content: <PAGE>
  
                                   UNITED STATES
                        SECURITIES AND EXCHANGE COMMISSION
                              Washington, D.C. 20549
                              __________________
  
                                     FORM 8-K
                              __________________
  
  
    Current Report Pursuant to Section 13 or 15(d) of the Securities Exchange
                                    Act of 1934
  
  
       Date of report (Date of earliest event reported): September 27, 2000
  
  
                             EFFICIENT NETWORKS, INC.
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              (Exact name of registrant as specified in its charter)
  
  
                                     Delaware
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                  (State or Other Jurisdiction of Incorporation)
  
  
             0-26473                                      75-2486865
         --------------------              ------------------------------------
    (Commission File Number)                (I.R.S. Employer Identification No.)
  
  
                                  4849 Alpha Road
                                 Dallas, TX 75244
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           (Address of principal executive offices, including zip code)
  
  
                                   972-852-1000
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               (Registrant's telephone number, including area code)
  
                                  Not Applicable
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           (Former name or former address, if changed since last report)
  <PAGE>
  
  Item 5.  Other Events
  
          On September 27, 2000, Marquette Acquisition Corp., a Texas corporation
  ("Merger Sub"), which was a wholly-owned subsidiary of Efficient Networks, Inc.,
  a Delaware corporation ("Efficient," "we" or the "Registrant"), was merged (the
  "Merger") with and into MultiMedia Development Corporation, a Texas corporation
  ("MMD"), pursuant to an Agreement and Plan of Merger (the "Merger Agreement")
  dated September 20, 2000 by and among Efficient, Merger Sub, MMD, and Barry
  McConachie and Duane Schrodt (the "Shareholders"). The description contained in
  this Item 5 of the transactions consummated pursuant to the terms and conditions
  of the Merger Agreement is qualified in its entirety by reference to the full
  text of the Merger Agreement, a copy of which is attached to this Report as
  Exhibit 99.1.
  
          In the Merger, the Registrant issued 2,442,910 shares of its common
  stock to the Shareholders in exchange for all the common stock of MMD. At the
  effective time of the Merger, Merger Sub ceased to exist and MMD, as the
  surviving corporation in the Merger, became a wholly-owned subsidiary of
  Efficient.
  
          The Merger was intended to qualify as a tax-free reorganization under
  the Internal Revenue Code of 1986, as amended, and is being accounted for as a
  pooling-of-interests.
  
          Attached as Appendix A to this current report on Form 8-K are the
  Registrant's audited consolidated financial statements as of June 30, 2000 and
  1999 and for each of the years in the three-year period ended June 30, 2000, all
  of which have been restated to include the results of operations and financial
  position of MMD as if the two companies were combined as of the beginning of the
  earliest period presented. In addition, the Registrant has included the
  following, all of which have been restated to reflect the acquisition of MMD as
  of the beginning of the earliest period presented: the consolidated financial
  statement schedule for the three years ended June 30, 2000; selected
  consolidated financial data for the five years ended June 30, 2000; and
  management's discussion and analysis of consolidated financial condition and
  results of operations.
  
  Item 7.  Financial Statements, Pro Forma Financial Information and Exhibits
  
  (c)     Exhibits
  
          The following Exhibits are filed as part of this report:
  
          23.1   Consent of KPMG LLP
  
          27.1   Financial Data Schedule
  <PAGE>
  
                                     SIGNATURES
  
          Pursuant to the requirements of the Securities Exchange Act of 1934, the
  registrant has duly caused this report to be signed on its behalf by the
  undersigned hereunto duly authorized.
  
                                              EFFICIENT NETWORKS, INC.
  
  Date:  January 16, 2001
  
                                              By: /s/ Jill S. Manning
                                                 ---------------------------------
                                                 Jill S. Manning
                                                 Vice President and
                                                 Chief Financial Officer
  <PAGE>
   PAGE>
  
                                     Appendix A
  
                        Selected Consolidated Financial Data
                      (in thousands, except per shares data)
  
  The following selected consolidated financial data should be read in conjunction
  with our Consolidated Financial Statements and Notes thereto and "Management's
  Discussion and Analysis of Consolidated Financial Condition and Results of
  Operations" included elsewhere in this Form 8-K. The selected consolidated
  financial data has been restated to reflect the merger with MultiMedia
  Development Corporation, which has been accounted for as a pooling-of-interests.
  The statement of operations data for each of the years in the three-year period
  ended June 30, 2000, and the balance sheet data as of June 30, 2000 and 1999 is
  derived from our consolidated financial statements that have been included in
  this Form 8-K. The selected consolidated balance sheet data as of June 30, 1998,
  1997 and 1996 and the consolidated statement of operations data for the years
  ended June 30, 1997 and 1996 is derived from consolidated financial statements
  that have not been included in this Form 8-K.
  
  <TABLE>
  <CAPTION>
                                                                             Year ended June 30,
                                                         ----------------------------------------------------------
                                                           1996         1997        1998        1999         2000
                                                         --------    --------     --------    --------   ----------
                                                                        (in thousands, except per
                                                                           share information)
  Consolidated  Statement of Operations Data:
  <S>                                                    <C>         <C>          <C>         <C>        <C>
  Net revenues......................................     $  4,248    $  6,478     $  7,564    $ 18,870   $  206,948
  Cost of revenues..................................        2,209       2,386        2,160      14,344      156,704
                                                         --------    --------     --------    --------   ----------
  Gross profit......................................        2,039       4,092        5,404       4,526       50,244
                                                         --------    --------     --------    --------   ----------
  Operating expenses:
     Sales and marketing............................        2,366       2,409        3,436       6,133       35,433
     Research and development.......................        4,027       5,256        7,861      11,858       29,924
     General and administrative.....................        1,082       1,245        1,641       1,993        9,384
     Stock option compensation......................          198         659        1,165       3,116        4,908
     Amortization  of and
       other intangible assets......................           --          --           --          --      100,431
     In-process research and
       development..................................           --          --           --          --        4,970
                                                         --------    --------     --------    --------   ----------
       Total operating expenses.....................        7,673       9,569       14,103      23,100      185,050
                                                         --------    --------     --------    --------   ----------
  Loss from operations..............................       (5,634)     (5,477)      (8,699)    (18,574)    (134,806)
  Interest and other income (expense),
     net............................................          179         150          161      (7,847)       4,275
                                                         --------    --------     --------    --------   ----------
  Net loss..........................................     $ (5,455)   $ (5,327)    $ (8,538)   $(26,421)   $(130,531)
                                                         ========    ========     ========    ========   ==========
  Basic and  diluted net loss per share
     (1)............................................     $  (1.03)   $  (0.97)    $  (1.50)   $  (4.23)  $    (2.90)
                                                         ========    ========     ========    ========   ==========
  Weighted average shares (1).......................        5,281       5,470        5,697       6,336       45,072
                                                         ========    ========     ========    ========   ==========
  
  Consolidated Balance Sheet Data:
  Cash and cash equivalents.........................     $  1,497    $  4,787     $  8,797    $  5,601   $  178,997
  Working capital...................................        3,007       6,063       10,308      14,978      604,830
  Total assets......................................        5,561       8,213       13,137      24,389    1,560,158
  Redeemable convertible preferred stock............       16,155      23,635       34,743      40,495           --
  Total stockholders' equity (deficit)..............      (11,254)    (15,914)     (22,925)    (36,581)   1,084,070
  </TABLE>
  
  _____________________________
  (1) Note 2 of Notes to Consolidated Financial Statements provides an explanation
      of the determination of the weighted average shares used to compute basic
      and diluted net loss per share.
  <PAGE>
  
  MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND
  RESULTS OF OPERATIONS
  
          The following discussion should be read in conjunction with the
  Consolidated Financial Statements and Notes thereto, as well as the other
  information included elsewhere in this Form 8-K.
  
  Overview
  
          Efficient is a worldwide independent developer and supplier of high-
  speed DSL customer premises equipment for the broadband access market. Our DSL
  solutions enable telecommunications and other network service providers to
  provide high-speed, cost-effective broadband access services over the existing
  copper wire telephone infrastructure to both business and residential markets.
  We therefore focus on developing and producing single- and multiple-user DSL
  customer premises equipment for small- to medium-size businesses, branch offices
  of large corporations and consumers. Our DSL products enable applications such
  as high-speed Internet access, electronic commerce, remote access, telecommuting
  and extensions of corporate networks to branch offices.
  
          On September 27, 2000, we acquired MultiMedia Development
  Corporation ("MMD"), a provider of network management, testing, simulation and
  signaling software products. MMD's technology is designed to provide high speed
  network carriers with the ability to manage broadband equipment from a number of
  different vendors. MMD's products are used to enable and automate the creation
  of ATM, or asynchronous transfer mode, and frame relay virtual circuits across
  complex networks. Primary customers include network service providers who create
  and manage large, high speed networks. MMD has industry alliances with many of
  the same broadband equipment vendors as Efficient Networks, including ADC,
  Copper Mountain, Cisco, Accelerated Networks, General Bandwidth, Marconi and
  others. MMD works closely with these companies to offer a seamless management
  platform that allows carriers to create end-to-end services and provision new
  customers rapidly, across a diverse set of equipment. MMD also provides
  signaling gateway products that help automate creation of connections in
  broadband networks, and help transfer signaling messages between broadband and
  narrowband networks.
  
          Under the terms of the agreement, each outstanding share of MMD common
  stock was exchanged for 2.44291 newly issued shares of common stock of the
  Company. This resulted in the issuance of 2,442,910 shares of our common stock.
  The transaction was accounted for as a pooling-of-interests and, accordingly,
  the financial position, results of operations and cash flows of MMD have been
  combined with those of the Company for the same dates and periods as if the
  entities had been combined from the earliest date presented.
  
          We were incorporated in June 1993. From inception through fiscal 1997,
  we primarily focused on developing and selling ATM-based products for local area
  network, or LAN, applications. ATM is a widely-used transmission technology that
  breaks data down into individual packets with unique identification and
  destination addresses and may be used to transmit data, voice and video within a
  network. During fiscal 1997 we began to leverage our ATM, personal computing
  environment and networking expertise to develop DSL modem products for high-
  speed Internet access. We have largely discontinued further development efforts
  on our ATM LAN products and are currently focusing on our DSL and software
  related products. We shipped our first DSL products in the third quarter of
  fiscal 1998. Our DSL and software related products, which accounted for less
  than 56.6% of net revenues in fiscal 1998, represented 89.9% of our net revenues
  in fiscal 1999 and 99.5% of our net revenues in fiscal 2000. We do not expect
  sales of our ATM LAN products to represent a material portion of our revenues or
  business in future periods.
  
          We derive our revenues primarily from sales of our SpeedStream family of
  DSL products. We sell our DSL products primarily to network service providers,
  network equipment vendors and telephone
  <PAGE>
  
  company-aligned distributors. For the fiscal year ended June 30, 2000, sales to
  SBC Communications represented 31.6% of our net revenues, sales to Covad
  Communications represented 19.2% of our net revenues, and sales to Hanaro
  Telecom represented 10.3% of our net revenues. For the fiscal year ended June
  30, 1999, sales to Covad Communications represented 23.2% of our net revenues,
  sales to MCI Worldcom represented 20.8% of our net revenues, and sales to Soon
  Cabling Ptc., Ltd. represented 13.8% of our net revenues. Our top ten customers
  for the fiscal years ended June 30, 1999 and 2000 accounted for 83.4% and 87.9%
  of our net revenues, respectively. We expect to continue to be dependent upon a
  relatively small number of large customers in future periods, although the
  specific customers may vary from period to period.
  
          Since inception, a significant portion of our revenues has been derived
  from customers located outside of the United States and we expect to continue to
  depend upon international sales. Revenues derived from customers outside the
  United States represented 32.7% of our net revenues in fiscal 1999 and 20.9% of
  our net revenues for the fiscal year ended June 30, 2000. We currently maintain
  a European sales office in Amsterdam and an Asian sales office in Singapore. We
  believe that in order to continue growing and attain profitability, we must
  continue to penetrate international markets. Accordingly, we will need to expand
  our international operations and to hire qualified personnel for these
  operations.
  
          To date, international sales have been denominated solely in U.S.
  dollars and, accordingly, we have not been exposed to fluctuations in non-U.S.
  currency exchange rates. In the future, a portion of our international sales may
  be denominated in currencies other than U.S. dollars, which would then expose us
  to gains and losses based upon exchange rate fluctuations.
  
          Since introduction, gross margins on our DSL products have been below
  our desired levels. The lower gross margins on our DSL products have been a
  result of manufacturing start-up costs and aggressive customer pricing given to
  quickly introduce products into the market. Recently our gross margins have
  improved as a result of improved manufacturing efficiencies and component and
  product cost reductions. While we are continuously focusing on cost reductions
  and other measures to improve our gross margins, we cannot be certain that our
  gross margins will continue to improve in future periods due to factors which
  include the product mix sold in any particular period, distribution channels,
  competitive pressures and levels of volume discounts.
  
          Our limited operating history in the DSL market makes it difficult to
  forecast our future operating results. To date, we have not achieved
  profitability in any quarter or annual period, and as of June 30, 2000, we had
  an accumulated deficit of $182.5 million. Although our net revenues have grown
  in recent quarters, we cannot be certain that our net revenues will increase at
  a rate sufficient to achieve and maintain profitability.
  
          For the fiscal years 1998, 1999 and 2000, we accrued an aggregate of
  $19.4 million in deferred stock option compensation. These amounts represent the
  difference between the exercise price of certain stock options granted during
  such periods and the deemed fair market value of our common stock at the time of
  such option grants. We are amortizing the deferred stock option compensation
  over the vesting periods of the applicable options, which is generally four
  years. We amortized deferred stock option compensation in the amounts of $1.2
  million, $3.1 million and $4.9 million in fiscal years 1998, 1999 and 2000,
  respectively. We expect to amortize the remaining deferred stock option
  compensation at the rate of approximately $1.0 million per quarter until fully
  amortized.
  
  Results of Operations
  
          The following table sets forth, for the periods presented, certain data
  from Efficient's consolidated statement of operations expressed as a percentage
  of net revenues.
  <PAGE>
  
  <TABLE>
  <CAPTION>
                                                                 1998          1999           2000
                                                                 ----          ----           ----
  <S>                                                           <C>           <C>            <C>
  Net revenues.........................................          100.0%        100.0%         100.0%
  Cost of revenues.....................................           28.6          76.0           75.7
                                                                ------        ------         ------
  Gross profit.........................................           71.4          24.0           24.3
                                                                ------        ------         ------
  Operating expenses:
     Sales and marketing...............................           45.4          32.5           17.1
     Research and development..........................          103.9          62.8           14.5
     General and administrative........................           21.7          10.6            4.5
     Stock option compensation.........................           15.4          16.5            2.4
     Amortization of goodwill and other intangible assets           --            --           48.5
     In-process research and development...............             --            --            2.4
                                                                ------         -----          -----
         Total operating expenses......................          186.4         122.4           89.4
                                                                ------        ------         ------
  Loss from operations.................................         (115.0)        (98.4)         (65.1)
  Interest and other income (expense), net.............            2.1          41.6            2.1
                                                                ------        ------         ------
  Net loss.............................................         (112.9)%      (140.0)%        (63.0)%
                                                                ======        =======        =======
  </TABLE>
  
  Net Revenues
  
          Net revenues consist primarily of product sales, net of allowances for
  returns. Net revenues increased 996.7% to $206.9 million in fiscal 2000 from
  $18.9 million in fiscal 1999. Net revenues in fiscal 1999 reflected a 149.5%
  increase from the $7.6 million realized in fiscal 1998. DSL product and software
  related revenues increased from $4.3 million in fiscal 1998 to $17.0 million in
  fiscal 1999 and $205.9 million in 2000. The increases in DSL and software
  related product revenues from fiscal 1998 to fiscal 2000 reflect the continued
  market adoption of our DSL and software related products.
  
  Cost of Revenues
  
          Cost of revenues consists of amounts paid to third-party contract
  manufacturers, manufacturing start-up expenses and the personnel and related
  costs of our manufacturing operation. Cost of revenues increased 992.5% to
  $156.7 million in fiscal 2000, from $14.3 million in fiscal 1999. This compares
  to a 564.1% cost of revenues increase in fiscal 1999 as compared to the $2.2
  million in fiscal 1998. The increase from fiscal 1999 to 2000 and the increase
  from fiscal 1998 to fiscal 1999 reflect the substantial increase in DSL and
  software related product sales.
  
          Gross margin represented 24.3% of net revenues in fiscal 2000, compared
  to 24.0% of net revenues in fiscal 1999 and 71.4% of net revenues in fiscal
  1998. Gross margin on our DSL and software related products increased from 21.1%
  of the related revenues in fiscal 1999 to 24.2% of the related revenues for
  fiscal 2000. Our gross margin was higher in fiscal 2000, as compared to fiscal
  1999, due to lower production costs resulting from higher sales volumes and
  manufacturing efficiencies. Included in cost of revenues for the fiscal year
  ended June 30, 2000 are $1.0 million of one-time costs associated with a change
  in our contract manufacturer. Excluding these one-time costs, the gross margin
  for the fiscal year ended June 30, 2000 would have been 24.8%. Although we
  improved our gross margin in fiscal 2000, gross margin continued to be adversely
  affected in fiscal 2000 by expedite and other manufacturing start-up costs as
  well as aggressive pricing on our DSL products as we sought to rapidly introduce
  products and capture market share. We took a number of actions that were
  designed to bring our DSL products to market quickly, but which also adversely
  affected our gross margins. These actions included initial volume price
  discounts for key customers and incremental costs such as manufacturing
  start-up, expedite and other incremental shipping and handling charges
  associated with low volume manufacturing. We also added personnel to our
  manufacturing operations in anticipation of higher levels of business going
  forward. We expect that we will continue to incur higher than normal costs
  associated with the actions to bring our DSL products to market quickly and meet
  customers' aggressive DSL deployment schedules. While our goal is to improve our
  gross margin over
  <PAGE>
  
  the level achieved in fiscal 2000, there can be no assurance that we will be
  successful in our efforts. The primary factors that will determine the success
  of our efforts are the effectiveness of our cost reduction efforts as well as
  pricing pressures in the market for DSL CPE.
  
          In fiscal 2000, sales and related gross margins on our ATM LAN products
  were not significant. In fiscal year 1999, the higher costs incurred on our DSL
  products were partially offset by improved gross margins realized on our ATM LAN
  products. Gross margin on our ATM LAN products improved from 37.4% of related
  revenues in fiscal 1998 to 49.5% in fiscal 1999. The period-to-period increase
  in gross margins on our ATM LAN products was a result of manufacturing
  efficiencies achieved with these more mature products. As sales of our ATM LAN
  products continue to decline as a percentage of our total net revenues, any
  benefit of manufacturing efficiencies, cost reduction or other gross margin
  improvements in those products will have a diminishing beneficial effect on our
  overall gross margins.
  
  Sales and Marketing Expenses
  
          Sales and marketing expenses consist primarily of employee salaries,
  commissions and benefits, and advertising, promotional materials and trade show
  exhibit expenses. Sales and marketing expenses increased 477.7% from $6.1
  million in fiscal 1999 to $35.4 million in fiscal 2000. This compares to an
  increase of 78.5% in fiscal 1999 over the $3.4 million recorded in fiscal 1998.
  The increases in sales and marketing expenses in absolute amount from fiscal
  1998 through fiscal 2000 resulted primarily from sales and marketing activities
  associated with the launch of our DSL products. These launch costs included
  significant personnel-related expenses associated with increasing the size of
  our sales and marketing organization, and increased trade show activities and
  related travel expenses.
  
          Sales and marketing expenses represented 45.4% of net revenues in fiscal
  1998, 32.5% in fiscal 1999, and 17.1% in fiscal 2000. The decrease in sales and
  marketing expenses as a percentage of net revenues from fiscal 1998 through
  fiscal 2000 was a result of the rapid increase in DSL revenues. We expect sales
  and marketing expenses to increase in dollar amount in future periods as we
  continue to expand our domestic and international sales and marketing
  organization.
  
  Research and Development Expenses
  
          Research and development expenses consist primarily of personnel and
  related costs associated with our product development efforts, including
  third-party consulting and prototyping costs. Research and development expenses
  increased 152.4% from $11.9 million in fiscal 1999 to $29.9 million in fiscal
  2000. This compares to an increase of 50.8% in fiscal 1999 over the $7.9 million
  recorded in fiscal 1998. The substantial increase in research and development
  spending from period to period was primarily a result of increased personnel and
  related costs associated with a larger research and development organization, as
  well as design and prototype expenses incurred in connection with the roll-out
  of our DSL products. Additionally, research and development spending in fiscal
  1998 was partially offset by $850,000 of nonrecurring engineering expenses
  reimbursed by third parties. These amounts are treated as an offset to the
  related research and development spending. We received no such reimbursements in
  the fiscal 1999 and 2000 periods. Research and development expenses represented
  103.9% of net revenues in fiscal 1998, 62.8% in fiscal 1999, and 14.5% in fiscal
  2000. The decreases from 1998 to 2000 in research and development expenses as a
  percentage of net revenues was a result of the rapid increase in DSL revenues.
  We expect research and development expenses to increase in dollar amount in
  future periods as we continue to expand our research and development
  organization to develop new products and technologies.
  <PAGE>
  
  General and Administrative Expenses
  
          General and administrative expenses consist primarily of employee
  salaries and related expenses for executive, administrative and accounting
  personnel, facility costs, insurance costs and professional fees. General and
  administrative expenses increased 370.8% from $2.0 million in fiscal 1999 to
  $9.4 million in fiscal 2000. This compares to an increase of 21.5% in fiscal
  1999 over the $1.6 million recorded in fiscal 1998. The increases in absolute
  amount of general and administrative spending from period to period were
  primarily a result of increases in headcount associated with building our
  infrastructure. General and administrative expenses represented 21.7% of net
  revenues in fiscal 1998, 10.6% in fiscal 1999, and 4.5% in fiscal 2000. The
  decrease in general and administrative expenses as a percentage of net revenues
  from fiscal 1998 through fiscal 2000 reflects the rapid increase in DSL revenues
  during these periods. We expect general and administrative expenses to increase
  in dollar amount in future periods as we continue to build our infrastructure
  and as a result of operating as a publicly-held company.
  
  Stock Option Compensation
  
          Stock option compensation reflects the difference between the exercise
  price of stock options granted and the deemed fair market value of our common
  stock on the dates of grant. For the fiscal years ended June 30, 1998, 1999 and
  2000, we recorded aggregate deferred stock option compensation of $3.1 million,
  $13.1 million, and $3.1 million respectively in connection with stock option
  grants. Amortization of deferred stock option compensation was $1.2 million in
  fiscal 1998, $3.1 million in fiscal 1999, and $4.9 million in fiscal 2000. We
  expect to amortize the deferred stock option compensation at the rate of
  approximately $1.0 million per quarter until fully amortized. See Note 12 of
  Notes to Consolidated Financial Statements for a discussion of our deferred
  stock option compensation. Prior to our initial public offering in July 1999,
  there was no market for our common stock, and option prices were determined by
  the board of directors based upon numerous factors. Upon review in connection
  with our initial public offering, it was determined that the fair market value
  on the date of grant of certain options was higher than originally determined by
  the board of directors. Beginning with our initial public offering, we generally
  price options based upon the public market price of our common stock at the date
  of option grant. In some circumstances, we may price options as of the date an
  employee joins Efficient, which can result in a stock option compensation
  expense to the extent that the fair market value on the date of grant is greater
  than the fair market value on the employee's start date.
  
