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

September 7, 2000
Date of Report (Date of earliest event reported)

SYCAMORE NETWORKS, INC.
(Exact name of registrant as specified in its charter)

Commission file number: 000-27273

DELAWARE 04-3410558
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)

150 APOLLO DRIVE
CHELMSFORD, MASSACHUSETTS 01824
(Address of principal executive office)

Registrant's telephone number, including area code: (978) 250-2900

NOT APPLICABLE
(Former name or former address, if changed since last report)

Exhibit Index on page 2

ITEM 5: OTHER EVENTS

This current report on Form 8-K provides financial information pertaining
to the retroactive effect of the September 7, 2000 business combination of
Sycamore Networks, Inc. and Sirocco Systems, Inc. ("Sirocco"), which was
accounted for under the pooling of interest method of accounting.

ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS

Number Exhibit Description

23.1 Consent of Independent Accountants

99.1 Restated Financial Information

EX-23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------

We hereby consent to the incorporation by reference in the Registration
Statement on Forms S-8 (Nos. 333-45502, 333-90839, 333-51486 and 333-52562) of
Sycamore Networks, Inc. of our report dated October 27, 2000, relating to the
financial statements which appear in this Form 8-K.

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts
May 16, 2001

EX-99.1
Restated Financial Information

SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements and the
notes thereto. All periods presented have been restated to include Sirocco's
results of operations, financial position and cash flows. The historical results
are not necessarily indicative of results to be expected for any future period.

Period from
Inception
(February 17, 1998) Year Ended Year Ended
through July 31, July 31,
July 31, 1998 1999 2000
------------------- ---------- ----------
(in thousands, except per share data)

Consolidated Statement of Operations Data:
Revenue........................................................... $ - $ 11,330 $ 198,137
Cost of revenue (exclusive of the non-cash stock compensation..... - 8,486 104,986
expense of $0, $101 and $1,433, respectively) .................. ------- -------- ----------

Gross profit ................................................ - 2,844 93,151
Operating expenses:
Research and development .................................... 714 17,979 71,903
Sales and marketing ......................................... 92 4,064 30,650
General and administrative .................................. 247 3,056 9,824
Amortization of stock compensation .......................... 5 3,648 21,067
------- -------- ----------
Total operating expenses ................................. 1,058 28,747 133,444
------- -------- ----------
Loss from operations ............................................ (1,058) (25,903) (40,293)
Interest income, net ............................................ 108 850 41,706
------- -------- ----------
Income (loss) before income taxes ............................... (950) (25,053) 1,413
Income tax expense .............................................. - - 745
------- -------- ----------
Net income (loss)................................................. $ (950) $(25,053) $ 668
======= ======== ==========
Basic net income (loss) per share ............................... $(0.17) $(1.32) $0.00
Diluted net income (loss) per share ............................. $(0.17) $(1.32) $0.00
Shares used in per-share calculation--basic ..................... 5,677 18,919 166,075
Shares used in per-share calculation--diluted..................... 5,677 18,919 233,909

As of As of
As of July 31, July 31,
July 31, 1998 1999 2000
------------------ -------- ------------
(in thousands)
Consolidated Balance Sheet Data:
Cash, cash equivalents and marketable securities ............... $ 4,599 $ 47,889 $1,517,103
Working capital ................................................ 4,549 59,292 1,147,131
Total assets..................................................... 5,522 79,038 1,697,915
Long term debt, less current portion ........................... - 4,489 1,157
Redeemable convertible preferred stock ......................... 5,621 55,771 -
Total stockholders' equity (deficit) ........................... (349) 6,691 1,591,118

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND THE RESULTS OF
OPERATIONS

Except for the historical information contained herein, we wish to caution
you that certain matters discussed in this report constitute forward-looking
statements that involve risks and uncertainties. Our actual results could differ
materially from those stated or implied in forward-looking statements due to a
number of factors, including, without limitation, those risks and uncertainties
discussed under the heading "Factors That May Affect Future Results" contained
in our Annual Report on Form 10-K and other reports we file from time to time
with the Securities and Exchange Commission ("SEC") and the risks and
uncertainties discussed under the captions "Risks Related To Our Business" and
"Risks Related to the Securities Market." Forward looking statements include
statements regarding our expectations, beliefs, intentions or strategies
regarding the future and can be identified by forward-looking words such as
"anticipate," "believe," "could," "estimate," "expect," "intend," "may,
"should," "will," and "would" or similar words.

Overview

This Management's Discussion and Analysis of Financial Condition and
Results of Operations has been restated to give the retroactive effect to our
September 7, 2000 acquisition of Sirocco where an aggregate of approximately
28.6 million shares of Sycamore common stock were either exchanged for all
outstanding shares of Sirocco or reserved for common stock issuable under
outstanding Sirocco stock options assumed by us in the transaction. The
transaction was accounted for as a pooling of interests under Accounting
Principles Board Opinion No. 16. Accordingly, all prior period consolidated
financial statements presented have been restated to include the results of
operations, financial position and cash flows of Sirocco. Sirocco develops and
markets optical access aggregation, switching and nework management products
targeted for the metropolitan access and edge markets. From inception to July
31, 2000 Sirocco had no revenues and has concentrated its efforts on research
and development.

We develop and market products that transport voice and data traffic over
wavelengths of light. Our products enable service providers to quickly and cost
effectively provide bandwidth and create new high-speed data services. From our
inception in February 1998 through May 1, 1999, our operating activities
consisted primarily of research and development, product design, development and
testing. During this period, we also staffed and trained our administrative,
marketing and sales personnel and began sales and marketing activities. We
began shipping our SN 6000 Intelligent Optical Transport product in May 1999,
our SN 8000 Intelligent Optical Node in August 1999, our Silvx Manager Network
Management System in November 1999 and our SN 16000 Intelligent Optical Switch
in June 2000.

Our policy is to recognize revenue from product sales upon shipment
provided that a purchase order has been received or a contract has been
executed, there are no uncertainties regarding customer acceptance, the fee is
fixed or determinable and collectibility is deemed probable. If uncertainties
regarding customer acceptance exist, revenue is recognized when the
uncertainties are resolved. Revenue from technical support and maintenance
contracts is deferred and recognized ratably over the period of the related
agreements. We record a warranty liability for parts and labor on our products
at the time of revenue recognition. Warranty periods are generally three years
from installation date.

Our manufacturing expenses consist of amounts paid to third party
manufacturers, manufacturing personnel and related costs and our customer
support group. We outsource our manufacturing and assembly requirements.
Accordingly, a significant portion of our manufacturing expenses consists of
payments to a third-party contract manufacturer. Manufacturing and engineering
documentation controls are performed at our facility in Chelmsford,
Massachusetts. We believe that our gross margins will be affected primarily by
the following factors: demand for our products; new product introductions both
by us and by our competitors; changes in our pricing policies and those of our
competitors; the mix of product configurations sold; and the volume of
manufacturing and its effect on manufacturing and component costs.

Research and development expenses consist primarily of salaries and related
personnel costs, prototype costs and other costs related to the design,
development, testing and enhancement of our products. To date, we have expensed
our research and development costs as they were incurred. Several components of
our research and development effort require significant expenditures, the timing
of which can cause significant quarterly variability in our expenses. We incur
significant expenses in connection with the purchase of testing equipment for
our products. We believe that research and development is critical to our
strategic product development objectives and intend to enhance our technology to
meet the changing requirements of our customers. As a result, we expect our
research and development expenses to increase in absolute dollars in the future.

Sales and marketing expenses consist primarily of salaries and the related
personnel costs of sales and marketing personnel, commissions, promotional,
travel and other marketing expenses and recruiting expenses. We expect that
sales and marketing expenses will increase in absolute dollars in the future as
we increase our direct sales efforts, expand our operations both domestically
and internationally, hire additional sales and marketing personnel, initiate
additional marketing programs and establish sales offices in new locations.

General and administrative expenses consist primarily of salaries and
related expenses for executive, finance, legal, facilities, human resources and
information technology personnel, recruiting expenses and professional fees. We
expect that general and administrative expenses will increase in absolute
dollars as we add personnel and incur additional costs related to the growth of
our business.

In connection with the granting of certain stock options and the issuance
of certain restricted shares during the period from inception through July 31,
1998, and the fiscal years ended July 31, 1999 and 2000, with exercise or sales
prices which were deemed to be below fair market value, we recorded deferred
stock compensation expense of approximately $184,000, $26.7 million and $102.3
million, respectively. These amounts are being amortized ratably over the
vesting periods of the applicable options or restricted stock, which are
typically five years, with 20% vesting on the first anniversary of the date of
grant and 5% vesting quarterly thereafter.

