000 are derived from our unaudited consolidated quarterly financial statements not included in this Form 10-K. The historical results presented below are not necessarily indicative of the results to be expected for any future fiscal year. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”