  Interest Income and Interest Expense and Other, Net
  
          Interest income consists primarily of interest earned on cash and cash
  equivalents and short-term investments. Interest income increased in fiscal 2000
  compared to fiscal 1999 and 1998 as a result of interest earned primarily from
  the net cash proceeds received in connection with the completion of our initial
  public offering on July 15, 1999, the follow-on public offering on February 8,
  2000, and the placement of convertible subordinated notes on March 7, 2000.
  Interest expense consists primarily of interest incurred on the convertible
  subordinated notes, as well as interest on capital lease obligations.
  
          On March 7, 2000 we issued $400 million of convertible subordinated
  notes due March 15, 2005. The notes bear interest at an annual rate of 5%. The
  notes are convertible at any time prior to maturity into shares of common stock
  at a conversion price of $181.00 per share. The notes are redeemable on or after
  March 20, 2003 at 101.25% during the period beginning on March 20, 2003 and
  ending on March 14, 2004, and at 100.00% beginning on March 15, 2004 and
  thereafter. Issuance costs of $12.6 million, which are included as a deferred
  charge in other assets, are being amortized over the term of the notes. Interest
  expense in fiscal 2000 relates primarily to the subordinated convertible notes
  and capital lease obligation commitments issued in fiscal 2000.
  <PAGE>
  
          In the second half of fiscal 1999, we borrowed $9.0 million from certain
  investors. These notes carried an interest rate of 10% per year, and were
  payable on the earlier of January 2002 or the completion of an initial public
  offering. In connection with these notes, we issued the investors warrants to
  purchase 3,082,191 shares of Series H preferred stock at an exercise price of
  $2.92 per share. The proceeds were allocated between the notes and the warrants
  based on their pro rata fair values resulting in a discount. The discount was
  amortized as interest expense over six months, which represented the expected
  terms of the promissory notes. The promissory notes converted into preferred
  stock which then converted into common stock upon completion of our initial
  public offering in July, 1999. In addition, in June 1999, we borrowed an
  additional $5.0 million from Covad Communications Group, Inc. The Covad note
  carried an interest rate of 8% per year, and the principal amount and interest
  on the note converted into an aggregate of 497,663 shares of common stock upon
  completion of our initial public offering in July 1999. In future periods we
  expect interest income and interest expense and other, net to vary depending
  upon changes in the amount and mix of interest-bearing investments outstanding
  during each period.
  
  Income Taxes
  
          From inception through June 30, 2000, we incurred net losses for federal
  and state tax purposes and have not recognized any tax provision or benefit. As
  of June 30, 2000, we had approximately $79.3 million of federal net operating
  loss carryforwards to offset future taxable income which will begin to expire in
  varying amounts beginning in 2008. Given our limited operating history, losses
  incurred to date and the difficulty in accurately forecasting our future
  results, management does not believe that the recognition of the related
  deferred income tax asset meets the criteria required by generally accepted
  accounting principles. Accordingly, a 100% valuation allowance has been
  recorded. Furthermore, as a result of changes in Efficient's equity ownership
  resulting from Efficient's redeemable convertible preferred stock and note
  financings and Efficient's initial public offering, utilization of the net
  operating losses and tax credits may be subject to substantial annual
  limitations due to the ownership change limitations provided by the Internal
  Revenue Code of 1986, as amended, and similar state provisions. The annual
  limitation may result in the expiration of net operating losses and tax credits
  before utilization. See Note 15 of Notes to Consolidated Financial Statements.
  
  Liquidity and Capital Resources
  
          Since inception, we have financed our operations primarily through the
  sale of preferred equity securities and, beginning in the second half of fiscal
  1999, through borrowings from our investors and others. Since inception through
  June 30, 2000, net of transaction expenses, we have raised an aggregate of $40.4
  million from the private sale of equity securities, $245.9 million from the
  public sale of equity securities, and an additional $414.0 million through loan
  transactions, as more fully described below.
  
          On July 15, 1999, we completed our initial public offering. We issued
  4.6 million shares of common stock and raised $63.1 million in net proceeds.
  Upon the completion of our initial public offering, our then outstanding
  promissory notes converted into redeemable convertible preferred stock, and all
  then outstanding redeemable convertible preferred stock converted into 28.3
  million shares of common stock. On February 8, 2000, we completed a follow-on
  public offering. We issued 2.8 million shares of common stock and raised $183.2
  million in net proceeds. On March 7, 2000, we completed the private placement of
  $400 million of convertible subordinated notes. Issuance costs of $12.6 million
  are being amortized over the term of the notes.
  
          At June 30, 2000, we had cash and cash equivalents and highly liquid
  short-term investments of $505.7 million. At June 30, 2000, we did not have a
  line of credit or other borrowing facility available. Lease commitments include
  a lease for office space, furniture and equipment for our new corporate
  <PAGE>
  
  headquarters in Dallas, Texas. The office lease commenced in January 2000 and
  expires in 2010 with annual lease payments of approximately $2.7 million. The
  furniture and equipment lease commenced in February 2000 and expires in 2003
  with annual lease payments of approximately $1.0 million.
  
          Cash used in operating activities in fiscal 2000 was $130.3 million.
  Cash used in operating activities was $22.6 million in fiscal 1999 and $6.8
  million in fiscal 1998. Cash used in operating activities has primarily
  represented increases in inventories, receivables, and an inventory deposit in
  fiscal 2000. In June 2000, we advanced $50 million to ACT Manufacturing to
  finance the purchase of raw materials for products to be manufactured by ACT
  Manufacturing for us. See Note 6 of Notes to Consolidated Financial Statements.
  
          Cash used in investing activities in fiscal 2000 was $331.3 million.
  $325.7 million of cash was used, net of proceeds from sales and maturities, to
  purchase highly liquid short-term investments, and $17.6 million of cash was
  used to purchase fixed assets, which was offset by cash received of $10.9
  million and $1.2 million in connection with the acquisitions of FlowPoint
  Corporation and Network TeleSystems, Inc., respectively. Cash used for investing
  activities was $1.7 million in fiscal 1999 and $589,000 in fiscal 1998 for
  purchases of fixed assets. In each of the fiscal years 2000, 1999 and 1998
  purchases of fixed assets related primarily to the purchase of computers and
  other equipment used in our development activities and other equipment and
  furniture used in our operations.
  
          Cash provided by financing activities in fiscal 2000 was $635.0 million,
  consisting of funds raised from our initial and follow-on public offerings of
  common stock on July 15, 1999 and February 8, 2000, respectively, as well as the
  private placement of $400 million of convertible subordinated notes on March 7,
  2000. Cash provided by financing activities was $21.1 million in fiscal 1999 and
  $11.4 million in fiscal 1998. See Notes to Consolidated Financial Statements for
  a description of the loan and equity transactions. In fiscal 1999 and 1998,
  financing activities consisted primarily of the private placement of redeemable
  convertible preferred stock, and borrowings from our investors.
  
          Our future capital requirements will depend upon a number of factors,
  including the timing and level of research and development activities and sales
  and marketing campaigns. We believe that our cash and cash equivalents and
  short-term investments will provide sufficient capital to fund our operations at
  least through the end of fiscal 2001. Thereafter, we may require additional
  capital to fund our business. In addition, from time to time we evaluate
  opportunities to acquire complementary technologies or companies. Should we
  identify any such opportunities, we may need to raise additional capital to fund
  the acquisitions. There can be no assurance that financing will be available to
  us when we need it on favorable terms or at all.
  <PAGE>
  
                           Independent Auditors' Report
  
  The Board of Directors
  Efficient Networks, Inc.:
  
          We have audited the accompanying consolidated balance sheets of
  Efficient Networks, Inc. and subsidiaries as of June 30, 2000 and 1999, and the
  related consolidated statements of operations, stockholders' equity (deficit),
  and cash flows for each of the years in the three-year period ended June 30,
  2000. These consolidated financial statements are the responsibility of the
  Company's management. Our responsibility is to express an opinion on these
  consolidated financial statements based on our audits.
  
          We conducted our audits in accordance with auditing standards generally
  accepted in the United States of America. Those standards require that we plan
  and perform the audit to obtain reasonable assurance about whether the financial
  statements are free of material misstatement. An audit includes examining, on a
  test basis, evidence supporting the amounts and disclosures in the financial
  statements. An audit also includes assessing the accounting principles used and
  significant estimates made by management, as well as evaluating the overall
  financial statement presentation. We believe that our audits provide a
  reasonable basis for our opinion.
  
          In our opinion, the consolidated financial statements referred to above
  present fairly, in all material respects, the financial position of Efficient
  Networks, Inc. and subsidiaries as of June 30, 2000 and 1999, and the results of
  their operations and their cash flows for each of the years in the three-year
  period ended June 30, 2000, in conformity with accounting principles generally
  accepted in the United States of America.
  
                                                                       KPMG LLP
  
  Dallas, Texas
  November 9, 2000
  
                                        F-1
  <PAGE>
  
                                  EFFICIENT NETWORKS, INC.
                                Consolidated Balance Sheets
                            Years ended June 30, 2000 and 1999
                             (in thousands, except share data)
  
  <TABLE>
  <CAPTION>
  
                             Assets                                          2000             1999
                                                                       -------------     -------------
  <S>                             <C>                                 <C>               <C>
  Current assets:
     Cash and cash equivalents                                        $   178,997       $     5,601
     Short-term investments                                               326,742                --
     Accounts receivable, net of allowances for doubtful
       accounts of $1,687 and $120 at June 30, 2000 and
       1999, respectively                                                  91,687            10,743
     Inventory deposit                                                     50,000                --
     Inventories                                                           29,759             5,472
     Other current assets                                                   1,665               241
                                                                      -----------       -----------
         Total current assets                                             678,850            22,057
  Furniture and equipment, net                                             21,022             2,303
  Goodwill and other intangible assets, net of accumulated
     amortization of $100,432                                             843,176                --
  Other assets, net                                                        17,110                29
                                                                      -----------       -----------
                                                                      $ 1,560,158       $    24,389
                                                                      ===========       ===========
  
            Liabilities, Redeemable Convertible
     Preferred Stock and Stockholders' Equity (Deficit)
  Current liabilities:
     Accounts payable                                                 $    22,640       $     4,113
     Accrued liabilities                                                   41,366             2,230
     Current portion of capital lease obligations                             738                --
     Deferred revenue                                                       9,275               736
                                                                      -----------       -----------
         Total current liabilities                                         74,019             7,079
  Convertible subordinated notes                                          400,000                --
  Capital lease obligations, net of current portion                         2,069                --
  Long-term debt, net of discount                                              --            13,396
                                                                      -----------       -----------
         Total liabilities                                                476,088            20,475
                                                                      -----------       -----------
  Redeemable convertible preferred stock                                       --            40,495
  Commitments and contingencies Stockholders' equity (deficit):
  
     Preferred stock, 9,993,700 shares authorized; none
       outstanding
     Common stock, par value $.001 per share, 200,000,000
       shares authorized; 58,182,566 and 6,805,131 shares
       issued and outstanding in 2000 and 1999, respectively                   58                 6
     Additional paid-in capital                                         1,275,525            29,785
     Deferred stock option compensation                                    (9,989)          (14,606)
     Accumulated deficit                                                 (182,524)          (51,766)
     Accumulated other comprehensive income                                 1,000                --
                                                                      -----------       -----------
         Total stockholders' equity (deficit)                           1,084,070           (36,581)
                                                                      -----------       -----------
                                                                      $ 1,560,158       $    24,389
                                                                      ===========       ===========
  </TABLE>
  
  See accompanying notes to consolidated financial statements.
  
                                        F-2
  <PAGE>
  
                             EFFICIENT NETWORKS, INC.
                      Consolidated Statements of Operations
                     Years ended June 30, 2000, 1999 and 1998
                       (in thousands, except per data share)
  
  <TABLE>
  <CAPTION>
                                                                 2000          1999           1998
                                                             ----------    ----------     -----------
  <S>                                                        <C>           <C>            <C>
  Net revenues                                               $  206,948    $   18,870     $    7,564
  Cost of revenues                                              156,704        14,344          2,160
                                                             ----------    ----------     ----------
     Gross profit                                                50,244         4,526          5,404
                                                             ----------    ----------     ----------
  Operating expenses:
     Sales and marketing                                         35,433         6,133          3,436
     Research and development                                    29,924        11,858          7,861
     General and administrative                                   9,384         1,993          1,641
     Stock option compensation                                    4,908         3,116          1,165
     Amortization of goodwill and other intangible assets       100,431            --             --
     In-process research and development                          4,970            --             --
                                                             ----------    ----------     ----------
       Total operating expenses                                 185,050        23,100         14,103
                                                             ----------    ----------     ----------
       Loss from operations                                    (134,806)      (18,574)        (8,699)
  Interest income                                                12,188           255            177
  Interest expense and other, net                                (7,913)       (8,102)           (16)
                                                             ----------    ----------     ----------
  
       Net loss                                              $ (130,531)   $  (26,421)    $   (8,538)
                                                             ==========    ==========     ==========
       Basic and diluted net loss per share of common
         stock                                               $    (2.90)   $    (4.23)    $    (1.50)
                                                             ==========    ==========     ==========
       Weighted-average shares of common stock outstanding       45,072         6,336          5,697
                                                             ==========    ==========     ==========
  </TABLE>
  
  See accompanying notes to consolidated financial statements.
  
                                        F-3
  <PAGE>
  
                             EFFICIENT NETWORKS, INC.
             Consolidated Statement of Stockholders' Equity (Deficit)
                     Years ended June 30, 2000, 1999 and 1998
                         (in thousands, except share data)
  
  <TABLE>
  <CAPTION>
                                                                                                          Accumulated        Total
                                                                           Deferred                          other       stockholders'
                                        Common stock       Additional     stock option    Accumulated    comprehensive      equity
                                    -------------------
                                      Shares    Amount   paid-in capital  compensation      deficit         income         (deficit)
                                    ----------  -------  ---------------  ------------    -----------    -------------   ------------
  <S>                               <C>         <C>      <C>              <C>             <C>            <C>             <C>
  Balance at June 30, 1997           5,497,681  $     5    $     3,725    $     (2,837)   $   (16,807)   $           -   $   (15,914)
      Issuance of common
        stock under stock
        option plan                    448,125        1             61               -              -                -            62
      Issuance of common stock         114,068        -            300               -              -                -           300
      Deferred stock option
        compensation                         -        -          3,143          (3,143)             -                -             -
      Amortization of
        deferred stock
        option compensation                  -        -              -           1,165              -                -         1,165
      Net loss                               -        -              -               -         (8,538)               -        (8,538)
                                    ----------  -------    -----------    ------------    -----------    -------------   -----------
  Balance at June 30, 1998           6,059,874        6          7,229          (4,815)       (25,345)               -       (22,925)
      Issuance of common
        stock under stock
        option plan                    745,257        -          1,683               -              -                -         1,683
      Stock options forfeited                -        -           (223)            223              -                -             -
      Issuance of warrants                   -        -          6,173               -              -                -         6,173
      Convertible promissory note            -        -          2,143               -              -                -         2,143
      Deferred stock option
        compensation                         -        -         13,130         (13,130)             -                -             -
      Amortization of
        deferred stock
        option compensation                  -        -              -           3,116              -                -         3,116
      Accretion of issuance
        costs on redeemable
        convertible preferred
        stock                                -        -           (350)              -              -                -          (350)
      Net loss                               -        -              -               -        (26,421)               -       (26,421)
                                    ----------  -------    -----------    ------------    -----------    -------------   -----------
  Balance at June 30, 1999           6,805,131        6         29,785         (14,606)       (51,766)               -       (36,581)
      Comprehensive income (loss):
        Net loss                             -        -              -               -       (130,531)               -      (130,531)
        Unrealized net gains on
          securities                         -        -              -               -              -            1,000         1,000
                                                                                                                         -----------
      Comprehensive loss                     -        -              -               -              -                -      (129,531)
      Issuance of common
        stock under stock
        option plan                  1,799,755        2            976               -              -                -           978
      Stock options forfeited                -        -         (2,837)          2,837              -                -             -
      Issuance of common stock       7,377,800        7        246,887               -              -                -       246,894
      Stock issued in connection
        with acquisition of
        FlowPoint Corporation        7,200,000        7        493,193               -              -                -       493,200
      Stock issued in connection
        with acquisition of Network
        TeleSystems, Inc.              400,000        1         18,368               -              -                -        18,369
      Conversion of subordinated
        notes                        3,579,650        4         14,018               -              -                -        14,022
      Conversion of redeemable
        preferred stock             31,020,230       31        472,007               -              -                -       472,038
      Distributions paid to
        MultiMedia Development
        Corporation Shareholders             -        -              -               -           (227)               -          (227)
      Deferred stock option
        compensation                         -        -          3,128          (3,128)             -                -             -
      Amortization of
        deferred stock
        option compensation                  -        -              -           4,908              -                -         4,908
                                    ----------  -------    -----------    ------------    -----------    -------------   -----------
  Balance at June 30, 2000          58,182,566  $    58    $ 1,275,525    $     (9,989)   $  (182,524)   $       1,000   $ 1,084,070
                                    ==========  =======    ===========    ============    ===========    =============   ===========
  </TABLE>
  
  
  See accompanying notes to consolidated financial statements.
  
                                        F-4
  <PAGE>
  
                             EFFICIENT NETWORKS, INC.
                      Consolidated Statements of Cash Flows
                          Years ended June 30, 2000, 1999
                              and 1998 (in thousands)
  
  <TABLE>
  <CAPTION>
                                                                      2000            1999             1998
                                                                  ----------      ----------        ----------
  <S>                                                             <C>             <C>               <C>
  Cash flows from operating activities:
     Net loss                                                     $ (130,531)     $  (26,421)       $   (8,538)
     Adjustments to reconcile net loss to net cash used in
       operating activities:
          Depreciation and amortization                                2,313             826               736
          Amortization of deferred stock option
            compensation                                               4,908           3,116             1,165
          Accretion of discount on subordinated
            promissory notes                                             604           7,712                --
          Accretion of deferred issuance costs on
            convertible subordinated notes                               797              --                --
          Amortization of goodwill and other
     intangible assets                                               100,431              --                --
          In-process research and development                          4,970              --                --
     Changes in operating assets and liabilities, net
            of acquisitions:
          Account receivable, net                                    (70,855)        (11,031)             (569)
          Inventory deposit                                          (50,000)             --                --
          Inventories                                                (23,053)         (4,574)             (304)
          Other assets and liabilities                                (6,513)             49              (201)
          Accounts payable and accrued liabilities                    28,418           7,031               925
          Deferred revenue                                             8,201             736                --
                                                                  ----------      ---------         ----------
            Net cash used in operating activities                   (130,310)        (22,556)           (6,786)
                                                                  ----------      ----------        ----------
  Cash flows used in investing activities:
     Purchases of furniture and equipment                            (17,649)         (1,714)             (589)
     Purchases of investments                                       (486,083)             --                --
     Proceeds from sales and maturities of investments               160,342              --                --
     Net cash received in connection with purchases of:
  
       FlowPoint Corporation                                          10,916              --                --
       Network TeleSystems, Inc                                        1,188              --                --
                                                                  ----------      ----------        ----------
            Net cash used in investing activities                   (331,286)         (1,714)             (589)
                                                                  ----------      ----------        ----------
  Cash flows from financing activities:
     Principal payments on capital lease obligations                     (53)            (11)              (78)
     Proceeds from issuance of convertible subordinated
       notes                                                         400,000              --                --
     Payment of issuance costs for convertible
       subordinated notes                                            (12,600)             --                --
     Proceeds from issuance of promissory notes and
       warrants                                                           --          14,000             1,000
     Proceeds from issuance of common stock                          247,872           1,683               362
     Proceeds from issuance of preferred stock                            --           5,402            10,101
     Distributions to MultiMedia Development Corporation
       shareholders                                                     (227)             --                --
                                                                  ----------      ----------        ----------
       Net cash provided by financing activities                     634,992          21,074            11,385
                                                                  ----------      ----------        ----------
  Increase (decrease) in cash and cash equivalents                   173,396          (3,196)            4,010
  Cash and cash equivalents at beginning of year                       5,601           8,797             4,787
                                                                  ----------      ----------       -----------
  Cash and cash equivalents at end of year                        $  178,997      $    5,601        $    8,797
                                                                  ==========      ==========        ==========
  </TABLE>
  
  See accompanying notes to consolidated financial statements.
  
                                        F-5
  <PAGE>
  
                             EFFICIENT NETWORKS, INC.
                    Notes to Consolidated Financial Statements
                           June 30, 2000, 1999 and 1998
  
  (1)  Incorporation and Nature of Business
  
          Efficient Networks, Inc. (the "Company") was incorporated under the laws
          of the State of Delaware on June 10, 1993. The Company is a worldwide
          developer and supplier of high speed digital subscriber line ("DSL")
          customer premises equipment for the high speed, high volume digital
          communication, or broadband, access market.
  
          In September 2000, the Company acquired MultiMedia Development
          Corporation ("MMD"). The consolidated financial statements give
          retroactive effect to the merger of a wholly owned subsidiary of the
          Company into MMD on September 27, 2000, which has been accounted for as
          a pooling-of-interests as described in Note 4 to the consolidated
          financial statements.
  
  (2)  Summary of Significant Accounting Policies
  
        (a)    Principles of Consolidation
  
                The consolidated financial statements include the accounts of the
                Company and its wholly-owned subsidiaries. All significant
                intercompany accounts and transactions have been eliminated in
                consolidation.
  
       (b)     Cash Equivalents
  
                Cash equivalents consist primarily of investment accounts
                comprised of investments in commercial paper, repurchase
                agreements and money market funds. For purposes of the statements
                of cash flows, the Company considers all highly liquid investments
                with original maturities of three months or less to be cash
                equivalents.
  
       (c)     Investments
  
                The Company accounts for investments in marketable securities in
                accordance with the provisions of Statement of Financial
                Accounting Standards No. 115 "Accounting for Certain Investments
                in Debt and Equity Securities". Marketable securities are composed
                primarily of government and corporate fixed income securities. The
                Company classifies all of its marketable securities as available
                for sale. These securities are carried at fair value, with the
                unrealized gains and losses, net of income taxes, reported as a
                component of comprehensive income (loss).
  
       (d)     Inventories
  
                Inventories are stated at the lower of average cost or market
                (net realizable value).
  
                                        F-6
  <PAGE>
  
                             EFFICIENT NETWORKS, INC.
                    Notes to Consolidated Financial Statements
                     June 30, 2000, 1999 and 1998 (continued)
  
  
       (e)     Furniture and Equipment
  
                 Furniture and equipment are stated at cost. Equipment acquired
                 under capital leases is stated at the present value of minimum
                 lease payments. Depreciation on plant and equipment is calculated
                 on the straight-line method over the estimated useful lives of
                 the assets. Plant and equipment held under capital leases and
                 leasehold improvements are amortized on a straight-line basis
                 over the shorter of the lease term or estimated useful life of
                 the asset. The estimated useful lives are as follows:
  
  
                                                                        Years
                                                                       -------
                            Computers................................      5
                            Software.................................      3
                            Equipment................................      5
                            Furniture and fixtures...................      7
  
  
       (f)     Income taxes
  
                 Income taxes are accounted for under the asset and liability
                 method. Deferred tax assets and liabilities are recognized for
                 the future tax consequences attributable to differences between
                 the financial statement carrying amounts of existing assets and
                 liabilities and their respective tax bases and operating loss and
                 tax credit carryforwards. Deferred tax assets and liabilities are
                 measured using enacted tax rates expected to apply to taxable
                 income in the years in which those temporary differences are
                 expected to be recovered or settled. The effect on deferred tax
                 assets and liabilities of a change in tax rates is recognized in
                 income in the period that includes the enactment date.
  