Results of Operations

The period from inception (February 17, 1998) through July 31, 1998 (fiscal
1998) and year ended July 31, 1999

Revenue

We began shipping the SN 6000 in May 1999 and recognized $11.3 million of
revenue for the year ended July 31, 1999. All revenue was derived from the
shipments of the SN 6000 product. For fiscal 1999, one customer accounted for
all of our revenue.

Cost of Revenue

Cost of revenue was $8.5 million, or 75% of revenue, for the year ended
July 31, 1999. We began shipping the SN 6000 in May 1999. Cost of revenue as a
percentage of revenue in fiscal 1999 were high due to the high cost of initial
start-up of production, including the increase in personnel and the low volume
of sales.

Research and Development Expenses

Research and development expenses were $714,000 and $18.0 million for
fiscal 1998 and 1999 and represented 67% and 63% of total operating expense for
fiscal 1998 and 1999, respectively. The increase in expenses was primarily due
to increased costs associated with a significant increase in personnel and
personnel-related expenses, an increase in non-recurring engineering costs and
an increase in prototype expenses for the design and development of the SN 3000,
SN 6000, SN 8000 and SN 16000 products.

Sales and Marketing Expenses

Sales and marketing expenses were $92,000 for fiscal 1998 and $4.1 million
for fiscal 1999 and represented 9% and 14% of total operating expenses in fiscal
1998 and 1999, respectively. The increase in expenses reflects the hiring of
additional sales and marketing personnel, sales based commissions and marketing
program costs, including web development, trade shows and product launch
activities.

General and Administrative Expenses

General and administrative expenses were $247,000 for fiscal 1998 and $3.1
million for fiscal 1999 and represented 23% and 11% of total operating expenses
in fiscal 1998 and 1999, respectively. The increase in expenses reflects the
hiring of additional general and administrative personnel and expenses necessary
to support and scale our operations.

Amortization of Stock Compensation

Amortization of stock compensation expense was $5,000 and $3.6 million for
fiscal 1998 and fiscal 1999, respectively. Amortization of stock compensation
expense resulted from the granting of stock options and restricted shares with
the exercise or sales prices below the deemed fair value of our common stock on
the date of grant. Additionally, in fiscal 1999, we incurred $2.2 million of
compensation expense associated with the grant of options to non-employees and
members of our advisory boards.

Interest Income, Net

Interest income, net was $108,000 and $850,000 for fiscal 1998 and fiscal
1999, respectively. Interest income consists of interest earned on our cash
balances and marketable securities and interest expense associated with our
equipment note payable. The increase in interest income reflects higher invested
balances in fiscal 1999, offset by interest payments on our equipment note
payable in fiscal 1999.

Fiscal years ended July 31, 1999 and 2000

Revenue

Revenues increased $186.8 million or 1,649% from $11.3 million for fiscal
1999 to $198.1 million for fiscal 2000. The increase in revenues is primarily
due to increased sales of our products and the broadening of our product
offerings including the SN8000 and SN16000. One customer accounted for 100% and
92% of our revenues for fiscal 1999 and 2000, respectively.

Cost of Revenue

Cost of revenue increased $96.5 million from $8.5 million for fiscal 1999
to $105.0 million for fiscal 2000. The increase in cost of revenue is primarily
related to increased revenue since we began shipping products in May 1999, as
well as headcount increases in our manufacturing overhead and customer service
organizations, warranty and other period costs. Gross profits as a percentage of
revenue were 25% and 47% for fiscal 1999 and 2000, respectively. The increase in
gross profit from fiscal 1999 to fiscal 2000 was largely attributable to higher
volume of product shipments.

Research and Development Expenses

Research and development expenses increased $53.9 million from $18.0
million for fiscal 1999 to $71.9 million for fiscal 2000. The increase in
expenses was primarily due to increased costs associated with a significant
increase in personnel and personnel-related expenses, increases in non-recurring
engineering costs and increases in prototype expenses for the design and
development of new products as well as enhancements to existing products.
Research and development is essential to our future success, and we expect the
dollar amounts of research and development expenses will increase in future
periods to support the continued development of our intelligent optical
transport and optical switching products as well as new or complementary
technologies.

Sales and Marketing Expenses

Sales and marketing expenses increased $26.6 million from $4.1 million for
fiscal 1999 to $30.7 million for fiscal 2000. The increase in expenses reflect
the hiring of additional sales and marketing personnel, sales based commissions,
additional office space both domestically and internationally and marketing
program costs, including web development, trade shows and new product launch
activities. We intend to continue to expand our domestic and international sales
force and marketing efforts, and as a result, expect that the dollar amounts of
sales and marketing expenses will increase in future periods.

General and Administrative Expenses

General and administrative expenses increased $6.8 million from $3.1
million for fiscal 1999 to $9.8 million for fiscal 2000. The increase in
expenses reflect the hiring of additional general and administrative personnel
and expenses necessary to support increased levels of business activities. We
expect that the dollar amounts of general and administrative expenses will
increase in future periods as a result of expansion of business activity and
related expenses to support Sycamore's operations.

Amortization of Stock Compensation

Amortization of stock compensation expense increased $17.4 million from
$3.6 million for fiscal 1999 to $21.1 million for fiscal 2000. Amounts for
fiscal 1999 and 2000 include $2.2 million and $6.2 million of compensation
expense associated with the grant of options to purchase common stock to non-
employees, respectively. Amortization of stock compensation expense primarily
resulted from the granting of stock options and restricted shares with exercise
or sale prices which were deemed to be below fair market value. Amortization of
stock compensation relating to these grants is expected to affect our reported
results of operations through the first quarter of fiscal 2005.

Interest Income, Net

Interest income, net increased $40.9 million from $850,000 for fiscal 1999
to $41.7 million for fiscal 2000. The increase in interest income primarily
reflects the earned income from the invested proceeds of our two public
offerings within fiscal year 2000.

Provision for Income Taxes

We provided income taxes of $745,000 for fiscal 2000. The provision for
fiscal 2000 differed from the expected statutory provision of $495,000 due to
non-deductible stock compensation, offset by the utilization of net operating
loss carryforwards and tax credits. During fiscal 2000, we reversed our
valuation allowance related to deferred tax assets by $9.2 million as the
realization of such assets became probable.We did not provide for income taxes
in fiscal 1999 due to the loss from operations and the uncertainty of the
realization of deferred tax assets.

Liquidity and Capital Resources

Prior to our initial public offering, which we completed in October 1999,
we financed our operations primarily through private sales of our capital stock
totaling approximately $84.7 million and through borrowings on long-term debt
agreements for the purchase of capital equipment. In fiscal 2000, we completed
two public offerings, for which we sold 30.9 million shares of common stock and
generated net proceeds of $1.5 billion. We primarily invest excess funds in
investment grade short-term money market funds, commercial paper, government and
non-government marketable securities. As of July 31, 2000 we had $1.5 billion
in cash, cash equivalents and marketable securities.

Cash used by operating activities were $0.8 million and $32.9 million in
fiscal 1998 and 1999, respectively, compared to cash provided by operating
activities of $34.4 million in fiscal 2000. The increase in cash provided by
operating activities in fiscal 2000 compared to fiscal 1999 reflects increased
deferred revenue, accounts payable, accrued expenses and the net income adjusted
for certain non-cash charges for amortization of stock compensation and
depreciation, partially offset by increased inventory purchases and accounts
receivable.

Cash used in investing activities was $3.8 million, $12.0 million and $1.1
billion for the years ended July 31, 1998, 1999 and fiscal 2000, respectively.
The increase in net cash used in investing activities in fiscal 2000 reflects
the net investment of our public offerings proceeds into marketable securities
and increased purchases of property and equipment, primarily for computers and
test equipment for our development and manufacturing activities.

Cash provided by financing activities was $6.1 million, $84.2 million and
$1.5 billion for the years ended July 31, 1998, 1999 and fiscal 2000,
respectively. The increase in cash provided by financing activities in fiscal
2000 is primarily due to net proceeds raised through our public offerings and
the exercise of stock options.