       (g)     Revenue Recognition
  
                 Revenue from product sales is generally recognized upon shipment
                 to customers. Reserves for estimated sales returns and allowances
                 are recorded in the same period as the related revenues. Revenue
                 related to sales transactions that provide the customer with the
                 right to return product is either fully or partially deferred,
                 depending on the Company's experience with the customer, until
                 the related products are deployed by the customer and/or the
                 return privileges expire.
  
                 Deferred revenue of $9.3 million and $736,000 at June 30, 2000
                 and 1999, respectively, primarily relates to shipments of product
                 to customers where title and risk of ownership has passed to the
                 customer, but revenue recognition has been deferred due to
                 certain stock balancing and right of return privileges granted to
                 the customer. Deferred revenue also includes maintenance revenue
                 that is recognized ratably over the related maintenance term.
  
                 Revenue from services is recorded in the period services are
                 provided to customers.
  
       (h)     Stock-Based Compensation
  
                 The Company applies the intrinsic value-based method of
                 accounting prescribed by Accounting Principles Board ("APB")
                 Opinion No. 25, Accounting for Stock Issued to
  
                                        F-7
  <PAGE>
  
                             EFFICIENT NETWORKS, INC.
                    Notes to Consolidated Financial Statements
                     June 30, 2000, 1999 and 1998 (continued)
  
  
                 Employees, and related interpretations, in accounting for its
                 fixed plan stock options. As such, compensation expense is
                 recorded on the date of grant only if the current market price of
                 the underlying stock exceeds the exercise price.
  
       (i)     Impairment of Long-Lived Assets and Long-Lived Assets to be
               Disposed
  
                 Long-lived assets and certain identifiable intangibles are
                 reviewed for impairment whenever events or changes in
                 circumstances indicate that the carrying amount of an asset may
                 not be recoverable. Recoverability of assets to be held and used
                 is measured by a comparison of the carrying amount of an asset to
                 future net cash flows expected to be generated by the asset.
                 Assets to be disposed of are reported at the lower of the
                 carrying amount or fair value less costs to sell.
  
       (j)     Net Loss Per Share of Common Stock
  
                 Basic earnings (loss) per share is computed by dividing net
                 income or loss by the weighted average number of shares of the
                 Company's common stock outstanding during the period. Diluted
                 earnings (loss) per share is determined in the same manner as
                 basic earnings (loss) per share except that the number of shares
                 is increased assuming exercise of dilutive stock options and
                 warrants using the treasury stock method and conversion of the
                 Company's redeemable convertible preferred stock. The diluted
                 loss per share amount is the same as basic loss per share since
                 the Company has a net loss in each of the periods presented and
                 the impact of the assumed exercise of the stock options and
                 warrants and the assumed preferred stock conversion is
                 antidilutive. Common stock equivalents (in thousands) of 6,818,
                 29,007, and 21,624 shares for the years ended June 30, 2000,
                 1999, and 1998, respectively, were excluded from the calculation
                 of diluted loss per share as their inclusion would be
                 antidilutive.
  
                 The following table presents the calculation of basic and diluted
                 loss per share (in thousands, except per share amounts):
  
  <TABLE>
  <CAPTION>
                                                                         Year Ended June 30,
                                                                  ----------------------------------
                                                                    2000         1999         1998
                                                                  -------      --------      -------
                       <S>                                        <C>          <C>          <C>
                       Net loss                                   $(130,531)   $(26,421)    $ (8,538)
                       Accretion of issuance costs on
                          redeemable convertible preferred
                          stock                                         --         (350)          --
                                                                  ---------    --------     --------
                       Net loss available to common
                          stockholders                            $(130,531)   $(26,771)    $ (8,538)
                                                                  =========    ========     ========
                       Weighted average shares outstanding           45,072       6,336        5,697
                                                                   ========    ========     ========
  
                       Basic and diluted net loss per share       $   (2.90)   $  (4.23)   $   (1.50)
                                                                  =========    ========     ========
  </TABLE>
  
       (k)     Fair Value of Financial Instruments
  
                 The carrying values of cash equivalents, accounts receivable and
                 accounts payable approximate fair value due to their short
                 maturities. The estimated fair value, which is based
  
                                        F-8
  <PAGE>
  
                             EFFICIENT NETWORKS, INC.
                    Notes to Consolidated Financial Statements
                     June 30, 2000, 1999 and 1998 (continued)
  
                 on quoted dealer prices, of the convertible subordinated notes
                 outstanding at June 30, 2000 (see Note 10) was $300.2 million.
  
                 The estimated fair values of the convertible promissory notes and
                 subordinated promissory notes and related warrants as of June 30,
                 1999 were approximately $6,803,000 and $40,294,000 respectively.
                 These fair values were determined using a valuation model with
                 the following assumptions: a volatility factor of 40% obtained
                 from the stock price volatility experienced by certain of the
                 Company's principal competitors; a risk-free interest rate of
                 5.71%; the contractual term of the respective notes; the
                 estimated fair value of the Company's common stock ($12.00 at
                 June 30, 1999); and the exercise price of the detachable
                 warrants.
  
          (l)  Comprehensive Income
  
                 On July 1, 1998, the Company adopted SFAS No. 130, Reporting
                 Comprehensive Income, which establishes standards for reporting
                 and presentation of comprehensive income and its components in
                 the financial statements. Comprehensive income (loss) includes
                 all changes in equity during a period except those resulting from
                 investments by and distributions to owners. In addition to net
                 loss from operations, elements of comprehensive loss for the year
                 ended June 30, 2000 include net unrealized gains on securities.
                 Prior to the year ended June 30, 2000, no elements of
                 comprehensive income (loss) existed other than net loss from
                 operations.
  
          (m)  Use of Estimates
  
                 Management of the Company has made a number of estimates and
                 assumptions relating to the reporting of assets and liabilities
                 and the disclosure of contingent assets and liabilities at the
                 date of the financial statements and the reported amounts of
                 revenue and expenses during the reporting period to prepare these
                 financial statements in conformity with generally accepted
                 accounting principles. Actual results could differ from those
                 estimates.
  
  (3)     Completion of Initial and Follow-on Public Offerings
  
           On July 15, 1999, the Company completed its initial public offering.
           The Company issued 4.6 million shares of common stock in exchange for
           net proceeds of approximately $63.1 million. Upon the completion of the
           initial public offering, certain outstanding subordinated promissory
           notes converted into an aggregate of 3.6 million shares of redeemable
           convertible preferred stock, and all then outstanding redeemable
           convertible preferred stock converted into an aggregate of 28.3 million
           shares of common stock.
  
           On February 8, 2000 the Company completed a follow-on public offering
           of 5.75 million shares of common stock of which the Company issued and
           sold 2.75 million shares and selling stockholders sold 3.0 million
           shares. The Company received net proceeds of approximately $183.2
           million for the shares issued and sold by it. The Company did not
           receive any of the proceeds from the sale of shares by the selling
           stockholders.
  
                                        F-9
  <PAGE>
  
                             EFFICIENT NETWORKS, INC.
                    Notes to Consolidated Financial Statements
                     June 30, 2000, 1999 and 1998 (continued)
  
  (4)  Acquisitions
  
       MultiMedia Development Corporation
  
       On September 27, 2000, the Company acquired MMD, a provider of network
       management, testing, simulation and signaling software products. MMD's
       technology is designed to provide high speed network carriers with the
       ability to manage and support broadband equipment, virtual private networks
       and integrated voice/data services. Primary customers include network
       service providers who create and manage large, high speed networks.
  
       Under the terms of the agreement, each outstanding share of MMD common
       stock was exchanged for 2.44291 newly issued shares of common stock of the
       Company. This resulted in the issuance of 2,442,910 shares of the Company's
       common stock. The transaction was accounted for as a pooling-of-interests
       and, accordingly, the financial position, results of operations and cash
       flows of MMD have been combined with those of the Company for the same
       dates and periods as if the entities had been combined from the earliest
       date presented.
  
       The results of operations previously reported by the separate companies and
       the combined amounts presented in the accompanying consolidated financial
       statements are summarized below (in thousands):
  
                                                      Year Ended June 30,
                                               -----------------------------------
                                                2000          1999          1998
                                               ---------    --------     --------
            Total revenues:
               Efficient Networks, Inc.       $ 202,203     $ 14,828     $  3,370
               MMD                                4,745        4,042        4,194
                                               --------     --------     --------
                                              $ 206,948     $ 18,870     $  7,564
                                               ========     ========     ========
            Net income (loss):
               Efficient Networks, Inc.       $(130,446)    $(26,405)    $ (9,291)
               MMD                                  (85)         (16)         753
                                               ---------    --------     --------
                                              $(130,531)    $(26,421)    $ (8,538)
                                               =========    ========     ========
  
       Network TeleSystems, Inc.
  
       On May 9, 2000, the Company entered into an agreement to acquire Network
       TeleSystems, Inc. ("NTS"). The acquisition was completed on May 22, 2000.
       The results of operations of NTS have been included in the Company's
       consolidated statement of operations from the date of acquisition through
       June 30, 2000. The Company financed the acquisition through the issuance of
       400,000 shares of common stock. The acquisition was accounted for under the
       purchase method of accounting and, accordingly, the purchase price was
       allocated to the assets acquired and the liabilities assumed based upon the
       estimated fair values at the date of acquisition. The shares issued to the
       stockholders of NTS had a fair market value of $18.4 million based on the
       market price of $45.92, which represents the average closing sale price for
       two trading days before and two trading days after the terms of the
       acquisition were agreed to.
  
                                        F-10
  <PAGE>
  
                             EFFICIENT NETWORKS, INC.
                    Notes to Consolidated Financial Statements
                     June 30, 2000, 1999 and 1998 (continued)
  
       The total purchase price of $19.3 million, including direct acquisition
       costs of approximately $900,000, was allocated as follows (in thousands):
  
            Excess cost over fair value of net assets acquired             $17,923
            Fair value of tangible assets acquired, net of liabilities
                   assumed                                                   1,345
                                                                           -------
                                                                           $19,268
                                                                           =======
  
       In connection with the NTS acquisition, the Company recorded $17.9 million
       in intangible assets, of which approximately $400,000 was amortized in the
       year ended June 30, 2000. The remainder will be amortized at a rate of
       approximately $3.6 million per year over a five-year period.
  
       FlowPoint Corporation
  
       On November 21, 1999, the Company entered into an agreement with Cabletron
       Systems, Inc. ("Cabletron") to acquire its wholly-owned subsidiary
       FlowPoint Corporation ("FlowPoint") from Cabletron. The acquisition was
       completed on December 17, 1999. The results of operations of FlowPoint have
       been included in the Company's consolidated statement of operations from
       the date of acquisition through June 30, 2000.
  
       The Company financed the acquisition of FlowPoint through the issuance of
       7.2 million shares of common stock and 6,300 shares of Series A non-voting
       redeemable convertible preferred stock. The Series A preferred stock was
       convertible into an aggregate of 6.3 million shares of common stock and was
       mandatorily redeemable. On April 12, 2000, the Series A preferred stock was
       converted into 6.3 million shares of common stock. The acquisition was
       accounted for under the purchase method of accounting and, accordingly, the
       purchase price was allocated to the assets acquired and liabilities assumed
       based on the estimated fair values at the date of acquisition. The shares
       issued to Cabletron for FlowPoint had a fair market value of $924.8 million
       based upon the market price of $68.50, which represents the Company's
       average closing sale price for two trading days before and two trading days
       after the terms of the acquisition were agreed to.
  
       The total purchase price of $938.7 million, including direct costs of
       acquisition of $13.9 million, was allocated as follows (in thousands):
  
            Acquired technology                                          $  21,545
            Assembled workforce                                                940
            Sales channel and customer relationships                        12,930
            In-process research and development                              4,970
            Non-compete agreements                                              50
            Excess cost over fair value of net assets acquired             889,912
            Fair value of tangible assets acquired, net of
             liabilities assumed                                             8,307
                                                                         ---------
                                                                         $ 938,654
                                                                         =========
  
       The allocation of acquired technology, assembled workforce, sales channel
       and customer relationships, in process research and development and non-
       compete agreements was based upon an independent valuation. The Company
       wrote off in-process research and development immediately upon consummation
       of the acquisition. In addition, in connection with the FlowPoint
       acquisition, the
  
                                        F-11
  <PAGE>
  
                             EFFICIENT NETWORKS, INC.
                    Notes to Consolidated Financial Statements
                     June 30, 2000, 1999 and 1998 (continued)
  
       Company recorded $925.4 million in intangible assets, of which $100.0
       million was amortized during the fiscal year ended June 30, 2000. The
       remainder will be amortized at a rate of approximately $185.2 million per
       year over a five-year period.
  
       The following pro forma financial information presents a summary of the
       results of operations as if the acquisitions had occurred on July 1, 1998:
  
                                                             (Unaudited)
                                                    -----------------------------
                                                     Year ended      Year ended
                                                    June 30, 2000  June 30, 1999
                                                    -------------  --------------
            Revenues                                  $   232,555    $    41,119
            Expenses                                      451,296        255,462
                                                      -----------    -----------
            Net loss                                  $  (218,741)   $  (214,343)
                                                      ===========    ===========
  
            Basic and diluted loss per share
               of common stock                        $     (4.49)   $    (15.47)
                                                      ===========    ===========
            Shares used in computing basic and
               diluted loss per share of common
               stock                                       48,692         13,854
                                                      ===========    ===========
  (5)  Investments
  
       All investments in marketable securities are deemed by management to be
       available-for-sale and are reported at fair value with net unrealized gains
       or losses reported within comprehensive income (loss). Realized gains and
       losses are recorded based on the specific identification method. Securities
       available for sale at June 30, 2000 are summarized as follows (in
       thousands):
  
                                                    Gross     Gross
                                                 Unrealized Unrealized
                                                   Holding  Holding       Market
                                         Cost       Gains     Losses       Value
                                       --------- ---------- ----------    --------
       Certificates of deposit          $ 11,124   $     --   $     --    $ 11,124
       U.S. Government securities        186,089        799       (150)    186,738
       Municipal bonds                    35,821         --         (5)     35,816
       Corporate bonds                    40,833         12         --      40,845
       Commercial paper                   51,875        355        (11)     52,219
                                        --------   --------   --------    --------
                                        $325,742   $  1,166   $   (166)   $326,742
                                        ========   ========   ========    ========
  
       Differences between cost and market of $1.0 million were credited to a
       separate component of stockholders' equity called "Accumulated Other
       Comprehensive Income" as of June 30, 2000.
  
       Proceeds from sales and maturities of securities available for sale were
       approximately $160.3 million and $0 for the years ended June 30, 2000 and
       1999, respectively. Realized gains and losses on such sales were not
       significant. At June 30, 2000 and 1999, approximately $139.4 million and
       $500,000 of securities available for sale with original maturities of 90
       days or less were included in cash and cash equivalents.
  
                                        F-12
  <PAGE>
  
                             EFFICIENT NETWORKS, INC.
                    Notes to Consolidated Financial Statements
                     June 30, 2000, 1999 and 1998 (continued)
  
  (6)  Inventory Deposit
  
       Inventory deposit is an advance of $50.0 million made on June 29, 2000 by
       the Company to one of its contract manufacturers. The advance is non-
       interest bearing and has no maturity date. The purpose of the advance is to
       finance the purchase of raw materials for the Company by the contract
       manufacturer. The advance is expected to be recovered during the 2001
       fiscal year through the offset of the advance against purchases of finished
       goods inventory from the contract manufacturer, beginning April 1, 2001.
  
  (7)  Inventories
  
       Inventories consisted of the following (in thousands):
  
                                                             June 30,
                                                      ----------------------
                                                         2000         1999
                                                      ---------     --------
       Raw materials                                   $  5,329     $  2,265
       Finished goods                                    24,430        3,207
                                                       --------     --------
       Total                                           $ 29,759     $  5,472
                                                       ========     ========
  (8)   Furniture and Equipment
  
        Furniture and Equipment consisted of the following (in thousands):
  
                                                              June 30,
                                                       ----------------------
                                                          2000         1999
                                                       ---------     --------
       Computers                                       $  6,911     $  2,839
       Purchased software                                 7,138          900
       Equipment                                          5,022          593
       Furniture and fixtures                             3,773          148
       Leasehold improvements                             2,903          235
                                                       --------     --------
       Total furniture and equipment                     25,747        4,715
       Less accumulated depreciation and amortization    (4,725)      (2,412)
                                                       --------     --------
       Furniture and equipment, net                    $ 21,022     $  2,303
                                                       ========     ========
  (9)  Accrued Liabilities
  
       Accrued Liabilities consisted of the following (in thousands):
  
                                                              June 30,
                                                       ----------------------
                                                          2000         1999
                                                       ---------    ---------
       Accrued compensation and benefits               $  8,633     $  1,102
       Accrued sales and marketing expense               14,221          540
       Accrued interest expense                           6,333          291
       Accrued inventory and fixed assets                 7,015            -
       Other                                              5,164          297
                                                       --------     --------
                                                       $ 41,366     $  2,230
                                                       ========     ========
  
                                        F-13
  <PAGE>
  
                             EFFICIENT NETWORKS, INC.
                    Notes to Consolidated Financial Statements
                     June 30, 2000, 1999 and 1998 (continued)
  
  (10) Convertible Subordinated Notes and Other Long-term Debt
  
          On March 7, 2000 the Company issued $400 million of convertible
          subordinated notes due March 15, 2005. The notes bear interest at an
          annual rate of 5%. The notes are convertible at any time prior to
          maturity into shares of the Company's common stock at a conversion price
          of $181.00 per share. The Company may redeem the notes on or after March
          20, 2003 at 101.25% during the period beginning on March 20, 2003 and
          ending on March 14, 2004, and at 100.00% beginning on March 15, 2004 and
          thereafter. The notes are unsecured obligations of the Company. Upon a
          change in control, the noteholders may require the Company to purchase
          the notes at 100% of the principal amount of the notes plus accrued and
          unpaid interest. On August 8, 2000, the Company filed a shelf
          registration statement with the Securities and Exchange Commission with
          respect to the notes and the common stock issuable upon conversion of
          the notes pursuant to a registration rights agreement. Issuance costs of
          $12.6 million, which are included as a deferred charge in other assets,
          are being amortized to interest expense over the term of the notes.
          Accrued interest of $6.3 million as of June 30, 2000 is included in
          accrued liabilities.
  
          In January 1999, the Company issued subordinated promissory notes with
          detachable warrants in exchange for $7.0 million in cash. On April 8,
          1999, the Company issued a subordinated promissory note with a
          detachable warrant in exchange for $2.0 million in cash. The notes bore
          interest at 10% per annum with interest payable quarterly. The
          subordinated promissory notes were issued with detachable warrants to
          purchase an aggregate of 3.1 million shares of the Company's redeemable
          convertible preferred stock at an exercise price of $2.92 per share. In
          June 1999, the holders of the subordinated promissory notes entered into
          a note repayment and warrant exercise agreement with the Company which
          stipulated that immediately prior to the closing of an initial public
          offering, the aggregate $9.0 million principal amount of the notes would
          be applied toward the aggregate exercise price of the detachable
          warrants. Accordingly, immediately prior to the closing of the Company's
          initial public offering on July 15, 1999, the warrants were exercised to
          purchase the Company's redeemable convertible preferred stock, which
          shares of preferred stock automatically converted into shares of common
          stock upon completion of the initial public offering.
  
          On June 28, 1999, the Company issued a convertible promissory note in
          exchange for $5.0 million in cash. The note bore interest at 8.0% per
          annum. In accordance with the conversion feature of the note,
          immediately prior to the closing of the Company's initial public
          offering on July 15, 1999, the note automatically converted into 497,663
          shares of preferred stock at a conversion price $10.09 per share, and
          such shares of preferred stock automatically converted into shares of
          common stock upon completion of the initial public offering.
  
  (11) Redeemable Convertible Preferred Stock
  
          On December 17, 1999, the Company issued 6,300 shares of Series A
          non-voting mandatorily redeemable convertible preferred stock in
          connection with the Company's acquisition of FlowPoint Corporation from
          Cabletron Systems, Inc. On April 12, 2000 all of the Series A preferred
          stock was converted into 6.3 million shares of common stock. On August
          1, 2000 the Company filed a registration statement on Form S-3 with the
          Securities and Exchange Commission to register all of the common stock
          received by Cabletron in connection with the acquisition of FlowPoint.
          The Company
  
                                        F-14
  <PAGE>
  
                             EFFICIENT NETWORKS, INC.
                    Notes to Consolidated Financial Statements
                     June 30, 2000, 1999 and 1998 (continued)
  
         and Cabletron entered into an agreement containing standstill provisions,
         voting provisions, restrictions on transfer, and registration rights.
  
         The following indicates the series of redeemable convertible preferred
         stock in existence at June 30, 1999. Series for which preferred stock had
         been issued and outstanding at June 30, 1999 were stated at the
         redemption amount; issuance costs were netted against the proceeds and
         accreted as a charge against additional paid-in capital over the expected
         life of the related series of preferred stock (all in thousands, except
         share and per share data):
  
                                                               Dividend
                                                               Rate Per   June 30,
                                                                 Share      1999
                                                               --------   -------
         Series A-7,096,000 shares authorized; 7,000,000
             shares issued and outstanding...................   $ 0.03    $ 3,500
         Series B-522,848 shares authorized, issued and
             outstanding.....................................   $ 0.07        625
         Series C-5,895,832 shares authorized; 5,858,332
             shares issued and outstanding...................   $ 0.07      7,030
         Series D-2,473,644 shares authorized, issued
             and outstanding.................................   $ 0.12      5,000
         Series E-3,091,430 shares authorized, issued
             and outstanding.................................   $ 0.15      7,480
         Series F-2,057,159 shares authorized, issued and
             outstanding in 1998 and 1999....................   $ 0.18      6,007
         Series G-6,000,000 shares authorized; 1,866,800 and
             3,716,800 shares issued and outstanding in 1998
             and 1999........................................   $ 0.18     10,853
         Series H-4,000,000 shares authorized, none issued or
             outstanding.....................................   $ 0.18          -
         Series I-750,000 shares authorized, none issued or
             outstanding.....................................   $ 0.60          -
                                                                          -------
                                                                          $40,495
                                                                          =======
  
         At June 30, 1999, outstanding preferred stock, which was converted into
         24.7 million shares of common stock upon completion of the Company's
         initial public offering on July 15, 1999, had voting rights equal to the
         number of shares of common stock into which the preferred stock was
         convertible. The preferred stock was convertible at the option of the
         holder into such number of shares of common stock as is determined by
         dividing the original issue price of the preferred stock plus all
         declared but unpaid dividends by the applicable conversion price at the
         date of conversion. The conversion price per share was the original issue
         price adjusted for any dilution that would have occurred from future
         offerings.
  
         The holders of the redeemable convertible preferred stock were entitled
         to a liquidation preference equivalent to the original issue price of the
         respective series of preferred stock plus declared but unpaid dividends.
         Dividends were not declared and were noncumulative.
  
         Upon completion of the Company's initial public offering on July 15,
         1999, all then outstanding redeemable preferred stock, including those
         shares outstanding as a result of the conversion of the
  
                                       F-15
  <PAGE>
  
                             EFFICIENT NETWORKS, INC.
                    Notes to Consolidated Financial Statements
                     June 30, 2000, 1999 and 1998 (continued)
  
          10% subordinated promissory notes and the 8% convertible promissory note
          (see Note 10), was converted into 28.3 million shares of common stock.
  
  (12) Common Stock and Stock Incentive Plans
  
          On July 20, 1999, the Company adopted a new stock option plan (the "1999
          Plan"). The 1999 Plan provides for the granting of stock options and
          stock purchase rights to employees and consultants. A total of 3,500,000
          shares of common stock was initially reserved for issuance plus annual
          increases equal to the lesser of:
  
            .    1,000,000 shares;
  
            .    3% of the outstanding shares on such a date; or
  
            .    a lesser amount determined by the board on the first day of each
                 fiscal year.
  
          The 1999 Plan may be administered by the Board of Directors or a
          committee of the board. The board or a committee of the board determines
          the terms of the options granted, including the exercise price, the
          number of shares subject to each option, the vesting provisions, the
          exercisability thereof and the form of consideration payable upon such
          exercise. The options generally vest ratably over a period of four years
          from the date of grant. The 1999 Plan provides that in the event of a
          merger of the Company with or into another corporation, or the sale of
          substantially all of its assets, each outstanding option or stock
          purchase right will be assumed or substituted for by the successor
          corporation. In addition, if the options are not substituted for in the
          merger, each outstanding option will vest and become exercisable as to
          all unvested shares and each stock purchase right shall lapse as to all
          the shares for a period of 15 days after receipt of notice from the
          Company.
  
          On November 19, 1999, the Company adopted a nonstatutory stock option
          plan (the "NSO Plan"), which provides for the grant of nonstatutory
          stock options to employees and consultants (excluding officers or
          directors) of the Company. The plan was amended in April and July 2000
          to increase the number of shares reserved for issuance thereunder by an
          aggregate of 2,550,000 from 950,000 to 3,500,000. Unless terminated
          sooner, the plan will terminate automatically in 2009. A total of
          1,500,000 shares of common stock were reserved for issuance under the
          plan at June 30, 2000.
  
          The plan may be administered by the board of directors or a committee of
          the board. The board or a committee of the board has the power to
          determine the terms of the options, including the exercise price, the
          number of shares subject to each option, the exercisability thereof, and
          the form of consideration payable upon exercise. The options generally
          vest ratably over a period of four years from the date of grant. The
          plan provides that in the event of a merger of Efficient with or into
          another corporation, or a sale of substantially all of our assets, each
          option shall be assumed or an equivalent option substituted by the
          successor corporation. If the outstanding options are not assumed or
          substituted, the board or a committee of the board will provide for the
          optionee to have the right to exercise the option as to all of the
          optioned stock, including shares that would otherwise not be
          exercisable, for a period of fifteen (15) days from the date of the
          notice, and the option will terminate upon the expiration of such
          period.
  
                                        F-16
  <PAGE>
  
                             EFFICIENT NETWORKS, INC.
                    Notes to Consolidated Financial Statements
                     June 30, 2000, 1999 and 1998 (continued)
  
          In 1998, the Company adopted the Directors' Stock Option Plan (the
          "Directors' Plan") pursuant to which stock options were granted to non-
          employee members of the Company's Board of Directors. The Directors'
          Plan authorized grants of options to purchase up to 275,000 shares of
          common stock.
  
          Option grants under the Directors' Plan were nondiscretionary and
          automatic. Non-employee directors serving on the Company's Board of
          Directors at the date of the adoption of the Directors' Plan were
          granted options to purchase 50,000 shares on the effective date of the
          plan. Subsequent non-employee directors were granted an option to
          purchase 15,000 shares on the date they become a director. After their
          initial grant, non- employee directors were to be granted an option to
          purchase 15,000 shares on January 1 of each year provided they had
          served on the Board for at least six months. With the establishment of
          the 1999 Plan on July 20, 1999, new option grants are no longer made
          under the Directors' Plan.
  
          In 1993, the Company adopted a stock option plan (the "1993 Plan")
          pursuant to which the Company's Board of Directors granted stock options
          to officers, directors and key employees. The 1993 Plan authorized
          grants of options to purchase up to 10,000,000 shares of unissued common
          stock. The Board of Directors determined the terms of each option,
          including exercise price (within limits set forth in the plan), number
          of shares and the rate at which each option was exercisable. The options
          generally vested ratably over a period of four years from the date of
          grant. With the establishment of the 1999 Plan on July 20, 1999, new
          option grants are no longer made under the 1993 Plan.
  
          At June 30, 2000, there were options to purchase 86,300 shares available
          for grant under the 1999 Plan. The per share weighted-average fair value
          of stock options granted during each of the years ended June 30, 2000,
          1999 and 1998 was $58.77, $5.17 and $2.60, respectively, on the date of
          grant as estimated using the minimum value option-pricing model in 1999
          and 1998, and the Black-Scholes pricing model in 2000 with the following
          weighted- average assumptions in all years: expected dividend yield of
          0.0%, an expected life of four years, a risk-free interest rate of 6%
          and a volatility factor of 75% for 2000.
  
          On July 20, 1999, the Company also adopted an Employee Stock Purchase
          Plan ("the Purchase Plan"). A total of 200,000 shares of common stock
          was reserved for issuance under the purchase plan, plus annual increases
          equal to the lesser of:
  
            .    100,000 shares;
            .    1% of the outstanding shares on such a date; or
            .    a lesser amount determined by the board on the first day of each
                 fiscal year.
  
          The Purchase Plan, which is intended to qualify under Section 423 of the
          Internal Revenue Code of 1986, as amended, contains successive six-month
          offering periods. The offering periods generally start on the first
          trading day on or after May 1 and November 1 of each year, except for
          the first such offering period which commenced on the first trading day
          after the effective date of the Company's initial public offering and
          ended on the last trading day on or before October 31, 1999.
  
                                        F-17
  <PAGE>
  
                             EFFICIENT NETWORKS, INC.
                    Notes to Consolidated Financial Statements
                     June 30, 2000, 1999 and 1998 (continued)
  
  
          Generally, employees are eligible to participate if they are employed by
          the Company or any of its participating subsidiaries for at least 20
          hours per week and more than five months in any calendar year.
  
          Participants may purchase common stock through deductions of up to 10%
          of the participant's compensation. The maximum number of shares a
          participant may purchase during a single offering period is 500 shares.
  
          Amounts deducted and accumulated by the participant will be used to
          purchase shares of common stock at the end of each offering period. The
          price of stock purchased under the Purchase Plan is 85% of the lower of
          the fair market value of the common stock at the beginning of the
          offering period and at the end of each offering period.
  
          The Purchase Plan provides that, in the event of a merger of the Company
          with or into another corporation or a sale of substantially all of its
          assets, outstanding options may be assumed or substituted for by the
          successor corporation. If the successor corporation refuses to assume or
          substitute for the outstanding options, the offering period then in
          progress will be shortened and a new exercise date will be set, which
          will occur before the proposed sale or merger.
  
          The Purchase Plan will terminate in 2009. The Board of Directors has the
          authority to amend or terminate the Purchase Plan, except that no such
          action may adversely affect any outstanding rights to purchase stock.
  
          The Company applies APB Opinion No. 25 in accounting for stock options
          granted to employees and non-employee directors under its stock option
          plans. The Company recorded approximately $3.1 million, $13.1 million,
          and $3.1 million of deferred stock option compensation during each of
          the years ended June 30, 2000, 1999 and 1998, respectively, as a result
          of granting stock options with exercise prices below the estimated fair
          value per share of the Company's common stock at the date of grant.
          Deferred stock option compensation has been recorded as a component of
          stockholders' equity and is being amortized as a charge to operations
          over the vesting period of the applicable options. Amortization of
          deferred stock option compensation of $4.9 million, $3.1 million, and
          $1.2 million was recognized in the years ended June 30, 2000, 1999 and
          1998, respectively.
  
          Had the Company determined compensation cost related to stock-based
          awards to employees (including employee stock options and shares issued
          under the Purchase Plan, collectively called "Options") based on the
          estimated fair value of stock options at the grant date in accordance
          with SFAS No. 123, the Company's net loss would have been increased or
          decreased, as applicable, to the pro forma amounts indicated below:
  
                                        F-18
  <PAGE>
  
                             EFFICIENT NETWORKS, INC.
                    Notes to Consolidated Financial Statements
                     June 30, 2000, 1999 and 1998 (continued)
  
  <TABLE>
  <CAPTION>
                                                                        Year Ended June 30,
                                                                -----------------------------------
                                                                  2000          1999         1998
                                                                ---------    --------      --------
  <S>                                                           <C>         <C>           <C>
         Net loss:
  
           As reported                                          $(130,531)  $ (26,421)    $  (8,538)
           Pro forma                                            $(154,944)  $ (26,639)    $  (8,934)
         Basic and diluted net loss per share of common stock:
           As reported                                          $   (2.90)  $   (4.23)    $   (1.50)
           Pro forma                                            $   (3.44)  $   (4.20)    $   (1.57)
  </TABLE>
          Pro forma net loss reflects only stock options granted after June 30,
          1995. Therefore, the full impact of calculating compensation cost for
          Options under SFAS No. 123 is not reflected in the pro forma net loss
          amounts presented above because compensation cost is reflected over the
          Options' vesting periods of four years and compensation expense
          pertaining to Options granted in prior periods is not considered.
  
          Stock option activity for both the 1999 Plan and the 1993 Plan during
          the periods indicated is as follows:
  <TABLE>
  <CAPTION>
                                                                                 Weighted
                                                                 Number of       Average
                                                                   Shares     Exercise Price
                                                                ----------    --------------
  <S>                                                            <C>          <C>
               Balance at June 30, 1997                          3,596,000           0.19
                 Granted                                         1,631,000           0.58
                 Exercised                                        (448,125)          0.12
                 Forfeited                                        (344,458)          0.22
                                                                ----------
               Balance at June 30, 1998                          4,434,417           0.46
                 Granted                                         2,638,500           2.88
                 Exercised                                        (745,257)          2.24
                 Forfeited                                        (195,666)          1.01
                                                                ----------
               Balance at June 30, 1999                          6,131,994           1.39
                 Granted                                         6,741,700          58.77
                 Exercised                                      (1,593,268)          0.61
                 Forfeited                                        (883,622)         15.71
                                                                ----------
               Balance at June 30, 2000                         10,396,804          36.68
                                                                ==========
  </TABLE>
  
                                        F-19
  <PAGE>
  
                             EFFICIENT NETWORKS, INC.
                    Notes to Consolidated Financial Statements
                     June 30, 2000, 1999 and 1998 (continued)
  
         The following presents certain information about outstanding stock
  options at June 30, 2000:
  
  <TABLE>
  <CAPTION>
                                                Options Outstanding               Options Exercisable
                                        -------------------------------------    ---------------------
                                                                  Weighted                    Weighted
                                                                   Average                     average
                                         Number of   Exercise    contractual     Number of    Exercise
            Range of exercise price       options      price        life          Options       Price
            -----------------------     ----------   --------    ------------    ---------    --------
            <S>                         <C>          <C>         <C>             <C>          <C>
                $0.05-0.60               2,282,424   $   0.40      6.9 years     1,505,002     $  0.35
                $1.50-2.50               2,049,860   $   2.24      8.5 years       664,500     $  2.20
                $7.50-11.00                236,820   $  10.13      8.9 years         8,514     $  7.50
                $38.44-69.75             4,136,500   $  54.34      9.5 years             -           -
                $70.75-98.38             1,105,200   $  73.42      9.5 years             -           -
                $105.00-115.25             337,500   $ 108.91      9.8 years             -           -
                $121.25-174.50             248,500   $ 147.29      9.7 years                         -
                                        ----------                               ---------
                                        10,396,804                               2,178,016
                                        ==========                               =========
  </TABLE>
  
         At June 30, 2000, 1999 and 1998, the number of options exercisable was
         2,178,016, 2,117,604, and 1,625,531, respectively, and the weighted-
         average exercise price of those options was $0.94, $0.33, and $0.21,
         respectively.
  
         In May 1999, the Company effected the issuance of 150,000 shares of
         common stock to a board member-elect, in exchange for a $1.6 million, 6%
         demand note payable. The demand note was repaid with interest in July
         1999.
  
  (13)  Research and Development Arrangements
  
         In October 1997, the Company entered into a development and license
         agreement with a customer who owned preferred stock of the Company. The
         agreement obligated the Company to develop a product that meets mutually
         agreed upon specifications in exchange for $850,000. The Company has
         fulfilled its development obligations and the proceeds under the
         arrangement were offset against research and development expense during
         the year ended June 30, 1998.
  
         In November 1997, the Company entered into a development and marketing
         agreement with a customer. The agreement obligated the Company to develop
         a product in accordance with certain specifications and to provide
         114,068 shares of the Company's common stock for an aggregate purchase
         price of $300,000. The common stock issuance was recorded at estimated
         fair value of $300,000. The Company has fulfilled its development
         obligations.
  
  (14) Lease Commitments
  
         The Company leases certain property and equipment under capital leases,
         and certain other facilities and equipment is leased under noncancelable
         operating leases which expire at various dates.
  
         Rent expense on operating leases for the years ended June 30, 2000, 1999,
         and 1998 was approximately $2.1 million, $594,000, and $399,000,
         respectively. During the year ended June 30, 2000, the Company entered
         into capital leases for furniture for its new headquarters and certain
         other
  
                                        F-20
  <PAGE>
  
                             EFFICIENT NETWORKS, INC.
                    Notes to Consolidated Financial Statements
                     June 30, 2000, 1999 and 1998 (continued)
  
         manufacturing equipment. Future minimum lease payments under
         noncancelable operating leases and the present value of future minimum
         lease payments as of June 30, 2000 are:
  
  <TABLE>
  <CAPTION>
                                                                 Capital      Operating
                                                                 Leases         Leases
                                                                 ------         ------
          <S>                                                    <C>          <C>
          Years ended June 30:
               2001                                              $ 1,073        $ 4,349
               2002                                                1,065          3,999
               2003                                                1,065          3,920
               2004                                                  276          3,966
               2005                                                    7          4,105
               Thereafter                                              -         14,286
                                                                 -------        -------
                                                                   3,486        $34,625
                                                                                =======
               Less: amount representing interest                   (679)
                                                                 -------
               Present value of minimum lease payments           $ 2,807
                                                                  ======
  </TABLE>
  
          The Company leases certain equipment and office furniture under capital
          lease arrangements. At June 30, 2000 and 1999, the cost of assets
          acquired under such leases was approximately $3,419,000 and $0, and
          related accumulated amortization was approximately $170,000 and $0,
          respectively. Amortization of assets acquired under capital leases is
          included in depreciation expense.
  
  (15)  Income Taxes
  
          The Company has not recognized any tax benefits for its net operating
  loss carryforwards.
  
          Net deferred tax assets as of June 30, 2000 and 1999 are as follows (in
  thousands):
  
                                                                 2000      1999
          Deferred tax assets:                                 --------  --------
           Operating loss carry forwards.....................  $ 27,748  $ 17,275
           Receivables and inventory reserves................       589       136
           Accrued liabilities...............................        68       233
                                                               --------  --------
             Deferred tax assets.............................    28,405    17,644
             Valuation allowance.............................   (27,563)  (17,444)
                                                               --------  --------
                                                                    842       200
          Deferred tax liability - furniture and equipment...      (842)     (200)
                                                               --------  --------
                Net deferred tax assets......................  $      -  $      -
                                                               ========  ========
  
          The net change in the valuation allowance for the years ended June 30,
          2000 and 1999 was $10,119,000 and $8,133,000 respectively.
  
          As of June 30, 2000, the Company has net operating loss carryforwards of
          approximately $79.3 million which begin to expire in 2008. The Company
          believes that as a result of the Company's initial public offering in
          July 1999, and the resulting conversion of outstanding redeemable
          preferred stock into common stock, the Company has undergone an
          ownership change within the meaning of Section 382 of the Internal
          Revenue Code (IRC). As a result, the Company's ability to utilize its
  
                                        F-21
  <PAGE>
  
                             EFFICIENT NETWORKS, INC.
                    Notes to Consolidated Financial Statements
                     June 30, 2000, 1999 and 1998 (continued)
  
          operating loss carryforwards incurred prior to the ownership change are
          limited on an annual basis to an amount equal to the value of the
          Company, as defined by the IRC, as of the date of change of ownership,
          multiplied by the long-term tax exempt bond rate of 4.98%.
  
          MMD was incorporated as an S Corporation. The tax consequences of all
          profits and losses through June 30, 2000 were the responsibility of the
          shareholders of MMD. Accordingly, the Company has not provided for
          federal income taxes for MMD operations in the accompanying consolidated
          financial statements. Effective September 27, 2000, MMD converted to a C
          Corporation and the tax consequences subsequent to September 27, 2000
          are the responsibility of the Company. Upon conversion to a C
          Corporation, there were no significant differences between the financial
          statement carrying amounts of existing assets and liabilities and their
          respective tax bases.
  
  (16)  Statements of Cash Flows
  
          The Company paid cash interest of approximately $2.0 million, $0 and
          $4,000 during the fiscal years ended June 30, 2000, 1999, and 1998,
          respectively. No income taxes were paid during the years ended June 30,
          2000, 1999, and 1998. Non-cash financing transactions during the fiscal
          year ended June 30, 2000 included new capital lease obligations of $3.4
          million, the exchange of promissory notes of $13.4 million and related
          accrued interest for $14.0 million of redeemable convertible preferred
          stock, and the exchange of redeemable convertible preferred stock of
          $486.1 million for 34.6 million shares of common stock during the year
          ended June 30, 2000. In connection with the acquisition of FlowPoint,
          the Company exchanged 7.2 million shares of common stock and 6,300
          shares of redeemable convertible preferred stock with an aggregate value
          of $924.8 million, which was subsequently converted into 6.3 million
          shares of the Company's common stock, for the assets and liabilities of
          FlowPoint. In connection with the acquisition of Network TeleSystems,
          Inc., the Company exchanged 400,000 shares of common stock with an
          aggregate value of $18.4 million for all of the then outstanding common
          stock of Network TeleSystems, Inc. Non-cash financing transactions
          during the fiscal years ended June 30, 1999 and 1998 were $0 and
          approximately $1.0 million, respectively, in connection with the
          exchange of promissory notes and related interest for redeemable
          convertible preferred stock.
  
  (17)  Segment Information and Concentration of Credit Risk
  
          The Company operates in one reportable segment as it has one family of
          DSL and software related products and markets its products to network
          equipment vendors and DSL service providers. In fiscal 1998, the Company
          also developed and marketed asynchronous transfer mode ("ATM") network
          products which are no longer actively marketed by the Company. In May
          2000 the Company acquired Network TeleSystems, Inc., which develops and
          markets client services software. For management purposes, the Company
          does not disaggregate financial information by product or
          geographically, other than export sales by region and sales by product.
          Substantially all of the Company's assets are located within the United
          States. The Company does not account for, and does not report to
          management, its assets or capital expenditures by revenue source. All of
          the Company's products are produced in the United States. The Company
          grants credit to customers located in several geographical regions in
          North America, Europe and the Pacific Rim.
  
          The following represents sales to customers in each of those
          geographical regions as a percentage of total revenues, and revenues and
          gross margins by product line for the years ended June 30, 2000, 1999
          and 1998:
  
                                        F-22
  <PAGE>
  
                             EFFICIENT NETWORKS, INC.
                    Notes to Consolidated Financial Statements
                     June 30, 2000, 1999 and 1998 (continued)
  
  <TABLE>
  <CAPTION>
                        Geographic Region                     2000             1999         1998
          --------------------------------------------     ---------        ----------    -------
          <S>                                              <C>              <C>           <C>
          United States...............................          79%              67%          77%
          Europe......................................           6%              10%          17%
          Pacific Rim:
            Korea.....................................          11%              14%           1%
            Other.....................................           4%               9%           5%
  
                   Product line (in thousands)                2000             1999         1998
          --------------------------------------------     ----------       ----------    -------
          DSL and software related revenues...........     $  205,930       $   16,957    $ 4,278
          DSL and software related gross margin.......     $   49,726       $    3,580    $ 4,175
  
          ATM LAN revenues............................     $    1,018       $    1,913    $ 3,286
          ATM LAN gross margin........................     $      518       $      946    $ 1,229
  </TABLE>
  
          For the year ended June 30, 2000, revenues from individual customers
          amounted to 32%, 19%, and 10% of total revenues, and accounts receivable
          related to these customers at June 30, 2000 was approximately $28.9
          million, $18.8 million, and $16.6 million, respectively. For the year
          ended June 30, 1999, revenues from individual customers amounted to 23%,
          21% and 14% of total revenues, and accounts receivable related to
          these customers at June 30, 1999 was approximately $2.8 million,
          $385,000 and $2.6 million, respectively. For the year ended June 30,
          1998, revenues from an individual customer amounted to 55.4% of total
          revenues. During the year ended June 30, 2000, the Company had
          revenues of $11.6 million and a receivable balance at June 30, 2000 of
          $5.8 million from Cabletron Systems, Inc., a significant stockholder.
          The Company performs ongoing evaluations of its customers' financial
          conditions and generally does not require collateral.
  
                                        F-23
  <PAGE>
  
                     Independent Auditors' Report on Schedule
  
  The Board of Directors
  Efficient Networks, Inc.:
  
       Under date of November 9, 2000, we reported on the consolidated balance
  sheets of Efficient Networks, Inc. and subsidiaries as of June 30, 2000 and 1999
  and the related consolidated statements of operations, stockholders' equity
  (deficit), and cash flows for each of the years in the three-year period ended
  June 30, 2000. In connection with our audits of the aforementioned consolidated
  financial statements, we also audited the related consolidated financial
  statement schedule. This financial statement schedule is the responsibility of
  the Company's management. Our responsibility is to express an opinion on this
  financial statement schedule based on our audits.
  
       In our opinion, such consolidated financial statement schedule, when
  considered in relation to the basic consolidated financial statements taken as a
  whole, presents fairly, in all material respects, the information set forth
  therein.
  