Increasingly, as a result of the financial demands of major network
deployments, service providers are looking to their suppliers for financing
assistance. From time to time we may provide or commit to extend credit or
credit support to our customers as we consider appropriate in the course of our
business, considering our limited resources. This financing may include
extending credit to customers or guaranteeing the indebtedness of customers to
third parties. Depending upon market conditions, we may seek to factor these
arrangements to financial institutions and investors to free up our capital and
reduce the amount of our commitments for such arrangements. Our ability to
provide customer financing is limited and depends upon a number of factors,
including our capital structure and level of our available credit and our
ability to factor commitments. Any extension of financing to our customers will
limit the capital that we have available for other uses.

Although we believe that our current cash balances will be sufficient to
fund our operations for at least the next 12 months, there can be no assurance
that we will not require additional financing within this time frame or that
such additional funding, if needed, will be available on terms acceptable to us
or at all.

Year 2000 Computer Systems Compliance

To date, the results of our year 2000 readiness plan indicate that our
assessment, improvement and testing program succeeded in providing us with a
smooth transition to the year 2000. We have not experienced any significant year
2000 disruptions with our products, our internal information technology systems
or our major vendors. Based on our experience to date, we do not anticipate
incurring material expenses or experiencing any material operational disruption
related to the year 2000 transition. We will continue to monitor our mission
critical computer applications and those of our suppliers and vendors throughout
the year 2001 to ensure that any latent year 2000 matters that may arise are
addressed promptly.

Recent Accounting Pronouncements

In June 1998, the FASB issued Statement of Financial Accounting Standards
No.133, Accounting for Derivative Instruments and Hedging Activities (SFAS
No.133). This accounting standard, which is effective for all fiscal quarters of
fiscal years beginning after June 15, 2000, requires that all derivatives be
recognized as either assets or liabilities at estimated fair value. In June
2000, the FASB issued Statement of Financial Accounting Standards No. 138,
Accounting for Certain Derivative Instruments and Certain Hedging Activities, an
amendment of SFAS No. 133. This accounting standard amended the accounting and
reporting standards of SFAS No. 133 for certain derivative instruments and
hedging activities. The adoption of SFAS No. 133, as amended, is not expected to
have a material effect on the Company's financial position or results of
operations.

In December 1999, the SEC issued Staff Accounting Bulletin No. 101 ("SAB
101"), "Revenue Recognition in Financial Statements." SAB 101 summarizes the
SEC's view in applying generally accepted accounting principles to selected
revenue recognition issues. The application of the guidance in SAB 101 will be
required in our fourth quarter of fiscal year 2001. The effects of applying
this guidance, if any, will be reported as a cumulative effect adjustment
resulting from a change in accounting principle. The Company does not believe
that the adoption of SAB 101 will have a material impact on the Company's
financial position or results of operations.

Report of Independent Accountants

To the Stockholders and the Board of Directors of Sycamore Networks, Inc.:

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows present fairly, in all material respects, the financial position of
Sycamore Networks, Inc. and its subsidiaries at July 31, 2000 and 1999, and the
results of their operations and their cash flows for each of the two years in
the period ended July 31, 2000 and for the period from inception (February 17,
1998) to July 31, 1998 in conformity with accounting principles generally
accepted in the United States of America. These consolidated financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

As described in Note 2, on September 7, 2000, Sycamore Networks, Inc. merged
with Sirocco Systems, Inc. in a transaction accounted for as a pooling of
interests.

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts
October 27, 2000

SYCAMORE NETWORKS, INC.

CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)

July 31, July 31,
1999 2000
-------- ----------

Assets
Current assets:
Cash and cash equivalents..................................................................... $ 40,869 $ 429,965
Marketable securities......................................................................... 7,020 710,398
Accounts receivable........................................................................... 11,410 43,407
Inventories................................................................................... 6,608 39,739
Prepaids and other current assets............................................................. 5,472 25,932
-------- ----------
Total current assets............................................................................ 71,379 1,249,441
Property and equipment, net..................................................................... 6,692 42,840
Marketable securities........................................................................... - 376,740
Other assets.................................................................................... 967 28,894
-------- ----------
Total assets.................................................................................... $ 79,038 $1,697,915
======== ==========

Liabilities, Redeemable Convertible Preferred Stock and Stockholders' Equity
Current liabilities:
Current portion of notes payable............................................................ $ 1,162 $ 622
Accounts payable............................................................................ 5,957 49,030
Accrued compensation........................................................................ 1,334 7,177
Accrued expenses.............................................................................. 1,856 7,529
Deferred revenue.............................................................................. 472 29,708
Other current liabilities..................................................................... 1,306 8,244
-------- ----------
Total current liabilities....................................................................... 12,087 102,310

Long-term liabilities........................................................................... 4,489 4,487

Commitments and contingencies (Note 5)

Redeemable convertible preferred stock.......................................................... 55,771 -

Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares authorized, none issued and outstanding at
July 31, 2000............................................................................ - -
Common stock, $.001 par value; 1,500,000,000 shares authorized at
July 31, 2000; 94,896,200 and 271,664,673 shares
issued and outstanding at July 31, 1999 and July 31, 2000, respectively.................. 95 272
Additional paid-in capital.................................................................... 58,398 1,720,565
Accumulated deficit........................................................................... (26,003) (21,675)
Notes receivable.............................................................................. (360) (262)
Deferred compensation......................................................................... (25,439) (112,816)
Accumulated other comprehensive income........................................................ - 5,034
-------- ----------
Total stockholders' equity...................................................................... 6,691 1,591,118
-------- ----------
Total liabilities, redeemable convertible preferred stock and stockholders' equity.............. $ 79,038 $1,697,915
======== ==========

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

SYCAMORE NETWORKS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)

Period from Inception
(February 17, 1999)
through Year Ended Year Ended
July 31, 1998 July 31, 1999 July 31, 2000
------------------------- ------------------- ------------------

Revenue ....................................... $ - $ 11,330 $198,137
Cost of revenue (exclusive of the non-cash
stock compensation expense of $0, $101 and
$1,433, respectively).......................... - 8,486 104,986
------- -------- --------
Gross profit .................................. - 2,844 93,151
Operating expenses:
Research and development (exclusive of the
non-cash stock compensation expense of $5,
$851 and $9,685, respectively)................. 714 17,979 71,903
Sales and marketing (exclusive of the
non-cash stock compensation expense of $0,
$346 and $7,014, respectively)................. 92 4,064 30,650
General and administrative (exclusive of the
non-cash stock compensation expense of $0,
$2,350 and $2,935, respectively)............... 247 3,056 9,824
Amortization of stock compensation.............. 5 3,648 21,067
------- -------- --------
Total operating expenses........... 1,058 28,747 133,444
------- -------- --------
Loss from operations............................ (1,058) (25,903) (40,293)
Interest income, net............................ 108 850 41,706
------- -------- --------
Income (loss) before income taxes............... (950) (25,053) 1,413
Income tax expense.............................. - - 745
------- -------- --------
Net income (loss)............................... $ (950) $(25,053) $ 668
======= ======== ========

Basic net income (loss) per share............... $ (0.17) $ (1.32) $ 0.00
Diluted net income (loss) per share............. $ (0.17) $ (1.32) $ 0.00
Shares used in per-share calculation -
basic...................................... 5,677 18,919 166,075
Shares used in per-share calculation -
diluted.................................... 5,677 18,919 233,909

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

SYCAMORE NETWORKS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(in thousands)

Accumulated Total
Additional Other Stockholders'
Common Stock paid-in Accumulated Notes Deferred Comprehensive Equity Comprehensive
Shares Amount Capital Deficit Receivable Compensation Income (Deficit) Income
------- ------ ------------ ----------- ---------- ------------ ------------- -------------- -------------
-----------------------------------------------------------------------------------------------------------

Issuance of common
stock............... 24,578 $ 25 $ 571 $ - $ - $ - $ - $ 596 $ -
Deferred
compensation expense
associated with
equity awards....... - - 184 - - (184) - - -
Amortization of
deferred
compensation........ - - - - - 5 - 5 -
Net loss............ - - - (950) - - - (950) -
------- ---- ------------ -------- ------ ---------- ------- ---------- ---------
Balance, July 31,
1998................ 24,578 25 755 (950) - (179) - (349) -
------- ---- ------------ -------- ------ ---------- ------- ---------- ---------