                                                                    KPMG LLP
  
  Dallas, Texas
  November 9, 2000
  <PAGE>
  
                   SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
                                  (in thousands)
  
  <TABLE>
  <CAPTION>
                                                        Additions   Additions
                                         Balance at    charged to   charged to               Balance at
                                          Beginning     costs and     other                    end of
  Description                             of period     expenses     accounts    Deductions    period
                                          ---------    ----------   ---------    ----------  ----------
  <S>                                    <C>           <C>          <C>          <C>         <C>
  FOR THE YEAR ENDED JUNE 30, 2000
  Allowances Deducted from Assets
    Accounts receivable..............      $  120           921          780         (134)     $1,687
    Inventories......................         280           362          425           (2)      1,065
                                           ------        ------       ------       ------      ------
     Total Allowances Deducted from
        Assets.......................      $  400         1,283        1,205         (136)     $2,752
                                           ======        ======       ======       ======      ======
  
  FOR THE YEAR ENDED JUNE 30, 1999
  Allowances Deducted from Assets
    Accounts receivable..............      $   15           105            -            -      $  120
    Inventories......................         150           130            -            -         280
                                           ------        ------       ------       ------      ------
     Total Allowances Deducted from
        Assets.......................      $  165           235                         -      $  400
                                           ======        ======       ======       ======      ======
  
  FOR THE YEAR ENDED JUNE 30, 1998
  Allowances Deducted from Assets
    Accounts receivable..............      $   25            11            -          (21)     $   15
    Inventories......................          57           124            -          (31)        150
                                           ------        ------       ------       ------      ------
     Total Allowances Deducted from
        Assets.......................      $   82           135            -          (52)     $  165
                                           ======        ======       ======       ======      ======
  </TABLE>
metadata_documents: [{"type": "8-K", "sequence": "1", "filename": "0001.txt", "description": "FORM 8-K DATED SEPTEMBER 27, 2000", "secsgml_size_bytes": 133940}]
metadata_filer: {"company-data": {"conformed-name": "EFFICIENT NETWORKS INC", "cik": "0001085061", "assigned-sic": "4899", "irs-number": "752486865", "state-of-incorporation": "DE", "fiscal-year-end": "0630"}, "filing-values": {"form-type": "8-K", "act": "34", "file-number": "000-26473", "film-number": "1509599"}, "business-address": {"street1": "4849 ALPHA RD", "street2": "SUITE 1200", "city": "DALLAS", "state": "TX", "zip": "75244", "phone": "9729913884"}, "mail-address": {"street1": "4201 SPRING VALLEY ROAD", "street2": "SUITE 1200", "city": "DALLAS", "state": "TX", "zip": "75244"}}
text: UNITED STATES
                        SECURITIES AND EXCHANGE COMMISSION
                              Washington, D.C. 20549
                              __________________
  
                                     FORM 8-K
                              __________________
  
    Current Report Pursuant to Section 13 or 15(d) of the Securities Exchange
                                    Act of 1934
  
       Date of report (Date of earliest event reported): September 27, 2000
  
                             EFFICIENT NETWORKS, INC.
         -------------------------------------------------------------------
              (Exact name of registrant as specified in its charter)
  
                                     Delaware
         -------------------------------------------------------------------
                  (State or Other Jurisdiction of Incorporation)
  
             0-26473                                      75-2486865
         --------------------              ------------------------------------
    (Commission File Number)                (I.R.S. Employer Identification No.)
  
                                  4849 Alpha Road
                                 Dallas, TX 75244
         -------------------------------------------------------------------
           (Address of principal executive offices, including zip code)
  
                                   972-852-1000
         -------------------------------------------------------------------
               (Registrant's telephone number, including area code)
  
                                  Not Applicable
         -------------------------------------------------------------------
           (Former name or former address, if changed since last report)
  Item 5.  Other Events
  
          On September 27, 2000, Marquette Acquisition Corp., a Texas corporation
  ("Merger Sub"), which was a wholly-owned subsidiary of Efficient Networks, Inc.,
  a Delaware corporation ("Efficient," "we" or the "Registrant"), was merged (the
  "Merger") with and into MultiMedia Development Corporation, a Texas corporation
  ("MMD"), pursuant to an Agreement and Plan of Merger (the "Merger Agreement")
  dated September 20, 2000 by and among Efficient, Merger Sub, MMD, and Barry
  McConachie and Duane Schrodt (the "Shareholders"). The description contained in
  this Item 5 of the transactions consummated pursuant to the terms and conditions
  of the Merger Agreement is qualified in its entirety by reference to the full
  text of the Merger Agreement, a copy of which is attached to this Report as
  Exhibit 99.1.
  
          In the Merger, the Registrant issued 2,442,910 shares of its common
  stock to the Shareholders in exchange for all the common stock of MMD. At the
  effective time of the Merger, Merger Sub ceased to exist and MMD, as the
  surviving corporation in the Merger, became a wholly-owned subsidiary of
  Efficient.
  
          The Merger was intended to qualify as a tax-free reorganization under
  the Internal Revenue Code of 1986, as amended, and is being accounted for as a
  pooling-of-interests.
  
          Attached as Appendix A to this current report on Form 8-K are the
  Registrant's audited consolidated financial statements as of June 30, 2000 and
  1999 and for each of the years in the three-year period ended June 30, 2000, all
  of which have been restated to include the results of operations and financial
  position of MMD as if the two companies were combined as of the beginning of the
  earliest period presented. In addition, the Registrant has included the
  following, all of which have been restated to reflect the acquisition of MMD as
  of the beginning of the earliest period presented: the consolidated financial
  statement schedule for the three years ended June 30, 2000; selected
  consolidated financial data for the five years ended June 30, 2000; and
  management's discussion and analysis of consolidated financial condition and
  results of operations.
  
  Item 7.  Financial Statements, Pro Forma Financial Information and Exhibits
  
  (c)     Exhibits
  
          The following Exhibits are filed as part of this report:
  
          23.1   Consent of KPMG LLP
  
          27.1   Financial Data Schedule
  SIGNATURES
  
          Pursuant to the requirements of the Securities Exchange Act of 1934, the
  registrant has duly caused this report to be signed on its behalf by the
  undersigned hereunto duly authorized.
  
                                              EFFICIENT NETWORKS, INC.
  
  Date:  January 16, 2001
  
                                              By: /s/ Jill S. Manning
                                                 ---------------------------------
                                                 Jill S. Manning
                                                 Vice President and
                                                 Chief Financial Officer
  PAGE>
  
                                     Appendix A
  
                        Selected Consolidated Financial Data
                      (in thousands, except per shares data)
  
  The following selected consolidated financial data should be read in conjunction
  with our Consolidated Financial Statements and Notes thereto and "Management's
  Discussion and Analysis of Consolidated Financial Condition and Results of
  Operations" included elsewhere in this Form 8-K. The selected consolidated
  financial data has been restated to reflect the merger with MultiMedia
  Development Corporation, which has been accounted for as a pooling-of-interests.
  The statement of operations data for each of the years in the three-year period
  ended June 30, 2000, and the balance sheet data as of June 30, 2000 and 1999 is
  derived from our consolidated financial statements that have been included in
  this Form 8-K. The selected consolidated balance sheet data as of June 30, 1998,
  1997 and 1996 and the consolidated statement of operations data for the years
  ended June 30, 1997 and 1996 is derived from consolidated financial statements
  that have not been included in this Form 8-K.
  Year ended June 30,
                                                         ----------------------------------------------------------
                                                           1996         1997        1998        1999         2000
                                                         --------    --------     --------    --------   ----------
                                                                        (in thousands, except per
                                                                           share information)
  Consolidated  Statement of Operations Data:
  Net revenues......................................     $  4,248    $  6,478     $  7,564    $ 18,870   $  206,948
  Cost of revenues..................................        2,209       2,386        2,160      14,344      156,704
                                                         --------    --------     --------    --------   ----------
  Gross profit......................................        2,039       4,092        5,404       4,526       50,244
                                                         --------    --------     --------    --------   ----------
  Operating expenses:
     Sales and marketing............................        2,366       2,409        3,436       6,133       35,433
     Research and development.......................        4,027       5,256        7,861      11,858       29,924
     General and administrative.....................        1,082       1,245        1,641       1,993        9,384
     Stock option compensation......................          198         659        1,165       3,116        4,908
     Amortization  of and
       other intangible assets......................           --          --           --          --      100,431
     In-process research and
       development..................................           --          --           --          --        4,970
                                                         --------    --------     --------    --------   ----------
       Total operating expenses.....................        7,673       9,569       14,103      23,100      185,050
                                                         --------    --------     --------    --------   ----------
  Loss from operations..............................       (5,634)     (5,477)      (8,699)    (18,574)    (134,806)
  Interest and other income (expense),
     net............................................          179         150          161      (7,847)       4,275
                                                         --------    --------     --------    --------   ----------
  Net loss..........................................     $ (5,455)   $ (5,327)    $ (8,538)   $(26,421)   $(130,531)
                                                         ========    ========     ========    ========   ==========
  Basic and  diluted net loss per share
     (1)............................................     $  (1.03)   $  (0.97)    $  (1.50)   $  (4.23)  $    (2.90)
                                                         ========    ========     ========    ========   ==========
  Weighted average shares (1).......................        5,281       5,470        5,697       6,336       45,072
                                                         ========    ========     ========    ========   ==========
  
  Consolidated Balance Sheet Data:
  Cash and cash equivalents.........................     $  1,497    $  4,787     $  8,797    $  5,601   $  178,997
  Working capital...................................        3,007       6,063       10,308      14,978      604,830
  Total assets......................................        5,561       8,213       13,137      24,389    1,560,158
  Redeemable convertible preferred stock............       16,155      23,635       34,743      40,495           --
  Total stockholders' equity (deficit)..............      (11,254)    (15,914)     (22,925)    (36,581)   1,084,070
  _____________________________
  (1) Note 2 of Notes to Consolidated Financial Statements provides an explanation
      of the determination of the weighted average shares used to compute basic
      and diluted net loss per share.
  MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND
  RESULTS OF OPERATIONS
  
          The following discussion should be read in conjunction with the
  Consolidated Financial Statements and Notes thereto, as well as the other
  information included elsewhere in this Form 8-K.
  
  Overview
  
          Efficient is a worldwide independent developer and supplier of high-
  speed DSL customer premises equipment for the broadband access market. Our DSL
  solutions enable telecommunications and other network service providers to
  provide high-speed, cost-effective broadband access services over the existing
  copper wire telephone infrastructure to both business and residential markets.
  We therefore focus on developing and producing single- and multiple-user DSL
  customer premises equipment for small- to medium-size businesses, branch offices
  of large corporations and consumers. Our DSL products enable applications such
  as high-speed Internet access, electronic commerce, remote access, telecommuting
  and extensions of corporate networks to branch offices.
  
          On September 27, 2000, we acquired MultiMedia Development
  Corporation ("MMD"), a provider of network management, testing, simulation and
  signaling software products. MMD's technology is designed to provide high speed
  network carriers with the ability to manage broadband equipment from a number of
  different vendors. MMD's products are used to enable and automate the creation
  of ATM, or asynchronous transfer mode, and frame relay virtual circuits across
  complex networks. Primary customers include network service providers who create
  and manage large, high speed networks. MMD has industry alliances with many of
  the same broadband equipment vendors as Efficient Networks, including ADC,
  Copper Mountain, Cisco, Accelerated Networks, General Bandwidth, Marconi and
  others. MMD works closely with these companies to offer a seamless management
  platform that allows carriers to create end-to-end services and provision new
  customers rapidly, across a diverse set of equipment. MMD also provides
  signaling gateway products that help automate creation of connections in
  broadband networks, and help transfer signaling messages between broadband and
  narrowband networks.
  
          Under the terms of the agreement, each outstanding share of MMD common
  stock was exchanged for 2.44291 newly issued shares of common stock of the
  Company. This resulted in the issuance of 2,442,910 shares of our common stock.
  The transaction was accounted for as a pooling-of-interests and, accordingly,
  the financial position, results of operations and cash flows of MMD have been
  combined with those of the Company for the same dates and periods as if the
  entities had been combined from the earliest date presented.
  
          We were incorporated in June 1993. From inception through fiscal 1997,
  we primarily focused on developing and selling ATM-based products for local area
  network, or LAN, applications. ATM is a widely-used transmission technology that
  breaks data down into individual packets with unique identification and
  destination addresses and may be used to transmit data, voice and video within a
  network. During fiscal 1997 we began to leverage our ATM, personal computing
  environment and networking expertise to develop DSL modem products for high-
  speed Internet access. We have largely discontinued further development efforts
  on our ATM LAN products and are currently focusing on our DSL and software
  related products. We shipped our first DSL products in the third quarter of
  fiscal 1998. Our DSL and software related products, which accounted for less
  than 56.6% of net revenues in fiscal 1998, represented 89.9% of our net revenues
  in fiscal 1999 and 99.5% of our net revenues in fiscal 2000. We do not expect
  sales of our ATM LAN products to represent a material portion of our revenues or
  business in future periods.
  
          We derive our revenues primarily from sales of our SpeedStream family of
  DSL products. We sell our DSL products primarily to network service providers,
  network equipment vendors and telephone
  company-aligned distributors. For the fiscal year ended June 30, 2000, sales to
  SBC Communications represented 31.6% of our net revenues, sales to Covad
  Communications represented 19.2% of our net revenues, and sales to Hanaro
  Telecom represented 10.3% of our net revenues. For the fiscal year ended June
  30, 1999, sales to Covad Communications represented 23.2% of our net revenues,
  sales to MCI Worldcom represented 20.8% of our net revenues, and sales to Soon
  Cabling Ptc., Ltd. represented 13.8% of our net revenues. Our top ten customers
  for the fiscal years ended June 30, 1999 and 2000 accounted for 83.4% and 87.9%
  of our net revenues, respectively. We expect to continue to be dependent upon a
  relatively small number of large customers in future periods, although the
  specific customers may vary from period to period.
  
          Since inception, a significant portion of our revenues has been derived
  from customers located outside of the United States and we expect to continue to
  depend upon international sales. Revenues derived from customers outside the
  United States represented 32.7% of our net revenues in fiscal 1999 and 20.9% of
  our net revenues for the fiscal year ended June 30, 2000. We currently maintain
  a European sales office in Amsterdam and an Asian sales office in Singapore. We
  believe that in order to continue growing and attain profitability, we must
  continue to penetrate international markets. Accordingly, we will need to expand
  our international operations and to hire qualified personnel for these
  operations.
  
          To date, international sales have been denominated solely in U.S.
  dollars and, accordingly, we have not been exposed to fluctuations in non-U.S.
  currency exchange rates. In the future, a portion of our international sales may
  be denominated in currencies other than U.S. dollars, which would then expose us
  to gains and losses based upon exchange rate fluctuations.
  
          Since introduction, gross margins on our DSL products have been below
  our desired levels. The lower gross margins on our DSL products have been a
  result of manufacturing start-up costs and aggressive customer pricing given to
  quickly introduce products into the market. Recently our gross margins have
  improved as a result of improved manufacturing efficiencies and component and
  product cost reductions. While we are continuously focusing on cost reductions
  and other measures to improve our gross margins, we cannot be certain that our
  gross margins will continue to improve in future periods due to factors which
  include the product mix sold in any particular period, distribution channels,
  competitive pressures and levels of volume discounts.
  
          Our limited operating history in the DSL market makes it difficult to
  forecast our future operating results. To date, we have not achieved
  profitability in any quarter or annual period, and as of June 30, 2000, we had
  an accumulated deficit of $182.5 million. Although our net revenues have grown
  in recent quarters, we cannot be certain that our net revenues will increase at
  a rate sufficient to achieve and maintain profitability.
  
          For the fiscal years 1998, 1999 and 2000, we accrued an aggregate of
  $19.4 million in deferred stock option compensation. These amounts represent the
  difference between the exercise price of certain stock options granted during
  such periods and the deemed fair market value of our common stock at the time of
  such option grants. We are amortizing the deferred stock option compensation
  over the vesting periods of the applicable options, which is generally four
  years. We amortized deferred stock option compensation in the amounts of $1.2
  million, $3.1 million and $4.9 million in fiscal years 1998, 1999 and 2000,
  respectively. We expect to amortize the remaining deferred stock option
  compensation at the rate of approximately $1.0 million per quarter until fully
  amortized.
  
  Results of Operations
  
          The following table sets forth, for the periods presented, certain data
  from Efficient's consolidated statement of operations expressed as a percentage
  of net revenues.
  1998          1999           2000
                                                                 ----          ----           ----
  Net revenues.........................................          100.0%        100.0%         100.0%
  Cost of revenues.....................................           28.6          76.0           75.7
                                                                ------        ------         ------
  Gross profit.........................................           71.4          24.0           24.3
                                                                ------        ------         ------
  Operating expenses:
     Sales and marketing...............................           45.4          32.5           17.1
     Research and development..........................          103.9          62.8           14.5
     General and administrative........................           21.7          10.6            4.5
     Stock option compensation.........................           15.4          16.5            2.4
     Amortization of goodwill and other intangible assets           --            --           48.5
     In-process research and development...............             --            --            2.4
                                                                ------         -----          -----
         Total operating expenses......................          186.4         122.4           89.4
                                                                ------        ------         ------
  Loss from operations.................................         (115.0)        (98.4)         (65.1)
  Interest and other income (expense), net.............            2.1          41.6            2.1
                                                                ------        ------         ------
  Net loss.............................................         (112.9)%      (140.0)%        (63.0)%
                                                                ======        =======        =======
  Net Revenues
  
          Net revenues consist primarily of product sales, net of allowances for
  returns. Net revenues increased 996.7% to $206.9 million in fiscal 2000 from
  $18.9 million in fiscal 1999. Net revenues in fiscal 1999 reflected a 149.5%
  increase from the $7.6 million realized in fiscal 1998. DSL product and software
  related revenues increased from $4.3 million in fiscal 1998 to $17.0 million in
  fiscal 1999 and $205.9 million in 2000. The increases in DSL and software
  related product revenues from fiscal 1998 to fiscal 2000 reflect the continued
  market adoption of our DSL and software related products.
  
  Cost of Revenues
  
          Cost of revenues consists of amounts paid to third-party contract
  manufacturers, manufacturing start-up expenses and the personnel and related
  costs of our manufacturing operation. Cost of revenues increased 992.5% to
  $156.7 million in fiscal 2000, from $14.3 million in fiscal 1999. This compares
  to a 564.1% cost of revenues increase in fiscal 1999 as compared to the $2.2
  million in fiscal 1998. The increase from fiscal 1999 to 2000 and the increase
  from fiscal 1998 to fiscal 1999 reflect the substantial increase in DSL and
  software related product sales.
  
          Gross margin represented 24.3% of net revenues in fiscal 2000, compared
  to 24.0% of net revenues in fiscal 1999 and 71.4% of net revenues in fiscal
  1998. Gross margin on our DSL and software related products increased from 21.1%
  of the related revenues in fiscal 1999 to 24.2% of the related revenues for
  fiscal 2000. Our gross margin was higher in fiscal 2000, as compared to fiscal
  1999, due to lower production costs resulting from higher sales volumes and
  manufacturing efficiencies. Included in cost of revenues for the fiscal year
  ended June 30, 2000 are $1.0 million of one-time costs associated with a change
  in our contract manufacturer. Excluding these one-time costs, the gross margin
  for the fiscal year ended June 30, 2000 would have been 24.8%. Although we
  improved our gross margin in fiscal 2000, gross margin continued to be adversely
  affected in fiscal 2000 by expedite and other manufacturing start-up costs as
  well as aggressive pricing on our DSL products as we sought to rapidly introduce
  products and capture market share. We took a number of actions that were
  designed to bring our DSL products to market quickly, but which also adversely
  affected our gross margins. These actions included initial volume price
  discounts for key customers and incremental costs such as manufacturing
  start-up, expedite and other incremental shipping and handling charges
  associated with low volume manufacturing. We also added personnel to our
  manufacturing operations in anticipation of higher levels of business going
  forward. We expect that we will continue to incur higher than normal costs
  associated with the actions to bring our DSL products to market quickly and meet
  customers' aggressive DSL deployment schedules. While our goal is to improve our
  gross margin over
  the level achieved in fiscal 2000, there can be no assurance that we will be
  successful in our efforts. The primary factors that will determine the success
  of our efforts are the effectiveness of our cost reduction efforts as well as
  pricing pressures in the market for DSL CPE.
  
          In fiscal 2000, sales and related gross margins on our ATM LAN products
  were not significant. In fiscal year 1999, the higher costs incurred on our DSL
  products were partially offset by improved gross margins realized on our ATM LAN
  products. Gross margin on our ATM LAN products improved from 37.4% of related
  revenues in fiscal 1998 to 49.5% in fiscal 1999. The period-to-period increase
  in gross margins on our ATM LAN products was a result of manufacturing
  efficiencies achieved with these more mature products. As sales of our ATM LAN
  products continue to decline as a percentage of our total net revenues, any
  benefit of manufacturing efficiencies, cost reduction or other gross margin
  improvements in those products will have a diminishing beneficial effect on our
  overall gross margins.
  
  Sales and Marketing Expenses
  
          Sales and marketing expenses consist primarily of employee salaries,
  commissions and benefits, and advertising, promotional materials and trade show
  exhibit expenses. Sales and marketing expenses increased 477.7% from $6.1
  million in fiscal 1999 to $35.4 million in fiscal 2000. This compares to an
  increase of 78.5% in fiscal 1999 over the $3.4 million recorded in fiscal 1998.
  The increases in sales and marketing expenses in absolute amount from fiscal
  1998 through fiscal 2000 resulted primarily from sales and marketing activities
  associated with the launch of our DSL products. These launch costs included
  significant personnel-related expenses associated with increasing the size of
  our sales and marketing organization, and increased trade show activities and
  related travel expenses.
  
          Sales and marketing expenses represented 45.4% of net revenues in fiscal
  1998, 32.5% in fiscal 1999, and 17.1% in fiscal 2000. The decrease in sales and
  marketing expenses as a percentage of net revenues from fiscal 1998 through
  fiscal 2000 was a result of the rapid increase in DSL revenues. We expect sales
  and marketing expenses to increase in dollar amount in future periods as we
  continue to expand our domestic and international sales and marketing
  organization.
  
  Research and Development Expenses
  
          Research and development expenses consist primarily of personnel and
  related costs associated with our product development efforts, including
  third-party consulting and prototyping costs. Research and development expenses
  increased 152.4% from $11.9 million in fiscal 1999 to $29.9 million in fiscal
  2000. This compares to an increase of 50.8% in fiscal 1999 over the $7.9 million
  recorded in fiscal 1998. The substantial increase in research and development
  spending from period to period was primarily a result of increased personnel and
  related costs associated with a larger research and development organization, as
  well as design and prototype expenses incurred in connection with the roll-out
  of our DSL products. Additionally, research and development spending in fiscal
  1998 was partially offset by $850,000 of nonrecurring engineering expenses
  reimbursed by third parties. These amounts are treated as an offset to the
  related research and development spending. We received no such reimbursements in
  the fiscal 1999 and 2000 periods. Research and development expenses represented
  103.9% of net revenues in fiscal 1998, 62.8% in fiscal 1999, and 14.5% in fiscal
  2000. The decreases from 1998 to 2000 in research and development expenses as a
  percentage of net revenues was a result of the rapid increase in DSL revenues.
  We expect research and development expenses to increase in dollar amount in
  future periods as we continue to expand our research and development
  organization to develop new products and technologies.
  General and Administrative Expenses
  
          General and administrative expenses consist primarily of employee
  salaries and related expenses for executive, administrative and accounting
  personnel, facility costs, insurance costs and professional fees. General and
  administrative expenses increased 370.8% from $2.0 million in fiscal 1999 to
  $9.4 million in fiscal 2000. This compares to an increase of 21.5% in fiscal
  1999 over the $1.6 million recorded in fiscal 1998. The increases in absolute
  amount of general and administrative spending from period to period were
  primarily a result of increases in headcount associated with building our
  infrastructure. General and administrative expenses represented 21.7% of net
  revenues in fiscal 1998, 10.6% in fiscal 1999, and 4.5% in fiscal 2000. The
  decrease in general and administrative expenses as a percentage of net revenues
  from fiscal 1998 through fiscal 2000 reflects the rapid increase in DSL revenues
  during these periods. We expect general and administrative expenses to increase
  in dollar amount in future periods as we continue to build our infrastructure
  and as a result of operating as a publicly-held company.
  
  Stock Option Compensation
  
          Stock option compensation reflects the difference between the exercise
  price of stock options granted and the deemed fair market value of our common
  stock on the dates of grant. For the fiscal years ended June 30, 1998, 1999 and
  2000, we recorded aggregate deferred stock option compensation of $3.1 million,
  $13.1 million, and $3.1 million respectively in connection with stock option
  grants. Amortization of deferred stock option compensation was $1.2 million in
  fiscal 1998, $3.1 million in fiscal 1999, and $4.9 million in fiscal 2000. We
  expect to amortize the deferred stock option compensation at the rate of
  approximately $1.0 million per quarter until fully amortized. See Note 12 of
  Notes to Consolidated Financial Statements for a discussion of our deferred
  stock option compensation. Prior to our initial public offering in July 1999,
  there was no market for our common stock, and option prices were determined by
  the board of directors based upon numerous factors. Upon review in connection
  with our initial public offering, it was determined that the fair market value
  on the date of grant of certain options was higher than originally determined by
  the board of directors. Beginning with our initial public offering, we generally
  price options based upon the public market price of our common stock at the date
  of option grant. In some circumstances, we may price options as of the date an
  employee joins Efficient, which can result in a stock option compensation
  expense to the extent that the fair market value on the date of grant is greater
  than the fair market value on the employee's start date.
  
  Interest Income and Interest Expense and Other, Net
  
          Interest income consists primarily of interest earned on cash and cash
  equivalents and short-term investments. Interest income increased in fiscal 2000
  compared to fiscal 1999 and 1998 as a result of interest earned primarily from
  the net cash proceeds received in connection with the completion of our initial
  public offering on July 15, 1999, the follow-on public offering on February 8,
  2000, and the placement of convertible subordinated notes on March 7, 2000.
  Interest expense consists primarily of interest incurred on the convertible
  subordinated notes, as well as interest on capital lease obligations.
  
          On March 7, 2000 we issued $400 million of convertible subordinated
  notes due March 15, 2005. The notes bear interest at an annual rate of 5%. The
  notes are convertible at any time prior to maturity into shares of common stock
  at a conversion price of $181.00 per share. The notes are redeemable on or after
  March 20, 2003 at 101.25% during the period beginning on March 20, 2003 and
  ending on March 14, 2004, and at 100.00% beginning on March 15, 2004 and
  thereafter. Issuance costs of $12.6 million, which are included as a deferred
  charge in other assets, are being amortized over the term of the notes. Interest
  expense in fiscal 2000 relates primarily to the subordinated convertible notes
  and capital lease obligation commitments issued in fiscal 2000.
  In the second half of fiscal 1999, we borrowed $9.0 million from certain
  investors. These notes carried an interest rate of 10% per year, and were
  payable on the earlier of January 2002 or the completion of an initial public
  offering. In connection with these notes, we issued the investors warrants to
  purchase 3,082,191 shares of Series H preferred stock at an exercise price of
  $2.92 per share. The proceeds were allocated between the notes and the warrants
  based on their pro rata fair values resulting in a discount. The discount was
  amortized as interest expense over six months, which represented the expected
  terms of the promissory notes. The promissory notes converted into preferred
  stock which then converted into common stock upon completion of our initial
  public offering in July, 1999. In addition, in June 1999, we borrowed an
  additional $5.0 million from Covad Communications Group, Inc. The Covad note
  carried an interest rate of 8% per year, and the principal amount and interest
  on the note converted into an aggregate of 497,663 shares of common stock upon
  completion of our initial public offering in July 1999. In future periods we
  expect interest income and interest expense and other, net to vary depending
  upon changes in the amount and mix of interest-bearing investments outstanding
  during each period.
  
  Income Taxes
  
          From inception through June 30, 2000, we incurred net losses for federal
  and state tax purposes and have not recognized any tax provision or benefit. As
  of June 30, 2000, we had approximately $79.3 million of federal net operating
  loss carryforwards to offset future taxable income which will begin to expire in
  varying amounts beginning in 2008. Given our limited operating history, losses
  incurred to date and the difficulty in accurately forecasting our future
  results, management does not believe that the recognition of the related
  deferred income tax asset meets the criteria required by generally accepted
  accounting principles. Accordingly, a 100% valuation allowance has been
  recorded. Furthermore, as a result of changes in Efficient's equity ownership
  resulting from Efficient's redeemable convertible preferred stock and note
  financings and Efficient's initial public offering, utilization of the net
  operating losses and tax credits may be subject to substantial annual
  limitations due to the ownership change limitations provided by the Internal
  Revenue Code of 1986, as amended, and similar state provisions. The annual
  limitation may result in the expiration of net operating losses and tax credits
  before utilization. See Note 15 of Notes to Consolidated Financial Statements.
  
  Liquidity and Capital Resources
  
          Since inception, we have financed our operations primarily through the
  sale of preferred equity securities and, beginning in the second half of fiscal
  1999, through borrowings from our investors and others. Since inception through
  June 30, 2000, net of transaction expenses, we have raised an aggregate of $40.4
  million from the private sale of equity securities, $245.9 million from the
  public sale of equity securities, and an additional $414.0 million through loan
  transactions, as more fully described below.
  
          On July 15, 1999, we completed our initial public offering. We issued
  4.6 million shares of common stock and raised $63.1 million in net proceeds.
  Upon the completion of our initial public offering, our then outstanding
  promissory notes converted into redeemable convertible preferred stock, and all
  then outstanding redeemable convertible preferred stock converted into 28.3
  million shares of common stock. On February 8, 2000, we completed a follow-on
  public offering. We issued 2.8 million shares of common stock and raised $183.2
  million in net proceeds. On March 7, 2000, we completed the private placement of
  $400 million of convertible subordinated notes. Issuance costs of $12.6 million
  are being amortized over the term of the notes.
  
          At June 30, 2000, we had cash and cash equivalents and highly liquid
  short-term investments of $505.7 million. At June 30, 2000, we did not have a
  line of credit or other borrowing facility available. Lease commitments include
  a lease for office space, furniture and equipment for our new corporate
  headquarters in Dallas, Texas. The office lease commenced in January 2000 and
  expires in 2010 with annual lease payments of approximately $2.7 million. The
  furniture and equipment lease commenced in February 2000 and expires in 2003
  with annual lease payments of approximately $1.0 million.
  
          Cash used in operating activities in fiscal 2000 was $130.3 million.
  Cash used in operating activities was $22.6 million in fiscal 1999 and $6.8
  million in fiscal 1998. Cash used in operating activities has primarily
  represented increases in inventories, receivables, and an inventory deposit in
  fiscal 2000. In June 2000, we advanced $50 million to ACT Manufacturing to
  finance the purchase of raw materials for products to be manufactured by ACT
  Manufacturing for us. See Note 6 of Notes to Consolidated Financial Statements.
  
          Cash used in investing activities in fiscal 2000 was $331.3 million.
  $325.7 million of cash was used, net of proceeds from sales and maturities, to
  purchase highly liquid short-term investments, and $17.6 million of cash was
  used to purchase fixed assets, which was offset by cash received of $10.9
  million and $1.2 million in connection with the acquisitions of FlowPoint
  Corporation and Network TeleSystems, Inc., respectively. Cash used for investing
  activities was $1.7 million in fiscal 1999 and $589,000 in fiscal 1998 for
  purchases of fixed assets. In each of the fiscal years 2000, 1999 and 1998
  purchases of fixed assets related primarily to the purchase of computers and
  other equipment used in our development activities and other equipment and
  furniture used in our operations.
  
          Cash provided by financing activities in fiscal 2000 was $635.0 million,
  consisting of funds raised from our initial and follow-on public offerings of
  common stock on July 15, 1999 and February 8, 2000, respectively, as well as the
  private placement of $400 million of convertible subordinated notes on March 7,
  2000. Cash provided by financing activities was $21.1 million in fiscal 1999 and
  $11.4 million in fiscal 1998. See Notes to Consolidated Financial Statements for
  a description of the loan and equity transactions. In fiscal 1999 and 1998,
  financing activities consisted primarily of the private placement of redeemable
  convertible preferred stock, and borrowings from our investors.
  
          Our future capital requirements will depend upon a number of factors,
  including the timing and level of research and development activities and sales
  and marketing campaigns. We believe that our cash and cash equivalents and
  short-term investments will provide sufficient capital to fund our operations at
  least through the end of fiscal 2001. Thereafter, we may require additional
  capital to fund our business. In addition, from time to time we evaluate
  opportunities to acquire complementary technologies or companies. Should we
  identify any such opportunities, we may need to raise additional capital to fund
  the acquisitions. There can be no assurance that financing will be available to
  us when we need it on favorable terms or at all.
  Independent Auditors' Report
  
  The Board of Directors
  Efficient Networks, Inc.:
  
          We have audited the accompanying consolidated balance sheets of
  Efficient Networks, Inc. and subsidiaries as of June 30, 2000 and 1999, and the
  related consolidated statements of operations, stockholders' equity (deficit),
  and cash flows for each of the years in the three-year period ended June 30,
  2000. These consolidated financial statements are the responsibility of the
  Company's management. Our responsibility is to express an opinion on these
  consolidated financial statements based on our audits.
  
          We conducted our audits in accordance with auditing standards generally
  accepted in the United States of America. Those standards require that we plan
  and perform the audit to obtain reasonable assurance about whether the financial
  statements are free of material misstatement. An audit includes examining, on a
  test basis, evidence supporting the amounts and disclosures in the financial
  statements. An audit also includes assessing the accounting principles used and
  significant estimates made by management, as well as evaluating the overall
  financial statement presentation. We believe that our audits provide a
  reasonable basis for our opinion.
  
          In our opinion, the consolidated financial statements referred to above
  present fairly, in all material respects, the financial position of Efficient
  Networks, Inc. and subsidiaries as of June 30, 2000 and 1999, and the results of
  their operations and their cash flows for each of the years in the three-year
  period ended June 30, 2000, in conformity with accounting principles generally
  accepted in the United States of America.
  
                                                                       KPMG LLP
  
  Dallas, Texas
  November 9, 2000
  
                                        F-1
  EFFICIENT NETWORKS, INC.
                                Consolidated Balance Sheets
                            Years ended June 30, 2000 and 1999
                             (in thousands, except share data)
  Assets                                          2000             1999
                                                                       -------------     -------------
  Current assets:
     Cash and cash equivalents                                        $   178,997       $     5,601
     Short-term investments                                               326,742                --
     Accounts receivable, net of allowances for doubtful
       accounts of $1,687 and $120 at June 30, 2000 and
       1999, respectively                                                  91,687            10,743
     Inventory deposit                                                     50,000                --
     Inventories                                                           29,759             5,472
     Other current assets                                                   1,665               241
                                                                      -----------       -----------
         Total current assets                                             678,850            22,057
  Furniture and equipment, net                                             21,022             2,303
  Goodwill and other intangible assets, net of accumulated
     amortization of $100,432                                             843,176                --
  Other assets, net                                                        17,110                29
                                                                      -----------       -----------
                                                                      $ 1,560,158       $    24,389
                                                                      ===========       ===========
  
            Liabilities, Redeemable Convertible
     Preferred Stock and Stockholders' Equity (Deficit)
  Current liabilities:
     Accounts payable                                                 $    22,640       $     4,113
     Accrued liabilities                                                   41,366             2,230
     Current portion of capital lease obligations                             738                --
     Deferred revenue                                                       9,275               736
                                                                      -----------       -----------
         Total current liabilities                                         74,019             7,079
  Convertible subordinated notes                                          400,000                --
  Capital lease obligations, net of current portion                         2,069                --
  Long-term debt, net of discount                                              --            13,396
                                                                      -----------       -----------
         Total liabilities                                                476,088            20,475
                                                                      -----------       -----------
  Redeemable convertible preferred stock                                       --            40,495
  Commitments and contingencies Stockholders' equity (deficit):
  
     Preferred stock, 9,993,700 shares authorized; none
       outstanding
     Common stock, par value $.001 per share, 200,000,000
       shares authorized; 58,182,566 and 6,805,131 shares
       issued and outstanding in 2000 and 1999, respectively                   58                 6
     Additional paid-in capital                                         1,275,525            29,785
     Deferred stock option compensation                                    (9,989)          (14,606)
     Accumulated deficit                                                 (182,524)          (51,766)
     Accumulated other comprehensive income                                 1,000                --
                                                                      -----------       -----------
         Total stockholders' equity (deficit)                           1,084,070           (36,581)
                                                                      -----------       -----------
                                                                      $ 1,560,158       $    24,389
                                                                      ===========       ===========
  See accompanying notes to consolidated financial statements.
  
                                        F-2
  EFFICIENT NETWORKS, INC.
                      Consolidated Statements of Operations
                     Years ended June 30, 2000, 1999 and 1998
                       (in thousands, except per data share)
  2000          1999           1998
                                                             ----------    ----------     -----------
  Net revenues                                               $  206,948    $   18,870     $    7,564
  Cost of revenues                                              156,704        14,344          2,160
                                                             ----------    ----------     ----------
     Gross profit                                                50,244         4,526          5,404
                                                             ----------    ----------     ----------
  Operating expenses:
     Sales and marketing                                         35,433         6,133          3,436
     Research and development                                    29,924        11,858          7,861
     General and administrative                                   9,384         1,993          1,641
     Stock option compensation                                    4,908         3,116          1,165
     Amortization of goodwill and other intangible assets       100,431            --             --
     In-process research and development                          4,970            --             --
                                                             ----------    ----------     ----------
       Total operating expenses                                 185,050        23,100         14,103
                                                             ----------    ----------     ----------
       Loss from operations                                    (134,806)      (18,574)        (8,699)
  Interest income                                                12,188           255            177
  Interest expense and other, net                                (7,913)       (8,102)           (16)
                                                             ----------    ----------     ----------
  
       Net loss                                              $ (130,531)   $  (26,421)    $   (8,538)
                                                             ==========    ==========     ==========
       Basic and diluted net loss per share of common
         stock                                               $    (2.90)   $    (4.23)    $    (1.50)
                                                             ==========    ==========     ==========
       Weighted-average shares of common stock outstanding       45,072         6,336          5,697
                                                             ==========    ==========     ==========
  See accompanying notes to consolidated financial statements.
  
                                        F-3
  EFFICIENT NETWORKS, INC.
             Consolidated Statement of Stockholders' Equity (Deficit)
                     Years ended June 30, 2000, 1999 and 1998
                         (in thousands, except share data)
  Accumulated        Total
                                                                           Deferred                          other       stockholders'
                                        Common stock       Additional     stock option    Accumulated    comprehensive      equity
                                    -------------------
                                      Shares    Amount   paid-in capital  compensation      deficit         income         (deficit)
                                    ----------  -------  ---------------  ------------    -----------    -------------   ------------
  Balance at June 30, 1997           5,497,681  $     5    $     3,725    $     (2,837)   $   (16,807)   $           -   $   (15,914)
      Issuance of common
        stock under stock
        option plan                    448,125        1             61               -              -                -            62
      Issuance of common stock         114,068        -            300               -              -                -           300
      Deferred stock option
        compensation                         -        -          3,143          (3,143)             -                -             -
      Amortization of
        deferred stock
        option compensation                  -        -              -           1,165              -                -         1,165
      Net loss                               -        -              -               -         (8,538)               -        (8,538)
                                    ----------  -------    -----------    ------------    -----------    -------------   -----------
  Balance at June 30, 1998           6,059,874        6          7,229          (4,815)       (25,345)               -       (22,925)
      Issuance of common
        stock under stock
        option plan                    745,257        -          1,683               -              -                -         1,683
      Stock options forfeited                -        -           (223)            223              -                -             -
      Issuance of warrants                   -        -          6,173               -              -                -         6,173
      Convertible promissory note            -        -          2,143               -              -                -         2,143
      Deferred stock option
        compensation                         -        -         13,130         (13,130)             -                -             -
      Amortization of
        deferred stock
        option compensation                  -        -              -           3,116              -                -         3,116
      Accretion of issuance
        costs on redeemable
        convertible preferred
        stock                                -        -           (350)              -              -                -          (350)
      Net loss                               -        -              -               -        (26,421)               -       (26,421)
                                    ----------  -------    -----------    ------------    -----------    -------------   -----------
  Balance at June 30, 1999           6,805,131        6         29,785         (14,606)       (51,766)               -       (36,581)
      Comprehensive income (loss):
        Net loss                             -        -              -               -       (130,531)               -      (130,531)
        Unrealized net gains on
          securities                         -        -              -               -              -            1,000         1,000
                                                                                                                         -----------
      Comprehensive loss                     -        -              -               -              -                -      (129,531)
      Issuance of common
        stock under stock
        option plan                  1,799,755        2            976               -              -                -           978
      Stock options forfeited                -        -         (2,837)          2,837              -                -             -
      Issuance of common stock       7,377,800        7        246,887               -              -                -       246,894
      Stock issued in connection
        with acquisition of
        FlowPoint Corporation        7,200,000        7        493,193               -              -                -       493,200
      Stock issued in connection
        with acquisition of Network
        TeleSystems, Inc.              400,000        1         18,368               -              -                -        18,369
      Conversion of subordinated
        notes                        3,579,650        4         14,018               -              -                -        14,022
      Conversion of redeemable
        preferred stock             31,020,230       31        472,007               -              -                -       472,038
      Distributions paid to
        MultiMedia Development
        Corporation Shareholders             -        -              -               -           (227)               -          (227)
      Deferred stock option
        compensation                         -        -          3,128          (3,128)             -                -             -
      Amortization of
        deferred stock
        option compensation                  -        -              -           4,908              -                -         4,908
                                    ----------  -------    -----------    ------------    -----------    -------------   -----------
  Balance at June 30, 2000          58,182,566  $    58    $ 1,275,525    $     (9,989)   $  (182,524)   $       1,000   $ 1,084,070
                                    ==========  =======    ===========    ============    ===========    =============   ===========
  See accompanying notes to consolidated financial statements.
  
                                        F-4
  EFFICIENT NETWORKS, INC.
                      Consolidated Statements of Cash Flows
                          Years ended June 30, 2000, 1999
                              and 1998 (in thousands)
  2000            1999             1998
                                                                  ----------      ----------        ----------
  Cash flows from operating activities:
     Net loss                                                     $ (130,531)     $  (26,421)       $   (8,538)
     Adjustments to reconcile net loss to net cash used in
       operating activities:
          Depreciation and amortization                                2,313             826               736
          Amortization of deferred stock option
            compensation                                               4,908           3,116             1,165
          Accretion of discount on subordinated
            promissory notes                                             604           7,712                --
          Accretion of deferred issuance costs on
            convertible subordinated notes                               797              --                --
          Amortization of goodwill and other
     intangible assets                                               100,431              --                --
          In-process research and development                          4,970              --                --
     Changes in operating assets and liabilities, net
            of acquisitions:
          Account receivable, net                                    (70,855)        (11,031)             (569)
          Inventory deposit                                          (50,000)             --                --
          Inventories                                                (23,053)         (4,574)             (304)
          Other assets and liabilities                                (6,513)             49              (201)
          Accounts payable and accrued liabilities                    28,418           7,031               925
          Deferred revenue                                             8,201             736                --
                                                                  ----------      ---------         ----------
            Net cash used in operating activities                   (130,310)        (22,556)           (6,786)
                                                                  ----------      ----------        ----------
  Cash flows used in investing activities:
     Purchases of furniture and equipment                            (17,649)         (1,714)             (589)
     Purchases of investments                                       (486,083)             --                --
     Proceeds from sales and maturities of investments               160,342              --                --
     Net cash received in connection with purchases of:
  
       FlowPoint Corporation                                          10,916              --                --
       Network TeleSystems, Inc                                        1,188              --                --
                                                                  ----------      ----------        ----------
            Net cash used in investing activities                   (331,286)         (1,714)             (589)
                                                                  ----------      ----------        ----------
  Cash flows from financing activities:
     Principal payments on capital lease obligations                     (53)            (11)              (78)
     Proceeds from issuance of convertible subordinated
       notes                                                         400,000              --                --
     Payment of issuance costs for convertible
       subordinated notes                                            (12,600)             --                --
     Proceeds from issuance of promissory notes and
       warrants                                                           --          14,000             1,000
     Proceeds from issuance of common stock                          247,872           1,683               362
     Proceeds from issuance of preferred stock                            --           5,402            10,101
     Distributions to MultiMedia Development Corporation
       shareholders                                                     (227)             --                --
                                                                  ----------      ----------        ----------
       Net cash provided by financing activities                     634,992          21,074            11,385
                                                                  ----------      ----------        ----------
  Increase (decrease) in cash and cash equivalents                   173,396          (3,196)            4,010
  Cash and cash equivalents at beginning of year                       5,601           8,797             4,787
                                                                  ----------      ----------       -----------
  Cash and cash equivalents at end of year                        $  178,997      $    5,601        $    8,797
                                                                  ==========      ==========        ==========
  See accompanying notes to consolidated financial statements.
  
                                        F-5
  EFFICIENT NETWORKS, INC.
                    Notes to Consolidated Financial Statements
                           June 30, 2000, 1999 and 1998
  
  (1)  Incorporation and Nature of Business
  
          Efficient Networks, Inc. (the "Company") was incorporated under the laws
          of the State of Delaware on June 10, 1993. The Company is a worldwide
          developer and supplier of high speed digital subscriber line ("DSL")
          customer premises equipment for the high speed, high volume digital
          communication, or broadband, access market.
  
          In September 2000, the Company acquired MultiMedia Development
          Corporation ("MMD"). The consolidated financial statements give
          retroactive effect to the merger of a wholly owned subsidiary of the
          Company into MMD on September 27, 2000, which has been accounted for as
          a pooling-of-interests as described in Note 4 to the consolidated
          financial statements.
  
  (2)  Summary of Significant Accounting Policies
  
        (a)    Principles of Consolidation
  
                The consolidated financial statements include the accounts of the
                Company and its wholly-owned subsidiaries. All significant
                intercompany accounts and transactions have been eliminated in
                consolidation.
  
       (b)     Cash Equivalents
  
                Cash equivalents consist primarily of investment accounts
                comprised of investments in commercial paper, repurchase
                agreements and money market funds. For purposes of the statements
                of cash flows, the Company considers all highly liquid investments
                with original maturities of three months or less to be cash
                equivalents.
  
       (c)     Investments
  
                The Company accounts for investments in marketable securities in
                accordance with the provisions of Statement of Financial
                Accounting Standards No. 115 "Accounting for Certain Investments
                in Debt and Equity Securities". Marketable securities are composed
                primarily of government and corporate fixed income securities. The
                Company classifies all of its marketable securities as available
                for sale. These securities are carried at fair value, with the
                unrealized gains and losses, net of income taxes, reported as a
                component of comprehensive income (loss).
  
       (d)     Inventories
  
                Inventories are stated at the lower of average cost or market
                (net realizable value).
  