Exercise of stock
options............. 18,222 18 2,923 - - - - 2,941 -
Issuance of common
stock............... 52,096 52 25,812 - - - - 25,864 -
Deferred
compensation expense
associated with
equity awards....... - - 26,719 - - (26,719) - - -
Issuance of equity
awards in
exchange for
services............ - - 2,189 - - - - 2,189 -
Amortization of
deferred
compensation........ - - - - - 1,459 - 1,459 -
Issuance of common
stock in
exchange for notes
receivable.......... - - - - (360) - - (360) -
Net loss............ - - - (25,053) - - - (25,053) -
------- ---- ------------ -------- ------ ---------- ------- ---------- ---------
Balance, July 31,
1999................ 94,896 95 58,398 (26,003) (360) (25,439) - 6,691 -
------- ---- ------------ -------- ------ ---------- ------- ---------- ---------

Exercise of stock
options............. 2,495 2 4,289 - - - - 4,291 -
Issuance of common
stock,
Net................. 32,603 33 1,486,508 - - - - 1,486,541 -
Conversion of
preferred stock
into common
stock............... 141,850 142 55,629 - - - - 55,771 -
Deferred
compensation expense
associated with
equity awards....... - - 102,256 - - (102,256) - - -
Issuance of equity
awards in
exchange for
services............ - - 6,188 - - - - 6,188 -
Amortization of
deferred
compensation........ - - - - - 14,879 - 14,879 -
Issuance of common
stock in
exchange for notes
receivable.......... - - - - (100) - - (100) -
Repayment of notes
receivable.......... - - - - 198 - - 198 -
Purchase and
retirement of
treasury
shares.............. (180) - (28) - - - - (28) -
Tax benefit from
employee
stock plans......... - - 7,325 - - - - 7,325 -
Unrealized gain on
marketable
securities, net
of tax of
$2,480.............. - - - - - - 5,034 5,034 5,034
Net income.......... - - - 668 - - - 668 668
Adjustment to
conform
Sirocco year
end................. - - - 3,660 - - - 3,660 -
------- ---- ------------ -------- ------ ---------- ------- ---------- ---------
Comprehensive
income.............. $ 5,702
=========
Balance, July 31,
2000................ 271,664 $272 $ 1,720,565 $(21,675) $ (262) $ (112,816) $ 5,034 $1,591,118
======= ==== ============ ======== ====== ========== ======= ==========

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

SYCAMORE NETWORKS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

Period from
Inception
(February 17,
1998) Year Ended Year Ended
through July 31, July 31,
July 31, 1998 1999 2000
-------------- ---------- -----------

Cash flows from operating activities:
Net income (loss) .............................................. $ (950) $(25,053) $ 668
Adjustments to reconcile net income (loss) to net cash
provided by (used in).........................................
operating activities:
Depreciation and amortization ................................. 31 1,094 6,325
Amortization of stock compensation ............................ 5 3,648 21,067
Deferred income taxes ......................................... - - (11,569)
Tax benefit from employee stock plans ......................... - - 7,325
Changes in operating assets and liabilities:
Accounts receivable ........................................... - (11,410) (31,997)
Inventories ................................................... - (6,608) (33,131)
Prepaids and other current assets ............................. (93) (5,257) (15,017)
Deferred revenue .............................................. - 472 29,236
Accounts payable .............................................. 154 5,908 43,073
Accrued expenses and other liabilities ........................ 96 4,295 18,454
------- -------- -----------

Net cash provided by (used in) operating activities ............. $ (757) $(32,911) $ 34,434
------- -------- -----------

Cash flows from investing activities:
Purchases of property and equipment ........................... (634) (7,183) (42,473)
Purchases of marketable securities ............................ (3,082) (10,615) (1,378,008)
Maturities of marketable securities ........................... - 6,177 302,924
Increase in other assets ...................................... (102) (362) (18,471)
------- -------- -----------

Net cash used in investing activities ........................... $(3,818) $(11,983) $(1,136,028)
------- -------- -----------

Cash flows from financing activities:
Proceeds from issuance of redeemable convertible preferred
stock, net................................................... 5,496 50,150 -
Proceeds from issuance of common stock, net .................. 596 28,445 1,490,704
Payments received for notes receivable ....................... - - 198
Proceeds from notes payable .................................. - 5,684 1,761
Payments on notes payable .................................... - (33) (5,413)
------- -------- -----------

Net cash provided by financing activities ....................... $ 6,092 $ 84,246 $ 1,487,250
------- -------- -----------

Net increase in cash and cash equivalents ....................... 1,517 39,352 385,656
Adjustment to conform fiscal year of Sirocco...................... - - 3,440
Cash and cash equivalents, beginning of period .................. - 1,517 40,869
------- -------- -----------

Cash and cash equivalents, end of period ........................ $ 1,517 $ 40,869 $ 429,965
======= ======== ===========

Supplemental cash flow information:
Cash paid for interest ........................................ $ - $ 186 $ 216
Cash paid for income taxes .................................... - - 3,764
Supplementary non cash activity:
Common stock note receivable .................................. 125 - -
Issuance of common stock in exchange for notes receivable ..... - 360 100
Conversion of preferred stock into common Stock................. - - 55,771

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Nature of the Business:

Sycamore Networks, Inc. (the "Company" or "Sycamore") was incorporated in
Delaware on February 17, 1998. The Company develops and markets networking
products that enable service providers to quickly and cost effectively provide
bandwidth and create new high-speed data services. To date, the Company has
principally marketed its products in the United States and Europe.

The Company is subject to risks common to technology-based companies
including, but not limited to, the development of new technology, development of
markets and distribution channels, dependence on key personnel, and the ability
to obtain additional capital as needed to meet its product plans. The Company's
ultimate success is dependent upon its ability to successfully develop and
market its products.

2. Significant Accounting Policies:

Principles of Consolidation

The accompanying financial statements of the Company reflect the
application of certain significant accounting policies as described below. The
consolidated financial statements include the accounts of the Company and its
subsidiaries. All significant intercompany accounts and transactions have been
eliminated. Certain prior year amounts have been reclassified to be consistent
with current year presentation.

The Company completed a merger with Sirocco Systems, Inc. ("Sirocco"), a
U.S. company headquartered in Wallingford, Connecticut on September 7, 2000
where an aggregate of approximately 28.6 million shares of Sycamore common stock
were either exchanged for all outstanding shares of Sirocco or reserved for
common stock issuable under outstanding Sirocco stock options assumed by
Sycamore in the transaction. The transaction has been accounted for as a pooling
of interests under Accounting Principles Board Opinion No. 16. Accordingly, the
consolidated financial statements for all prior periods presented have been
restated to include the results of operations, financial position and cash flows
of Sirocco.

Since the fiscal years of Sycamore and Sirocco differ, the historical periods
combined giving effect to the merger are as follows:

Sycamore Sirocco
- -------- -------

Fiscal year ended July 31, 1998 Fiscal year ended December 31, 1998
Fiscal year ended July 31, 1999 Fiscal year ended December 31, 1999
Fiscal year ended July 31, 2000 Fiscal year ended July 31, 2000

The fiscal year ended July 31, 2000 include five months of Sirocco's
financial results which are also recorded in the fiscal year ended December 31,
1999. Sirocco's net losses for these five months were $3,660,000 which have
been recorded as an adjustment to accumulated deficit. There were no
intercompany transactions requiring elimination in any period presented.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table shows the separate historical results of Sycamore and
Sirocco for the periods prior to the consummation of the merger of the two
entities.

Period from
Inception
(February 17,
1998)
through Year Ended Year Ended
July 31, 1998 July 31, 1999 July 31, 2000
---------------- -------------- --------------

Revenues:

Sycamore.......................... $ - $ 11,330 $198,137
Sirocco........................... - - -
----- -------- --------
Consolidated revenues................. $ - $ 11,330 $198,137
----- -------- --------
Net income (loss):
Sycamore......................... $(693) $(19,490) $ 20,399
Sirocco.......................... (257) (5,563) (19,731)
----- -------- --------
Consolidated net income (loss)....... $(950) $(25,053) $ 668
===== ======== ========

Cash Equivalents and Marketable Securities

Cash equivalents are short-term, highly liquid investments with original
maturity dates of three months or less at the date of acquisition. Cash
equivalents are carried at cost, which approximates fair market value. The
Company's marketable securities are classified as available-for-sale and are
recorded at fair value with any unrealized gain or loss recorded as an element
of stockholders' equity. The fair value of marketable securities was determined
based on quoted market prices at the reporting date for those instruments. As
of July 31, 1999, the fair value of marketable securities, which were comprised
of commercial paper and certificate of deposits, approximated amortized cost.
As of July 31, 2000, marketable securities consisted of (in thousands):

Amortized Cost Fair Market Value Unrealized Gain/(Loss)
-------------- ----------------- ----------------------

Certificate of deposits....... $ 109,220 $ 108,980 $ (240)
Commercial paper.............. 651,839 650,517 (1,322)
Common stock.................. 2,500 11,322 8,822
Government securities......... 316,065 316,319 254
---------- ---------- -------
Total......................... $1,079,624 $1,087,138 $ 7,514
========== ========== =======

The Company also has certain investments in non-publicly traded companies
for the promotion of business and strategic objectives. These investments are
included in "Other Assets" in the Company's balance sheet and are generally
carried at cost. The Company monitors these investments for impairment and makes
appropriate reductions in carrying values, if necessary.

Inventory

Inventories are stated at the lower of cost (first-in, first-out basis) or
market (net realizable value).

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Revenue Recognition

Revenue from product sales is recognized upon shipment provided that a
purchase order has been received or a contract has been executed, there are no
uncertainties regarding customer acceptance, the fee is fixed or determinable
and collectibility is deemed probable. If uncertainties regarding customer
acceptance exist, revenue is recognized when such uncertainties are resolved.
Revenue from technical support and maintenance contracts is deferred and
recognized ratably over the period of the related agreements. The Company
records a warranty liability for parts and labor on its products at the time of
revenue recognition. Warranty periods are generally three years from
installation date.

Property and Equipment

Property and equipment is stated at cost and depreciated over the estimated
useful lives of the assets using the straight-line method, based upon the
following asset lives:

Computer and telecommunications equipment.. 2 to 3 years
Computer software.......................... 2 to 3 years
Furniture and office equipment............. 5 years
Leasehold improvements..................... Shorter of lease term or
useful life of asset

The cost of significant additions and improvements is capitalized and
depreciated while expenditures for maintenance and repairs are charged to
expense as incurred. Upon retirement or sale, the cost and related accumulated
depreciation of the assets are removed from the accounts and any resulting gain
or loss is reflected in the determination of net income or loss.

Research and Development and Software Development Costs

The Company's products are highly technical in nature and require a large
and continuing research and development effort. All research and development
costs are expensed as incurred. Software development costs incurred prior to the
establishment of technological feasibility are charged to expense. Technological
feasibility is demonstrated by the completion of a working model. Software
development costs incurred subsequent to the establishment of technological
feasibility are capitalized until the product is available for general release
to customers. Amortization is based on the greater of (i) the ratio that current
gross revenue for a product bear to the total of current and anticipated future
gross revenue for that product or (ii) the straight-line method over remaining
estimated life of the product. To date, the period between achieving
technological feasibility and the general availability of the related products
has been short and software development costs qualifying for capitalization have
not been material. Accordingly, the Company has not capitalized any software
development costs.

Income Taxes

Income taxes are accounted for under the liability method. Under this
method, deferred tax assets and liabilities are recorded based on temporary
differences between the financial statement amounts and the tax bases of assets
and liabilities measured using enacted tax rates in effect for the year in which
the differences are expected to reverse. The Company periodically evaluates the
realizability of its net deferred tax assets and records a valuation allowance
if, based on the weight of available evidence, it is more likely than not that
some or all of the deferred tax assets will not be realized.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Use of Estimates

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the dates of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual results
could differ from these estimates.

Concentrations of Credit Risk and Significant Customer Information

Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash equivalents,
marketable securities and accounts receivable. The Company invests its excess
cash primarily in deposits with commercial banks and high-quality corporate
securities. For the years ended July 31, 1999 and 2000, one customer accounted
for 100% and 92% of the Company's revenue, respectively. The Company does not
require collateral for sales to customers.

Certain components and parts used in the Company's products are procured
from a single source. The Company obtains parts from one vendor only, even where
multiple sources are available, to maintain quality control and enhance working
relationships with suppliers. These purchases are made under existing contracts
or purchase orders. The failure of a supplier, including subcontractor, to
deliver on schedule could delay or interrupt the Company's delivery of products
and thereby adversely affect the Company's revenue and profits.

Other Comprehensive Income (Loss)

The Company reports comprehensive income (loss) in accordance with
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income." The comprehensive net loss for the period from inception (February 17,
1998) through July 31, 1998 and the year ended July 31, 1999 does not differ
from the reported net loss. The comprehensive net income for the year ended July
31, 2000 was $5.7 million.

Net Income (Loss) Per Share and Pro Forma Income (Loss) Per Share

Basic net income (loss) per share is computed by dividing the net income
(loss) for the period by the weighted average number of common shares
outstanding during the period less unvested restricted stock. Diluted net income
(loss) per share is computed by dividing the net income (loss) for the period by
the weighted average number of common and common equivalent shares outstanding
during the period, if dilutive. Common equivalent shares are composed of
unvested shares of restricted common stock and the incremental common shares
issuable upon the exercise of stock options and unvested restricted common
shares.

Pro forma net income (loss) per share for the period from inception
(February 17, 1998) through July 31, 1998 and the years ended July 31, 1999 and
2000 is computed using the weighted average number of common shares outstanding,
including the pro forma effects of the automatic conversion of the Company's
Series A, B, C and D redeemable convertible preferred stock into shares of the
Company's common stock effective upon the closing of the Company's initial
public offering as if such conversion occurred at the date of original issuance.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

All share and per share data presented reflects two three-for-one stock splits
effected in August 1999 and February 2000.The following table sets forth the
computation of basic and diluted loss per share:

Period from Inception
(February 17, 1998)
through Year Ended Year Ended
July 31, 1998 July 31, 1999 July 31, 2000
---------------------- ------------- -------------
(in thousands, except per share data)
Numerator:

Net income (loss).......................................... $ (950) $ (25,053) $ 668
Denominator
Historical:
Weighted-average shares of common stock outstanding...... 22,189 63,173 223,999
Weighted-average shares subject to repurchase............ (16,512) (44,254) (57,924)
-------- -------- --------
Shares used in per share calculation--basic................ 5,677 18,919 166,075
======== ======== ========
Weighted-average shares of common stock outstanding........ 5,677 18,919 223,999
Weighted-average shares of equivalents..................... - - 9,910
-------- -------- --------
Shares used in per share calculation--diluted.............. 5,677 18,919 233,909
======== ======== ========
Net income (loss) per share:
Basic.................................................... $ (0.17) $ (1.32) $ 0.00
======== ======== ========
Diluted.................................................. $ (0.17) $ (1.32) $ 0.00
======== ======== ========
Denominator
Pro Forma:
Historical weighted-average shares of common stock
outstanding--basic................................... 5,677 18,919 166,075
Weighted average number of shares assumed upon conversion
of redeemable convertible preferred stock............ 52,515 105,111 32,344
-------- -------- --------
Shares used in per share calculation--pro forma basic...... 58,192 124,030 198,419
======== ======== ========
Weighted common stock equivalents........................ - - 67,834
-------- -------- --------
Shares used in per share calculation--pro forma diluted.... 58,192 124,030 266,253
======== ======== ========
Net income (loss) per share:
Basic.................................................... $ (0.02) $ (0.20) $ 0.00
======== ======== ========
Diluted.................................................. $ (0.02) $ (0.20) $ 0.00
======== ======== ========

Options to purchase 5,252,099 and 4,617,449 shares of common stock at
average exercise prices of $0.44 and $78.86 have not been included in the
computation of diluted net loss per share for the years ended July 31, 1999 and
2000, respectively, as their effect would have been anti-dilutive.

Stock Based Compensation

The Company accounts for stock-based employee compensation arrangements in
accordance with provisions of Accounting Principles Board Opinion No. 25,"
Accounting for Stock Issued to Employees," and related interpretations and
complies with the disclosure provisions of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation," ("SFAS No. 123").

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Segment Information

The Company has determined that it conducts its operations in one business
segment. For all periods presented, substantially all revenue has been derived
within the United States. Long lived assets are principally located in the
United States.

Recent Accounting Pronouncements

In December 1999, the SEC issued Staff Accounting Bulletin No. 101 ("SAB
101"), "Revenue Recognition in Financial Statements." SAB 101 summarizes the
SEC's view in applying generally accepted accounting principles to selected
revenue recognition issues. The application of the guidance in SAB 101 will be
required in the Company's fourth quarter of fiscal year 2001. The effects of
applying this guidance, if any, will be reported as a cumulative effect
adjustment resulting from a change in accounting principle. The Company does
not believe the adoption of SAB 101 will have a material impact on the Company's
financial position or results of operations.