                                        F-6
  EFFICIENT NETWORKS, INC.
                    Notes to Consolidated Financial Statements
                     June 30, 2000, 1999 and 1998 (continued)
  
       (e)     Furniture and Equipment
  
                 Furniture and equipment are stated at cost. Equipment acquired
                 under capital leases is stated at the present value of minimum
                 lease payments. Depreciation on plant and equipment is calculated
                 on the straight-line method over the estimated useful lives of
                 the assets. Plant and equipment held under capital leases and
                 leasehold improvements are amortized on a straight-line basis
                 over the shorter of the lease term or estimated useful life of
                 the asset. The estimated useful lives are as follows:
  
                                                                        Years
                                                                       -------
                            Computers................................      5
                            Software.................................      3
                            Equipment................................      5
                            Furniture and fixtures...................      7
  
       (f)     Income taxes
  
                 Income taxes are accounted for under the asset and liability
                 method. Deferred tax assets and liabilities are recognized for
                 the future tax consequences attributable to differences between
                 the financial statement carrying amounts of existing assets and
                 liabilities and their respective tax bases and operating loss and
                 tax credit carryforwards. Deferred tax assets and liabilities are
                 measured using enacted tax rates expected to apply to taxable
                 income in the years in which those temporary differences are
                 expected to be recovered or settled. The effect on deferred tax
                 assets and liabilities of a change in tax rates is recognized in
                 income in the period that includes the enactment date.
  
       (g)     Revenue Recognition
  
                 Revenue from product sales is generally recognized upon shipment
                 to customers. Reserves for estimated sales returns and allowances
                 are recorded in the same period as the related revenues. Revenue
                 related to sales transactions that provide the customer with the
                 right to return product is either fully or partially deferred,
                 depending on the Company's experience with the customer, until
                 the related products are deployed by the customer and/or the
                 return privileges expire.
  
                 Deferred revenue of $9.3 million and $736,000 at June 30, 2000
                 and 1999, respectively, primarily relates to shipments of product
                 to customers where title and risk of ownership has passed to the
                 customer, but revenue recognition has been deferred due to
                 certain stock balancing and right of return privileges granted to
                 the customer. Deferred revenue also includes maintenance revenue
                 that is recognized ratably over the related maintenance term.
  
                 Revenue from services is recorded in the period services are
                 provided to customers.
  
       (h)     Stock-Based Compensation
  
                 The Company applies the intrinsic value-based method of
                 accounting prescribed by Accounting Principles Board ("APB")
                 Opinion No. 25, Accounting for Stock Issued to
  
                                        F-7
  EFFICIENT NETWORKS, INC.
                    Notes to Consolidated Financial Statements
                     June 30, 2000, 1999 and 1998 (continued)
  
                 Employees, and related interpretations, in accounting for its
                 fixed plan stock options. As such, compensation expense is
                 recorded on the date of grant only if the current market price of
                 the underlying stock exceeds the exercise price.
  
       (i)     Impairment of Long-Lived Assets and Long-Lived Assets to be
               Disposed
  
                 Long-lived assets and certain identifiable intangibles are
                 reviewed for impairment whenever events or changes in
                 circumstances indicate that the carrying amount of an asset may
                 not be recoverable. Recoverability of assets to be held and used
                 is measured by a comparison of the carrying amount of an asset to
                 future net cash flows expected to be generated by the asset.
                 Assets to be disposed of are reported at the lower of the
                 carrying amount or fair value less costs to sell.
  
       (j)     Net Loss Per Share of Common Stock
  
                 Basic earnings (loss) per share is computed by dividing net
                 income or loss by the weighted average number of shares of the
                 Company's common stock outstanding during the period. Diluted
                 earnings (loss) per share is determined in the same manner as
                 basic earnings (loss) per share except that the number of shares
                 is increased assuming exercise of dilutive stock options and
                 warrants using the treasury stock method and conversion of the
                 Company's redeemable convertible preferred stock. The diluted
                 loss per share amount is the same as basic loss per share since
                 the Company has a net loss in each of the periods presented and
                 the impact of the assumed exercise of the stock options and
                 warrants and the assumed preferred stock conversion is
                 antidilutive. Common stock equivalents (in thousands) of 6,818,
                 29,007, and 21,624 shares for the years ended June 30, 2000,
                 1999, and 1998, respectively, were excluded from the calculation
                 of diluted loss per share as their inclusion would be
                 antidilutive.
  
                 The following table presents the calculation of basic and diluted
                 loss per share (in thousands, except per share amounts):
  Year Ended June 30,
                                                                  ----------------------------------
                                                                    2000         1999         1998
                                                                  -------      --------      -------
  Net loss                                   $(130,531)   $(26,421)    $ (8,538)
                       Accretion of issuance costs on
                          redeemable convertible preferred
                          stock                                         --         (350)          --
                                                                  ---------    --------     --------
                       Net loss available to common
                          stockholders                            $(130,531)   $(26,771)    $ (8,538)
                                                                  =========    ========     ========
                       Weighted average shares outstanding           45,072       6,336        5,697
                                                                   ========    ========     ========
  
                       Basic and diluted net loss per share       $   (2.90)   $  (4.23)   $   (1.50)
                                                                  =========    ========     ========
  (k)     Fair Value of Financial Instruments
  
                 The carrying values of cash equivalents, accounts receivable and
                 accounts payable approximate fair value due to their short
                 maturities. The estimated fair value, which is based
  
                                        F-8
  EFFICIENT NETWORKS, INC.
                    Notes to Consolidated Financial Statements
                     June 30, 2000, 1999 and 1998 (continued)
  
                 on quoted dealer prices, of the convertible subordinated notes
                 outstanding at June 30, 2000 (see Note 10) was $300.2 million.
  
                 The estimated fair values of the convertible promissory notes and
                 subordinated promissory notes and related warrants as of June 30,
                 1999 were approximately $6,803,000 and $40,294,000 respectively.
                 These fair values were determined using a valuation model with
                 the following assumptions: a volatility factor of 40% obtained
                 from the stock price volatility experienced by certain of the
                 Company's principal competitors; a risk-free interest rate of
                 5.71%; the contractual term of the respective notes; the
                 estimated fair value of the Company's common stock ($12.00 at
                 June 30, 1999); and the exercise price of the detachable
                 warrants.
  
          (l)  Comprehensive Income
  
                 On July 1, 1998, the Company adopted SFAS No. 130, Reporting
                 Comprehensive Income, which establishes standards for reporting
                 and presentation of comprehensive income and its components in
                 the financial statements. Comprehensive income (loss) includes
                 all changes in equity during a period except those resulting from
                 investments by and distributions to owners. In addition to net
                 loss from operations, elements of comprehensive loss for the year
                 ended June 30, 2000 include net unrealized gains on securities.
                 Prior to the year ended June 30, 2000, no elements of
                 comprehensive income (loss) existed other than net loss from
                 operations.
  
          (m)  Use of Estimates
  
                 Management of the Company has made a number of estimates and
                 assumptions relating to the reporting of assets and liabilities
                 and the disclosure of contingent assets and liabilities at the
                 date of the financial statements and the reported amounts of
                 revenue and expenses during the reporting period to prepare these
                 financial statements in conformity with generally accepted
                 accounting principles. Actual results could differ from those
                 estimates.
  
  (3)     Completion of Initial and Follow-on Public Offerings
  
           On July 15, 1999, the Company completed its initial public offering.
           The Company issued 4.6 million shares of common stock in exchange for
           net proceeds of approximately $63.1 million. Upon the completion of the
           initial public offering, certain outstanding subordinated promissory
           notes converted into an aggregate of 3.6 million shares of redeemable
           convertible preferred stock, and all then outstanding redeemable
           convertible preferred stock converted into an aggregate of 28.3 million
           shares of common stock.
  
           On February 8, 2000 the Company completed a follow-on public offering
           of 5.75 million shares of common stock of which the Company issued and
           sold 2.75 million shares and selling stockholders sold 3.0 million
           shares. The Company received net proceeds of approximately $183.2
           million for the shares issued and sold by it. The Company did not
           receive any of the proceeds from the sale of shares by the selling
           stockholders.
  
                                        F-9
  EFFICIENT NETWORKS, INC.
                    Notes to Consolidated Financial Statements
                     June 30, 2000, 1999 and 1998 (continued)
  
  (4)  Acquisitions
  
       MultiMedia Development Corporation
  
       On September 27, 2000, the Company acquired MMD, a provider of network
       management, testing, simulation and signaling software products. MMD's
       technology is designed to provide high speed network carriers with the
       ability to manage and support broadband equipment, virtual private networks
       and integrated voice/data services. Primary customers include network
       service providers who create and manage large, high speed networks.
  
       Under the terms of the agreement, each outstanding share of MMD common
       stock was exchanged for 2.44291 newly issued shares of common stock of the
       Company. This resulted in the issuance of 2,442,910 shares of the Company's
       common stock. The transaction was accounted for as a pooling-of-interests
       and, accordingly, the financial position, results of operations and cash
       flows of MMD have been combined with those of the Company for the same
       dates and periods as if the entities had been combined from the earliest
       date presented.
  
       The results of operations previously reported by the separate companies and
       the combined amounts presented in the accompanying consolidated financial
       statements are summarized below (in thousands):
  
                                                      Year Ended June 30,
                                               -----------------------------------
                                                2000          1999          1998
                                               ---------    --------     --------
            Total revenues:
               Efficient Networks, Inc.       $ 202,203     $ 14,828     $  3,370
               MMD                                4,745        4,042        4,194
                                               --------     --------     --------
                                              $ 206,948     $ 18,870     $  7,564
                                               ========     ========     ========
            Net income (loss):
               Efficient Networks, Inc.       $(130,446)    $(26,405)    $ (9,291)
               MMD                                  (85)         (16)         753
                                               ---------    --------     --------
                                              $(130,531)    $(26,421)    $ (8,538)
                                               =========    ========     ========
  
       Network TeleSystems, Inc.
  
       On May 9, 2000, the Company entered into an agreement to acquire Network
       TeleSystems, Inc. ("NTS"). The acquisition was completed on May 22, 2000.
       The results of operations of NTS have been included in the Company's
       consolidated statement of operations from the date of acquisition through
       June 30, 2000. The Company financed the acquisition through the issuance of
       400,000 shares of common stock. The acquisition was accounted for under the
       purchase method of accounting and, accordingly, the purchase price was
       allocated to the assets acquired and the liabilities assumed based upon the
       estimated fair values at the date of acquisition. The shares issued to the
       stockholders of NTS had a fair market value of $18.4 million based on the
       market price of $45.92, which represents the average closing sale price for
       two trading days before and two trading days after the terms of the
       acquisition were agreed to.
  
                                        F-10
  EFFICIENT NETWORKS, INC.
                    Notes to Consolidated Financial Statements
                     June 30, 2000, 1999 and 1998 (continued)
  
       The total purchase price of $19.3 million, including direct acquisition
       costs of approximately $900,000, was allocated as follows (in thousands):
  
            Excess cost over fair value of net assets acquired             $17,923
            Fair value of tangible assets acquired, net of liabilities
                   assumed                                                   1,345
                                                                           -------
                                                                           $19,268
                                                                           =======
  
       In connection with the NTS acquisition, the Company recorded $17.9 million
       in intangible assets, of which approximately $400,000 was amortized in the
       year ended June 30, 2000. The remainder will be amortized at a rate of
       approximately $3.6 million per year over a five-year period.
  
       FlowPoint Corporation
  
       On November 21, 1999, the Company entered into an agreement with Cabletron
       Systems, Inc. ("Cabletron") to acquire its wholly-owned subsidiary
       FlowPoint Corporation ("FlowPoint") from Cabletron. The acquisition was
       completed on December 17, 1999. The results of operations of FlowPoint have
       been included in the Company's consolidated statement of operations from
       the date of acquisition through June 30, 2000.
  
       The Company financed the acquisition of FlowPoint through the issuance of
       7.2 million shares of common stock and 6,300 shares of Series A non-voting
       redeemable convertible preferred stock. The Series A preferred stock was
       convertible into an aggregate of 6.3 million shares of common stock and was
       mandatorily redeemable. On April 12, 2000, the Series A preferred stock was
       converted into 6.3 million shares of common stock. The acquisition was
       accounted for under the purchase method of accounting and, accordingly, the
       purchase price was allocated to the assets acquired and liabilities assumed
       based on the estimated fair values at the date of acquisition. The shares
       issued to Cabletron for FlowPoint had a fair market value of $924.8 million
       based upon the market price of $68.50, which represents the Company's
       average closing sale price for two trading days before and two trading days
       after the terms of the acquisition were agreed to.
  
       The total purchase price of $938.7 million, including direct costs of
       acquisition of $13.9 million, was allocated as follows (in thousands):
  
            Acquired technology                                          $  21,545
            Assembled workforce                                                940
            Sales channel and customer relationships                        12,930
            In-process research and development                              4,970
            Non-compete agreements                                              50
            Excess cost over fair value of net assets acquired             889,912
            Fair value of tangible assets acquired, net of
             liabilities assumed                                             8,307
                                                                         ---------
                                                                         $ 938,654
                                                                         =========
  
       The allocation of acquired technology, assembled workforce, sales channel
       and customer relationships, in process research and development and non-
       compete agreements was based upon an independent valuation. The Company
       wrote off in-process research and development immediately upon consummation
       of the acquisition. In addition, in connection with the FlowPoint
       acquisition, the
  
                                        F-11
  EFFICIENT NETWORKS, INC.
                    Notes to Consolidated Financial Statements
                     June 30, 2000, 1999 and 1998 (continued)
  
       Company recorded $925.4 million in intangible assets, of which $100.0
       million was amortized during the fiscal year ended June 30, 2000. The
       remainder will be amortized at a rate of approximately $185.2 million per
       year over a five-year period.
  
       The following pro forma financial information presents a summary of the
       results of operations as if the acquisitions had occurred on July 1, 1998:
  
                                                             (Unaudited)
                                                    -----------------------------
                                                     Year ended      Year ended
                                                    June 30, 2000  June 30, 1999
                                                    -------------  --------------
            Revenues                                  $   232,555    $    41,119
            Expenses                                      451,296        255,462
                                                      -----------    -----------
            Net loss                                  $  (218,741)   $  (214,343)
                                                      ===========    ===========
  
            Basic and diluted loss per share
               of common stock                        $     (4.49)   $    (15.47)
                                                      ===========    ===========
            Shares used in computing basic and
               diluted loss per share of common
               stock                                       48,692         13,854
                                                      ===========    ===========
  (5)  Investments
  
       All investments in marketable securities are deemed by management to be
       available-for-sale and are reported at fair value with net unrealized gains
       or losses reported within comprehensive income (loss). Realized gains and
       losses are recorded based on the specific identification method. Securities
       available for sale at June 30, 2000 are summarized as follows (in
       thousands):
  
                                                    Gross     Gross
                                                 Unrealized Unrealized
                                                   Holding  Holding       Market
                                         Cost       Gains     Losses       Value
                                       --------- ---------- ----------    --------
       Certificates of deposit          $ 11,124   $     --   $     --    $ 11,124
       U.S. Government securities        186,089        799       (150)    186,738
       Municipal bonds                    35,821         --         (5)     35,816
       Corporate bonds                    40,833         12         --      40,845
       Commercial paper                   51,875        355        (11)     52,219
                                        --------   --------   --------    --------
                                        $325,742   $  1,166   $   (166)   $326,742
                                        ========   ========   ========    ========
  
       Differences between cost and market of $1.0 million were credited to a
       separate component of stockholders' equity called "Accumulated Other
       Comprehensive Income" as of June 30, 2000.
  
       Proceeds from sales and maturities of securities available for sale were
       approximately $160.3 million and $0 for the years ended June 30, 2000 and
       1999, respectively. Realized gains and losses on such sales were not
       significant. At June 30, 2000 and 1999, approximately $139.4 million and
       $500,000 of securities available for sale with original maturities of 90
       days or less were included in cash and cash equivalents.
  
                                        F-12
  EFFICIENT NETWORKS, INC.
                    Notes to Consolidated Financial Statements
                     June 30, 2000, 1999 and 1998 (continued)
  
  (6)  Inventory Deposit
  
       Inventory deposit is an advance of $50.0 million made on June 29, 2000 by
       the Company to one of its contract manufacturers. The advance is non-
       interest bearing and has no maturity date. The purpose of the advance is to
       finance the purchase of raw materials for the Company by the contract
       manufacturer. The advance is expected to be recovered during the 2001
       fiscal year through the offset of the advance against purchases of finished
       goods inventory from the contract manufacturer, beginning April 1, 2001.
  
  (7)  Inventories
  
       Inventories consisted of the following (in thousands):
  
                                                             June 30,
                                                      ----------------------
                                                         2000         1999
                                                      ---------     --------
       Raw materials                                   $  5,329     $  2,265
       Finished goods                                    24,430        3,207
                                                       --------     --------
       Total                                           $ 29,759     $  5,472
                                                       ========     ========
  (8)   Furniture and Equipment
  
        Furniture and Equipment consisted of the following (in thousands):
  
                                                              June 30,
                                                       ----------------------
                                                          2000         1999
                                                       ---------     --------
       Computers                                       $  6,911     $  2,839
       Purchased software                                 7,138          900
       Equipment                                          5,022          593
       Furniture and fixtures                             3,773          148
       Leasehold improvements                             2,903          235
                                                       --------     --------
       Total furniture and equipment                     25,747        4,715
       Less accumulated depreciation and amortization    (4,725)      (2,412)
                                                       --------     --------
       Furniture and equipment, net                    $ 21,022     $  2,303
                                                       ========     ========
  (9)  Accrued Liabilities
  
       Accrued Liabilities consisted of the following (in thousands):
  
                                                              June 30,
                                                       ----------------------
                                                          2000         1999
                                                       ---------    ---------
       Accrued compensation and benefits               $  8,633     $  1,102
       Accrued sales and marketing expense               14,221          540
       Accrued interest expense                           6,333          291
       Accrued inventory and fixed assets                 7,015            -
       Other                                              5,164          297
                                                       --------     --------
                                                       $ 41,366     $  2,230
                                                       ========     ========
  
                                        F-13
  EFFICIENT NETWORKS, INC.
                    Notes to Consolidated Financial Statements
                     June 30, 2000, 1999 and 1998 (continued)
  
  (10) Convertible Subordinated Notes and Other Long-term Debt
  
          On March 7, 2000 the Company issued $400 million of convertible
          subordinated notes due March 15, 2005. The notes bear interest at an
          annual rate of 5%. The notes are convertible at any time prior to
          maturity into shares of the Company's common stock at a conversion price
          of $181.00 per share. The Company may redeem the notes on or after March
          20, 2003 at 101.25% during the period beginning on March 20, 2003 and
          ending on March 14, 2004, and at 100.00% beginning on March 15, 2004 and
          thereafter. The notes are unsecured obligations of the Company. Upon a
          change in control, the noteholders may require the Company to purchase
          the notes at 100% of the principal amount of the notes plus accrued and
          unpaid interest. On August 8, 2000, the Company filed a shelf
          registration statement with the Securities and Exchange Commission with
          respect to the notes and the common stock issuable upon conversion of
          the notes pursuant to a registration rights agreement. Issuance costs of
          $12.6 million, which are included as a deferred charge in other assets,
          are being amortized to interest expense over the term of the notes.
          Accrued interest of $6.3 million as of June 30, 2000 is included in
          accrued liabilities.
  
          In January 1999, the Company issued subordinated promissory notes with
          detachable warrants in exchange for $7.0 million in cash. On April 8,
          1999, the Company issued a subordinated promissory note with a
          detachable warrant in exchange for $2.0 million in cash. The notes bore
          interest at 10% per annum with interest payable quarterly. The
          subordinated promissory notes were issued with detachable warrants to
          purchase an aggregate of 3.1 million shares of the Company's redeemable
          convertible preferred stock at an exercise price of $2.92 per share. In
          June 1999, the holders of the subordinated promissory notes entered into
          a note repayment and warrant exercise agreement with the Company which
          stipulated that immediately prior to the closing of an initial public
          offering, the aggregate $9.0 million principal amount of the notes would
          be applied toward the aggregate exercise price of the detachable
          warrants. Accordingly, immediately prior to the closing of the Company's
          initial public offering on July 15, 1999, the warrants were exercised to
          purchase the Company's redeemable convertible preferred stock, which
          shares of preferred stock automatically converted into shares of common
          stock upon completion of the initial public offering.
  
          On June 28, 1999, the Company issued a convertible promissory note in
          exchange for $5.0 million in cash. The note bore interest at 8.0% per
          annum. In accordance with the conversion feature of the note,
          immediately prior to the closing of the Company's initial public
          offering on July 15, 1999, the note automatically converted into 497,663
          shares of preferred stock at a conversion price $10.09 per share, and
          such shares of preferred stock automatically converted into shares of
          common stock upon completion of the initial public offering.
  
  (11) Redeemable Convertible Preferred Stock
  
          On December 17, 1999, the Company issued 6,300 shares of Series A
          non-voting mandatorily redeemable convertible preferred stock in
          connection with the Company's acquisition of FlowPoint Corporation from
          Cabletron Systems, Inc. On April 12, 2000 all of the Series A preferred
          stock was converted into 6.3 million shares of common stock. On August
          1, 2000 the Company filed a registration statement on Form S-3 with the
          Securities and Exchange Commission to register all of the common stock
          received by Cabletron in connection with the acquisition of FlowPoint.
          The Company
  
                                        F-14
  EFFICIENT NETWORKS, INC.
                    Notes to Consolidated Financial Statements
                     June 30, 2000, 1999 and 1998 (continued)
  
         and Cabletron entered into an agreement containing standstill provisions,
         voting provisions, restrictions on transfer, and registration rights.
  
         The following indicates the series of redeemable convertible preferred
         stock in existence at June 30, 1999. Series for which preferred stock had
         been issued and outstanding at June 30, 1999 were stated at the
         redemption amount; issuance costs were netted against the proceeds and
         accreted as a charge against additional paid-in capital over the expected
         life of the related series of preferred stock (all in thousands, except
         share and per share data):
  
                                                               Dividend
                                                               Rate Per   June 30,
                                                                 Share      1999
                                                               --------   -------
         Series A-7,096,000 shares authorized; 7,000,000
             shares issued and outstanding...................   $ 0.03    $ 3,500
         Series B-522,848 shares authorized, issued and
             outstanding.....................................   $ 0.07        625
         Series C-5,895,832 shares authorized; 5,858,332
             shares issued and outstanding...................   $ 0.07      7,030
         Series D-2,473,644 shares authorized, issued
             and outstanding.................................   $ 0.12      5,000
         Series E-3,091,430 shares authorized, issued
             and outstanding.................................   $ 0.15      7,480
         Series F-2,057,159 shares authorized, issued and
             outstanding in 1998 and 1999....................   $ 0.18      6,007
         Series G-6,000,000 shares authorized; 1,866,800 and
             3,716,800 shares issued and outstanding in 1998
             and 1999........................................   $ 0.18     10,853
         Series H-4,000,000 shares authorized, none issued or
             outstanding.....................................   $ 0.18          -
         Series I-750,000 shares authorized, none issued or
             outstanding.....................................   $ 0.60          -
                                                                          -------
                                                                          $40,495
                                                                          =======
  
         At June 30, 1999, outstanding preferred stock, which was converted into
         24.7 million shares of common stock upon completion of the Company's
         initial public offering on July 15, 1999, had voting rights equal to the
         number of shares of common stock into which the preferred stock was
         convertible. The preferred stock was convertible at the option of the
         holder into such number of shares of common stock as is determined by
         dividing the original issue price of the preferred stock plus all
         declared but unpaid dividends by the applicable conversion price at the
         date of conversion. The conversion price per share was the original issue
         price adjusted for any dilution that would have occurred from future
         offerings.
  