3. Inventory

Inventory consisted of the following at July 31, 1999 and 2000 (in
thousands):

1999 2000
------ -------

Raw materials............................. $2,164 $14,340
Work in process........................... 3,026 3,685
Finished goods............................ 1,418 21,714
------ -------
$6,608 $39,739
====== =======

4. Property and Equipment

Property and equipment consisted of the following at July 31, 1999 and 2000
(in thousands):

1999 2000
------ -------
Computer software and equipment................. $ 6,815 $46,247
Furniture and office equipment.................. 292 1,657
Leasehold improvements.......................... 710 2,386
------- -------
7,817 50,290
Less accumulated depreciation and amortization.. (1,125) (7,450)
------- -------
$ 6,692 $42,840
======= =======

Depreciation and amortization expense was $31,000, $1.1 million and $6.3
million for the period from inception (February 17, 1998) through July 31, 1998,
and for the years ended July 31, 1999 and 2000, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5. Commitments and Contingencies:

Operating Leases

Rent expense under operating leases was $37,750, $372,773 and $2.0
million for the period from inception (February 17, 1998) through July 31, 1998,
and for the years ended July 31, 1999 and 2000, respectively. At July 31, 2000
future minimum lease payments under all non-cancelable operating leases are as
follows (in thousands):

2001.................................................... $ 3,088
2002.................................................... 2,881
2003.................................................... 2,681
2004.................................................... 2,676
2005.................................................... 1,532
2006.................................................... 1,161
2007.................................................... 967
-------
Total future minimum lease payments..................... $14,986
=======

Letter of Credit

Included in prepaid expenses and other current assets at July 31, 1999 is
a $4 million U.S. Government security which collateralizes a stand-by letter of
credit used for inventory purchases made by a third party manufacturer on behalf
of the Company. The letter of credit was irrevocable and expired in October
1999.

Notes Payable

In August 1998 and April 1999, the Company entered into equipment loan
agreements with a bank. Under the loan agreements, the Company could borrow up
to $6.0 million at an interest rate of prime plus 0.5%, for the purpose of
acquisition of equipment. In October 1999, the Company paid off all outstanding
debt from the proceeds of the initial public offering.

In May 1999, the Company entered into a $500,000 revolving line of credit
financing agreement for equipment purchases. The line of credit allowed for
draws through June 2000 for equipment purchases, then converts into a term loan
payable in equal monthly installments through May 2003. Interest is computed
based on the average daily balance outstanding, at a per annum rate of 0.5%
above the prime rate. All assets of the Company have been pledged as collateral
and the agreement contains covenants and restrictions relating to asset
protection, financial condition, dividends, investments, and certain other
matters.

In January 2000, the Company refinanced its line of credit and increased
the amount available under the credit facility to $7.5 million, of which $2.5
million is available for equipment purchases and $5.0 million is available as a
working capital line. Additionally, draws on this refinanced loan are allowed
until the full amount of the loan is met or one year from commencement of this
agreement (January 7, 2000).

At July 31, 1999 and July 31, 2000, $500,000 and $1,778,800 were
outstanding under the line of credit, respectively, and the stated interest
rates were 9% and 10%, respectively. In September 2000, the Company paid off all
outstanding amounts under the line of credit.

6. Income Tax

The Company did not provide for taxes in fiscal 1998 and 1999 as there was
no taxable income. Substantially all of the income before income taxes as shown
in the Consolidated Statement of Operations for the year ended July 31, 2000 is
derived in the United States.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The provision (benefit) for income taxes consists of the following (in
thousands):

July 31,
2000
--------
Current: Federal......................... $ 12,375
State.......................... 2,419
--------
14,794

Deferred: Federal......................... $(11,052)
State.......................... (2,997)
--------
(14,049)
--------
Total provision for income taxes............... $ 745
========

A reconciliation between the statutory federal income tax and the Company's
effective tax is as follows (in thousands):

July 31,
2000
-------
Statutory federal income tax ............................... $ 495
State taxes, net of federal benefit......................... 140
Non-deductible stock compensation........................... 7,362
Utilization of net operating loss and credit carryfowards... (7,639)
Research and development tax credits........................ (703)
Other....................................................... 1,090
-------
$ 745
=======

The significant components of the deferred tax assets and liabilities as of July
31, 1999 and 2000 are as follows (in thousands):

1999 2000
------- -------
Assets:
Inventory.............................. $ - $ 1,560
Non deductible accruals................ - 2,251
Stock compensation..................... - 787
Net operating loss and
credit carryforwards............. 8,760 10,185
Other.................................. 678 385
------- -------
Total deferred tax assets......... 9,438 15,168

Liabilities:
Depreciation........................... (218) (1,119)
Other................................. - (2,480)
------- -------
Total deferred tax liabilities... (218) (3,599)
------- -------

Net deferred tax asset........... 9,220 11,569
Valuation allowance.............. (9,220) -
------- -------
$ - $11,569
======= =======

During the year ended July 31, 2000, the Company reversed its valuation
allowance related to its 1999 deferred tax asset of $9.2 million, as the
realization of such assets became probable. At July 31, 2000, the Company has
available federal net operating loss carryfowards of $21.5 million and state net
operating loss carryfowards of $40.8 million available to offset future taxable
income which expire in varying amounts beginning in 2019 and 2004, respectively.
The income tax provision does not reflect certain additional tax savings
resulting from deductions associated with the Company's stock option plans.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7. Redeemable Preferred Stock

The Company's Board authorized 15,792,201 shares of Series A, Series B,
Series C and Series D convertible preferred stock at $.01 par value. Issuances
were as follows:

In February 1998, the Company authorized 6,380,000 shares of Series A
preferred stock. In February 1998 and April 1998, the Company sold 5,500,000 and
549,450 shares, respectively of Series A at a price of $.91 per share and
received proceeds of approximately $5,505,000. In July 1998, the Company issued
137,362 shares of Series A and received proceeds of approximately $125,000 in
October 1998. In October 1998, the Company sold 2,775,000 shares of Series A at
a price of $.91 per share and received proceeds of approximately $2,525,250.

In December 1998, the Company authorized 3,625,000 shares of Series B
$.01 par value. In December 1998 and February 1999, the Company sold 3,607,062
shares of Series B at a price of $3.50 per share and received proceeds of
approximately $12,625,000.

In February 1999, the Company authorized 2,500,000 shares of Series C $.01
par value. In March 1999, the Company sold approximately 2,500,000 shares of
Series C at a price of $8.00 per share and received proceeds of approximately
$20,000,000.

In July 1999, the Company authorized 692,201 shares of Series D $.01 par
value. In July 1999, the Company sold 692,201 shares of Series D at a price of
$21.67 per share and received proceeds of approximately $15,000,000.

All share of redeemable convertible preferred stock converted into
141,849,675 shares of common stock at the time of our initial public offering.

The terms of Series A, Series B, Series C and Series D redeemable
convertible preferred stock were as follows:

Conversion

Each share of Series A, Series B, Series C and Series D may be converted
into three shares of common stock at any time at the option of the holder,
subject to adjustment for certain events such as a stock split, stock dividend,
or stock issuance. Upon the earlier of the closing of an initial public offering
of the Company's common stock at a price which equals or exceeds $3.22 per share
and results in proceeds of a least $10,000,000, or the date on which at least
10,000,000 shares of preferred stock have been converted to common stock, all
outstanding shares of preferred stock automatically convert into shares of
common stock.

Dividend and Voting Rights

When and if declared by the Company's Board, dividends on Series A, Series
B, Series C and Series D are payable in cash in preference and prior to any
payment of any dividend on common shares. The holders are entitled to the per
share amount of dividends or distributions declared for common stock, multiplied
by the number of shares of common stock into which the preferred stock is
convertible. The holders are entitled to vote on all matters and are entitled to
the number of votes equal to the number of common shares into which the Series
A, Series B, Series C and Series D, are convertible as of the date of record.