         The holders of the redeemable convertible preferred stock were entitled
         to a liquidation preference equivalent to the original issue price of the
         respective series of preferred stock plus declared but unpaid dividends.
         Dividends were not declared and were noncumulative.
  
         Upon completion of the Company's initial public offering on July 15,
         1999, all then outstanding redeemable preferred stock, including those
         shares outstanding as a result of the conversion of the
  
                                       F-15
  EFFICIENT NETWORKS, INC.
                    Notes to Consolidated Financial Statements
                     June 30, 2000, 1999 and 1998 (continued)
  
          10% subordinated promissory notes and the 8% convertible promissory note
          (see Note 10), was converted into 28.3 million shares of common stock.
  
  (12) Common Stock and Stock Incentive Plans
  
          On July 20, 1999, the Company adopted a new stock option plan (the "1999
          Plan"). The 1999 Plan provides for the granting of stock options and
          stock purchase rights to employees and consultants. A total of 3,500,000
          shares of common stock was initially reserved for issuance plus annual
          increases equal to the lesser of:
  
            .    1,000,000 shares;
  
            .    3% of the outstanding shares on such a date; or
  
            .    a lesser amount determined by the board on the first day of each
                 fiscal year.
  
          The 1999 Plan may be administered by the Board of Directors or a
          committee of the board. The board or a committee of the board determines
          the terms of the options granted, including the exercise price, the
          number of shares subject to each option, the vesting provisions, the
          exercisability thereof and the form of consideration payable upon such
          exercise. The options generally vest ratably over a period of four years
          from the date of grant. The 1999 Plan provides that in the event of a
          merger of the Company with or into another corporation, or the sale of
          substantially all of its assets, each outstanding option or stock
          purchase right will be assumed or substituted for by the successor
          corporation. In addition, if the options are not substituted for in the
          merger, each outstanding option will vest and become exercisable as to
          all unvested shares and each stock purchase right shall lapse as to all
          the shares for a period of 15 days after receipt of notice from the
          Company.
  
          On November 19, 1999, the Company adopted a nonstatutory stock option
          plan (the "NSO Plan"), which provides for the grant of nonstatutory
          stock options to employees and consultants (excluding officers or
          directors) of the Company. The plan was amended in April and July 2000
          to increase the number of shares reserved for issuance thereunder by an
          aggregate of 2,550,000 from 950,000 to 3,500,000. Unless terminated
          sooner, the plan will terminate automatically in 2009. A total of
          1,500,000 shares of common stock were reserved for issuance under the
          plan at June 30, 2000.
  
          The plan may be administered by the board of directors or a committee of
          the board. The board or a committee of the board has the power to
          determine the terms of the options, including the exercise price, the
          number of shares subject to each option, the exercisability thereof, and
          the form of consideration payable upon exercise. The options generally
          vest ratably over a period of four years from the date of grant. The
          plan provides that in the event of a merger of Efficient with or into
          another corporation, or a sale of substantially all of our assets, each
          option shall be assumed or an equivalent option substituted by the
          successor corporation. If the outstanding options are not assumed or
          substituted, the board or a committee of the board will provide for the
          optionee to have the right to exercise the option as to all of the
          optioned stock, including shares that would otherwise not be
          exercisable, for a period of fifteen (15) days from the date of the
          notice, and the option will terminate upon the expiration of such
          period.
  
                                        F-16
  EFFICIENT NETWORKS, INC.
                    Notes to Consolidated Financial Statements
                     June 30, 2000, 1999 and 1998 (continued)
  
          In 1998, the Company adopted the Directors' Stock Option Plan (the
          "Directors' Plan") pursuant to which stock options were granted to non-
          employee members of the Company's Board of Directors. The Directors'
          Plan authorized grants of options to purchase up to 275,000 shares of
          common stock.
  
          Option grants under the Directors' Plan were nondiscretionary and
          automatic. Non-employee directors serving on the Company's Board of
          Directors at the date of the adoption of the Directors' Plan were
          granted options to purchase 50,000 shares on the effective date of the
          plan. Subsequent non-employee directors were granted an option to
          purchase 15,000 shares on the date they become a director. After their
          initial grant, non- employee directors were to be granted an option to
          purchase 15,000 shares on January 1 of each year provided they had
          served on the Board for at least six months. With the establishment of
          the 1999 Plan on July 20, 1999, new option grants are no longer made
          under the Directors' Plan.
  
          In 1993, the Company adopted a stock option plan (the "1993 Plan")
          pursuant to which the Company's Board of Directors granted stock options
          to officers, directors and key employees. The 1993 Plan authorized
          grants of options to purchase up to 10,000,000 shares of unissued common
          stock. The Board of Directors determined the terms of each option,
          including exercise price (within limits set forth in the plan), number
          of shares and the rate at which each option was exercisable. The options
          generally vested ratably over a period of four years from the date of
          grant. With the establishment of the 1999 Plan on July 20, 1999, new
          option grants are no longer made under the 1993 Plan.
  
          At June 30, 2000, there were options to purchase 86,300 shares available
          for grant under the 1999 Plan. The per share weighted-average fair value
          of stock options granted during each of the years ended June 30, 2000,
          1999 and 1998 was $58.77, $5.17 and $2.60, respectively, on the date of
          grant as estimated using the minimum value option-pricing model in 1999
          and 1998, and the Black-Scholes pricing model in 2000 with the following
          weighted- average assumptions in all years: expected dividend yield of
          0.0%, an expected life of four years, a risk-free interest rate of 6%
          and a volatility factor of 75% for 2000.
  
          On July 20, 1999, the Company also adopted an Employee Stock Purchase
          Plan ("the Purchase Plan"). A total of 200,000 shares of common stock
          was reserved for issuance under the purchase plan, plus annual increases
          equal to the lesser of:
  
            .    100,000 shares;
            .    1% of the outstanding shares on such a date; or
            .    a lesser amount determined by the board on the first day of each
                 fiscal year.
  
          The Purchase Plan, which is intended to qualify under Section 423 of the
          Internal Revenue Code of 1986, as amended, contains successive six-month
          offering periods. The offering periods generally start on the first
          trading day on or after May 1 and November 1 of each year, except for
          the first such offering period which commenced on the first trading day
          after the effective date of the Company's initial public offering and
          ended on the last trading day on or before October 31, 1999.
  
                                        F-17
  EFFICIENT NETWORKS, INC.
                    Notes to Consolidated Financial Statements
                     June 30, 2000, 1999 and 1998 (continued)
  
          Generally, employees are eligible to participate if they are employed by
          the Company or any of its participating subsidiaries for at least 20
          hours per week and more than five months in any calendar year.
  
          Participants may purchase common stock through deductions of up to 10%
          of the participant's compensation. The maximum number of shares a
          participant may purchase during a single offering period is 500 shares.
  
          Amounts deducted and accumulated by the participant will be used to
          purchase shares of common stock at the end of each offering period. The
          price of stock purchased under the Purchase Plan is 85% of the lower of
          the fair market value of the common stock at the beginning of the
          offering period and at the end of each offering period.
  
          The Purchase Plan provides that, in the event of a merger of the Company
          with or into another corporation or a sale of substantially all of its
          assets, outstanding options may be assumed or substituted for by the
          successor corporation. If the successor corporation refuses to assume or
          substitute for the outstanding options, the offering period then in
          progress will be shortened and a new exercise date will be set, which
          will occur before the proposed sale or merger.
  
          The Purchase Plan will terminate in 2009. The Board of Directors has the
          authority to amend or terminate the Purchase Plan, except that no such
          action may adversely affect any outstanding rights to purchase stock.
  
          The Company applies APB Opinion No. 25 in accounting for stock options
          granted to employees and non-employee directors under its stock option
          plans. The Company recorded approximately $3.1 million, $13.1 million,
          and $3.1 million of deferred stock option compensation during each of
          the years ended June 30, 2000, 1999 and 1998, respectively, as a result
          of granting stock options with exercise prices below the estimated fair
          value per share of the Company's common stock at the date of grant.
          Deferred stock option compensation has been recorded as a component of
          stockholders' equity and is being amortized as a charge to operations
          over the vesting period of the applicable options. Amortization of
          deferred stock option compensation of $4.9 million, $3.1 million, and
          $1.2 million was recognized in the years ended June 30, 2000, 1999 and
          1998, respectively.
  
          Had the Company determined compensation cost related to stock-based
          awards to employees (including employee stock options and shares issued
          under the Purchase Plan, collectively called "Options") based on the
          estimated fair value of stock options at the grant date in accordance
          with SFAS No. 123, the Company's net loss would have been increased or
          decreased, as applicable, to the pro forma amounts indicated below:
  
                                        F-18
  EFFICIENT NETWORKS, INC.
                    Notes to Consolidated Financial Statements
                     June 30, 2000, 1999 and 1998 (continued)
  Year Ended June 30,
                                                                -----------------------------------
                                                                  2000          1999         1998
                                                                ---------    --------      --------
  Net loss:
  
           As reported                                          $(130,531)  $ (26,421)    $  (8,538)
           Pro forma                                            $(154,944)  $ (26,639)    $  (8,934)
         Basic and diluted net loss per share of common stock:
           As reported                                          $   (2.90)  $   (4.23)    $   (1.50)
           Pro forma                                            $   (3.44)  $   (4.20)    $   (1.57)
  Pro forma net loss reflects only stock options granted after June 30,
          1995. Therefore, the full impact of calculating compensation cost for
          Options under SFAS No. 123 is not reflected in the pro forma net loss
          amounts presented above because compensation cost is reflected over the
          Options' vesting periods of four years and compensation expense
          pertaining to Options granted in prior periods is not considered.
  
          Stock option activity for both the 1999 Plan and the 1993 Plan during
          the periods indicated is as follows:
  Weighted
                                                                 Number of       Average
                                                                   Shares     Exercise Price
                                                                ----------    --------------
  Balance at June 30, 1997                          3,596,000           0.19
                 Granted                                         1,631,000           0.58
                 Exercised                                        (448,125)          0.12
                 Forfeited                                        (344,458)          0.22
                                                                ----------
               Balance at June 30, 1998                          4,434,417           0.46
                 Granted                                         2,638,500           2.88
                 Exercised                                        (745,257)          2.24
                 Forfeited                                        (195,666)          1.01
                                                                ----------
               Balance at June 30, 1999                          6,131,994           1.39
                 Granted                                         6,741,700          58.77
                 Exercised                                      (1,593,268)          0.61
                 Forfeited                                        (883,622)         15.71
                                                                ----------
               Balance at June 30, 2000                         10,396,804          36.68
                                                                ==========
  F-19
  EFFICIENT NETWORKS, INC.
                    Notes to Consolidated Financial Statements
                     June 30, 2000, 1999 and 1998 (continued)
  
         The following presents certain information about outstanding stock
  options at June 30, 2000:
  Options Outstanding               Options Exercisable
                                        -------------------------------------    ---------------------
                                                                  Weighted                    Weighted
                                                                   Average                     average
                                         Number of   Exercise    contractual     Number of    Exercise
            Range of exercise price       options      price        life          Options       Price
            -----------------------     ----------   --------    ------------    ---------    --------
  $0.05-0.60               2,282,424   $   0.40      6.9 years     1,505,002     $  0.35
                $1.50-2.50               2,049,860   $   2.24      8.5 years       664,500     $  2.20
                $7.50-11.00                236,820   $  10.13      8.9 years         8,514     $  7.50
                $38.44-69.75             4,136,500   $  54.34      9.5 years             -           -
                $70.75-98.38             1,105,200   $  73.42      9.5 years             -           -
                $105.00-115.25             337,500   $ 108.91      9.8 years             -           -
                $121.25-174.50             248,500   $ 147.29      9.7 years                         -
                                        ----------                               ---------
                                        10,396,804                               2,178,016
                                        ==========                               =========
  At June 30, 2000, 1999 and 1998, the number of options exercisable was
         2,178,016, 2,117,604, and 1,625,531, respectively, and the weighted-
         average exercise price of those options was $0.94, $0.33, and $0.21,
         respectively.
  
         In May 1999, the Company effected the issuance of 150,000 shares of
         common stock to a board member-elect, in exchange for a $1.6 million, 6%
         demand note payable. The demand note was repaid with interest in July
         1999.
  
  (13)  Research and Development Arrangements
  
         In October 1997, the Company entered into a development and license
         agreement with a customer who owned preferred stock of the Company. The
         agreement obligated the Company to develop a product that meets mutually
         agreed upon specifications in exchange for $850,000. The Company has
         fulfilled its development obligations and the proceeds under the
         arrangement were offset against research and development expense during
         the year ended June 30, 1998.
  
         In November 1997, the Company entered into a development and marketing
         agreement with a customer. The agreement obligated the Company to develop
         a product in accordance with certain specifications and to provide
         114,068 shares of the Company's common stock for an aggregate purchase
         price of $300,000. The common stock issuance was recorded at estimated
         fair value of $300,000. The Company has fulfilled its development
         obligations.
  
  (14) Lease Commitments
  
         The Company leases certain property and equipment under capital leases,
         and certain other facilities and equipment is leased under noncancelable
         operating leases which expire at various dates.
  
         Rent expense on operating leases for the years ended June 30, 2000, 1999,
         and 1998 was approximately $2.1 million, $594,000, and $399,000,
         respectively. During the year ended June 30, 2000, the Company entered
         into capital leases for furniture for its new headquarters and certain
         other
  
                                        F-20
  EFFICIENT NETWORKS, INC.
                    Notes to Consolidated Financial Statements
                     June 30, 2000, 1999 and 1998 (continued)
  
         manufacturing equipment. Future minimum lease payments under
         noncancelable operating leases and the present value of future minimum
         lease payments as of June 30, 2000 are:
  Capital      Operating
                                                                 Leases         Leases
                                                                 ------         ------
  Years ended June 30:
               2001                                              $ 1,073        $ 4,349
               2002                                                1,065          3,999
               2003                                                1,065          3,920
               2004                                                  276          3,966
               2005                                                    7          4,105
               Thereafter                                              -         14,286
                                                                 -------        -------
                                                                   3,486        $34,625
                                                                                =======
               Less: amount representing interest                   (679)
                                                                 -------
               Present value of minimum lease payments           $ 2,807
                                                                  ======
  The Company leases certain equipment and office furniture under capital
          lease arrangements. At June 30, 2000 and 1999, the cost of assets
          acquired under such leases was approximately $3,419,000 and $0, and
          related accumulated amortization was approximately $170,000 and $0,
          respectively. Amortization of assets acquired under capital leases is
          included in depreciation expense.
  
  (15)  Income Taxes
  
          The Company has not recognized any tax benefits for its net operating
  loss carryforwards.
  
          Net deferred tax assets as of June 30, 2000 and 1999 are as follows (in
  thousands):
  
                                                                 2000      1999
          Deferred tax assets:                                 --------  --------
           Operating loss carry forwards.....................  $ 27,748  $ 17,275
           Receivables and inventory reserves................       589       136
           Accrued liabilities...............................        68       233
                                                               --------  --------
             Deferred tax assets.............................    28,405    17,644
             Valuation allowance.............................   (27,563)  (17,444)
                                                               --------  --------
                                                                    842       200
          Deferred tax liability - furniture and equipment...      (842)     (200)
                                                               --------  --------
                Net deferred tax assets......................  $      -  $      -
                                                               ========  ========
  
          The net change in the valuation allowance for the years ended June 30,
          2000 and 1999 was $10,119,000 and $8,133,000 respectively.
  
          As of June 30, 2000, the Company has net operating loss carryforwards of
          approximately $79.3 million which begin to expire in 2008. The Company
          believes that as a result of the Company's initial public offering in
          July 1999, and the resulting conversion of outstanding redeemable
          preferred stock into common stock, the Company has undergone an
          ownership change within the meaning of Section 382 of the Internal
          Revenue Code (IRC). As a result, the Company's ability to utilize its
  
                                        F-21
  EFFICIENT NETWORKS, INC.
                    Notes to Consolidated Financial Statements
                     June 30, 2000, 1999 and 1998 (continued)
  
          operating loss carryforwards incurred prior to the ownership change are
          limited on an annual basis to an amount equal to the value of the
          Company, as defined by the IRC, as of the date of change of ownership,
          multiplied by the long-term tax exempt bond rate of 4.98%.
  
          MMD was incorporated as an S Corporation. The tax consequences of all
          profits and losses through June 30, 2000 were the responsibility of the
          shareholders of MMD. Accordingly, the Company has not provided for
          federal income taxes for MMD operations in the accompanying consolidated
          financial statements. Effective September 27, 2000, MMD converted to a C
          Corporation and the tax consequences subsequent to September 27, 2000
          are the responsibility of the Company. Upon conversion to a C
          Corporation, there were no significant differences between the financial
          statement carrying amounts of existing assets and liabilities and their
          respective tax bases.
  
  (16)  Statements of Cash Flows
  
          The Company paid cash interest of approximately $2.0 million, $0 and
          $4,000 during the fiscal years ended June 30, 2000, 1999, and 1998,
          respectively. No income taxes were paid during the years ended June 30,
          2000, 1999, and 1998. Non-cash financing transactions during the fiscal
          year ended June 30, 2000 included new capital lease obligations of $3.4
          million, the exchange of promissory notes of $13.4 million and related
          accrued interest for $14.0 million of redeemable convertible preferred
          stock, and the exchange of redeemable convertible preferred stock of
          $486.1 million for 34.6 million shares of common stock during the year
          ended June 30, 2000. In connection with the acquisition of FlowPoint,
          the Company exchanged 7.2 million shares of common stock and 6,300
          shares of redeemable convertible preferred stock with an aggregate value
          of $924.8 million, which was subsequently converted into 6.3 million
          shares of the Company's common stock, for the assets and liabilities of
          FlowPoint. In connection with the acquisition of Network TeleSystems,
          Inc., the Company exchanged 400,000 shares of common stock with an
          aggregate value of $18.4 million for all of the then outstanding common
          stock of Network TeleSystems, Inc. Non-cash financing transactions
          during the fiscal years ended June 30, 1999 and 1998 were $0 and
          approximately $1.0 million, respectively, in connection with the
          exchange of promissory notes and related interest for redeemable
          convertible preferred stock.
  
  (17)  Segment Information and Concentration of Credit Risk
  
          The Company operates in one reportable segment as it has one family of
          DSL and software related products and markets its products to network
          equipment vendors and DSL service providers. In fiscal 1998, the Company
          also developed and marketed asynchronous transfer mode ("ATM") network
          products which are no longer actively marketed by the Company. In May
          2000 the Company acquired Network TeleSystems, Inc., which develops and
          markets client services software. For management purposes, the Company
          does not disaggregate financial information by product or
          geographically, other than export sales by region and sales by product.
          Substantially all of the Company's assets are located within the United
          States. The Company does not account for, and does not report to
          management, its assets or capital expenditures by revenue source. All of
          the Company's products are produced in the United States. The Company
          grants credit to customers located in several geographical regions in
          North America, Europe and the Pacific Rim.
  
          The following represents sales to customers in each of those
          geographical regions as a percentage of total revenues, and revenues and
          gross margins by product line for the years ended June 30, 2000, 1999
          and 1998:
  
                                        F-22
  EFFICIENT NETWORKS, INC.
                    Notes to Consolidated Financial Statements
                     June 30, 2000, 1999 and 1998 (continued)
  Geographic Region                     2000             1999         1998
          --------------------------------------------     ---------        ----------    -------
  United States...............................          79%              67%          77%
          Europe......................................           6%              10%          17%
          Pacific Rim:
            Korea.....................................          11%              14%           1%
            Other.....................................           4%               9%           5%
  
                   Product line (in thousands)                2000             1999         1998
          --------------------------------------------     ----------       ----------    -------
          DSL and software related revenues...........     $  205,930       $   16,957    $ 4,278
          DSL and software related gross margin.......     $   49,726       $    3,580    $ 4,175
  
          ATM LAN revenues............................     $    1,018       $    1,913    $ 3,286
          ATM LAN gross margin........................     $      518       $      946    $ 1,229
  For the year ended June 30, 2000, revenues from individual customers
          amounted to 32%, 19%, and 10% of total revenues, and accounts receivable
          related to these customers at June 30, 2000 was approximately $28.9
          million, $18.8 million, and $16.6 million, respectively. For the year
          ended June 30, 1999, revenues from individual customers amounted to 23%,
          21% and 14% of total revenues, and accounts receivable related to
          these customers at June 30, 1999 was approximately $2.8 million,
          $385,000 and $2.6 million, respectively. For the year ended June 30,
          1998, revenues from an individual customer amounted to 55.4% of total
          revenues. During the year ended June 30, 2000, the Company had
          revenues of $11.6 million and a receivable balance at June 30, 2000 of
          $5.8 million from Cabletron Systems, Inc., a significant stockholder.
          The Company performs ongoing evaluations of its customers' financial
          conditions and generally does not require collateral.
  
                                        F-23
  Independent Auditors' Report on Schedule
  
  The Board of Directors
  Efficient Networks, Inc.:
  
       Under date of November 9, 2000, we reported on the consolidated balance
  sheets of Efficient Networks, Inc. and subsidiaries as of June 30, 2000 and 1999
  and the related consolidated statements of operations, stockholders' equity
  (deficit), and cash flows for each of the years in the three-year period ended
  June 30, 2000. In connection with our audits of the aforementioned consolidated
  financial statements, we also audited the related consolidated financial
  statement schedule. This financial statement schedule is the responsibility of
  the Company's management. Our responsibility is to express an opinion on this
  financial statement schedule based on our audits.
  
       In our opinion, such consolidated financial statement schedule, when
  considered in relation to the basic consolidated financial statements taken as a
  whole, presents fairly, in all material respects, the information set forth
  therein.
  
                                                                    KPMG LLP
  
  Dallas, Texas
  November 9, 2000
  SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
                                  (in thousands)
  Additions   Additions
                                         Balance at    charged to   charged to               Balance at
                                          Beginning     costs and     other                    end of
  Description                             of period     expenses     accounts    Deductions    period
                                          ---------    ----------   ---------    ----------  ----------
  FOR THE YEAR ENDED JUNE 30, 2000
  Allowances Deducted from Assets
    Accounts receivable..............      $  120           921          780         (134)     $1,687
    Inventories......................         280           362          425           (2)      1,065
                                           ------        ------       ------       ------      ------
     Total Allowances Deducted from
        Assets.......................      $  400         1,283        1,205         (136)     $2,752
                                           ======        ======       ======       ======      ======
  
  FOR THE YEAR ENDED JUNE 30, 1999
  Allowances Deducted from Assets
    Accounts receivable..............      $   15           105            -            -      $  120
    Inventories......................         150           130            -            -         280
                                           ------        ------       ------       ------      ------
     Total Allowances Deducted from
        Assets.......................      $  165           235                         -      $  400
                                           ======        ======       ======       ======      ======
  
  FOR THE YEAR ENDED JUNE 30, 1998
  Allowances Deducted from Assets
    Accounts receivable..............      $   25            11            -          (21)     $   15
    Inventories......................          57           124            -          (31)        150
                                           ------        ------       ------       ------      ------
     Total Allowances Deducted from
        Assets.......................      $   82           135            -          (52)     $  165
                                           ======        ======       ======       ======      ======