Liquidation Preference

In the event of any liquidation, dissolution, or winding up of the Company,
the holders of Series A, Series B, Series C and Series D are entitled to
receive, prior and in preference to any payment or distribution of any assets or
surplus funds of the Company to holders of the common shares, an amount for each
share of Series A, Series B, Series C and Series D held, equal to $.91, $3.50,
$8.00 and $21.67, respectively, plus any declared and unpaid dividends. The
liquidation preferences are subject to adjustment in the event of any stock
dividend, stock split, combination or other similar recapitalization.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Redemption

If the holders of at least a majority of Series A, Series B, Series C and
Series D preferred stock, at any time after February 26, 2004, so demand, the
Company will be required to redeem 33% of the shares outstanding, an additional
50% on February 26, 2005 and all shares remaining on February 26, 2006. The
redemption prices of each share of Series A, Series B, Series C and Series D are
$.91, $3.50, $8.00 and $21.67, respectively plus all declared and unpaid
dividends, if any.

The following table sets forth the redeemable convertible preferred stock
activity (in thousands):

Series A Series B Series C Series D Total
--------------- ---------------- ---------------- ---------------- ----------------
Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount
------ ------- ------ -------- ------ -------- ------ -------- ------ --------

Issuance--February 1998 5,500 $5,005 5,500 $ 5,005
Issuance--April 1998 550 500 550 500
Issuance--July 1998 137 116 137 116
----- ------ ------ -------

Balance July 31, 1998 6,187 5,621 6,187 5,621
----- ------ ------ -------

Issuance--October 1998 2,775 2,525 2,775 2,525
Issuance--December 1998 3,506 $12,270 3,506 12,270
Issuance--February 1999 101 355 101 355
Issuance--March 1999 2,500 $20,000 2,500 20,000
Issuance--July 1999 692 $15,000 692 15,000
----- ------ ----- ------- ------ -------- ------ -------- ------ -------

Balance July 31, 1999 8,962 $8,146 3,607 $12,625 2,500 $20,000 692 $15,000 15,761 $55,771
----- ------ ----- ------- ------ -------- ------ -------- ------ -------

8. Stockholders' Equity

Common Stock

The Company is authorized to issue up to 1.5 billion shares of its common
stock. The holders of the common stock are entitled to one vote for each share
held. The Board of Directors (the "Board") may declare dividends from legally
available funds, subject to any preferential dividend rights of any outstanding
preferred stock and restrictions under the Company's loan agreements. Holders
of the common stock are entitled to receive all assets available for
distribution on the dissolution or liquidation of the Company, subject to any
preferential rights of any outstanding preferred stock.

In October 1999, the Company completed its initial public offering ("IPO")
in which it sold 22,425,000 shares of common stock at a price to the public of
$12.67 per share. The net proceeds of the IPO, after deducting underwriting
discounts and other offering expenses, were approximately $263.0 million. Upon
the closing of the IPO, all redeemable convertible preferred Stock (Series A, B,
C and D) automatically converted to 141,849,675 shares of common stock.

In March 2000, the Company completed a follow-on public offering of
10,200,000 shares of common stock at $150.25 per share. Of the 10,200,000 shares
offered, 8,428,401 shares were sold by the Company and 1,771,599 shares were
sold by existing stockholders of the Company. The net proceeds of this offering,
to the Company, after deducting underwriting discounts and other expenses, were
approximately $1.2 billion.

The Company effected the following stock splits: 3-for-1 in August 1999
and 3-for-1 in February 2000. All common shares, common share options and per
share amounts in the accompanying financial statements have been adjusted to
reflect the stock splits.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Stock Incentive Plans

The Company has three main stock incentive plans: the 1998 Stock Incentive
Plan (the "1998 Plan"), the 1999 Stock Incentive Plan (the "1999 Plan") and the
Sirocco 1998 Stock Option Plan (the "Sirocco 1998 Plan") (collectively the
"Plans"). A total of 81,349,352 shares of common stock have been reserved for
issuance under the 1998, 1999 and the Sirocco 1998 Plans. Shares not yet issued
under the 1998 Stock Incentive Plan are available under the 1999 plan. The Plans
provide for the grant of incentive stock options, nonstatutory stock options,
restricted stock awards and other stock-based awards to officers, employees,
directors, consultants and advisors of the Company. No participant may receive
any award for more than 1,500,000 shares in any calendar year. Options may be
granted at an exercise price less than, equal to or greater than the fair market
value on the date of grant. The Board determines the term of each option, the
option exercise price, and the vesting terms. Stock options generally expire ten
years from the date of grant and vest over five years. In addition, certain
shares of common stock purchased and options granted automatically accelerate
upon a change in control.

All employees who have been granted options by the Company under the 1998
and 1999 Plans are eligible to elect immediate exercise of all such options.
However, shares obtained by employees who elect to exercise prior to the
original option vesting schedule are subject to the Company's right of
repurchase, at the option exercise price, in the event of termination. The
Company's repurchase rights lapse at the same rate as the shares would have
become exercisable under the original vesting schedule. As of July 31, 2000,
there were 14,509,767 shares related to immediate option exercises subject to
repurchase by the Company at prices ranging from $0.01 to $12.67.

The total amount of shares that may be issued under the 1999 Plan is the
remaining shares to be issued under the 1998 Stock Incentive Plan plus an annual
increase beginning August 1, 2000 of the lesser of 9,000,000 or 5% of the
outstanding shares on that date. As of July 31, 2000, there were 53,781,562
reserved for future issuance.

Restricted Stock

Restricted stock may be issued to employees, officers, directors,
consultants, and other advisors. Shares acquired pursuant to a restricted stock
agreement are subject to a right of repurchase by the Company which lapses as
the restricted stock vests. In the event of termination of services, the Company
has the right to repurchase unvested shares at the original issuance price. The
vesting period is generally five years. The Company issued 24,169,988 and
37,933,573 shares of restricted stock, of which 5,557,500 shares were issued
through the 1998 Stock Incentive Plan, for the period from inception (February
17, 1998) through July 31, 1998 and the year ended July 31, 1999, respectively.
The number of shares of restricted stock outstanding at July 31, 1999 and 2000
was 62,103,561 and 65,197,239, of which 51,881,165 and 36,361,988 were subject
to repurchase at their original issuance prices, respectively, ranging from
$0.001 to $0.41.

1999 Employee Stock Purchase Plan

In August 1999, the Board approved the Employee Stock Purchase Plan. A
total of 2,250,000 shares of common stock have been reserved for issuance under
this plan. Eligible employees may purchase common stock at a price equal to 85%
of the lower of the fair market value of the common stock at the beginning or
end of each six-month offering period. Participation is limited to 10% of an
employee's eligible compensation not to exceed amounts allowed by the Internal
Revenue Code. On August 1 of each year, commencing with August 1, 2000, the
aggregate number of common shares available for purchase during the life of the
Employee Stock Purchase Plan shall automatically be increased by the number of
common shares necessary to cause the number of common shares available for
purchase to be 2,250,000. As of July 31, 2000, 101,021 shares of common stock
had been issued for proceeds of $1.1 million and approximately 2,149,000 shares
are available for future issuance.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1999 Non-Employee Director Option Plan

In August 1999, the Board approved the 1999 Non-Employee Director Option
Plan. A total of 1,500,000 shares of common stock have been reserved for
issuance under this plan. As of August 1 of each year, commencing with August 1,
2000, the aggregate number of common shares available for the grant of options
under this plan shall automatically be increased by the number of common shares
necessary to cause the total number of common shares available for grant to be
1,500,000. Each director will be automatically granted an option to purchase
30,000 shares immediately following each annual meeting of stockholders. The
Company granted 270,000 options with a vesting period of three years, as of July
31, 2000.

Deferred Stock Compensation

In connection with the grant of certain stock options and restricted shares
to employees during the period from inception (February 17, 1998) to July 31,
1998, and the years ended July 31, 1999 and 2000, the Company recorded deferred
stock compensation of $184,000, $26,719,000, and $102,256,000, respectively,
representing the difference between the deemed fair market value of the common
stock on the date of grant and the exercise price. Compensation related to
options and restricted shares which vest over time was recorded as a component
of stockholders' equity (deficit) and is being amortized over the vesting
periods of the related options. During the period from inception (February 17,
1998) to July 31, 1998, and the years ended July 31, 1999 and 2000 and, the
Company recorded compensation expense relating to these options and restricted
shares totaling $5,000, $1,459,000, and $14,879,000, respectively.

Non-Employee Stock Compensation

During the year ended July 31, 1999, the Company granted 1,596,085 shares
of common stock awards which were fully vested by July 31, 1999 to non-employees
and recognized compensation expense of $2,189,000. During the year ended July
31, 2000, the Company granted 273,054 shares of common stock awards which were
fully vested by July 31, 2000 to non-employees and recognized compensation
expense of $6,188,000. The fair value of each stock option was estimated using
the Black-Scholes option-pricing model with the following assumptions for July
31, 1999 and 2000, respectively: a weighted-average risk free interest rates of
6.5% and 5.2%, a weighted-average expected option life of 3 and 4 years, no
dividend yield and a 60% and 85% volatility.

Valuation of Stock Awards

Had compensation cost of our stock awards been determined in accordance
with the provisions of SFAS No. 123, the historical net income (loss) and net
income (loss) per share would have been adjusted to the pro forma amounts
indicated below (in thousands, except per share amounts):

Period from
Inception
(February 17,1998)
to Year Ended Year Ended
July 31, 1998 July 31, 1999 July 31, 2000
------------------- ----------------- ------------------

As reported:
Net income (loss).................................. $ (950) $(25,053) $ 668
Basic net income (loss) per share.................. $ (0.17) $ (1.32) $ 0.00
Diluted net income (loss) per share................ $ (0.17) $ (1.32) $ 0.00
Pro forma:
Net loss........................................... $(1,064) $(26,894) $(97,374)
Basic and diluted net loss per share .............. $ (0.19) $ (1.42) $ (0.59)

Shares used in basic and diluted...................... 5,677 18,919 166,075

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The fair value of these stock awards at the date of grant was estimated using
the Black-Scholes model with the following assumptions:

Period from Inception
(February 17, 1998) Year Ended Year Ended
to July 31, 1998 July 31, 1999 July 31, 2000
--------------------- ------------- -------------

Risk free interest rate........... 5.4% 4.5% 6.5%
Dividend yield ................... 0% 0% 0%
Expected volatility............... 0% 0% 85%
Expected life .................... 4 years 5 years 5 years

The weighted average grant date fair value of stock awards granted during
the period from inception (February 17, 1998) to July 31, 1998, and the years
ended July 31, 1999 and 2000 and was $0.05, $0.35, and $41.88 per share,
respectively. The pro forma effect of applying SFAS No. 123 for prior years is
not necessarily representative of pro forma effect to be expected in future
years.

All stock option transactions issued under the stock plans are summarized
as follows:

Number of Weighted Average
Shares Exercise Price
----------- ----------------
Outstanding at July 31, 1998.... -- --
Options granted................. 23,473,499 $ .16
Options exercised............... (18,221,400) .22
-----------
Outstanding at July 31, 1999.... 5,252,099 $ 0.45
===========
Options granted................. 26,248,434 52.09
Options exercised............... (2,494,538) 1.72
Options cancelled............... (241,999) 66.13
-----------
Outstanding at July 31, 2000.... 28,763,996 $46.91
===========

The weighted average exercise price for options granted at fair value were
$0 and $97.97 for 1999 and 2000, respectively. The weighted average fair value
for options granted at fair value were $0 and $69.55 for 1999 and 2000,
respectively. The weighted average exercise price for options granted below fair
value were $.22 and $3.71 for 1999 and 2000, respectively. The weighted average
fair value of options granted below fair value were $.35 and $16.33 for 1999 and
2000, respectively.

The following table summarizes information about stock options outstanding
at July 31, 2000:

Options Outstanding Vested Options Exercisable
------------------------------------------------- ----------------------------
Weighted
Number of Average Weighted Weighted
Range of Shares Remaining Average Number Average
Exercise Prices Outstanding Contract Life Exercise Price Exercisable Exercise Price
- ----------------- ------------ ------------- -------------- ----------- --------------

$ 0.04 - $ 1.33 6,206,623 9.09 $ 0.64 293,725 $ 0.75
1.67 - 4.33 5,914,920 9.10 2.76 17,550 3.28
5.00 - 69.88 5,907,350 9.42 28.04 30,700 29.23
70.56 - 106.33 6,185,778 9.56 89.01 68,031 82.23
109.38 - 189.94 4,549,325 9.67 134.72 250 172.13
---------- -------
$ 0.04 - $189.94 28,763,996 9.35 $ 46.91 410,256 $ 16.60

Stockholder Notes Receivable

At July 31, 1999 and July 31, 2000, the Company held notes receivable in
the amount of $360,000 and $262,000, respectively, from stockholders in
consideration for the purchase of common stock. The notes are due

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

five years from the date of issuance and are collateralized by the underlying
common stock and, consequently, are reflected as a component of stockholders'
equity.

Common Stock Purchase Option

In March 1999, the Company signed a definitive Purchase and License
Agreement (the "Agreement") with a customer to provide certain Company products.
Under the terms of the Agreement, the customer also had the right to purchase
shares (based upon set criteria in the contract) of the Company's common stock
in the Company's IPO of shares at the IPO price. The customer purchased 600,000
shares at $12.67 per share in October 1999.

9. Preferred Stock

In August 1999, the shareholders of the Company approved amendments to the
Company's Articles of Incorporation to authorize the issuance of 5,000,000
shares of $.01 par value undesignated preferred stock that may be issued by the
Board from time to time in one or more series without stockholder approval.
This amendment was effective upon the closing of the Company's IPO.

10. Employee Benefit Plan:

The Company sponsors a defined contribution plan covering substantially
all of its employees which is designed to be qualified under Section 401(k) of
the Internal Revenue Code. Eligible employees are permitted to contribute to the
401(k) plan through payroll deductions within statutory and plan limits. To
date, the Company has made no contributions to the plan.

11. Quarterly Consolidated Results of Operations (Unaudited)

The tables below set forth the consolidated operating results for each of
the eight quarters in the period ended July 31, 1999 and 2000. The results for
any quarter are not necessarily indicative of results for any future period.

Consolidated Statement of Operations Data: October 29, January 30, May 1, July 31,
1998 1999 1999 1999
------------ ------------ ----------- ----------

Revenue ................................................ $ - $ - $ - $ 11,330
Gross profit (1)........................................ (24) (215) (934) 4,017
------- ------- ------- --------
Net loss................................................ $(1,710) $(3,996) $(7,703) $(11,644)
======= ======= ======= ========
Basic and diluted net loss per share.................... $ (0.14) $ (0.22) $ (0.39) $ (0.47)
======= ======= ======= ========
(1)Exclusive of the non-cash compensation expense of ... $ 8 $ 13 $ 24 $ 56
======= ======= ======= ========

Consolidated Statement of Operations Data: October 30, January 29, April 29, July 31,
1999 2000 2000 2000
------------ ------------ ----------- ----------
Revenue................................................. $19,510 $29,049 $59,183 $ 90,395
Gross profit (1)........................................ 9,170 13,653 27,816 42,512
------- ------- ------- --------
Net income (loss)....................................... $(7,373) $(5,020) $ 5,670 $ 7,391
======= ======= ======= ========
Basic net income (loss) per share....................... $ (0.15) $ (0.03) $ 0.03 $ 0.03
======= ======= ======= ========
Diluted net income (loss) per share..................... $ (0.15) $ (0.03) $ 0.02 $ 0.03
======= ======= ======= ========
(1)Exclusive of the non-cash compensation expense of ... $ 262 $ 339 $ 372 $ 460
======= ======= ======= ========

12. SUBSEQUENT EVENTS (UNAUDITED)

In December 2000, the stockholders of the Company approved an increase in
the number of authorized shares of common stock of the Company from
1,500,000,000 to 2,500,000,000 and approved an amendment to the Company's 1999
Stock Incentive Plan to (a) increase the number of shares of common stock
reserved for issuance under the plan by 25,000,000 and (b) revise the automatic
annual share increase provision of the plan so that the number of shares of
Company common stock reserved for issuance under the plan will automatically
increase on the first day of each fiscal year of the Company by an amount equal
to the lesser of (i) 18,000,000 shares, (ii) five percent (5%) of the number of
shares of Company common stock outstanding on the first day of each fiscal year
of the Company, or (iii) such lesser number of shares as determined by the
Company's Board of Directors.

In response to changing market conditions and a slowdown in capital
expenditures by the telecommunications service providers, in the third quarter
of fiscal 2001, the Company recorded a business-restructuring charge of $165.8
million. The restructuring charge consisted of $4.1 million to cover termination
costs for reduction in workforce, $137.3 million related to inventory and assets
write-downs, and $24.4 million for facility consolidations and other exit costs.

SIGNATURE

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

Sycamore Networks, Inc.

/s/ Frances M. Jewels
- -----------------------------------
Frances M. Jewels
Chief Financial Officer
(Duly Authorized Officer and Principal
Financial and Accounting Officer)

Dated: May 16, 2001